This article was first published on Bloomberg Law. You can read it HERE We are at the dawn of the 20-twenties, and although time is a continuum, the turn of a decade is still an occasion that invites to look forward at what we will see happen over the next 10 years. For the legal industry the post-recession period between 2010 and 2020 has largely been driven by fear. Despite the fact that revenue and profits kept growing, law firms were wary of the disruptive effects of technology, competition of new entrants in the market, and were complaining about experiencing pressure on price from clients. Whether or not we are floating toward a new recession, and despite the collapse of the concept of one undivided global trade economy, I am very positive on the future of the legal industry over the years to come. Below are three important changes that I see coming to the business of law and all three provide great opportunities for creating better law firms that are a fabulous place to work and that are able to develop even closer relationships with clients. 1. ‘Value’ Will Be the New Paradigm Over the past decade, the price of legal services has been high on the agenda. Clients tried every trick in the book to get a better deal and law firms have cleverly pushed back. This resulted in countless seminars, articles, and books on pricing of legal services, professional procurement, professional vendor management, alternative fee arrangements, and much more. The result of all these efforts is that prices steadily kept going up, enabling law firms to grow revenue and profitability in a market where demand has remained flat over the decade. This clearly is not sustainable, and clients remain unhappy. So why is it that so many very clever people have not managed so solve this conundrum? The answer is surprisingly simple: because the discussions have focused on the hourly rates and time is not the right measurement method in the first place. Whether or not you perceive a purchase as “good value” has noting to do with price. In other words: low price does not equal great value. It is much more complicated than that. For legal services price is linearly related to time. This assumes the premises that more time also linearly leads to more value. This is pure nonsense. On top of that lies the assumption that each increment of time will create the same amount of value. This is obviously not the case: one hour spent on litigation strategy does not have the same value as one hour listening-in on a multi-caller conference call. The former could have tremendous added value and the latter close to none (who does not continue working on the computer during such calls?) Where there is no relation whatsoever between time and value, data analytics shows that there is a strong and direct relationship between value perception and return on investment. Companies do not mind spending money on lawyers as long as it helps them directly create profit (or prevent a loss). As the value matrix below shows, value also will depend on the number of available lawyers that qualify for the job. In the years to come, both lawyers and clients will gradually embrace value-based pricing, and this will lead to higher client satisfaction, better understanding of the clients’ business, and stronger relationships between clients and outside counsel. 2. ‘Swarm Intelligence’ Will Become Standard At most law firms today, partners are primed to compete with each other for clients and matters. Regardless of the profit distribution system, each partner will need the business. So, if there are two M&A partners, they will both want to land the merger. Over the past decade lawyers have become increasingly specialized and the areas of specialization have become more and more niche. Within a firm, the lawyers are organized in practice groups according to their areas of specialization. So, we have lawyers who compete, organized in silos, and having an increasingly smaller scope. The world in which their clients operate has over the same decade become increasingly complex and connected. Companies face permanently changing political, regulatory, and technological challenges. Many industries and businesses must completely reinvent themselves to survive. This calls for a different kind of advice from their outside counsel. The problems have become too complex to put into one box and are often uncharted territory that goes well beyond the ability of one individual to solve. In order to keep up with the needs of their clients, the law firms need to break down the silos, introduce a more generalist career path for some lawyers and learn to fully tap into the combined knowledge, problem solving creativity, and intelligence of everyone in the firm. We call this “swarm intelligence” and it will become the new normal in law firms. The days of individually competing partners, operating in silos are numbered. Collaboration and teamwork are the way forward. 3. Outsourcing of All or Most Non-Core Activities In order not to risk losing their most successful partners (and attract new talent), law firms must maintain their profitability. Profitability is of course not only dependent on revenue, but equally on costs. A characteristic of law firms is that costs are fixed in the short term and are not influenced by revenue. In other words: producing more revenue does not lead to higher costs (except for bonuses) and making less revenue does not lead to lower costs. Lowering the fixed costs or making costs more flexible will be hugely attractive and will directly have a leveraged impact on profitability. Over the coming years we will see law firms shrink their core group of lawyers to only the best, who have most added value, and are fully occupied most of the time. High-volume, low-value work will be largely outsourced to mid-tier law firms and/or alternative legal service providers. Non-essential lawyers will increasingly be hired through a flexible work pool. When it comes to non-legal staff functions, there also is a strong business case to outsource. Not only will it become increasingly difficult for law firms to attract the non-lawyer top talent they need, not having all staff on very expensive premises will also reduce occupancy and office costs. Just think about the IT department as an example. Professionals with high-level IT skills are in high demand (even Silicon Valley struggles to find the right talent), so what IT professional in his or her right mind would consider working at a law firm an attractive career move? Outsourcing has already started with IT departments, but also other functions such as marketing, human resources, finance, and facilities will follow. The law firm of the future will have a very lean staff and most services outsourced to professional third parties. The decisions carry some risk, but also big rewards.

Two-and-a-half years ago in Silicon Valley, a new and revolutionary law firm concept was presented to the world. Atrium launched June 2017 as a startup-focused law firm that would offer a combination of highly experienced lawyers and clever (yet to be developed) technology. The company would create custom tools that would add speed and transparency to the delivery of legal services. The goal was to kill the “billable hour.” San Francisco’s Atrium offered two fixed-fee legal services: Atrium Counsel, a $500-$1500 monthly subscription that allowed start-ups access to a dedicated experienced lawyer for ongoing legal needs, and Atrium Financing, an end-to-end flat-fee advisory service to start-ups throughout their venture capital fundraising process. As a start-up Alternative Legal Service Provider Atrium was widely lauded for being disruptive and innovative as it combined teams of real lawyers and technologists working in tandem, along with automation of certain processes. After burning $75M Venture Capital, little over two years down the line, on 14 January 2020, Atrium announced that it would lay-off most of its lawyers. Atrium has decided to move away from legal work and to focus on non-legal professional services for startups and founders instead. Atrium Law suddenly is not a law firm anymore. This article is not about ‘Schadenfreude’. It is far more interesting to see why Atrium failed. It turned out that the combination of real lawyers and new technology had not been a lucky one. Building a technology powered law firm from the ground up and at the same time proved to be a hard nut to crack. According to one of Atrium’s founders “lawyers speak a certain language; engineers speak a certain language”. There are countless examples of new law firms that became very successful. Building a successful Legal Tech company is already more challenging. Building then both at the same time seems to be a bridge to far. Partners that are lawyers run their law firm very differently from engineers building a software company. In my opinion the problem with Atrium is more fundamental than just ‘speaking a different language’. For me Atrium and other ‘disruptors’ in the legal market are starting at the wrong end. The business of law is not about technology. When someone seeks advice of a lawyer, they are primarily looking for a human being with whom they can discuss their issue. It is comparable to when you are feeling ill. You want to consult a doctor in person, rather than fill in a questionnaire on a website. Like your doctor, a lawyer will listen to you, read between the lines and try to figure out what it is you want and why. Even very basic and simple legal products such as General Terms & Conditions involve many choices that you would like to discuss with a human professional. Clients want people, not technology. The global legal market is estimated at $800 billion. That may seem like a lot of money but remember that Walmart has an annual turnover of $514.4 billion. The entire global legal market is not even twice the size of Walmart. Still there is a disproportionate amount of excitement about the yet to be unleashed potential of legal technology and the disruptive effect this will have on the sector. So far, like Atrium, this disruption has not materialized. Gartner’s 2019 Artificial Intelligence hype cycle shows that many AI development are at the ‘Peak of Inflated Expectations’ or at ‘Trough of Disillusionment’. The Creation – Production Divide Concept© If you would make an analysis of what a lawyer does, you will find that there are two distinct processes going on. The first is what I call ‘Creation’ this comprises all aspects that are uniquely bound to the personal skills of the lawyer. These skills are based on all the experience the lawyer has gathered, his/her personality, IQ, EQ, creativity and so on. This set of personal skills is why someone prefers to work with a certain lawyer. It is the reason why a client would prefer one M&A lawyer over another (even though their legal knowledge is the same). Creation is a lawyer’s ability to come up with smart solutions. The ability to listen and understand what drives the client. The ability to negotiate, and the ability to say no to the client if needed. Creation is what distinguishes one lawyer from the other. It is the most important aspect of a client-lawyer relationship in any area of the law, on any level. I know employment lawyers who attract clients because they show empathy, have the ability to listen and can propose pragmatic solutions. I equally know top M&A partners who can skillfully steer complex negotiations in the right direction, know best market practice like no other, and have an unparalleled track-record in getting the deal done. All this has nothing to do with legal skill or knowledge of the law. Any academic would probably have as much, if not more, knowledge of the law. Yet I doubt of that academic could get the deal done. The second aspect that comes out of the analysis of the process of what a lawyer does is Production. This encompasses all that is needed to materialize the fruits of Creation. Production (or execution if you may) is things like document review, producing the necessary agreements and getting them signed and distributed. Compared with Creation, Production does not have much added value in the eye of the client. Production also is not what distinguishes one law firm from the other. I once asked a tier-1 Real Estate partner who has a very large high-end RE-transaction practice, if she could deliver the same product and revenue if she had to work with the team of a mid-tier firm that also has regular experience in RE-transactions. After some initial hesitation, the answer was yes. It is not the associates who make the difference as long as they are decent lawyers with experience in the field. Invariably this is where legal tech gurus and legal tech entrepreneurs get it wrong. Today and in the foreseeable future there is and will be no technology that can take the place of a lawyer. The core of what a lawyer is to a client is in the lawyer’s personal skills. ‘Creation’ is by definition a human thing. Much of ‘Production’ however can and will be done or augmented by technology. Despite the fact that this type of software technology is totally applied in the legal arena, it has little or nothing to do with the core of being a lawyer. What this technology can do is speed up the ‘Production’. It will make lawyers more efficient in execution. If one lawyer can get more work done in the same amount of time, we will ultimately need less lawyers. Not because the lawyers are replaced by the machine, but because the same output requires less human involvement. If Atrium would have been set up as a human-centric company, it might have had a chance to succeed. There still is a huge area to win for the first law firm that does not have to rely on the revenue from Production for its profitability.

It is January 2020; a new year and a new decade have started. It is estimated that almost half of all adults has made New Year’s resolutions. Statistically that should also involve about half of my readership. By far, the top three new year's resolutions are: weight loss, exercise, or stop smoking. Other frequent resolutions have to do with better money management and work-life balance. According to Forbes, the statistics on how many people actually follow through and accomplish their New Year’s resolutions are rather grim. Studies have shown that less than 25% of people actually stay committed to their resolutions after just 30 days, and only 8% accomplish them. One year later this whole process starts all over again, perpetual and without result. Why is this relevant or even remotely interesting, you might ask? Well, the fact is that there are striking similarities with lawyers and law firms. It is our day-to-day practice to advise law firms on their strategy. We know out of firsthand experience that the challenge is not to put together a strategy that is relevant and realistic, or to get the strategy through the partner meeting. No, the real challenge is execution. Moving from inspiration and identifying opportunities, to actual day-to-day implementation. Embracing a strategy is easy, putting it into practice is a different story. We all do crave ‘deus-ex-machina’ solutions In the Western world weight loss tops the New Year’s resolution charts. So, it seems that this is what most people want to achieve when they mentally start in January with a clean slate. Yet, a 2017 cover story in the New York Times Magazine, discussed research which found that people rarely lost more than 5 percent of body weight over six months, and much of that weight was gained back within two years. This indicates that most people fail to achieve what they want to achieve even though one year down the line they will try again. The main reason why people fail is that change is hard. It means moving away from routine patterns that you have ingrained in your day-to-day life for many years. There aren’t many things as hard and exhausting as changing a deep-rooted routine that we have developed. This is equally true for those aspiring to lose weight, as it is for a partner at a law firm trying to use better project management to better use the available resources. Will-power and endurance are energy consuming and in limited supply. The legendary boxing champion Muhammad Ali famously said: “Champions are made from something they have deep inside them – a desire, a dream, a vision. They have to have last-minute stamina, they have to be a little faster, they have to have the skill and the will. But the will must be stronger than the skill”. Indeed, the will must be stronger than the skill, but partners at a law firm are under tremendous pressure to perform. Handling this pressure sucks away all energy and none is left for change. That is why we all -lawyers no exception- crave for ‘deus-ex-machina’ solutions: a quick and easy solution from the outside that as by magic will solve the problem and make it disappear. The faster the problem goes away, the sooner I can get back to my trusted routine. No change without ownership It goes without saying that ‘deus-ex-machina’ solutions do not exist. There is no quick magical fix that will instantly improve your practice. Many law firms we consult have rendered a strategy before. The truth is that most of these documents have remained in a drawer because after the strategy was agreed upon, all lawyers returned to their business. Lawyers are busy, remember. They do not have time to waste on internal meetings. They have clients to attend to and business results to deliver. Rationally they buy into the new strategy, practically they don’t and expect management to take care of it. That is why we have an executive committee for, right? Wrong! Just as you cannot get fit by sending your partner to the gym, you cannot delegate the improvement of your practice to the managing partner or the practice head. There will be no change without ownership. Strategy is supposed to be boring When we sit with our clients during the strategy process, there is invariably an atmosphere of excitement, inspiration and hope. You can feel the energy almost literally tingling in the air. When we present and discuss the proposed direction and changes with the partner group, there usually is enthusiasm. On the one hand this obviously is great, on the other hand it can be dangerous. When they come together in a partner meeting, partners usually do not want to discuss all kind of complicated problems. It is much nicer to talk about what the firm will look like in the future and why this is a better world with better clients and better business. Partners, like people in general, prefer to be entertained (hence the success of TED-talks). On occasion I have jokingly said: “Now you are all super excited, but next year you will want a new Jaap Bosman, to entertain you again”. Strategy can be like New Year’s resolutions: the same process all over again and again, year after year, without ever achieving anything significant. The secret of a successful strategy is IMPLEMENTATION. This means that far more time and energy will need to go into lasting and consequent execution and implementation. It is impossible to achieve any material and relevant results unless you keep tirelessly pursuing the same goals for several years. Strategy has very little to do with being creative and inspired. Strategy is supposed to be boring. Once you have a relevant and realistic strategy, you stick to it. You execute it with determination, commitment and (if needed) brute force. It is about focus and execution, infinitely.

This long-read article is also available as a printable PDF by clicking HERE This being my first article of 2020, it might be a good moment to reflect on the past decade and to look forward to the decade ahead. For myself and for TGO Consulting, the past decade has been extremely good and exciting. We have gained a position as one of the leading strategy consultants in the legal sector. We published two books that quickly became influential best sellers. After having been nominated in 2018, we were awarded ‘Best Business Consultant America’ in 2019, a wonderful recognition to conclude the decade. Above all, we have had the privilege to work with some of the best law firms across all parts of the world. The twenty-tens were great, but we are even more excited about the years to come. As we all know, in general people tend to overestimate what will happen in the next few years, but underestimate what will happen in a decade. Based on our insights and experience we have identified five trends that we think will define the coming decade for law firms. Since developments do not happen in perfect isolation, you will learn that these trends are interconnected. As Niels Bohr (1922 Nobel prize for physics) said: “Prediction is very difficult, especially if it's about the future”. Nevertheless, we are convinced that these five trends will significantly change the legal profession between today and 2030. 1. Law firms embrace Cognitive Diversity In the last decade pressure has mounted on law firms to become more diverse and inclusive. There have been countless initiatives to empower women and minorities in law. Although the demand for more diversity is more explicit in the US, also in other parts of the world clients and society in general put pressure on law firms to provide equal opportunities for lawyers who are not the traditional white male with an affluent background. We think this trend will not go away, but it slightly misses the point. As we have outlined in an earlier article, gender or ethnicity are in the end not at the core of what makes diversity a necessity. Sure, gender and ethnicity are important as it comes to equal opportunities and non-discrimination. The most important argument for more diversity has nothing to do with politically correct behavior. Diversity is needed to provide a better product. Today’s law firms are too homogeneous. Most lawyers whether male or female, straight or gay are from the same social and educational background. They share the same believes and tend to approach things from the same perspective, regardless of their gender or the color of their skin. Law firms have become echo-chambers of a shared vision of the world. No explaining needed that this is risky. In the decade to come law firms will need to increase cognitive diversity. As the world around us becomes more complex, law firms need lawyers and other professionals with different backgrounds, different personal skills and above all different believes and visions on society. On 2 January 2020 the infamous Downing Street top-advisor Dominic Cummings published an article in which he argues that the Government should hire more “weirdos and misfits” as well as people that don’t have the traditional Oxford/Cambridge educational background. Although I do not necessarily share Cummings’ vision on politics and on society in general, I do support his views on what it takes to create an excellent and capable team. 2. Making full use of Swarm Intelligence Today law firms are very much organized around individuals, making even integrated law firms barely more than a group of individuals sharing an office and some other resources. Although many law firms will probably argue that for their firm this is not the case, reality is that partners are competing with each other for matters, clients and resources. Furthermore within a law firm there are silos: the practice groups. Each silo has its own resources being primarily the associates, secretaries and paralegals. No need explaining that this commonly leads to poor use of resources and under-utilization of fee-earners, having a direct negative impact on the firm’s bottom line. Some firms have moved to central workload allocation, meaning that there will be a central function coordinating and planning which associates are available end best equipped to work on an aspect of a certain matter. We know from experience that in general there is huge resistance among partners to hand over the monopoly on ‘their’ associates. Resistance based on fear that when they will need the associates themselves the most talented ones will be unavailable, or based on the conviction that associates are one-trick-ponies that can only function in one small area of the law. This individualistic and silo-based organization model comes not only at the price of sub-optimal profitability, it also under-utilizes the intellectual and creative capital of the firm. In the decade before us, law firm clients will face increasingly complex challenges that go well beyond one small area of the law. Helping clients solve these multidisciplinary issues will need not only breaking down the practice group silos to foster cooperation, it will also require tapping into the collective intelligence, experience and creativity of the firm. We call this ‘swarm intelligence’. The firm collectively will be able to find answers and solutions, were no individual partner or lawyer can. 3. Demise of time as a measurement Those of you who have read my recent book ‘Data & Dialogue, a relationship redefined’ will know that I make a strong case for the transition from time-based billing to value-based billing. Although time-based billing is convenient for both law firms and their clients, it is also the primary source for clients’ discontent. Over the past decade buyers of legal services across the world have taken numerous initiatives trying to get better value. All these initiatives have ultimately been focusing on rates multiplied by time and have, as we know now from experience, miserably failed. After one decade of campaigning for better prices, clients have consistently been paying more. As outlined in my book, the problem is not that the over-all size of the legal budget is an issue. Even for large multinationals, with a constant myriad of complex legal issues, the total legal budget will hardly ever exceed 1% of the company’s over-all costs. Companies have no problem spending money on lawyers as long as it helps them create value. Price is not the issue, return on investment is. When you think about it, you will also come to the conclusion that time is an inadequate measurement for value. One hour listening in on a group conference call, does not have the same value as one-hour high level strategic legal advice. Yet, lawyers will charge the same for both hours, which of course is part of the deal, but basically pure nonsense. In the coming decade, the legal sector will gradually move away from time-based billing and value-based billing will be widely adopted. This transition will be fueled by the use of data-analytics and the adoption of legal technology that will augment lawyers and make them more efficient. 4. The legal industry will become data driven In the past decade there has been a disproportional amount of attention for legal technology. Some future scenarios where computers will eventually take over from lawyers are quite dystopian, others are more of a Jetsons like wild imagination. A world in which Artificial Intelligence will turn law firms into paradise. It goes without saying that neither scenario has any real-world relevance. Now most of the dust has settled, it has become clear that (Data & Dialogue, chapter 11) the work that lawyers do should be divided in Creation and Production (the Creation - Production Divide Concept ©), where Creation has great value to the client and Production is execution that has far less market value. The legal industry will continue to implement technology to make Production (execution) more efficient and less time consuming. This is nothing new as such. Law firms, like all other offices have been adopting new technology to enhance efficiency since forever. Remember how monks used to copy books by hand? As legal technology will become mainstream, technical innovation will shift towards data and data analytics. Historically the legal industry does not have a strong track record as it comes to data collection. Just think about your CRM system or your Management Information system. Rubbish in, means rubbish out. Also on an academic level the Faculties of Law have spent not nearly as much time on gathering and labeling data as let’s say their brethren at the Faculties of Medicine. In this new decade the legal sector will heavily invest in data and data analytics. Data will be used to manage the firm and make better use of the available resources. It will be used to improve the relationship with clients, streamline project management, communication and resources both internal and external. Data analysis will also be applied to help predict future events end prevent clients from getting into trouble. Prediction and Prevention will towards the end of the decade become established lines of business for law firms. Just like the medical sector is not only focusing on curing the patient, but equally on preventing the patient from getting ill in the first place. 5. Outsourcing of staff and functions On average about 35-40% of Indirect Costs at a law firm are connected to staff compensation and benefits. On top of that staff is also part of occupancy and office costs. Traditionally this has never been an issue. Most law firms have been relying on doing almost everything inhouse since their inception. Office space on prime locations is getting more and more expensive and at the same time attracting professional non-lawyer talent is getting harder and harder. Just consider IT talent. In today’s market there is a great shortage of talented professionals with high level expertise in areas such as cyber-security, artificial intelligence, data management and cloud computing. These talents are in high demand and typically prefer to work in inspiring innovative and challenging enterprises. Law firms to them are not attractive and are not on their radar. Realistically law firms will end up hiring second or third-tier IT professionals. The same holds true for marketing and business development. Areas that are increasingly becoming strategically important to law firms. The talented professional will not want to be working within a law firm (which would be a career killer). The last couple of years the turn-over-speed of marketing and BD professionals in the legal industry is between 1,5 and 3 years. This is a clear indicator of a mismatch and these figures are about to get worse. In the years to come law firms will increasingly start outsourcing staff functions that have traditionally been done in-house. This trend has already started with IT department, but also other functions such as marketing, human resources, finance and facilities will follow. The law firm of the future will have a very lean staff and most services outsourced to professional third parties. The decisions carry some risk, but also big rewards. Outsourcing will not be limited to non-lawyer staff. Increasingly we will see law firms cooperating with third parties on client matters. Today this is in some cases already happening with discoveries and high volume document review, but it will expand to other areas in the future. A high-end law firm could decide to outsource all low value aspects of a matter to a mid-tier firm, an Alternative Legal Service provider or to one of the Big-Four. Even the lawyers themselves can be partly outsourced. This is also something we can already see happening today as there are several examples of law firms working with a flex-pool of independent lawyers that can be called in on demand. We even know of one law firm that has put all associates in a separate entity that has to pitch for work with the partners. Although we cannot see many other law firms going this extreme, still it can be considered part of a wider movement. Great times ahead for the legal industry Looking in the rearview mirror, in the past decade much energy has been devoted to the alleged impact of legal technology, pricing of legal services, economies of scale (mergers), the emergence of the Alternative Legal Service providers, the Big-Four and some other discussions that were in the core driven by fear. The coming decade will be more entrepreneurial and driven by opportunities. People, not computers, will take center stage. Clients and law firms will cooperate and become far more aligned. Value will become more important than price. Talent will be more important than technology. There are exciting times ahead whit many great opportunities. Together we can make it happen. We have ten years and counting…

In The Lawyer of 18 November 2019 the headline of one of the articles read: “Skadden and Weil will need more than a couple of magic circle hires to fix their succession problems” While the article focused on the upcoming lateral hire spree, the real issue is why neither firm has been able to groom internal successors. This question resonates strongly with what we at TGO Consulting see in our day-to-day practice: The last of the baby boomers who are now towards the end of their career find it really hard to transfer, power, practice, clients and profit to the next generation. Succession will become an issue because there will be no natural successors. Time has been incredibly generous to baby boomers When we work with our clients, we often do a TGO Power Curve© analysis. In order to do that we have developed a clever algorithm that calculates a value for each of the partners based on the size and quality of their practice and their reputation in the market. The result is plotted on a base line, representing the age distribution of the partner group. The graph below represents two different situations. Figure-1 reflects a partnership where revenue and market reputation are concentrated with partners who are now in their late fifties and early sixties (the last of the baby boomers). Figure-2 represents a law firm where the strongest and most successful partners are in their early fifties. As you can see, in Figure B, partners are transferring their practice towards the end of their professional career. Time has been incredibly generous to the baby boomers. The last baby boomers, who are now in their 60-ties have during their professional career been part of a seismic shift in the legal profession. At the time when they became partner, they could not imagine what the legal world would look like 25 years down the line. They also could not imagine, even in their wildest dreams, how much money they would end up making. The legal profession has been professionalized during this quarter century. Law firms became professional businesses, hourly rates exploded, clients became more professional and the world became more legalized. One could say that the baby boomers became rich and successful without too much effort. They just had to tag along with the developments. Santa's little helpers Even though they were riding the wave of the economy, the baby boomers are in a way self-made men and women. They developed their practice along with their clients. Strong partners create weak offspring. Their associates were not trained as potential new partners, but as lawyers who had to be the diligent executors. All the associates were in a way “Santa’s Little Helpers’’, Santa needs them and can not do without, but they will never be the next Santa. Even Santa likes to stay in the limelight of power. The baby boomers are no different, they cling on to power. In a law firm power comes with having a great practice. From the power perspective law firms are a fragile ecosystem. If you want status in the firm, want to be a thought leader and opinion maker, it is more important that you bring in a large amount of revenue, than having a vision. Those who have the most revenue must be the best partners and we should listen to what they say and obey them. So, if revenue is more important than content, it comes as no surprise that I will want to keep as much revenue in my name as I can. If I create new partners who are better than me, I will lose power and become obsolete. The same will happen if I transfer some of my clients and contacts. Some baby boomers cling to power and wealth It is a natural tendency wanting to be loved, admired and relevant. Powerful partners are addicted to standing in the center of attention. They cling on to power. It goes against human nature to step aside and let someone new be the new star. It happens to politicians, to business leaders and captains of industry. It is so hard to let go. That is why the economy and society have been ran by old people for so long. Not because they are better suited for the job, but because they refuse to transfer the power. Why would lawyers be an exception? Once people have power, status and influence, they cling on with all their might. When we work with our clients doing the TGO Power Curve© analysis, we typically also do a risk assessment. In situations that are represented by Figure A, one of the more prominent risks for the firm is the fact that a number of powerful rainmakers will be retiring over the next 3 to 5 years, without there being adequate replacement. Law firms who are in a Figure A situation have neglected to work on developing real home-grown talent. The associates they trained to be “Santa’s Little Helpers” may have become partner, but they generally lack the entrepreneurship and personality to be rainmakers and opinion leaders. Strong partners created weak offspring because it served them well. The retirement of rainmakers is a major risk to the firm, but the risk will only materialize after the baby boomers have left. Why bother? The next generation needs to be stronger, not weaker Obviously, this is a situation that the best and most ambitious law firms would never allow to happen. The most successful of our clients are in a situation that is reflected by Figure B. In these firms the strong partners systematically strive to create offspring that will be the better version of themselves. They know this is needed because the demands of the markets will always go up. Their pride and satisfaction are not in retaining power, but in seeing their protegees become tremendously successful. Such partner will always trust his protegee and will find pride in transferring their practice to the next generation. This type of law firms will be better with each new generation. They will still be the winners in tomorrow’s market. The transition from a Figure A situation to a Figure B situation, is not an easy one. It can be done only when the baby boomers recognize their ‘mistake’ and care more for the firm than for their own position. It is our experience that some exceptional great lawyers and law firms can navigate through such fundamental cultural transformation. Be it potentially at the cost of the weak “middle generation” …

On the 24th of April 1916, the now legendary Antarctic explorer Ernest Shackleton set off from Elephant Island in the James Caird, the lifeboat in best repair, patched up and partially decked over by what meager resources were available, on a rescue mission to South Georgia. On board where six men, while 22 others would stay behind to await being rescued. The sea journey was extremely perilous as the temperatures were freezing cold and the seas around Cape Horn are known for extreme weathers. It would take the exhausted frozen men two weeks of rowing to reach land. When carefully selecting who would be his crew on this dangerous but vital rescue mission and who would wait behind on Elephant Island, Shackleton selected among two others, Thomas Crean and Henry McNish. These two men were troublemakers and Shackleton did not like them, but they were men with the best skills and the most endurance. When it became a matter of life or death, Shackleton decided to rely on two men who were certainly not his friends. A good decision, as we all know eventually every single member of the expedition made it back to England alive. I was reminded of this story when I was having a conversation with a managing partner not so long ago. As most of you will know, for me ‘trust’ is extremely important in a partner group. I regularly ask partner groups if they would trust any of their fellow partners to go to their client without them being present. Typically, I can literally see a shiver go through the partners when I pose that question. Some are convinced that some other partners are of mediocre legal quality and/or are socially awkward. Some others might fear that actually their client might like some of their fellow partners better and they would risk losing that client to that other partner. Whatever the motivation, the answer is almost invariably: “no, I would not trust all of my fellow partners to go to my client, without me being present”. Only a handful of exceptionally great and successful law firms have high levels of unconditional trust between partners. Lack of trust between partners is a problem A fundamental lack of professional trust between partners is typically the consequence of a long history of opportunistic partner promotions. It is still surprisingly rare to objectively evaluate potential new equity partners. Some partner promotions are driven by fear that an associate that is crucial to a certain practice, will leave. Sometimes there is a trade-off: If you support our candidate, we will support yours. Sometimes firms need new partners to help bear the costs of a new and expensive office. Sometimes we appoint a new partner to fill a gap after another partner has left. Whatever the reason, a careful evaluation against objective criteria is not one of them. The inevitable consequence of opportunism is that over time the level of trust among partners will diminish. It will be obvious that lack of -professional- trust is not an optimal situation. As we can clearly witness at this time of year, lack of trust will make partners fight over profit distribution. Lack of trust will hinder joint client development. Lack of trust might even create disputes on what legal templates to use. We have even seen situations where lack of trust made it impossible to put two partners in one practice group (even though their practices were basically comparable). Lack of trust between partners will lead to all sorts of irrational bad behavior and will inevitably lead to loss of business opportunities to the firm. This was the topic of my meeting with the managing partner. We discussed how we could improve trust among the partners of his firm. At some point he asked me if partners should be friends? My answer was unambiguous and clear: “there is no need for partners to be friends in order to create trust”. On the contrary, I would be inclined to advise against partners developing friendships that go beyond being good colleagues. I know this might come as a surprise, so let me explain. Friendships stand in the way of trust Friendship will most certainly blur your judgement. When we are friends, it will become hard to tell the truth as we will fear that uncomfortable conversations will harm our friendship. Friends are supposed to help and support each other, not to criticize or penalize. In my practice I have come across situations were two friends, one the former managing partner and the other his immediate successor became embroiled because the former MP took it as personal criticism when his friend the new MP decided to do things in a different way. This personal argument weighed heavily on both men. Situations between two persons who are friends can become even more complicated when also the spouses get involved. I know of a situation of two lawyers who had become such good friends that they even had dinner parties and went to social events with their spouses. Also, the spouses got along really well. When at some point one of the two became the practice head and came in a situation where the firm decided to throw the other one out, you can image the pressure this lawyer got at home from his spouse for allowing this to happen. Compromising on quality erodes quality and trust Friendships can lead to other partners feeling locked out. Friendships between partners will also make other partners suspicious of favoritism. In general friendship between certain partners will likely erode trust within the partner group. Back to Shackleton. His example shows that friendship is not a requirement for trust. You don’t even have to like a person in order to trust this person. Shackleton choose among his rescue crew two men whom he did not like and who caused him trouble. He trusted them nevertheless with his life and those of the other men because he respected their skills and their character. The same holds true for lawyers: when things really matter, you only trust the best. So, in a partnership don’t breed friendship, breed quality. Stop making compromises as it comes to the quality of the partner group.

Commentators outside the legal industry often criticize the way in which law firms operate and organize their business. Although certain aspects of law firms might come across as archaic or strange from a ‘normal’ business consulting perspective, the business of law is still one of the most profitable business models in existence. In what other industry can you make so much money, while investing so little. Partners at the elite law firms make more money than most captains of industry and more than any elected head of state. From a business perspective it is hard to beat the business of law. Oddly enough also as it comes to the level of obsession over the profitability, the legal industry is a bit of an outlier. One will be hard pressed to point out any other type of privately-owned business, where there is so much ‘transparency’ and comparison on profitability. There is a thriving publishing industry that lives of reporting on law firms’ profit numbers. Not only the famous AML-100/200 in the US, but also for example The Lawyer in the UK and JUVE in Germany publish overviews and rankings based on profit levels. I am not aware of any other industry where non-listed companies voluntarily disclose and compare their figures. One could argue that the legal industry is in a way obsessed with profit. The legal industry seems overly obsessed with profit numbers To a certain extent for any company it is healthy to be focused on profitability. For us at TGO Consulting it is the core of what we do: we focus on helping law firms to be more profitable and have better clients and mandates. At the same time in our practice we are often witness to the destructive power of unhealthy focus on profitability. In many partnerships there are tensions on how the profits are distributed among the partners. So here we have a kind of a contradiction: on the one hand law firms as a firm need to be as profitable as possible, while on the other hand individual partners focus on how the profit is distributed may have averse effects on the profitability of the firm as a whole. One of the advantages of a global practice and working with many different law firms across the world, is that we in detail come across more different profit distribution systems than any law firm leader will ever see or be aware of. The two main categories are ‘collective’ and ‘individual’. The lockstep and equal sharing profit distribution systems are well known examples of the collective system. The individual system is also known as ‘eat-what-you-kill’. On both categories there are numerous variations and also hybrid systems do exist. However, in the ‘collective’ system each partner gets rewarded based on the performance of the firm as a whole, as where in the ‘individual’ system a partner’s remuneration boils down to personal performance. At first sight, one might be inclined to think that the individual system is the most fair system and will be a system that does not create tensions between partners. That might be one of the reasons why this system has been so widely adopted across all parts of the world. Partners who work hard and are successful are rewarded and some others that do not perform do not drag them down. Whereas in theory the individual system might seem ideal, in practice this system creates all sorts of issues. Based on our experience partners in firms which follow an individual based profit distribution system have more discussions on profit distribution than those who employ a collective system. Partners often complain that their compensation is not fair The reason behind this is that in an individual profit distribution system there typically are all sorts of internal compensation systems such as origination credits, or rewards for management positions. In the individual system, there is a clear disadvantage for a partner who cooperates with another partner on a large matter. The cooperating partner will have to ‘pay’ origination credits and while helping out on the other partner’s big mandate will have no opportunity to get out and work on their own book of business. We have come across situations where this type of ‘slave partners’ are only employed to make the strong and originating partner even more rich. The question ‘who owns the client’ is of particular interest to any partner working in an individual profit distribution firm. On top of that comes that in some firms each partner must ‘pay’ a certain percentage of his/her profit to the founder(s) of the firm. Another issue with the individual system is that partners don’t want newly appointed partners to cannibalize on their practice, so each new partner has to find a new niche and a new clientele to build a practice. An individual profit-based system also runs a risk of poor utilization of associates. So, if an individual profit distribution system can create all sorts of fights and tensions, is a collective system any better? The short answer for that is: no. Under any collective profit-sharing system, partners can become hypersensitive to under-performers. The mere thought that while they are working their ass off and have built a great practice, some others are leading a laid-back life, go home at five and still make the same amount of money is unbearable. We experience that in collective systems the firm leadership is under permanent pressure to identify and deal with under-performers. Sharing a collective profit requires an enormous amount of trust. Maybe more than most lawyers are able/prepared to give. In order to prevent partners from under-performing, collective distribution-based firms invariably monitor individual partners. Every partner has to produce a minimum amount of revenue under their own name and has to meet a threshold in billable hours. The surprising thing is that this effectively will create similar tensions as in an individual based system. If I have to produce revenue, I will want the file and the client put in my name. If I have to produce billable hours, I will make sure I meet my threshold, before handing out work to my associates. Like in an individual system, in a collective system it is not a good career move to be a ‘slave partner’ (or a lawyer’s lawyer), as the rainmaker will always feel more important and entitled to more money. A collective system with a black-box might be the best solution Many consultants today are preaching the end of the ‘lock-step’ system, which is one of the collective sharing systems. We are not one of them. Our data clearly shows that firms where partners cooperate and trust each other, have a higher PEP that those who only focus on individual gains. So if cooperation is the most profitable business model, and we do not believe that the lock-step model has become a relic of the past, what would be the best profit sharing system. After having seen and analyzed literally dozens of different profit distribution systems, I have pivoted towards a black-box profit distribution system, based on collective sharing. It might be the only way to stop discussions on who gets what, and the only way to put a halt to individualistic behavior that favors the individual, while it harms the firm. I am aware that I need to elaborate on this point of view, and I will do so in a separate article in the coming weeks.

On the articles that I publish, I typically get response from readers. Out of all articles, no article so far has led to such overwhelming response as last week’s article on being the managing partner. This has sparked some interesting and insightful discussions over the weekend. I also got numerous requests to elaborate some more on the topic of the managing partner as it seems to strike a nerve in many law firms. Before I do, I wish to apologize for the picture above showing a man. I want to acknowledge that many firms, among which some of our clients, are led by great female managing partners, so please do not take offence. The way in which the governance of a law firm is structured, is in many aspects a predictor of a firm’s future success. Between law firms there are vast differences in the way the firm is managed. Some firms have one managing partner, others have two or even three. Some firms have a board that is hands-on involved in the management, while other firms have no board and the MP reports directly to the partner group. While there is a lot to say on the governance of law firms, for the purpose of this article, I will concentrate on the position of the managing partner. Although no two firms or managing partners are the same, one can distinguish between four main categories of managing partners. As is shown in the diagram below, the differences can be plotted along two axles. On the horizontal axle we plot the level of vision and appetite for change, going from conservative on the left to entrepreneurial in the right. On the vertical axle we plot how solitary the managing partner operates. This ranges from dominant on the bottom to collaborative on the top. Every managing partner can be scored on these two variables and plotted in the diagram. Perhaps it would be interesting to think where your managing partner would be. Based on the diagram, we can distinguish the four main categories. Needless to state, each category represents an archetype and no real people will exactly match that archetype, although some might get remarkably close. The Founder This is the managing partner (or managing partners) who founded the firm more than a decade ago. What started out as a fresh and aspirational law firm has over time gradually turned into a ‘dictatorship’. The founder scores high on dominance, low on collaboration and has over time become more and more conservative. Critique on the strategy of the firm is taken personal. As the founder is the person who has appointed or hired all other partners, the other partners typically are weaker and/or feel dependent on the founder. The founder rules the firm with an iron grip and opposition or deviating opinions are generally not appreciated. While founders can have been extremely successful in building an excellent law firm, they at the end of their career can get destructive as it comes to the future. For a founder it can be hard to let go, step back and hand the helm of the firm to the next generation. The Burner In some respects one could say that the burner is the opposite of the founder. Burner managing partners are weak partners that are appointed managing partner because they have little or no practice. In this category of law firms there typically is a small group of strong partners who have a great practice that they do not want to be ruined by a stint at managing the firm. That is why they appoint a weak partner to do the dirty work for them. The burner almost always must leave the firm, after their term has ended. This type of managing partner obviously scores very low on dominance and relatively high on collaboration as they are not supposed to take important decisions without prior consultation with the strong partners. This consultation could both be formal if the strong partners are on the board, or informal. From an economic perspective, having a burner managing partner might be an attractive option. As the burner did not have a strong practice in the first place, not much revenue or reputation is lost. As it comes to guiding the firm to the next stage of excellence, the burner has to be a poor choice. Not supposed to have a vision, a burner MP can only be a caretaker. Acting on behalf of a small group of strong partners, they typically are not as conservative as founders. The Eternal The eternal managing partner intends to be the managing partner for the rest of his/her career. The eternal managing partner will never return to (full) practice. The eternal is different from the burner as these are not weak partners. Typically, the eternal is a moderately strong partner that will manage the firm until retirement. Looking at the diagram you can see that the eternal scores on both axles somewhat in the middle. The reason for this is that this type of managing partner carefully has to maintain a balance to avoid criticism from one fraction of partners or the other. Going to fast might alienate some strong partners, while being too conservative will frustrate some others. Being too dominant will draw criticism whereas being too collaborative will prevent from being perceived as an effective manager. The balance however flips towards mild dominance, as otherwise it will be impossible to last until retirement. Eternal managing partners are typically effective in executing a chosen strategy. Not having an active interest in the future of the firm, they might not be premier choice to transform the firm. The Visionary The visionary managing partner scores very high on vision and entrepreneurship. This is the type of partner that will transform the firm. As transformation is not a one-man job and can only be achieved by the whole firm, the visionary must create buy-in and can not be too dominant. Like the eternal, the visionary scores on this axle somewhat in the middle but slightly higher on collaborative as there is no long-term position to defend. The visionary will have a limited life-cycle as a managing partner. Once a new strategy has been defined, he/she must go back to their full practice as too much vision and for a long time, will become equally harmful as no vision at all. Visionary managing partners typically are not great in long term execution or in day-to-day management of the firm. These four types are archetypes and as such somewhat bigger than life. In our practice we work with law firm leadership all the time and we rarely encounter people who literally 100% match the archetype. However, every real-life managing partners can be plotted somewhere in the diagram and will pivot towards one of the four archetypes. As outlined in this article each type has its specific strengths and weaknesses. What is best for your firm will depend on where you are and where you want to go. Depending on your needs, this article might help in more structured selecting the next managing partner.

This week it will be Halloween. This signals mid-autumn in the Northern hemisphere and law firms are preparing for the big Q4 partner meeting. On the agenda will be the budget, new partner promotions and for many firms the election of the new managing partner. If you are the candidate, you might want to read this article before you formally get elected as the next MP. We will give you one good reason why you might want to think twice. Different law firms have different policies when it comes to the ideal profile of the managing partner. There are firms that favor partners who are at the end of their career, and those who favor young partners who still have a personal stake in the future of the firm. Some law firms tend to appoint a strong partner, while others favor a weak partner, that does not have a great practice. Whilst there is something to say in favor of any of these systems, this article is primarily aimed at the young partner who has a strong practice and is aspiring to be the next MP. Our data show that 32% of managing partners leaves the firm within 3 years after their term has ended. This should definitively be something to keep in mind before you accept to take the role. After leaving the firm it is very unlikely that you will be able to make the same amount of money at a company or in any government or judiciary position. So, if you are 45 today, you will be 49 after your first term and 53 after a potential second term. If then, for whatever reason, you leave the firm at the age of 55, you will have at least 10 years left in which you have to earn a living. Let’s assume, you made 750.000 as a partner (obviously this could be much more in reality) and you are able to find a decent job in which you will make 250.000 (which is more than any judge, academic or government official will earn), you will lose no less than 500.000 annually. This will mount to 5 million over ten years. So, in order to become managing partner, you are in fact potentially investing 5.000.000 of your own money. Are you sure you are willing to do this? And what about your partner at home, does he/she buy into this? Becoming managing partner could easily cost you 5 million! Over the years I have had conversations with many managing partners. Obviously, none of them entered the role with the intention to leave the firm soon after the term had ended. So, why is it that unintentionally one thirds of managing partners leaves the firm after their term has ended? As a managing partner you will lose your practice, or -best case scenario- you will not be able to maintain or grow your reputation in the market. In some firms the managing partner role is a full-time role, in which case the MP will certainly lose his/her practice. Running a successful legal practice is something that requires 100% dedication. In some firms, for that reason, partners are not allowed to work part-time. Whatever way you look at it, at the end of the term there will hardly be any practice left and the then former MP will have to start from scratch all over again. Few are willing to do this at the age of 50-plus and even fewer succeed. Managing Partners have to learn not to get bogged down in details. For most newly elected MP’s this will be a steep learning curve. As a lawyer you are primed to focus on details, as this is where crucial flaws or opportunities will be hidden. Once a lawyer has ‘unlearned’ to be obsessively focused on details, it is almost impossible to get back in this mode again. I have spoken with ex-managing partners who literally got anxiety attacks when working on a large, detailed and complex piece of legal work. Once you have acquired the ‘helicopter view’ there is probably no turning back. You will have made enemies within the partner group. Being a managing partner means making tough decisions and breaking some eggs. Some of the partners might not like this. There is very little they can do as long as you are the MP, but after your term has ended it will be ‘pay back time’. I know former managing partners who at some point dreaded going to the office as they felt abandoned and isolated. One of them, got an office at the end of the corridor where no one ever came to say hello. It can be hard to be stripped of the status and the power. For someone who has been in the center of power and attention for a longer period of time, it can be a raw experience to get back to the rank and file. As an MP you are treated as the most important person in the firm. Many of your co-workers will try to flatter you in order to make you like them and at some point do them favors. You might get the impression that you are smart and a great leader. You get to represent the firm to the outside world. You will meet important people, attend prestigious events and get to travel and see the world on the firm’s expense. Losing all these perks could be hard to handle. Some former managing partners cannot deal with anonymity. Make your investment worthwhile: don't become a 'caretaker' MP Now you know that accepting the managing partner role might cost you 5 million of your own money, why should you even consider it you might ask. Well despite all the negative arguments, there might actually be one good argument do it: make your firm a better firm. The younger partners should be the ones in charge of the future of the firm, as they will be the ones that are part of that future. Do not be a ‘caretaker’ managing partner. Be ambitious, set clear goals and make sure you reach them before your term ends. Only if you can leave the firm in substantially better shape than you found it, your investment will have been worthwhile. So, increase the profit, raise the reputation, get better clients, and improve the overall quality of the partnership. If you are willing to do this, go for it!

For a large part of my life, I have been a Land Rover enthusiast. I have owned a Series 2A, a Series 3 and a very rare original early Range Rover. All these cars I have taken frequently off road. All mechanical maintenance I did myself. Driving a Land Rover gives you a sense of freedom. Driving a classic Land Rover is being part of a community. As a token of freedom, many of my fellow Land Rover enthusiasts had sticker on their car: ‘One life, Live it’ A reminder not to waste time on things that don’t really matter. The last quarter of the year is always a busy time for TGO Consulting. Many running projects reach a stage in which an important milestone is reached; many new projects start after the big November partner meetings. Having so many conversations with clients around partner meetings, I often think about the text on that Land Rover sticker, as I am wondering if partners are spending their time wisely on these meetings. “Out of all the time you spend on partner meetings, what percentage of the time do you discuss clients and market opportunities?”, I regularly ask partners. The typical response will be “close to zero”. When the partners of a law firm get together, they typically discuss internal issues. Market opportunities and clients are rarely part of the conversation. Can you imagine the board of any commercial company not discussing markets and clients? So why are lawyers so obsessed with internal issues? Partner meetings are hardly ever about clients and opportunities As a partner in a law firm your available time and energy is finite. Lawyers are under constant pressure from their clients and from their firm to produce outstanding results. For any partner in a top law firm client work will consume most of the time and energy. If time and energy are precious resources, why waste it on things that do not contribute to better business or wellbeing? Available time is limited, use it wisely. In general, partners don’t like partner meetings. Many bring their laptop, check their emails, do some client work or read the news/watch sports. Why spend time on a meeting that does not bring you anything other than drinks or dinner at the end? The same applies to most other internal meetings. Many partners don’t like attending. They are invariably late, did not prepare and are distracted with other things for as long as the meeting will last. They only attend because they are expected or required to do so. If not, they would rather spend time on their files. The purpose of this article is on the one hand to liberate partners from the chains of useless meetings, and on the other hand to highlight that when they meet partners should talk about the business much more than about internal stuff. Business and clients bring you money. So, if you invest time and energy, there will be a positive return on the investment. Ideally a law firms should abolish all meetings that do not bring a clear return on the investment. No more meetings for the sake of having a meeting. No more useless rituals. Applying this simple rule will free-up a significant amount of time, will have a positive impact on your wellbeing and will keep you focused on the outside world. Many law firms have an internal culture of whining and complaining Mutatis mutandis, this rule also applies to the managing partner, the executive committee and the practice group heads. Typically, in law firms there are many internal issues, big and small, that absorb disproportionate amounts of time and energy. All of you involved in law firm leadership know the amount of time that is spent on disputes between partners or the type of flowers on the reception desk. The problem is that spending time on solving all these little issues, does not make the firm any better and does not bring in better clients or more revenue. It just drains your energy. Law firm leadership would be well advised to simply ignore all these internal issues. If two partners have a ‘fight’, let them sort it out themselves, they are adults. If the flowers on the reception desk are not fresh today, let it be, there will be fresh ones tomorrow. It does not directly affect the business. Also, for law firm leaders, time and energy are limited. Your task is to make the firm better, not to be a schoolmaster. Rather than wasting time on the weak ones, invest time in the strong performers. Rather than trying to persuade the unwilling, work with the willing. Focus on opportunities rather than on obstacles. Once you start doing this you will not only be far more effective, you will probably also fundamentally change the culture of the firm. Too many law firms have among the partners an internal culture of whining and complaining. Shake off this toxic blanket and start focusing on business opportunities.

When I attended law school, laws and legal case law were still only available on paper. I remember receiving an envelope with a bundle of single pages that needed to be inserted and exchanged in my bundle of legislation on a monthly basis. This was an ever-repeating tedious task all law students back then had to commit to. Only in my final year MS-DOS computer training became part of the curriculum. All this is set some three decades ago, and much has changed since. Back then, knowledge of the law was virtually inaccessible for anyone except for those who had gone through law school. Lawyers had a monopoly for even the most basic legal questions. Today this obviously is no longer the case. Due to a process of digitalization of legislation and case law, access to legal knowledge is no longer limited to those who hold a university degree and have access to the books. Unprecedented progress in search technology and information available online has opened the legal knowledge to the masses. Today anyone, even my mother, can find basic answers to the most common legal questions. While the world has changed, the way in which we educate and train young lawyers has not. This is an issue we need to discuss. As I have outlined in previous articles and in my most recent book ‘Data & Dialogue, a relationship redefined’ the process of what a lawyer does consists of two distinct elements. We call this the Creation-Production-Divide-Concept©. Creation contains all elements that are uniquely connected with the individual skills of the lawyer. These are the things that have most value to the client and are also the elements that distinguish effectively one lawyer from the other. Elements like, the knowledge of best market practice, strategic skills, the ability to find creative and innovative solutions, negotiating skills and communication skills are all part of Creation. Production contains all the actions and processes needed to produce the actual legal output. Production is document review, drafting the agreements, doing mark-ups, discovery, due diligence, and so on. These necessary processes have very little added value to the clients and are not very distinguishable between one law firm and the other. This is the prime area where technology will increasingly be used to augment lawyers. Production needs to be done as efficient as possible as it is considered a ‘necessary evil’ that does not add any substantial value. Once you learn to understand the Creation-Production-Divide-Concept©, you will start to realize that Creation is the key to delivering value to clients and to setting yourself apart from other lawyers in the market. We at TGO Consulting operate in the top segment of the legal market and the future for our clients definitively will be in delivering Creation, not Production. This might be slightly different for mid-market law firms now, but also this segment will need to shift its focus. So why is this such a big issue? Well, the fact is that today almost every law firm heavily relies on the revenue generated by Production. The majority of law firms, even in our segment of the market, employ a small army of associates that almost exclusively focus on production. Associates review documents, draft agreements, perform due diligence, and so on. I would be fair to state that the revenue derived from Production is what keeps firms afloat today, but will it also in the future? Probably not. High end law firms will be the first that need to shift their business model towards Creation. The issue is, that this will require an overhaul of the business model. Firms need to change the leveraged model, need to introduce value pricing and need to invest in technology to help deliver the final output. This transformation will take several years to successfully be implemented. In future business models, associates will no longer spend most of their time performing tasks that, from the clients’ perspective have low value. Technology will help them do the tedious boring work much faster. While almost every law firm is spending time and effort on innovation and legal technology, almost none invest in human beings. Their lawyers might be working with AI, learn to code or dive into blockchain, they are not challenged to develop their personal skills. I would advise all law firms in the top segment of their market to start developing their young lawyers’ human skills in order to prepare them for a future in which the Creation abilities of a lawyer are far more important than the ability to perform repetitive low value tasks. This is a departure from where we are today, where many law firms occupy their young lawyers with basic (stupid) low value work. As some of you may know, we have at one of our clients (an elite law firm with an international footprint) done a very interesting experiment: 50% of their new recruits was put to work in the traditional way, doing basic legal work. The other 50% also did this basic work, but only half the time. The other half of the time they accompanied partners to high level meetings with clients. Obviously, this time was not charged for. They just had to sit, listen, observe and learn. Afterwards they discussed with partners their observations. Data showed that in year one, the traditional group of new associates brought more revenue to the firm, which is logical as they made twice the number of billable hours. After one and a half year both groups were equal and after three years the ‘experimental’ group outperformed their traditionally trained peers by more than 25%. Exposure to client dynamics has led to a greater ability to deliver value, to have less write offs and to charge more. The whole point of this real-life example is to show that it pays off for lawyers to invest in human skills. Training young lawyers how to create value to clients through Creation can be done in many ways. The one way that surely is not going to work is to keep them busy with basic Production stuff. Even if you would lose some revenue on the short term, you will create a multitude in revenue on the longer term. Creation is for lawyers; Production will be to a great extent for machines.

Last Sunday, 6 October, while browsing the news over breakfast, an article on Bloomberg caught my eye. The title read “A Banker Reveals the Bonus Culture Behind a $220 Billion Scandal”. Bloomberg had interviewed Mikhail Murnikov a former banker at the non-resident unit of Danske Bank A/S in Estonia. He explains how the bonus system has led to wide spread money laundering: “The whole non-resident business was built on one principle: Everyone was making money on cross-border transactions because non-residents had to pay $90 per transaction, while the costs associated with each transaction amounted to $1.” By 2013, when profits peaked, Murnikov says Danske’s Estonian bankers were told to process close to half a million transactions for 4,000 non-resident clients, mostly from the former Soviet Union. That year, returns at the non-resident unit hit 402%, compared with about 7% for the whole Danske Bank group. “I had a clear plan,” Murnikov said. With the 300 clients he had, the former banker says he needed to “make 40,000 transactions a year so I could get a bonus.” He says the only metric Danske used to determine an employee’s bonus was the number of transactions he or she handled. (source: Bloomberg) We at TGO Consulting regularly have discussions with our clients on their lawyer bonus system. Most law firms award their associates a bonus if they manage to exceed a certain threshold in billable hours. Despite this being widespread practice, in my opinion this bonus system is flawed. Let me explain some issues your bonus system has: Working on billable matters is not a virtue Working on billable matters is not a virtue, it is simply a lawyer’s job. In the most countries in the western world employees are expected to work around 1900 hours annually. The actual number varies a bit between countries depending on the number of public holidays and labor laws, but 1900 is a good ballpark figure to work with. This means that a normal nine-to-five office worker or industry worker will have to work 1900 hours for their salary. I don’t think that I need to explain that during these 1900 or so work hours, the employee is expected to be as productive as possible. Some companies go to great lengths monitoring their employees’ performance. Examples like Amazon and Ryanair spring to mind. So why do law firms consider it to be something special if a lawyer produces over 1500 billable hours. This would leave 400 hours unutilized (amounting to one full day every week). Amazon would never accept that I assume. Or if Amazon is too far-fetched, just imagine a corporate counsel who would spend only 4 out of 5 days in a week being productive for the company. So why would we award lawyers working in law firms a bonus for being productive only four out of five days a week? It does not make sense. Billable hours are not the associates’ responsibility Billable hours are not the associates’ responsibility. The main reason why associates don't produce 1900 billable hours is the partners not providing them with the work. As explained in previous articles, it is the responsibility of partners to make sure that the associates have sufficient files to work on. If partners would provide associates with a steady workflow, associates would easily be able to make 1700 billable hours without any stress. Still leaving 200 hours per lawyer for education, training, publishing, recruitment and so on. So, if it is not within the reach and responsibility of an associate to influence the workflow, why make their bonus depend on it. At least the bankers in Tallinn could influence number of transactions. The fact that the number of billable hours an associate can produce heavily relies on the workflow from the responsible partner, also makes the bonus system inherently unfair. A medium quality associate working in a small team of a partner that has a huge practice will get a bonus, as where the talented associate who happens to be part of a larger team where the partners has a smaller practice, will never get a bonus. I see this happen a lot. It is often not the best associates who get the bonus. Bonus system is often a lottery, where the associate just must be lucky enough to be connected to a successful partner. The bonus system does not reward quality. The bonus system does not promote teamwork The bonus system does not promote teamwork and rewards selfish behavior among associates. As with any performance metric, the bonus incentive will drive behavior. In any law firm that expects an annual hourly target of less than 1600 there is a structural shortage of client work. This means that the bonus system will encourage associates to not share work. An experienced associate might be tempted to self-handle non-complex matters that would be better handled by a more junior lawyer. This will hamper the training and education of the junior lawyers. For the firm as a whole, it would be best if all matters were handled at the right level. The bonus system is likely to undermine this principle. Conclusion So, if the commonly used bonus structures are no good, what are the alternatives. Firstly, in my opinion no one needs to be extra rewarded for simply doing their job. Bonus should be reserved for accomplishments that are really outstanding. At the same time, I would encourage law firms to set up a flexible lawyer remuneration system that would lead to lower fixed costs if business is slow. There are numerous ways to achieve this without using the billable-hour-based bonus system. If you are interested in this, please talk to us. As far as bonuses are concerned, why not let everyone share in the performance results of the firm or the team. Lawyers that operate as a team will always outperform a group of ‘selfish’ individuals.

Recently I was asked by the managing partner of a well-known tier-1 law firm, what in my opinion was the number one reason why change processes are so hard to successfully accomplish in a law firm. This is not an easy question to answer as there are multiple reasons. Lack of ownership and the deep-rooted wish for magical solutions among the most noticeable. After I had given the question some thought my answer was: “fear”. Fear is a very powerful driver of behavior. Lawyers are trained to virtualize every potential downside or risk. In general, it is hard for a lawyer to focus on opportunity instead of potential risks. Even though there might be several reasons NOT to do something, there might be ONE good reason to do it. This is the way in which entrepreneurs look at the world. This is not how lawyers see it. This is equally true for company lawyers as it is for outside counsel. Virtualizing potential hazards, lawyers prepare for the worst possible scenario. This also applies to any process of change. Almost all resistance to change, both active and passive, boils down to fear. Not fear for the future of the firm, but a very personal fear of how any change might negatively impact the partner’s personal position. Find the core of the fear and you have found the key to change. Find the core of the fear and you have found the key to change Personal fear comes in many shapes and forms. Among them is the fear of being ousted. Notwithstanding the fact that partners are shareholders and as such owners of the firm, mentally they often remain employees. Just like employees can be fired, partners can be made to leave. Market data shows that partners that are made to leave, unlike the partners that choose to leave, most of the time end up earning less. Partners are aware of this and that is why they will do whatever it takes to hang in there and avoid being kicked out of the partnership . We have discussed KPI’s for partners before. Reality is that today most law firms measure and monitor the amount of revenue that a partner brings in. This is equally true in eat-what-you-kill as it is in equal sharing full lockstep. Revenue is king, closely followed by hours. Partners are under constant pressure to bring in money. Not being natural born rainmakers, many struggle to do so. Often it takes years for a new partner to build a practice that produces a more or less steady stream of revenue. For many partners meeting the revenue requirement remains a permanent major headache. Most partners recognize the fear of an empty desk Unlike many other types of businesses, lawyers generally handle one-off assignments. People will need to buy groceries every day, just as they will have to keep buying fuel for their cars and new clothes to wear. Supermarkets, oil companies and fashion brands will have a steady stream of recurring customers as no one can do without. This is different for legal matters. For most companies M&A is a once in a lifetime event, as is litigation. Unless they have some big companies that are repeat players as a client, lawyers are depending on finding new clients as soon as a matter is completed. A partner and his team that have just completed a major M&A on which they have worked for months, will be worried whether and when the next big mandate will come in. In general, many lawyers fear the prospect of not having enough work. Lawyers live in fear of an empty desk. This fear is amplified by the pressure to produce revenue and hours. Even a short period of time without sufficient work might jeopardize meeting the targets. Fear of an empty desk leads to all kinds of bad behavior When we at TGO Consulting are working with law firms, we are in many cases consulting on improving the practice and raising profitability. Working towards a better, more profitable practice might entail raising the average file size, higher average rates, or a higher share of blue-chip clients. On a rational level, partners understand that it would be better if their average file size would be a lot higher. Bigger files are, in the eyes of the client and the market, considered more important than small files. But convincing a partner to actually stop accepting files below a certain size, is a totally different ball game. The partner will fear that once he rejects the small files, there might not be big files to fill the gap. The fear of an empty desk will prevent the partner from raising the quality of his/her practice. As more partners will feel the same way, this will frustrate implementation of a strategy that is aimed to increase profitability. The same mechanism will apply when the partner is asked or pressed to raise the average rate. Again, the partner will fear that existing clients might walk away, without sufficient new clients to fill the gap. The fear of an empty desk is a consequence of the fear of not meeting the targets, which in turn is fueled by the fear of being ousted. The fear of an empty desk is a driver for partners to take on clients and mandates that do not fit the strategy of the firm. Personal fears of partners can be so strong that they stand in the way of growth and greatness. No safety-nets Based on the above, one might be inclined to think that one solution to this problem could be to give the partners a guarantee that they will not be ousted if they fail to meet their targets due to the process of adapting their practice to the new strategy. I personally do not believe in this approach. The only way to succeed is to not have a plan-B. Having a plan-B or any other safety net will kill the burning platform that is needed to change any existing routine. Successful change can only be achieved with an all-or-nothing mentality. Do-or-die, otherwise mediocrity will rule.

While I write this article, most of our readers are at the annual IBA conference in Seoul. Good chance that you will be reading this whilst waiting at the airport for your flight back home. I would like you to use this opportunity to reflect on the concept of time. Time is not just a continuum or the patchwork of time-zones around the world. Time is also today the very lifeblood of the business of law. For the past five decades the legal industry has charged fees based (directly or indirectly) on the amount of time spent. Those of you familiar with my thinking will know that in my opinion time-based billing is a poor concept as time does not in any way reflect value. The Creation/Production Divide Concept clearly explains that by using time as a measurement, lawyers vastly undercharge for those aspects of their work that bring most value to their clients (creation), while ‘overcharging’ for elements that bring little or no added value to the client, such as reviewing and producing the documents (production). In case you haven’t read it, here is an article that explains in more detail. In the next few years, the legal industry will have to make a transition from time-based-billing to value-based billing. However as long as lawyers and clients have not embraced value-based-billing, the existing agreement is still that the lawyer will charge for all increments of time spent on a client’s matter. And as long as the agreement is to bill for time, it is implied that time is registered accurately and correct. It is my experience that this is far from the case. Most lawyers (certainly outside the US and London) are lousy at tracking time. Contrary to popular belief, most lawyers undercharge. By not accurately keeping track of time, lawyers are leaving money on the table. We all underestimate the amount of time We humans are not especially good in estimating how much time something takes. That is why there is a whole cottage industry in time-management and planning. The common denominator is that we invariably under- rather than over-estimate the amount of time. That is why we are always late, and projects always run over time. Would you be able to say how much time you spent eating and/or drinking yesterday, accurate to 6 minutes? I’m pretty sure you will not be able to do that. I am also pretty sure that whatever number you come up with will be lower than the actual time spent eating and/or drinking yesterday. The same holds true as it comes to client matters. In retrospective we underestimate how much time we have spent. The longer a lawyer waits with entering time into the system, the more 6-minute increments start to evaporate. The percentage of lawyers that has the discipline to keep time during the day is almost nil. The number of lawyers who enters and closes the timesheet at the end of every day is also disappointingly low. Some lawyers do not even complete all timesheets by the end of the week. Partners are no exception. I know several law firms that have turned to drastic measures to ‘force’ their partners to enter the timesheets at least every three days. It doesn’t help. Discipline is for losers it seems. Partners are ‘above the law’, which is stupid as this directly affects profitability. The eroding effects of the lack of discipline and accuracy in keeping track of time are substantially amplified when a lawyer has been working on a number of smaller files. Retrospectively writing time is relatively easy if it has only been one large file that you have been working on. When working on smaller files the inaccuracies are multiplied by the number of files. If a lawyer has been working on 10 files and misses 12 minutes per file, that mounts to 2 hours over the course of a week. Multiply this with the number of lawyers and you have a substantial amount of profit evaporating every week (as there are no additional costs, all extra revenue is profit). Lack of time keeping discipline will easily cost you a million! Besides lack of accuracy there is a second factor that is eroding revenue: 'modesty'. The present arrangement with clients is that the lawyer will charge for all time spent on the matter. The agreed hourly rate takes into account the level of experience and expertise each lawyer has. The more experienced, the higher the rate. This is fair because the more experienced lawyer will need less time to come to the same result. The lower rates for less experienced lawyers take into account that they will need more time to get to the same result. The problem is that it happens quite frequently that junior lawyers feel ashamed about the amount of time it has taken them to prepare a document or part of a matter, so they artificially reduce the number of hours as they enter time into the system. This form of ‘private initiative’ should be strictly forbidden in any law firm. It is of utmost importance that the real time spend is accurately entered into the system. I would advise every firm to actively and regularly communicate this to each individual fee-earner from the day they start. Should there be a legitimate ground to write off some of the hours, this decision can only be taken at the end once the matter is completed. Only at this stage there is a complete overview of all time spend and does it become apparent if someone has spent unreasonable amounts of time on an aspect of the matter. As long as lawyers have an agreement with the client to charge for time spent, they are under a contractual obligation to keep accurate track of time. Lawyers who do not enter all hours worked on a matter correctly into the system are in fact stealing from the firm and should perhaps be fired. Perhaps something to think about during your long flight from Seoul back home. You might want to implement stricter policies as of Monday.

When you search Google for ‘weight loss programs’ you get 500 million results. Among them are famous diets like the Mayo Clinic Diet, Weight Watchers, Eat more Weigh Less, the Mediterranean Diet, the Atkins Diet, and dozens more methods that are supposed to lead to easy permanent weight loss. Weight loss has grown into a multi-billion-dollar industry. Millions of people are looking for a quick and easy fix that will magically melt away the fat and will give them the figure of a fashion model. Obviously, all this is nonsense, there is no quick and easy way to lose weight. The only way is to forever eat less, eat healthy, no alcohol and exercise more. The only way to lose weight is a drastic change of lifestyle. To most people that is not very appealing, so they fall prey to magical solutions that in the end fail to deliver the desired result. This cycle just keeps repeating itself, hence the multi-billion-dollar weight loss industry. Sure, all of you will be familiar with TED Talks. These 18-minute aspirational talks have been around for over a decade and have gathered huge numbers of almost cult-like dedicated followers. As inspirational and captivating as the TED Talks may be, they are dangerous and misleading. TED Talks simplify complex problems and create the illusion that there is a clean quick and easy fix. TED Talks are tailored to make you believe that there is a world full of rainbows, butterflies and unicorns, where there is a technological solution for every complex problem. Quad non. The TED organization is a merciless commercial machine that feeds off peoples’ craving for hope and a better world. Analyzing 10 years of TED Talks clearly shows that most ideas failed to materialize and deliver the supposed solutions. Remember Elizabeth Holmes from THERANOS, just as an example. She gave a TED Talk in 2014. Humans have a deep rooted wish for quick and easy solutions. The combination of a deep-rooted wish for quick and easy solution and the tendency to believe in inspirational stories is a dangerous one. Mankind is not well equipped to deal with reality and lawyers are no exception. We all want a quick and easy way out. In my book ‘Death of a Law Firm’ (2015) I describe this craving for ‘Deus-ex-Machina Solutions’ extensively in chapter 9. Partners in a law firm are under a lot of pressure to deliver on client matters and to create revenue. By nature, lawyers are a bit ‘nerdy’. Typically, the are at their best, sitting behind their desk solving complicated legal puzzles. Most lawyers do not like change and do not like risks. They like to be left alone and concentrate on the matters at hand. Having said this, at the same time when coming together in a partners meeting, there is often a distinct fear of loosing out. Invariably it seems that some of the other law firms are doing better. Partners could have picked up a rumor that the law firm across the street is using clever technology, or that competing law firms are making more profit. Whatever the cause, there will be a reason to fear that the firm is losing out. Something then must be done. Management needs to come up with a plan. The problem is that whatever solution is proposed, ideally it should not involve active involvement from the partners. Change should happen and results should be achieved while the partners keep doing what they did. Effectively partners are looking for a magical fix. Looking for salvation from the outside. They want ‘Deus-ex-Machina Solutions’ This is why so many, if not most initiatives end up getting stuck in the mud. Just think about how often your firm in the past has decided on change and then think about how few of these initiatives turned out to be effective. Partnerships are going through the same cycles over and over again: everyone agrees change is needed, an ambitious plan is drawn up, task-forces and working groups are formed, trainers and consultants are flown in. In the end nothing fundamentally changes and after some time the whole cycle starts all over again. There is no magical fix. Like that ‘miracle diet’; after a while you start gaining weight again and the whole diet cycle starts all over. If you do what you did, you get what you've got. People should start to face reality. No problem will be solved, and no significant results will be achieved unless you are prepared to take ownership, change your routines and put in a lot of hard work and energy. Change does not so much require inspiration or courage; it requires above all personal ownership and responsibility. If you want to be number one, you have to be prepared to put in an almost disproportionate amount of effort. Not as a burst, but for the long haul. Lack of ownership, lack of focus and lack of continuity are the main reasons why change projects fail. Many law firms want to be more innovative. Not because there is a business case but because they think everyone else is doing it. Appointing a Director of Innovation is not going to do the trick, nor does investing in clever software. Innovation is not something you can do part-time or have organized around you. Your Managing Partner cannot fix it. The same goes for entrepreneurship and many other issues. Projects fail over and over again because partners do not take ownership and are not willing to invest time and effort. If your firm aspires to have more blue-chip clients, Business Development can not fix this for you. You have to take responsibility and get out there yourself. The wish to find a ‘Deus-ex-Machina Solution’, a magical fix is almost universal. We at TGO Consulting work with elite law firms across the world. All but the very best prefer discussing how to take action over taking action. Lawyers are highly intelligent; they can theoretically explore all kinds of solutions. After the interesting theoretical discussion, they want nothing more than going back to their practice. Hoping that magical forces will solve the issue while they are at work. It is time to confront the inconvenient truth: ‘If you do what you did, you get what you've got’. If you want change, you need to change your routines. There is no way around ownership. There is no magical fix, never.