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  • Partner Compensation reality

    September 2023 it was announced that three Kirland & Ellis partners would move to Paul Weiss. According to people close to the matter, the trio would each receive $20 million in annual compensation at their new firm. This is quite exceptional as today at Am Law 25 firms, only a handful of partners have comp in excess of $20 million. The news will undoubtedly leave a number of partners elsewhere in town feeling all at once very unhappy and under-rewarded. Modified lockstep For compensating its partners, most firms today have a system that includes elements of merit based compensation as well as seniority based. Some well-known firms with pure lockstep have introduced merit based differentiators in order to retain and attract star partners. What the modified lockstep looks like varies wildly. Most firms have adopted a set of – sometimes very detailed and complicated – rules for calculating each partner’s profit share. Others involve a compensation committee or have the managing partner decide. Compensation for yardstick Why is partner compensation such a hot topic in many law firms? Partners in business law firms invariably earn more than 99% of the population, so why not just be happy with it and focus on clients and family? One reason is that partner compensation is used as a yardstick for the success of the firm. Partners always compare PEP with other firms, seeing a close competitor have higher comp will trigger a heated debate on the firm’s strategy and sometimes results in star partners leaving. Also the opposite is true: a highly competitive partner compensation is a prerequisite for lateral hiring of rainmakers, which in turn could help the firm become even more successful. This is what’s happening at Paul Weiss. Which compensation model is best? Ideally in a firm, all partners are equally successful in the market and are happy to cooperate with each other. If the bandwidth between partners is narrow, there will be no need for merit based differentiation and lockstep will help avoid partners starting to compete with each other. Each partner will always act with the interest of the firm in mind. Unfortunately there is no ideal world in which each partner is equally successful and also partners are inclined to prioritize self-interest before firm-interest. This will even happen in lockstep firms as each partner is under pressure to meet his/her target. Partners start monopolizing client relationships and are trying to get files in which also other partners are active, to be administered under their name. Now the solidarity which underpins the lockstep is compromised, cracks will start to appear. Collaboration will suffer and star partners will demand action against slackers. One could also start from the other end assuming that self-interest is the norm and make the compensation fully merit based. This could even go as far as partners charging internally for helping out in another partner’s file. Such ‘eat what you kill’ compensation systems will allow for a very large bandwidth in partner performance, but provide no incentive for collaboration. Fully merit based systems also give young new partners a difficult start as in order to make an income they will have little alternative than working in other partners files at a reduced rate and without quickly growing a client base of their own. Since both lockstep and ‘eat what you kill’ have their problems, it comes as no surprise the hybrid modified lockstep has become the most popular. In reality the modified lockstep suffers from the same issues: collaboration remains an issue and the weak partners irritate the star partners. “There is no evidence to support that compensation impacts partner performance” Carrot and stick As stated, in our practice we have seen a great many different partner compensation models. Most of them have a few things in common: they favor a small group of partners and they aim to influence partner behavior. Let’s examen both in more detail. Mostly compensations systems favor the more senior partners with an established practice. One argument could be the firm must prevent such rainmakers to leave. While there certainly is some truth in that, it also creates problems, notably when it comes to succession. Also this group is typically also involved in the leadership of the firm whether it be formal or informal. Granting themselves the largest cut can in a way be self-serving. And I have not even mentioned ‘origination credits’, which also disproportionately favors this group. Over there years we have done multiple in depth analysis and never have we found any evidence that individual partner performance and behavior can be significantly influenced by compensation. Never have we seen a weak partner show better performance after his/her compensation was cut. Receiving less money will not transform a weak partner into a strong partner. This is similar for other aspects that are part of a partner compensation formula: rewarding collaboration hardly increases real world collaboration. Partners that feel comfortable collaborating will collaborate regardless and those that prefer to work on their own will continue to do so even it this means they will miss out on a small percentage of their compensation. As a rule of thumb: partner compensation is not the right tool to change the status quo. Only culture can do that. The bigger picture Partner compensation is one of those topics that we come across a lot when working with our clients. Many law firms spend disproportionate amounts of time discussing how to divide the profit among the partners. The problem I see is that having lengthy conversations on how to distribute profit does not make the firm as such more profitable. These discussions are just inward looking and a time and emotions consuming energy drain. We have found there are typically two triggers for discussing partner comp. The first is heavy lifters complaining about partners that seem to enjoy a free ride and don’t put in the effort. The other trigger is the wish to change partner behavior, typically this means stimulating collaboration. As mentioned before, there is no evidence that partner compensation changes partner performance. Taking away money from a weak partner will just legitimize their weakness. Giving more money to a top performer will only keep him/her happy for so long. We have looked in depth at lateral movements of partners across a number of markets. In some markets lateral movements are common in other markets they remain rare and are frowned upon. One thing partners that move firm have in common: the primary motif for moving is rarely money. Typically, they have lost confidence in their firm’s strategy or have developed cultural or interpersonal issues. A partner that likes the firm culture, gets along with other partners and feels supported, is unlikely to leave for more money. Using PEP as a yardstick for performance also has its flaws. Generally we at TGO Consulting prefer to look at profit margin, revenue per lawyer and a number of other indicators more relevant to a firm’s performance. Bottomline Law firms are well advised to have a permanent focus on performance and profitability on a firm level and not so much on an individual partner level. Partners should spend less time discussing internal matters and more time identifying and sharing business opportunities. Firms should invest in creating or maintain a result driven, inclusive, collaborative culture. Partner compensation should not disproportionally favor a small group and should be supportive for young partners who are still developing their practice. Any system that meets these criteria will do. Writing this article I noticed there is so much to cover when it comes to partner compensation, that it is impossible to squeeze it all in 1000 words. Potentially this is a good topic for my next book, what do you think?

  • Preferring Profits over People

    Above image generated by using Dall-E artificial intelligence Although vast amounts of students graduate each year from law schools and universities, the talent pool for top law firms remains limited. Most graduates have no interest in working in Big Law, and of those who do, a number does not meet the quality criteria. As a rule of thumb less than 10% of all law graduates falls within the Big Law target group for recruitment. It seems that with Gen-Z this number is declining. This means that in most jurisdictions, there is more demand than there are talented graduates entering the market. Hence the ‘war for talent’. Law firms go through great lengths trying to identify top talent early on and spending substantial budgets (including offering salaries up to $190.000) luring them to their firm. Look at the ‘Careers’ sections of the websites and one could be inclined to believe that joining a top-law firm equals working in paradise. There is just so much emphasis on individual career paths, mentoring, diversity, personal development and super interesting work, that it is easy to forget that in reality it is just hard work, like it was pointed out in a presentation that transpired from Paul Hastings: It is hard work Although the prevailing sentiment after publication of this slide was outrage and denial, I don’t see much wrong with it. Anyone pursuing a career at the top end of the legal market can only succeed by putting in a lot of effort. If you cannot stand the heat, get out of the kitchen. Having said that, this does not mean unfair and unhealthy working conditions. In February 2021 trainees at Goldman Sachs humbly requested management to be allowed to work slightly less than the about 100 working hours a week against an average of 5 hours of sleep: Fortunately, working conditions in law firms are nowhere near those at Goldman Sachs. However increasingly young lawyers are quitting the industry because of Uncaring Leaders, Unsustainable Performance Expectations and Lack of Career Development (McKinsey: Great Attrition, Great Attraction survey 2021) Generation Z Young lawyers entering the legal profession today are mostly born after 1997, the year that marks the beginning of Generation-Z. The first started during the Pandemic when there was hardly anyone in the office and at the same time workload was very high. Law firms, like other industries, seem to be confused and spooked by this new generation which is believed to have different priorities-in-life and no ‘old-school work ethos’. While it remains questionable if this is a fair characterization, many law firms struggle with how to ‘manage’ these young professionals. It is hard to count the huge number of reports, articles, conferences and workshops that have been devoted to Gen Z in the legal industry alone. This can probably be traced back to the perceived gap in the mindset and values of the partners – Baby Boomers and Generation X – and those of the new recruits. The former claim they had to work hard for their achievements, the latter were allegedly born with a silver spoon in their mount. Although this characterization is largely a caricature, Gen Z is different in at least one crucial aspect: young people resent being ‘just a cog in the billing machine’. For them the purpose of life is not helping the partners make millions. They are in it for themselves, not for the partners. Law firms are increasingly aware of this, hence the wordings on the career sections of their websites: “we value you as a person”, “we will invest in your personal growth and development” Preferring Profit over People During the Pandemic, profits soared across the legal industry. Demand was plentiful and costs were low. For most law firms 2020 and 2021 have been the best years on record. Last year, 2022, could not have been more different. The world entered in a global economic crisis. Inflation became high and money tight. At the same time costs substantially increased. All this impacted partner profits and that is where problems arise. Unlike other entrepreneurs and businesses, partners in law firms have for decades only experienced a steady growth in profit. To the extent that even slowing growth would lead to ‘panic’. A decrease in profit, in the minds of many partners, would be totally unacceptable. Now this is the reality for the first time. Welcome to the world I’d say. For a growing number of law firms, the prospect of slightly lower partner profits, compared to the year before - but still above 2019 - became unbearable. To ‘rescue’ the profits, law firms have started to layoff junior associates. The trend is to quietly make cuts through the review process. This year’s "aggressive" performance reviews* are resulting in an increasingly blurry line between layoffs and review-time cuts. On social media associates are buzzing with chatter about layoffs and cuts at many firms. No need explaining that for Gen Z social media carries more weight than law firms’ website ‘career’ pages. The Profit is in the People I have said it before and I will say it again: for a law firm people are the most important asset. The business of law is people’s business before anything else. No law firm can gain an advantage over the competition based on legal knowledge. It is the non-legal skills and attributes that make the difference. The law firm that is the best in attracting, retaining and developing talent is the one that is going to win. The knee jerk reaction to cull talent to save the profit might turn out to be a costly mistake. These firms might save some pennies on the short term, but they will suffer reputational damage for the years to come. There is a ‘war for talent’ and Gen Z does not want to be just a cog in the partners’ money machine. There is no better way to highlight that is ultimately what they are as by firing them at the first signs of headwind. Layoffs are short sighted and selfish. The same thing happened after the 2008 Banking Crisis and it became something those firms bitterly regretted. When the economy picked-up they found themselves understaffed and unable to attract new talent in a buoyant market. The difference is that at that time it were the Millennials, who tend to be more forgiving than Generation Z… Invest in talent development For commercial companies it is normal that revenue and profitability show variations over the years. Even Goldman Sachs has good years and bad years. Law firms partners must understand and accept that the legal industry cannot remain an exception and that sometimes a decline in profit is just a consequence of the economic reality. Like other entrepreneurs and businesses, law firm partners are well advised to focus on cumulative profit over the years. In today’s economy it is probably smarter to invest in talent, even though it impacts this year’s profit. Those law firms that retain their talent and invest in developing legal and non-legal skills will be tomorrow’s winners. Taken over a number of years these firms will have a better average profitability. TGO Consulting has developed a methodology that helps law firms with setting up a sustainable talent development program for all lawyers, juniors and partners alike. *Note: Structural periodical performance reviews are essential and should be standard practice at any law firm. The purpose of such reviews is to provide the associates with open, honest and constructive feedback, aimed to learn and improve. Feedback should never come as a surprise or ‘out of the blue’. Associates should get sufficient time and coaching.

  • ChatGPT in the legal industry

    There is a new hype: ChatGPT version 3.5. First launched 30 November 2022 this publicly available natural language processing tool immediately caught the attention of the media and the public. It allows to have high quality human like conversations with a chatbot, which I must admit is pretty cool. Up till then, conversations with chatbots were invariably cumbersome, frustrating and stupid. Natural Language Processing consists of two main elements: the language + the content. ChatGPT is impressively good when it comes to the language. The algorithm has been trained to predict which words are most likely to be used and in what order. The language and grammar of the tool could indeed be mistaken for real. This as such is a major technological achievement. The second element is the content. This is where things get a bit obscure. Even though ChatGPT responds like a human, unlike a real person it does not have any knowledge or understanding. ChatGPT sources its information on the internet, and that spells trouble. ChatGPT runs a high likelihood of producing bullshit in a very convincing and coherent manner. ChatGPT will always sound plausible, but could be totally wrong. So, while the Natural Language Processing part is groundbreaking, the content part is far from perfect. Training AI is not straightforward Algorithms need to be trained with vast amounts of data. The quality of these datasets will have a huge impact on the end product. It is tempting to use the internet as a source, but that invariably is a bad idea. In December 2022 Melissa Heikkilä (she/her) published an article in MIT Technology Review. She tried viral AI avatar app Lensa to make an avatar of herself. For her male colleagues at MIT the app generated realistic and flattering avatars —think astronauts, warriors, and electronic music album covers. However for Melissa, being a woman, Lensa created tons of nudes. Out of 100 avatars she generated, 16 were topless, and another 14 had her in extremely skimpy clothes and overtly sexualized poses. Only after she told the algorithm she was a male, Lensa produced flattering avatars like it had done for her colleagues. This is a great example of how the data used to train the algorithms affect the results later on. Lensa relies on a free-to-use machine learning model called Stable Diffusion, which was trained on billions of image-and-text combinations scraped from the internet. One just need to look at Instagram to recognize that women often place ‘sexy’ images of themselves. The internet is not a good source to train AI on. This is as true for Lensa as it is for ChatGPT (or any other tool). ChatGPT in the legal industry Lawyers use and process language a lot. Perhaps with the exception of writers, journalists and academics, no profession has language at the core like the legal profession. With that in mind the question arises if ChatGPT will disrupt the legal industry? Personally I think it will not. Let me explain: 1. Where will the content come from? Obviously lawyers at a law firm will not use Google as a source, so in order to use ChatGTP or a derivative, law firms need to feed it with their own datasets. These datasets need to be clean, meaning that every bit of data needs to be vetted before. Data must also be updated on a permanent basis. For many law firms this will be a hurdle they cannot take. 2. Will there be a return on the investment? Purchasing the AI tool and preparing the dataset will require a substantial investment. Further licensing fees and maintenance will add to the cost. Such an investment will only make sense if it will help the law firm to make more money. The question is will it? In this context I would like to point you towards an analysis by Lexoo which was recently shared by its CEO Daniel van Binsbergen. Lexoo analyzed how AI and Machine Learning could speed up contact review. It started with the assumption that such tools could save 50% of a lawyer’s time. It turned out to be 5% in reality! So AI/Machine learning would have very little real-world impact. Side note: this is why inhouse teams that have adopted machine learning have not magically freed up 50% of their time… Even in the unlikely event that the employment of ChatGPT would lead to substantial time savings for lawyers, this still wouldn’t mean there is a business model. If lawyers spend less billable time, this needs to be compensated for by higher rates or more work volume, otherwise it will be a lossmaking operation. The third option would be to employ fewer lawyers, but that would assume the ‘idle time’ could be pinpointed to one or more individuals, which will not be the case. 3. The Technology Paradox Once technology is introduced to simplify our lives, we humans get less experience. Today we have to drive our own cars. In the future there might be fully autonomous cars that do the driving for us. This will make us less experienced as drivers, so when something goes wrong, it will go dramatically wrong because the human lacks the experience to intervene. The legal profession runs the same risk. The present generation of lawyers already has the experience and will probably save little or no time using a ChatGPT based tool. The future generation of lawyers using such a tool will have less experience and will likely struggle to assess the results and identify issues, omissions or mistakes produced by the tool. Parting Shot While lawyers and the legal industry are well advised to remain open to change and new (technological) developments – maybe even more so than today – technology by itself is highly unlikely to fundamentally disrupt the legal industry. Its impact will always be marginal. The legal profession is first and foremost a human profession. Law firms are well advised to prioritize training and development opportunities for lawyers and partners over investment in technology. We do not need faster lawyers, we need ‘better humans’.

  • Are You Listening?

    Recently I had the privilege of participating in an event that gathered over a hundred law firm leaders from Europe and beyond. Over speakers dinner, the night before, and the event itself I caught up with many old friends and made a number of great new acquaintances. It is a stark reminder of the importance and value of meeting in person! For the closing keynote, the organizers had managed to engage a well known and highly regarded corporate leadership expert, who had just served a term leading an esteemed global executive search partnership. One will be hard pressed to find more knowledge and experience as it comes to what it takes to be a successful corporate leader in 2023 and beyond. As you know back in 2020, based on research and experience, TGO Consulting defined 7 Core Competences© needed to excel at the top of the legal market. These seven dimensions are: 1. Understanding the Business Keeping up with economic news and business-related news on a daily basis. Showing an interest in and understanding of how companies make money. Having an understanding of how lawyers could help companies to be more profitable. 2. Creativity As a lawyer, being able to think out of the box. The ability to find multiple solutions for a problem. Regularly teaming up with others to get new insights. 3. Practice Development Ability to build a good reputation and develop a relevant business network. Being proactive in maintaining relationships with clients, potential clients and market influencers. Identifying opportunities in an early stage and acting upon that. 4. Practice Management Being able to manage multiple complex matters at the same time without chaos or stress. Being able to communicate timely, clearly and specifically when cooperating with others. Planning capability: being able to realistically estimate how long tasks will take and knowing inter-dependencies between certain tasks. 5. Emotional Intelligence Having a well-developed understanding of other peoples’ drivers, values and emotions. Effective communication of one’s emotions. The ability to build rapport with other people. 6. Integrity Recognizing the importance of permanently calibrating one’s own moral compass. Openly and pro-actively discussing moral dilemmas with others. Putting decency before profit or personal ‘temptations’. 7. Presence/Confidence Not being guided by the fear of failing or being made fun of. Easily mingling with new people in unfamiliar situations. Being self-assured and not immediately giving in when faced with opposition. The keynote speaker stressed the importance of 'listening' and in one-on-one discussions over dinner and during coffee breaks some argued that ‘the willingness and ability to listen’ perhaps should be added to the 7-Core Dimensions©. So, could ‘listening’ be the 8th dimension? It is complicated and all but straight forward, but on balance I do not think ‘listening’ should be considered one of the core dimensions. Please allow me to explain: Not Listening is Dangerous and Foolish I assume that all of you are familiar with the saying “the writing on the wall”. It’s origins trace back to the book of Daniel in the Christian bible. It depicts clear signs that something (bad) is about to happen. Yet in today’s world all too often corporate (and government) leaders are completely missing the writing on the wall. For leaders not listening can be dangerous and foolish. As a leader, do you know what the associates are thinking? What about staff, the partners, the clients? Being leaders and lawyers, all too often we assume we know. We prefer to talk about generation Z, rather than with generation Z. Listening requires an open mind, a general interest and a healthy dose of curiosity. Does the CEO of the airline listen to its passengers? Are they aware that first class passengers expect unlimited free fast internet for the duration of the flight? Is the CEO of the bank aware how frustrating it is for clients being forced to have conversations with a ‘dumb’ chatbot and not a real person? Last week I read an interview with the CEO of one of the large oil majors who could not understand why brilliant young talent no longer wanted to pursue a career in Big Oil... Leaders that do not listen, will miss the writing on the wall Too Much Listening is a Bad Thing Now that you know that the ability and willingness to listen is crucial for any leader, I must caution that too much listening will be harmful. Confused? Bear with me: Quite often what you hear is ‘bullshit’ (excusez le mot). It was Henry Ford who said “If I had asked people what they wanted, they would have said faster horses.” There is no doubt in my mind that he was right. I have been involved in close to a hundred client surveys and client panels over the years, and consistently part of what was said was useless. In general it is wise to be extremely cautious and not take everything you hear too literally. Leaders must not only have the ability to listen, but also apply a healthy dose of common sense when doing so. You will be surprised how often so called experts have it wrong. When IBM unveiled the first computers, experts said that we would probably only ever need a handful of such machines in the world. When Steve Job introduced the iPhone, Microsoft CEO Steve Balmer was convinced that only very few consumers would want to use such a device. When a friend on mine, who owns a hugely profitable global business asked the banks to help finance the development of a new type of machinery, all banks refused as they did not see a future for such (massive) machine. My friend ended up financing out of his own pockets and now has an immensely profitable worldwide monopoly, being the only company with such a machine. Leaders must know when NOT to listen and swim against the current. Listening creates expectations. If you ask for input and opinions, people will expect that their views are taken into account when it comes to taking a decision. If it then turns out the decision is not in line with their opinion or advise, they will be disappointed and potentially angry. This happens when the government decides to build a nuclear reactor next to where you live. It also happens if you ask your lawyers about work from home while not having a fixed desk at the office in order to manage office space more efficiently and cost effectively. Without effort I could go on producing more arguments limiting the usefulness of listening. Having said that, remember that at the same time I fully and wholeheartedly subscribe to the importance of listening: you most certainly do not want to miss the writing on the wall! In the end, more important than listening itself, leaders must have the ability to act in the interest of the firm. That is why listening is not one of the core dimensions, but still an effective leader can not do without. Ultimately leadership is stewardship. Leaders have an unwritten obligation to leave the firm (or company) better than they found it. On this and other leadership topics, TGO Consulting offers bespoke workshops at our Off-Site Retreat in Sweden. If you are interested in growing as a leader, please inquire for available dates.

  • 2023 Fortune Telling

    This decade has been bumpy from the onset. First covid, then skyrocketing inflation upsetting the global economy. Not to mention the effects of extreme weather around the globe. It doesn’t look like things will change for the better anytime soon, unfortunately. While these events have induced a lot of misery for many, the legal industry has remained largely unaffected. Both 2020 and 2021 have been the best years on record. Lawyers that feared the sky would fall down when covid struck, could not have been more wrong. I, myself, was not on the side of doom back in 2020. On the contrary, I was convinced the legal industry could weather the storm and the economy would be buoyant once the covid wave was over. I still believe that would have happened if not for the Russian invasion in Ukraine that sent energy prices soaring and disrupted supply chains. Invariably when we move from one year to the next there is a tsunami of articles by reputable and non-reputable authors analyzing and predicting the future. I have read the analyses from the Economist, Bloomberg, the Financial Times and many others with great interest, but I don’t think reality will unfold as predicted. Who could ever have foreseen that China would abandon their extremely strict zero-covid policy from one day to the other? Legal Industry getting nervous Law firms are looking back at 2020 and 2021 as the best years in their existence. At least from a financial perspective. Profits grew double digits as there was high demand and costs were down. Extremely high workload, causing stress and anxiety, were notable side effects. When demand cooled down a bit in Q2 of 2022, initially this was widely welcomed. Providing a bit of relief and time to breathe. When interest rates rapidly started to rise and it became clear the economy would enter into a recession, relief turned into panic. Once again law firms fear the sky will fall down on them and I see firms that translate their nervousness into cost cutting and lay-offs. We all know that if one firm starts with lay-offs, others will follow. In that aspect law firms are like lemmings. There is this sense that the other firm will somehow be smarter and your firm should follow in order not to fall behind. I beg to differ. Looking at real world data, how bad is it? Lets have a closer look at what is the actual situation for the legal industry. Expenses are up. Direct expenses (salaries) are up 15,4% over the past 12 months (industry average for larger law firms), while indirect expenses have grown by 3,8% over the same period. The growth in direct expenses is mainly the result of aggressive hiring and rising salaries and bonuses. We can expect indirect expenses to grow faster in 2023 as housing costs will be further adjusted. Looking at the demand side the picture is not quite as dramatic. The most prominent characteristic of law firm financial performance in 2022 was the substantial slowing in demand growth that firms experienced throughout the year. On a year-to-date (YTD) basis through November 2022, overall demand contracted by 0.1%. Over that same period law firms increased their rates by an average of 4.8%. Which means there still has been growth in revenue. Looking at clients’ expectations regarding their legal spend over the coming year, almost half of companies expect to increase legal spending as opposed to only 19% expecting a decrease. Analyzing these real world data, it seems highly unlikely that the legal industry will be facing serious headwinds anytime soon. Sure, extreme growth has come to an end, but we all knew that wouldn’t last anyway. For 2023 I personally do not foresee serious demand issues for the market as a whole. (How the M&A market will develop is harder to predict, but I would expect a rebound towards Q3/Q4) Should law firms shed staff? For the legal industry, like many other industries, the pandemic fundamentally changed the employment dynamics. Faced with ‘insane’ workloads and working from home, more talent than ever took the decision to leave their firm. At the same time law firms increased recruitment to compensate for the leavers and to help meet demand. On balance this resulted in about 4% growth in lawyers (FTE). Now faced with more lawyers, growing expenses and normalizing demand, what would be the smartest thing to do? Many law firms have learned the hard way during the 2008/2009 financial crisis, that it is a lot easier to fire lawyers than hiring them back once the market rebounds. Lack of well trained experienced lawyers will result in high cost of lost opportunity. In other words: the short term cost savings do not outweigh the lost revenue in the longer term. Having said that, this is the time to more critically evaluate the quality and potential of your associates (and partners). Invariably there are hiring mistakes or lawyers that have not developed as expected. While law firms should always be critically assessing the quality and potential of each lawyer, this is the time to upgrade the average. While structurally and objectively going thorough that process, please do not forget to offer development opportunities to all lawyers, associates and partners alike. The law firm that becomes the best talent development machine will be the one that will come out on top. In the end being a top-law firm is about human talent more than about revenue. Growing talent is growing reputation and profitability. It is the best investment you can ever make.

  • Autumn blues

    The meteorological summer of 2022 has come to an end. I hope all of you have had the opportunity to unwind and have returned to your offices invigorated and full of energy. Over the past 6 months, the world in which we live has dramatically changed. Soaring energy prices, rampant inflation, an emerging food crisis. Behind all this is the war in Ukraine, rising geopolitical tensions, record heat and unprecedented drought. Who, like me, expected new roaring twenties after Covid, could not have been more wrong. This are once in a generation dystopian times and this will affect us all. Revenue drop After the legal industry has had two of their best years in history in a row, revenues around the world have now started to drop. There has been a sharp decline in M&A activities to the extent that even trainees and associates at the elite investment banks are starting to get worried about their jobs. Bars in the financial centers across the world are reporting an increase in visitors, a telltale that the corporate finance world is not swamped with work like it used to be a few months earlier. If it rains at the investment banks, it will drizzle at the law firms. Also in the legal industry, M&A activity is slow as are other practices that are closely tied to capital investments. Most other practices seem to be holding up fine for now. Rising costs In an industry that is tuned for eternal growth a revenue drop (not just a lower growth rate) is bound to create tensions and panic. Certainly since costs are rising at the same time. There is higher marketing and BD costs, higher salaries, higher recruitment, higher occupancy (energy), and so on. Many law firms have also made high numbers of new partners in the past two years. Less revenue, higher costs and more partners. This doesn’t sound good, does it? When Covid hit in March 2020, the legal industry braced for a hit. Many firms took strong measures to safeguard their liquidity. While this was a clear overreaction driven by fear, fueled by the unknown, it could well happen again. Partners as a group have their own distinct dynamics. Even if on an individual level the majority of partners does not feel alarmed, the group might panic. Once the herd moves there is little management can do than follow the direction of the herd. Avoid panic It is in times like this that law firm leaders need to act proactively and remain in full control. Do not hide, do not wait for one or more partners to take an initiative or ask questions. Law firm leaders should act first, decisive and firmly. Please allow me to give you some pointers: 1. Make sure you have adequate management information For any manager it is essential to have reliable real-time management information. This is especially true if business is at risk. Make sure you have weekly data on workload and utilization. Also closely monitor the influx of new matters. It goes without saying that all fee earners must keep up to date with entering billable time in the system. It wouldn’t hurt to remind them. 2. Do not start cutting costs Yes, costs have increased since 2020 and 2021. The costs of salaries have increased for most firms. Partly due to growing headcount and partly due to raising salaries and bonusses paid. Client events are back and so are conferences. This increases the marketing budget. We would not recommend that you start cutting cost in order to preserve the profit per partner. You will know by now that it is extremely hard to find and keep talent. Many law firms learned the hard way during the financial crisis in 2008. Once talent is gone it is gone and it will be near impossible to get them back once the economy bounces back. Also, you are well advised to keep investing in marketing and business development as this is especially important in times of slowing business. 3. Trust your partners. Invest in cooperation and a sense of stronger together If as a managing partner, you have the illusion that it is your task to manage the firm, I’m afraid you cannot be more wrong. Managing partners should provide guidance and a clear direction regarding the strategy and the priorities. For the execution they must rely on the partners. While this is true when there is a nice tailwind, it is even more important when there are strong headwinds like right now. Show your partners the direction to go, motivate and monitor, but don’t deprive them of their personal responsibility and autonomy. Put great emphasis on cooperation. The partnership is so much stronger as a close knitted team, than as a sum of individuals. 4. Communicate! In times of ‘trouble’, you don’t want your partners or anyone else in the firm guessing or speculating. When people start to speculate about the future, they are in this economic climate inclined to pivot towards the worst case scenarios. No need to say this is bad for morale and will lead to panic and calls for immediate action. Once this starts to happen, management will quickly lose control and become the playball of the sentiment. The only way to prevent things spiraling out of control is communication. Don’t leave people second guessing. Communicate frequently and openly. No hiding, no silence. This is also applicable vis a vis your clients: communicate more than you usually would. 5. Use the moment The legal industry has seen unparalleled workloads over the past two years. Leaving everyone exhausted. At times it seamed like there was only work and then more work. When the business cools down like it is to be expected, one should embrace the moment to recuperate and get better. Probably the best thing a law firm could do in the months to come is to invest in people development. This is exactly what we are already doing with some of our clients. We help them set up structural personal development programs for their partners (and associates). Such programs focus entirely on the 7 Core Dimension© that we have identified. Partners, without exception, highly appreciate, structural support in building a stronger practice. The future is uncertain and too volatile to reasonably predict. We have no choice than to act on incomplete information. Today not even the Central Banks can make accurate predictions for the next quarter, so why would law firms have a crystal ball? Amidst all this uncertainty, if you stick to the five pointers, you will likely emerge stronger once the skies starts to clear.

  • Clients want to tap into swarm intelligence

    The relationship between a client and its lawyer has traditionally been a personal one. Even after lawyers had started to work together in law firms, there still is this very personal relationship between the lawyer and the client. I have written about this topic multiple times, raising the question whether a client is the client of one partner or a client of the firm. I have raised this fundamental question on many occasions with partner groups and almost invariably the individual partner wants to ‘own’ the relationship with their client. As it comes to ‘client relationships’, partners have kept behaving pretty much like sole practitioners. Arguably to a large extent also clients see the relationship with a lawyer as a very personal one. This is most prominently demonstrated if a partner decides to make a lateral move and switch firm. Data shows that under such instances over 50% of the clients decides to follow the partner to the other firm, even if this means an organizational nightmare. At the same time clients are complaining that law firm partners work in silos, don’t share information and are hesitant to invest in a relationship that they do not ‘own’. Those same clients are also increasingly expressing concerns that specialization in law firms has gone too far. Sure, clients like to consult every now and then with a partner who has an exceptional deep and detailed knowledge of a certain niche topic, but commonly clients would prefer their outside counsel to have a broader interest and knowledge. All sectors of the economy are facing tremendous challenges Law firm clients are real-life companies and organizations that must work very hard on a daily basis to remain relevant in their market. Almost every industry is facing new challenges these days. Industries face geopolitical issues, supply chain disruptions, rising costs and increasingly hesitant end-consumers. Investors, who have been seen record after record, are now facing a bear market. The energy sector is seeing a combination of challenges it has never seen before. The automotive sector is disrupted by electrification, and so has every other private or public sector comparable challenges of their own. All this calls for strategic ‘out-of-the-box’ thinking. Just applying experience from the past doesn’t cut it. Helping clients navigate the changes in the market and help lead the way to new market opportunities and new business models, requires skills and creativity that goes well beyond what any individual could achieve. General Counsel were first to recognize this need. On countless occasions GC’s have voiced their desire to get broader input from their outside counsel. This is not about handling individual mandates, but about exploring new ways forward, which is crucial for any company's future existence. Recently I had a conversation with the GC of one of the world’s leading new technology companies. This particular company is enlarging its product portfolio and its global footprint at a rapid pace. In doing so, the company faces a myriad of novel legal challenges that can make or break its very existence. A multi-talented lawyer remains a white raven This GC gave me two great examples of outstanding assistance from outside counsel. Example one was about a situation where the company was making a major investment abroad. As there were multiple countries that were very keen on attracting this investment, national and local governments were offering all kind of ‘sweeteners’ to make the decision fall their way. For this reason, the GC had engaged a tier-1 state-aid partner from a very reputable law firm. One might expect that a partner with such specific specialization would have a narrow and limited scope. Not this partner who was in his early forties. The GC told me this partner had such an exceptional understanding of the company’s business and strategic objectives that he had asked him to take the lead on all negotiations, way beyond just state-aid issues. Obviously, this partner would pull in other partners from his firm with other specialist knowledge, but it was him who was heading the negotiations and who had the lead. Unfortunately, this type of partner remains a white raven as this GC was not aware of any other partner at any of their panel firms across the world that would have this ability. This is a great example of a partner who, despite having a narrow specialization, has maintained a broader knowledge of the law, has a deep understanding of the client’s business and who knows to tap into other partners when needed. Involving third-parties in a workshop The other equally rare example this GC gave me was about a workshop organized by one of their panel firms. One of the elite law firms, has offered them to set up a one-day brainstorming workshop to discuss the strategic issues this company is facing, from many different angles. They did not only invite the legal team, but also members of the company's commercial, finance, production and engineering team. From law firm side also all kinds of experts were present. All of this was free of charge. The best thing however was that they also invited other third-party experts at the firm's expense. The GC told me that this workshop had been very professionally prepared and conducted. One day brainstorming and exchanging ideas from many different angles had provided several valuable new insights for his company. No need emphasizing that this became the start of a close relationship, that made the law firm a lot of money. We need swarm-intelligence to face strategic challenges This article is meant to argue and demonstrate that lawyers should stop working as individuals and in silos. The changes clients are facing in today’s market go well beyond what any individual could offer. Clients want their law firms to make full use of ‘swarm intelligence’. At TGO, we often call this the process of 'Melting the Brains'. Clients need access to all the knowledge, experience and creativity available within the firm. Clients also want to team up with lawyers and other experts at the same time to find new insights and solutions to the serious challenges they are facing. Working alone is sooo 2021, teamwork is the future. At TGO Consulting we have extensive real-world experience in helping elite law firms to truly collaborate, use and apply swarm intelligence at the benefit of their clients and their firm. We have a proven track record in helping to 'melt the brains'. Once the process of ‘melting the brains’ really takes off, this will be clearly reflected in the financial performance and the reputation of the firm. As such the program will easily pay for itself. Please contact us to find out how we could help your firm!

  • Is bigger really better?

    Remember the Airbus A380? It is the world’s largest passenger airplane. A humongous double-decker with a wingspan of 80 meters and a max take-off weight of 570.000 kg. The A380 has a maximum seat capacity of 853. The first plane was delivered in 2007, the last one in 2021. It certainly has not been the commercial success that everyone envisioned when setting off on its 30 billion Euro development. Obviously the aviation industry and the legal industry are not comparable in any way. What both have in common is the paradigm that bigger must surely be better. Perhaps even more than any other industry, law firms can become obsessed with the scale of numbers. For many law firms size equals success. The bigger the firm, the more successful it must be, right? Well, in reality probably not. Let’s analyze the merits of size and while we’re at it, dismantle some myths along the way. The metrics of size On a basic level the required size of a law firm will depend on whether it is a full service firm or a boutique, and on having a national or an international practice. Boutiques that strongly focus on one practice area or industry do not need to be sizable to serve their clients and be commercially successful. Around the world there are numerous examples of extremely profitable high-end boutiques that are less than 100 lawyers in total. High-end full service firms would by nature need to be bigger than the boutiques. For a full-service firm, the engine is typically the Corporate/M&A practice that will need to have a certain size in order to handle multiple complex transactions at the same time. M&A is considered the ‘engine’ since transactions typically generate a lot of spin-off for other practice areas such as Competition, Finance, Employment, and so on. In order to deliver the required level of service, each of these departments also has to meet certain minimum size requirements. If the firm is aiming at the top-bracket in their market, there are however not only minimum size requirements, but equally, maximum size-limits for each practice group. Allow me to illustrate this with the example of Employment as a practice group. Any full-service elite firm outside New York and London, would probably need about 2 employment partners with a team to service their transactional needs. As it is unlikely that the Employment practice will get 100% of their work through M&A, they will also have to find employment clients of their own. The problem is that in most markets there simply is not enough high-end employment matters around, so the Employment team will feel forced to accept mid-market work which does not fit the firm’s strategy and for which it will be extremely hard to charge the normal hourly-rates. Not to mention that on top of that conflicts with potential M&A clients will further limit their market. While there is, depending on the strategy and on the market, always a minimum size for a full-service elite law firm, there also pretty soon is a maximum size, after which the average quality of the practice will decline. Too many partners for the amount of strategic mandates, will inevitably increase the volume of less profitable plain vanilla work. When practice groups become too large they will feel forced to take on lower quality work to meet their targets. This will in the end increase the profitability gap between the leading successful practices and the rest. This will over time result in a ‘two-speed’ firm, where part of the partners is highly successful and the others are structurally trailing behind. No need highlighting that this on the long run will create tensions. Economies of scale The past two decades have been the heydays of law firm mergers. Merging was not just fashionable, it was generally considered the ‘silver bullet’. Many firms that had a weak performance merged with another firm that often also had a weak performance, resulting in one bigger firm that still had a weak performance. Merging rarely is the solution to a fundamental problem. Law firms also seek to merge for other reasons like entering into a new market. Take for example the UK magic circle firms looking for a foothold in the lucrative US market, or the mergers between UK and Australian firms hoping for a lucrative piece of the Chinese market. Both endeavors did not work out as planned. Undeniably also some of these mergers have been a great success. In 1999 Allen & Overy set up shop in the Netherlands by grabbing the 35 best partners of the renowned Dutch law firm Loeff Claeys Verbeke, which then ceased to exist. A&O almost instantly became a top-player in the Netherlands. It is not only hope and despair that drive law firm mergers. Increasing the power to invest in technology or marketing have also become motives. And there’s the FOMO category: fear of missing out. Others are merging, they must have a clever plan, so our firm should also merge because bigger is better. The downside of size When a law firm becomes too large for the market they are in, the average quality of the partners and the mandates will go down. The spread between partners and between practice groups will grow, and there will be a high risk of becoming a two-speed firm. Also with every expansion of the partner group, the firm will become harder to manage. Beyond a certain size, partners do not really know each other, which will hinder strategic collaboration, team spirit and firm culture. Above a certain size, partners will become more focused on their own interests and even less on the firm’s interests. Partners feeling the pressure to perform will increasingly feel frustrated by conflicts of interest that prevent them from taking certain clients. Last April, Dentons, a global giant with more than 10.000 lawyers, lost a $32 million malpractice law suit as the court rejected their claim that their Swiss Verein structure would allow them to serve conflicting interest as long as the clients were in different countries that were technically independent. The court did not buy that. The Big-4 Two weeks ago, at the end of May, it transpired that global accounting giant Ernst & Young is weighing a historic separation of EY’s audit and advisory businesses after years of criticism over perceived conflicts of interest between the two. Auditors are tasked with holding companies’ management to account and resisting pressure to sign off on numbers without proper evidence while their advisory colleagues prefer to keep clients sweet to generate fees in areas such as tax, deals and consulting. In conclusion The main message in this article is that law firms would be well advised to stop pursuing size for the sake of it. In the end profitability is more important than revenue, and strategic focus and a high-trust close-knit partnership have more value than having the highest number of partners. TGO Consulting would be happy to assist you in determining what would be the optimum size for your firm, your market and your ambitions. Why not schedule a meeting to explore?

  • Business interests

    End of May I had the privilege of being invited as a speaker at the ACC conference in Madrid. ACC stands for Association of Corporate Counsel, the largest organization of in-house lawyers in the world. The conference committee wanted me to talk about ‘Unlearning traditional legal speak and thought – Retooling hard skills to lead and more effectively partner with the business’. While this might just seem like one of those typical vague and lofty topics that can be found on any conference’s agenda, there is actually a great deal of relevance behind it. Primarily there is the fundamental question whether a lawyer that is employed by a company, is first and foremost a lawyer before anything else? While some may say: “obviously, yes”, I would beg to differ. Any employee in a commercial organization is fundamentally hired to help the company reach its commercial goals. Employees that have no added value in that process will ultimately be made redundant. A commercial company is not a law firm. Lawyers in a company are expected to keep their eyes on the business. Prize draw Allow me to share an example from my days in a corporate legal function. At the time I worked at one of Europe’s largest apparel retailers. The company operated in a high volume segment of the market that is super competitive and highly sensitive to price. In one country one of our main competitors had held a mid-season sale event that involved a lottery and a price draw. Customers who made a purchase during the event could potentially win some attractive prizes, among which a brand new car. No need to explain that our company lost customers and market share to that competitor during the period of the event. As things are in a highly competitive retail market, my company immediately set off to organize a similar sort of event. The problem was that lotteries and prize draws legally were not allowed in that country. We asked our external law firm for advice. The answer we got after several weeks was many pages long, but in essence it said that indeed we could not do it. Legally such events were not allowed. After we had received and digested the outside counsel’s advice, I sat with my team and we discussed how we could help our company to remain competitive in the face of competition. What we came up with is this: it turned out that the law on which the prohibition of prize draws and lotteries was based, was almost a century old. There was already a proposal put to parliament to abolish the ban on such commercial events. In addition we found that there had not been any enforcement from the government on this for almost two decades and that in the unlikely event that we would be prosecuted, as a first offender, the maximum penalty would be the equivalent of €25.000. Realizing that our company would lose close to a million in revenue, our advice to the board was to accept the risk and go ahead. Probably no need to say that the board decided to go for it and that nothing bad happened. On the contrary, our event became a tremendous commercial success and became the new standard-to-beat in the market and was annually repeated for many years. Lawyers must keep their eye on the money I have also shared this real-world story with my audience at the ACC conference. It illustrates how company lawyers are part of a wider ecosystem, geared towards supporting and enabling the companies success. It illustrates that company lawyers are not first and foremost lawyers, but are primarily team members with expert legal knowledge. While this might seem a futile semantic difference, it is not. It is a totally different mindset and attitude. Lawyers in a company are not the guardians of risk and compliance as they often like themselves to be portrayed. Risk and compliance are everyone’s responsibility. If not, the company is doomed. Company lawyers are well advised to remember that their primary role is to help their employer to be commercially successful. Of course limiting risks is an important part of this as risks could turn out to be costly. But more important than the risks, is the opportunity. The reason I’m writing about this is because this also holds true for you, the external counsel. Back to my example story on the prize draw: while the external counsel was technically right, they still did not provide the right answer. Lawyers at law firms are well advised to also be very aware of how their client exactly makes money. Understanding the Business (interests) is one of the TGO Core Dimensions© that distinguish the tier-1 lawyers from the tiers below. For any lawyer, both in-house and outside, it is of crucial importance to understand how a company makes money. Only after you fully understand you are able to deliver value. Back in the days when I was with the retail company, the outside counsel (one of the 4 leading firms in the country) failed to understand, rendering their legally correct advice useless. TGO Consulting has a method that has been tried and tested to help partners develop and grow on the 7-Core Development Dimensions©. Understanding the Business is one of them.

  • Succession of founding partners

    On Tuesday May 10, Britain's heir-to-the-throne Prince Charles took center stage at the opening of parliament, replacing the 96-year-old Queen Elizabeth who missed the grand set-piece event for the first time in almost six decades. The 73-year old Prince Charles has been prepared to one day succeed his mother since the day he was born. While such extensive preparation is a basic routine for a future king or queen, outside the world of hereditary heads-of-state, leadership succession is haphazard. Succession of the leadership in a family run business commonly comes with challenges. In this context it is absolutely worth watching HBO’s ‘Succession’ (cast pictured above). This series centers on the fictional Roy family, the dysfunctional owners of Waystar RoyCo, a fictional global media and entertainment conglomerate, who are fighting for control of the company amid uncertainty about the health of the family's patriarch, Logan Roy. The leadership transition does not go well. Drama assured, leaving the company in a free fall. The transition of fashion label Gucci from the 2nd to the 3rd generation became a well documented non-fictional leadership disaster. The plot even involves a murder and the Gucci family ultimately lost control of the company. Founding partners’ challenges While the majority of law firms still bears the name(s) of the founding partner(s), these partners left the firm long ago. In the legal industry most of the elite law firms have long been institutionalized. However, there is a number of firms where the founding partner(s) is/are still present. The majority of these founding partners are set to retire in the next five years or so. The succession of founding partners today cannot be compared with the succession of founding partners before the year 2000. The main difference is the way in which the legal industry has professionalized. Sullivan & Cromwell was founded in 1879 by Algernon Sullivan and William Cromwell. Skadden was founded in 1948 in New York by Marshall Skadden, John Slate and Les Arps. Kirkland & Ellis was founded back in 1909 in Chicago. I could easily go on, but you will get the general idea. All these firms had their leadership transition from their founding partners decades ago when the legal industry was still in its infancy. For any founding partner who is retiring in the near future, things could not be more different. The stakes are unmistakably higher and the business climate is far less forgiving. It must have been during the 90’s era, when the legal industry truly reached adulthood. Revenue and profits exploded and law became a business. The last decade of the 20th century created many new opportunities. It was during this era that a number of today’s most successful law firms around the world were founded. It is precisely this group that will be facing the transition challenges that come with the unavoidable departure of their founder(s). Visionaries One only has to take a look at the legal directories like Chambers or Legal500, to realize that many founding partners as a lawyer have a tier-1 reputation in their field. Commonly founding partners are not just respected lawyers, but they are also visionaries and successful entrepreneurs. It is the rare combination of these qualities that forms the foundation for their firm’s reputation and success. While founding partners may have this characteristic in common, the way in which they are leading their firms is far more pluriform. On both ends of the spectrum we know founding partners that have a demanding and overwhelming personality and that want everything done exactly their way (imagine the lawyer equivalent of Apple founder Steve Jobs) and those who have the ability to unite and inspire new talent around them (perhaps more like Google). The later has the ability to let thousand flowers blossom while the former is more a big tree in which shadow it is hard to grow. There are multiple roads to building a successful law firm. Regardless the road, the leadership succession when the founding partner departs, will leave the firm vulnerable and it might trigger the firm’s downfall. Preparing for leadership transition Back to Prince Charles. Monarchies teach us that it is of vital importance to thoroughly prepare the future leader (and a group of spare leaders, just in case). The example also shows that the heir-apparent may in the end not be the best choice. Prince Charles and his wife Camilla are not very popular and some suggest that it might be better to skip them in favor of William and Kate. Law firms are not known for preparing their future leadership. Commonly newly appointed managing partners have no clue of what it really takes to day-to-day lead a multimillion dollar highly professional organization with hundreds of employees. That is why at TGO Consulting we have our law firm leadership program by which we help our clients to prepare partners for a future leadership role (managing partner or practice group leader). It makes good business sense to educate your partners on how to run a successful professional law firm. Prince Charles' example not only shows us the importance of preparation. It also illustrates to keep an open mind as it comes to leadership succession, especially when it concerns the founding partner(s). Typically founding partners surround themselves with a small group of partners that they have worked with since the early days. Together they have gone through the ups and downs and between them there is a high level of trust. It seems no more than logical to choose the successor from this small group. While understandable, it might not be what is the best for the firm. The partners that helped build the firm, may not be the ones that are best poised to lead the firm into the future. Maybe the future does not require continuation but change? Sometimes the best choice is not the obvious choice. It is important to at least keep an open mind. At TGO Consulting we help our clients figuring out what profile is needed to continue the firm’s success over the years to come. We help overcome the political sensitivities and personal disappointments that may come with this process. Radical approach Mutatis mutandis, all of the above also applies to any firm where one strong charismatic leader has been at the helm for more than a decade. While not founding partners these managing partners often have characteristics with founders in common. As a parting shot, I would like to point at the most radical of all succession strategies: just leave from one day to the other and let the firm sort it out without you. I know it sounds like a crazy idea, but we are all mortal and there is always at least a theoretical possibility of a founding partner getting a stroke or being hit by a train. Luckily in reality this rarely happens. However in the handful of cases where it did happen, the firms were just fine. Disaster unites and an acute urgency mutes the ubiquitous political games. Don’t let it come to that. We recommend founding partners and their firms start thinking about leadership transition early on. We will be happy to support you during this process.

  • Lessons learned from our Sweden project

    Last year, in 2021, we bought a century-old (1913) country school in one of the most beautiful parts of Sweden. The idea is to turn it into our corporate off-site retreat. A place away from the hustle and bustle of the economic centers of the world, where we together with our clients can focus on strategy or group dynamics for a couple of days without distraction or interruption. The new property ticks all the boxes: it is an iconic emblematic Swedish building that oozes character and atmosphere. It has 7 airports within 1 – 4 hours by car. It is beautifully situated, one can regularly spot moose from our back yard. There is glass-fiber broadband internet and all the other amenities that one would typically expect in the ‘civilized world’. As said, what we bought was a school, and we have to first convert it into an off-site retreat before we can actually use it for our purpose. By December 2021 we had all the paperwork done and had received the necessary permits. In January construction works commenced. While we will keep large parts of the 600 m2 school untouched in order not to lose the character and authenticity, a number of serious changes also need to be made. The school has 9 toilets (for children), but not a single shower. Being a school, the building also does not have a kitchen. We also need to create a possibility for up to 12 guests to spend the night. It will be clear that we have a sizable project at hand. Managing such a project while running a successful consulting practice at the same time is no mean feat. It requires a lot of energy. Because the building is over 100 years old, it is impossible to predict what the builders will come across when opening or removing a wall. Many design decisions can only be made after deconstruction has started. Many plans need to be changed or adapted based on what is found. On top of that there are currently huge supply chain issues. Despite all this it is an incredibly fun project to do. We feel very fortunate being able to do this. It is likely the most motivating and inspiring project we will ever do. The result is going to be absolutely stunning! Working on this project, it became clear that there are evident parallels to be drawn with the execution an implementation of a strategy by a law firm. Therefor we would like to share with you some of our insights, as they might prove helpful. 1. The goal is clear, but the path is flexible For our project we have a clear vision of what the goal is. We will create a corporate off-site retreat to use with our clients for discussing strategy or group dynamics, and for workshops and training. It needs to accommodate 14 for meetings, break-out, breakfast, lunch and dinner. Our clients must be able to stay over for 1 to 3 nights. We keep the original character and atmosphere of the school intact, but will infuse it with some high-end design additions. While the goal and the vision are fixed and will not change throughout the project, we need to be flexible in the execution and interpretation. Based on real world facts, the project requires us to be creative and flexible. Due to construction limitations or availability (or price) of certain selected materials, we have to constantly adapt and make new choices. For a law firm’s strategy it is no different: the strategy itself is engraved in stone and will not change. For the execution however, one need to be flexible, pragmatic and responsive to what happens along the way. This is exactly why having a clear strategy is so important: it is easy and tempting to wander off course, and to lose sight of the end goal. To our clients we often illustrate this by putting an object firmly on the table: "this is your goal and beacon. It does not really matter how you get there, as long as you get there". There are always more options on how to reach the goal. Give your partners some flexibility in what path they take, as long as the keep moving towards the goal. 2. Rigorously track progress Managing the refurbishing process, we quickly noticed that builders are not verry skilled in thinking ahead. In general the carpenters, electricians, plumbers, painters and other craftsmen do not take into account that the materials they need to complete the job need to be ordered well in advance. This problem is enlarged with the current supply chain issues due to post Covid backlogs and the war in Ukraine. We solved this by ordering all materials that are crucial to the design ourselves. We have been sourcing literally all over Europe and are monitoring delivery status on a daily basis. This approach has been successful. Not only have there been few (minor) disruptions for the builders, we also did not have to compromise on the design or the quality of the materials used. The lesson for law firms is that when it comes to executing and implementing a strategy, it is essential to set milestones and to track progress over time. Too many Managing Partners see their term go by without achieving material tangible results. Despite all good intentions. As a manger you need to be on top of execution all the time, if not, no goals will be achieved on time, if ever. 3. You have to trust people While it is definitively our investment, our school and our project, we must respect the input and expertise of other people. We are not builders, so it seems obvious that we listen to their professional opinions. In reality this requires a delicate balance as the builders are not necessarily always right. On several occasions the builders claimed a certain solution was not possible, only to admit after a bit of sparring and conversation, that indeed there was another way to solve the problem without compromising quality or aesthetics. The balance is knowing when to push back and when to just accept their expertise. It is also important that the crafts people keep feeling personally committed and responsible and don’t start relying on us to correct them if they come across a problem or make a mistake. Our law firm clients will recognize this. It is not uncommon that managing partners or the executive committee take the lead when it comes to implementation of the strategy. Sometimes it happens that management allows for little room for personal interpretation by the partners. Everything needs to be done a planned. Invariably this leads to mutual frustration. Management must trust the partners. What also must be avoided is that the partners sit back and wait for management to instruct them what to do. Also partnerships cannot do without personal commitment and buy-in from the individual partners. Don’t deprive them of that responsibility. 4. Doing the fun stuff first Converting an old school into a high-end corporate off-site retreat takes time. Realistically there will at least be a year between making an offer on the building and hosting our first off-site with clients. That is without taking the current supply chain issues into account. Objectively one year from school to corporate off-site retreat is fast, but that is not the way the human mind works. To us it feels almost infinite. While our vision and concept were already clear from the very beginning, it seems to take forever to convert into a tangible result. This at times can be frustrating. There is a tendency to compensate for that frustration by trying to realize quick wins. At one point I put effort in having a TGO sign produced and placed on the building. Objectively this made no sense, but it gave me at least a feeling that visible progress was being made. The TGO sign was harmless, but I recognize the necessity to remain vigilant and consciously fight and resist the temptation to spend time and effort on things that are not essential right now, but that compensate for an emotional craving for visible progress. In organizations like law firms this is no different. Like our project it will take at least a year for any strategy implementation to become visible and produce tangible results. Like us, partners are inpatient and are looking for quick results. A new website is a typical example. While it is hard to argue that, just like our TGO sign, a new website is essential for the strategy to succeed, it is often impossible to resist revamping the website early on. Just like for our off-site project, a fair warning is in place. Don’t give in to the temptation to spend resources on things that are not essential right now. Keep a rigorous focus on what you need to achieve and act to match that goal. Our TGO sign did not materially draw our resources, a new website or a CRM system will draw yours... All photos are taken by the author at the location of the TGO Off-Site Retreat

  • by comparison

    The last week of April traditionally the world’s most successful law firms get very nervous. There is huge anxiety as the American Lawyer’s May issue gets published. The May issue contains the Am Law-100, an overview and ranking of the financial figures of the 100 largest law firms in the US. These rankings are closely watched and studied in detail. Law firms that go up will celebrate and those going down will face difficult internal discussions. In this article I will not go into the details of this year’s Am Law-100. We have made an analysis and if you are interested in that, just send me an email. No, in this article I want to zoom in on the kneejerk reaction of partners to compare themselves with others. As we work with clients that belong to the world’s elite, I know that even within the top-10 of the most profitable law firms in the world, partners will be extremely unhappy and stressed if their firm drops one place in these rankings. Profit per Equity Partner for the top-10 starts from $5.533.000 upwards. One would be inclined to think that such earnings come with extreme self-confidence, but that is not the case. Even the very best of the elite tend to focus on the few firms that are doing better and not on the almost 100 firms in the list that are doing – substantially – worse. If you own a Porsche “Oh Lord, won't you buy me a Mercedes Benz? My friends all drive Porsches, I must make amends” This is a famous line from a song recorded by Janis Joplin in 1971. Mercedes today is not what it used to be back in the days, but you will get the general idea. People measure their personal success always compared to others that are doing better. If you are the first person in your neighborhood who is able to afford a Porsche, you are over the moon, proud and happy. If your neighbor then buys a Ferrari, your happiness is gone overnight. In our mind, success is not defined by owning a Porsche as such, but by how our Porsche compares to our neighbor’s car. For law firm partner compensation the same mechanism applies. A destructive mechanism I cannot remember how many times I have got the question what I think of Kirkland & Ellis. K&E is the number 2 in this year’s top-10 of the super-rich elite law firms. The firm is known for its aggressive and competitive culture and for their army of salaried partners. Other firms are preoccupied with Kirkland’s success and contemplate if they should try to copy their formula. My answer is invariably: “you are not Kirkland, are you, and you do not want to be Kirkland either” This kind of sums up the essence: what works for one law firm, might not work for the next. Every law firm has its own unique set of partners and culture. Take for example Kirkland’s large pool of uber-competitive extremely hard working non-equity partners. This is so uniquely tied to the DNA of K&E, that it will not work for any of the other firms in the top-10 (except perhaps for Latham & Watkins). In that same top-10, Wachtell Lipton, who has been the unrivalled number-1 for as long as I can remember, employs a business model that is in almost any aspect the complete opposite of K&E. Wachtel only has 91 partners, all of them full equity. Wachtell’s leverage is much lower than Kirkland’s. The PEP at Wachtell is $8.4 million, which is about 20% more than at K&E. So should a firm try to copy Wachtell rather than Kirkland? Obviously not. Any law firm would be ill advised to try and copy a law firm that they are not. The example of Kirkland and Wachtell is intended to demonstrate that two completely opposite strategies can both equally lead to success. It is also intended to highlight that the strategy should always match the culture and human capital of the firm. Wachtell would never be successful with Kirkland’s strategy and vise versa. Tough discussions ahead Most of our readers are not with Kirkland or Wachtell, so there will always be a tendence, either latent or manifest, to compare with other firms that are in the same market. As in most markets financial performance of the competitors is more opaque than in the US (and even in the US one should not forget that all the numbers are self-reported), there is always speculation that another law firm is having really great results that outperform the own firm. As the economy slows down, partners will increasingly argue that the competition is doing certain things and that their own firm is lagging behind or missing out. This obsession with the competition combined with the feeling that the own firm has sub-par performance is inevitably creating a distracting and destructive discussion. Rather than focusing on what your firm is ‘doing wrong’, it is far more effective to be confident about one’s own culture, strengths and opportunities. My advice would be not to focus on what the competition is doing and trying to copy those, but to have your own independent strategy and focus on the execution. If you need help with that, we are there.

  • How to prepare for an economic downturn

    Contrary to the expectations at the onset of the pandemic, 2020 and 2021 turned out to be the best years on record for the legal industry. Almost without exception law firms reported their highest profits ever. Hiring activity was also at an all time high, as demand for both experienced and junior lawyers soared. Some firms went as far as paying over $200.000 for a starting lawyer fresh out of university. The main driver of the activity was Quantitative Easing. Unlike the 2008 financial crisis, this time governments poured unprecedented amounts of liquidity in the market. With so much money available and with interest rates near zero or negative, it is no surprise that investors went looking for yield. During the last two years there have been record levels of IPO’s and M&A activity. In some markets SPAC’s became hugely popular. In order to let capital work, anything would go. Swamped with work and scrambling to find the lawyers to handle it, partners worked to exhaustion over the past two years. 2022 looked like starting off strong and continuing the trend. Maybe not as good as the previous years, but still better than average. Then the war started and almost overnight the mood changed. Global dealmaking fell to its lowest level since the start of the coronavirus pandemic as surging inflation, tougher regulation and the war in Ukraine led to a slowdown in what had been a record period of mergers and acquisitions. Just over $1tn worth of deals were struck in the first quarter of 2022, 23 per cent lower than the same period last year, with all continents facing a decline in M&A activity. Also the number of IPO’s has started to drop significantly. As inflation rises sharply and Central Banks are testing raising interest rates and are winding down their bond buying programs, economic optimism is fading quickly. Global supply chain problems and China’s strict zero-Covid policy are further adding to the woes. 2022 will not be as good Given the economic outlook, the legal industry should prepare for 2022 to be less booming than the past two years and expect a decline in revenue. While there is no reason whatsoever to be worried, law firm leaders are well advised to start managing their partners' expectations, while taking precautionary measures at the same time. When there is no growth or if revenue drops, law firm partners get nervous. If the firm is doing well and revenue grows, partners tend to believe that their firm is doing better than the competition. If business is good, this creates a false sense of confidence and optimism. The past two years partners were happy even if competing law firms grew more. As soon as things slow down the exact opposite happens. Partners feel that all other firms are doing better. If business is slow, there is a misguided feeling of being hit harder than the market. Law firm leaders should anticipate their partners getting more critical on management and strategy. Expect a strong tendency for partners to get more hands-on involved in the management of the firm. This will particularly be true for the M&A partners who are expected to get uneasy and insecure due to the reduced amount of work. As M&A partners typically have a significant contribution to the firm’s overall results, they have lots of clout and their opinions cannot be neglected. In the Dutch language we have a phrase that translates as ‘panic football’. It’s when you’re playing football, and you panic because you’re behind the other team, and you’re so desperate for a goal that everyone is kicking the ball and it’s going in all different directions. Any law firm leader will recognize this and know this is likely to happen as partners start throwing in ideas how to reduce costs and how to regain revenue. Just like in football, this behavior leads nowhere. Strong leadership required It is in times of headwind and adverse conditions, that the capable managing partners are separated from the rest. When the going gets tough, strong leadership is required. Only law firm leaders with a vision and a steady strategy will be able to calm down their partners. Weak managing partners get eaten for breakfast and will soon be a ‘puppet’ dancing on the strings that are being pulled in contradicting directions by the rainmakers in the firm. While this might be the right time to cool down the recruitment frenzy and become more critical to whom you are hiring, instead of just hiring anyone at any prize, it would not be smart strategy to stop hiring altogether. The same goes for cost cutting, don’t get zealous, there is no reason to panic. Yes, it is entirely feasible that profitability declines a bit, but that is no reason to panic. Especially right now, after the pandemic, it is important that law firms keep investing. During the pandemic there have been huge reductions in the cost of marketing and travel. When business is down, these are the areas to invest. We at TGO Consulting advise law firm leaders on all strategic matters. We can help you in avoiding falling victim to the side effects of the economic recession. Especially right now it is important to stay strong and to keep steady.

  • Partner appraisal waste of time?

    Now that accounting has completed the books on 2021, many law firms are in the middle of the annual partner appraisal cycle. For some firms, this is merely a formality for deciding what cut of the profit a partner will receive. The majority of firms however is set out to use the opportunity to agree on targets for the next year, and to discuss opportunities for improvement. When I talk to managing partners these days, or with other members of the appraisal committee, invariably they mention how completely bogged down their schedules are. One just need to do the math’s to see how this works out: on average it takes a total of one hour for preparation and another hour for the appraisal, so two hours per partner. This is multiplied by the number of partners in the committee plus the time of the partner who is being appraised. All this would not be an issue if the process would produce tangible results and directly contribute to increasing profitability. The problem is it doesn’t Partner appraisals are like pulling teeth. In general people feel uncomfortable when being judged. Lawyers no exception. It just does not feel right if another person tells you what you do right and what you do wrong. It highlights an inequality in the relationship: the assessor/judge is superior to the assessee. Partners in law firms tend to be hyper sensitive to this type of relationship. Lawyers are highly skilled in using language to divert a conversation, and are masters in finding arguments to explain any situation. The combination of resent and avoidance does not provide fertile ground for future change. Partners who are being assessed will politely sail through the motions without damage, only to return to their desk and continue what they were doing. No amount of assessment will change the behavior or performance of a partner. The annual partner assessment in its present form is a total waste of time. How depressing… How to do it better There are basically only two reasons for a person to significantly change its behavior: trauma/fear, or self-insight. The later can only come from within, as where the former comes from the outside. Material changes in behavior do not happen on the basis of rational arguments. It is not that kind of process. Everyone knows that smoking is bad and that it is unhealthy to be overweight, but that does not trigger behavioral change. We all know on a rational level that the world is heading towards a climate catastrophe, but we don’t change our behavior. Within this framework, why do we expect partners to change their behavior or performance after we tell them? Back to basics, partners might change when they genuinely fear being kicked-out. Sometimes, even that is not enough. So if change is not triggered by reason or arguments, and possibly not even by fear, self-insight is basically the only shot we have. But how do we make partners want to change out of self-motivation? Self-assessment A method we have developed and promoted over the years is partner self-assessment in combination with peer review. Let’s examine the benefits of self-assessment first. Rather than confronting a partner with the opinion of the managing partner or a committee, which will force the partner into defense and deflection, the partner is asked to self-assess and present the result of the self-assessment to the assessor(s). This fundamentally changes the dynamics of the conversation. The partner is no longer shielding him/herself from ‘critique’, but building a case instead. This creates a much more open attitude. The assessors on the other hand, do not take their personal views and opinions as a measurement but use the collective opinion of the whole partnership as the basis for the discussion. This makes the arguments much more objective and less personal, which makes the discussion a lot easier. The combination of self-assessment and peer review, has proven to be the most effective method so far. We have actually seen partners adjust their behavior and improve their results after using this method for the assessment conversation. Turning the tables Changing the conversation from critique to self-improvement does have a big impact on the effects. Within this framework it is essential to recognize that improvements on the business side, will inevitably result from development of a partner’s soft skills. At TGO we have defined 7 Core Development Dimensions©. One thing that highly successful lawyers all over the world have in common, is that they score above average on these 7 dimensions. Counterintuitive as it may sound, shifting the focus from improving the practice to personal development, will almost immediately result in better business results. Investment in partner development is probably the most profitable investment any law firm can make. It all begins with methodical self-assessment. Curious? Just inquire!

  • Balancing control versus autonomy

    In the essence, being a lawyer is a solitary profession. This is especially true where lawyers represent a client in court, but also if it comes to transactions or advice. The responsibility for the client is seen as a personal responsibility, not a collective one. Traditionally the relationship has always between an individual lawyer and the client. Although over the past decades, with the emergence of professional law firms that are ran as businesses, this paradigm has certainly shifted, the relationship is still personal at the core. The high number of lateral partner hires that bring their book of business corroborates this. Not just the lawyer-client relationship, also the pressure to perform is very much an individual one. Regardless the profit distribution system, partners see themselves pushed to create ever more revenue. In a merit-based system because it directly influences the income, in a lock-step because no-one wants to be in the bottom 10% and risk being kicked-out. If it comes to performance pressure, there is little safety or comfort in the collective. If it comes to creating revenue, each partner is pretty much on his (her) own. Therefore lawyers demand a high level of autonomy to run their practice. At the same time, their firms want to have a firmwide strategy in order to manage its overall reputation and performance. This is where a tension arises: how to balance between control and autonomy? Why control is necessary Any law firm which operates merely as a group of individual lawyers that happen to be under one roof, will soon hit the ceiling as it comes to growth in (financial) performance and reputation. In order to grow, a firm needs its partners to be aligned on what type of mandates and clients the firm is looking for. One also needs a firmwide system that deals with formal and strategic conflicts of interest. A partner accepting a position on a panel and agreeing on exclusivity, could end up costing the firm a multiple of that revenue in lost opportunity being unable to accept lucrative mandates from other companies operating in the same sector. The necessity to coordinate also arises as it comes to recruitment and training of associates, knowledge management, the use of firmwide standards and templates, and so on. Management is at the core of tensions Like governments or business leaders, law firm managing partners and their board have to manage and lead the firm to strengthen its position and financial performance. Unlike governments and business leaders, law firm leaders have little enforceable powers on the execution level. Having their hands tied while expected to lead the firm towards a better future, can leave law firm leaders frustrated. Some law firm leaders resort to dictatorial behavior or to introducing strict rules and policies that every partner has to adhere to or, if not, face financial penalties. While ruling by ‘fear’ might seem like a solution, in reality it seldom is. In order to make things work, law firm leaders have to strike the right balance between control and autonomy. Thomas Hobbes Leviathan In Leviathan (1651), Thomas Hobbes argued that the absolute power of the sovereign was ultimately justified by the consent of the governed, who agreed, in a hypothetical social contract, to obey the sovereign in all matters in exchange for a guarantee of peace and security. In his introduction, Hobbes describes this commonwealth as an "artificial person" and as a body politic that mimics the human body. The cover of the first edition of Leviathan, which Hobbes helped design, portrays the commonwealth as a gigantic human form built out of the bodies of its citizens, the sovereign as its head. One must keep in mind that it is almost 400 years ago, that Hobbes wrote his masterpiece. It is therefore not the ‘absolute power’ of his sovereign that I would like to highlight in the context of this article, but the theory that each individual needs to hand-over part of his autonomy in order for the state to function and flourish. By losing part of his autonomy, the individual will be better-off as it will result in a more stable and effective government. For modern day law firms this is no different. As much autonomy as possible Partners in a law firm cannot have unlimited autonomy and expect at the same time their firm to be successful and strong. One cannot have the cake and eat it. Part of the autonomy must be transferred to the leadership in order for it to be effective. Law firm leaders are tasked with looking after the long term interests of the firm as a whole, even if this would go against the individual interest of some of the partners. Law firm leadership must have the authority to unilaterally decide on the strategy and other topics that are fundamental to the firm’s reputation and financial success. At the same time, within that strategy, it is the responsibility of the individual partner to decide how to accomplish the goals that are set. The firm decides on the ‘what’ and ‘when’, but the individual partner decides on the ‘how’. Unfortunately, it is not uncommon that law firm leadership wants to dictate the ‘how’. Inevitably this leads to failure, which in turn provokes even tighter control and micro-management from the leadership. If you want your strategy to succeed, set a limited number of clear and realistic goals of which no partner may deviate, but grant your partners as much autonomy as possible on how to achieve them.

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