Supporting Your New Managing Partner

Many law firms are going through a transition to the next managing partner. As they do, there are lessons to be learned. There will be a successful transition if some requirements are met. This article focuses on those requirements because if the transition fails, so does the credibility of leadership. Without credibility of leadership, the firm will become rudderless, dysfunctional, and headed for oblivion.

As an example, let me draw from a small book titled “Murphy's Law and Other Reasons Why Things Go Wrong.” Brien's First Law: “At sometime in the life cycle of virtually every organization, its ability to succeed in spite of itself runs out.”

A Brief History

First, let's look at the transition of law firms over the years. In the 70s, there was a tight equity bond within law firms. Most firms had under 100 lawyers, and most partners knew the background and capabilities of the other partners and associates within the firm.

As law firms moved into the 80s, they experienced exponential growth through expansion and nationalization. They faced new competition from out-of-state law firms. Associate salaries began to skyrocket, forcing new economics upon law firms. The Cobb Value Curve kicked in ' where the client valued the work of law firms as “you bet your company,” “hired for experience,” “brand name,” or “commodity.” As a firm provides service in the top two levels, the work becomes less price-sensitive. As the work is perceived toward brand name and then to commodity, there is more price sensitivity.

In the 90s, the number and complexity of issues increased exponentially with international competition and international clients. As the issues increased, better communication was required, which led to new structures. These, in turn, required lawyers to adapt to new roles as leaders, mentors, and client relationship managers. Some lawyers did not have the skill sets to perform their new roles, and failed. Those who failed had a problem with the decision because, without a clear vision on where the firm was going and without strong core values, the replacements would seem personal or a power grab, and not perceived as a focus on the firm's future.

New Roles

The new managing partner must be cognizant of the following as he or she takes over the job. The first is timing. How long has the new managing partner been operating in a position of responsibility and accountability so that other partners respect his or her performance? Usually, more than three years is the norm. Second, there is an issue of trust. Do the lawyers trust the decisions being made by the new managing partner? That trust will depend on the length of time the individual was in a position of authority before assuming the role. In previous roles, were his or her decisions respected and did they follow the vision of the firm? Third, the new managing partner must ensure that his or her agenda agrees with the vision and core values of the firm, and that all lawyers understand that agenda. A Harvard Business Review article by Stephen Bungay in the January-February 2011 issue pointed out a way, and I encourage reading the article for additional information. The first few words in the paragraphs to follow are from Bungay, and the rest of the paragraphs are focused to fit the comments above and law firm issues.

Step 1: State your intent. How does the agenda fit with the vision and core values of the firm? One managing partner carried a vision statement around with him to various meetings. When someone would offer an idea, he would ask how that suggestion would advance the firm toward its vision. If the answer was “I don't know,” then he would say, “Let's move on and come back to it when you have an answer.”

Step 2: Try again, this time in context. What is the context in which we are considering the agenda? Is it competition, economics of the firm, associate turnover or training, client turnover, client profitability or one of many of the other issues that may have come up?

Step 3: Set your measures. How will the firm measure progress or success? For example, one firm was focused on realization improvement for all practice groups. Each group was asked to improve its return on rate (realization) by 5% over the next four quarters in a way most appropriate to the practice. Litigation had to stop giving huge billing rate discounts by using alternative fee arrangements or by becoming more efficient in its performance and its investment in matters. The transactions group was asked to focus on associate turnover in order minimize the waste of lawyer time in relearning client matters. And so forth.

Step 4: Have the task groups define the task by which they are going to show performance in each quarter. Would it be to provide training, project management training and implementation, providing mentors, project mapping, client segmentation and development, or other tasks that will produce improvements each quarter?

Step 5: Define the boundaries. These should not be difficulties, but areas where the task groups should be looking for opportunities. What are the programs that will have the highest impact and the highest probability of success? For example, the litigation group may choose to map many of its matters to become more efficient in assigning work to those best able to handle the task. The transaction group may also choose to map its matters so it would be able to give clients faster turnaround at a fixed fee, thus using its lawyers and staff much more efficiently.

Compensation

Also associated with the new challenges is compensation. As firms focus on efficiency and effectiveness, less time will be invested in matters and fewer fees will be generated, but realization will be higher. For example, in a $50 million firm, a 5% decrease in fees will drop revenues by $2.5 million, but also drops expenses. But a 5% increase in realization would generate $2.5 million with no increase or a decrease in expenses. All of the increases would drop to distributable income. Another problem will arise. Many firms base their partner compensation on the size of the lawyers' portfolio. But if the firm is increasing realization, a partner who achieves the highest efficiency and realization should be compensated the most. For example, a partner with a portfolio of $2 million and 72% realization should make less than a partner with a 98% realization and a portfolio of $1.5 million. See the chart below for a comparison.

[IMGCAP(1)]

Accountability

Accountability throughout the firm is a must if the new managing partner is to succeed. Accountability is a function of a vision understood by all, and a function of the firm's culture and core values. Collaboration is the key to accountability; collegiality is not. Collegiality is a group of people bound together by a common profession and independent of one another in their actions. Collaboration is a group of people bound together by a common vision and accountable to one another for the accomplishment of that vision. Without collaboration, working groups become dysfunctional within the firm. I found the following in “Murphy's Law.” Shanahan's Law: “The length of a meeting rises with the square of the number of people present.” My corollary is: “The number of alternative approaches to a problem rises as the square of the number of people in the meeting.”

So collaboration is key. There will be true teams working together to make things happen. They will have one focus on performing for the firm. They will be functioning within the core values established by the founders and leadership. Why do firms need this? Because of the increasing complexity of the managing partner's job, there needs to be a decentralization of decisions regarding training, client relationships, pricing, and management of practice areas and practice groups. Leaders must be focused on the desired performance of their groups and the overall performance of the firm. With collaboration comes accountability.

Authority

As stated previously, decentralization of the decision-making will be key to a successful firm and the success of the new managing partner. As the number and complexity of the issues facing the firm increase, the effective structure will be one of the primary success factors. Structures must be in place to put the firm in a client-centric position where clients' needs and businesses are served by interdisciplinary groups of lawyers who have the will and the authority to act. If various groups and their leaders do not buy into the vision and core values of the firm, service will be disjointed and inefficient. This era is not the same as the 70s and 80s. This era requires a concerted effort to focus on clients because the clients are stronger, they have better risk assessment systems, and they are the ones that determine value added to their business. As alternative fee arrangements get forced upon law firms, there will have to be decisions made at the client, practice area, and practice group levels to seek ways of achieving higher realization on rates. Each will have to make decisions on training, the distribution of talent and staffing, matter management, and the maps of approaches to the client matters that will enable alternative pricing.

Summary

As stated previously, law firms will be going through increasing complexity in management. The profession only has to look at the number of major law firms that have failed or been merged out of business because of weak or ineffective management. My answer in response the “merge or die” pundits is that “it is not the mid-sized firm that will fail, it will be the mis-managed firm.”

McKinsey Quarterly recently reported that only 30% of groups dealing with high-stakes issues were engaged in “productive collaboration.” When members had differing, entrenched interests, that figure dropped significantly. For example there will be very little collaboration and support of the new managing partner and the firm when members of a task group are trying to protect their own constituencies or their own book of business. This happens way too often in law firms and has made many ineffective in dealing with prevailing trends and the new era of competition.

There must be collaboration to produce accountability ' and accountability to produce decentralized authority ' so the new managing partner is not overwhelmed with decisions bubbling up into his or her office. That will require a strong, understood vision and a focus on the successful future of the firm in its market. To paraphrase Jim Collins, author of “Good to Great,” a firm must get the right people on the bus and get them in the right seats. If they cannot perform, they must be replaced. Or, get the right people on the team and the wrong ones off. Only by collaboration will the firm be able to make those kinds of tough decisions.

This article first appeared in Law Firm Partnership & Benefits Report, a sister publication of this newsletter.

William C. Cobb is the managing partner of Cobb Consulting (WCCI, Inc.) based in Houston. E-mail: [email protected]. Website: www.cobb-consulting.com.

Many law firms are going through a transition to the next managing partner. As they do, there are lessons to be learned. There will be a successful transition if some requirements are met. This article focuses on those requirements because if the transition fails, so does the credibility of leadership. Without credibility of leadership, the firm will become rudderless, dysfunctional, and headed for oblivion.

As an example, let me draw from a small book titled “Murphy's Law and Other Reasons Why Things Go Wrong.” Brien's First Law: “At sometime in the life cycle of virtually every organization, its ability to succeed in spite of itself runs out.”

A Brief History

First, let's look at the transition of law firms over the years. In the 70s, there was a tight equity bond within law firms. Most firms had under 100 lawyers, and most partners knew the background and capabilities of the other partners and associates within the firm.

As law firms moved into the 80s, they experienced exponential growth through expansion and nationalization. They faced new competition from out-of-state law firms. Associate salaries began to skyrocket, forcing new economics upon law firms. The Cobb Value Curve kicked in ' where the client valued the work of law firms as “you bet your company,” “hired for experience,” “brand name,” or “commodity.” As a firm provides service in the top two levels, the work becomes less price-sensitive. As the work is perceived toward brand name and then to commodity, there is more price sensitivity.

In the 90s, the number and complexity of issues increased exponentially with international competition and international clients. As the issues increased, better communication was required, which led to new structures. These, in turn, required lawyers to adapt to new roles as leaders, mentors, and client relationship managers. Some lawyers did not have the skill sets to perform their new roles, and failed. Those who failed had a problem with the decision because, without a clear vision on where the firm was going and without strong core values, the replacements would seem personal or a power grab, and not perceived as a focus on the firm's future.

New Roles

The new managing partner must be cognizant of the following as he or she takes over the job. The first is timing. How long has the new managing partner been operating in a position of responsibility and accountability so that other partners respect his or her performance? Usually, more than three years is the norm. Second, there is an issue of trust. Do the lawyers trust the decisions being made by the new managing partner? That trust will depend on the length of time the individual was in a position of authority before assuming the role. In previous roles, were his or her decisions respected and did they follow the vision of the firm? Third, the new managing partner must ensure that his or her agenda agrees with the vision and core values of the firm, and that all lawyers understand that agenda. A Harvard Business Review article by Stephen Bungay in the January-February 2011 issue pointed out a way, and I encourage reading the article for additional information. The first few words in the paragraphs to follow are from Bungay, and the rest of the paragraphs are focused to fit the comments above and law firm issues.

Step 1: State your intent. How does the agenda fit with the vision and core values of the firm? One managing partner carried a vision statement around with him to various meetings. When someone would offer an idea, he would ask how that suggestion would advance the firm toward its vision. If the answer was “I don't know,” then he would say, “Let's move on and come back to it when you have an answer.”

Step 2: Try again, this time in context. What is the context in which we are considering the agenda? Is it competition, economics of the firm, associate turnover or training, client turnover, client profitability or one of many of the other issues that may have come up?

Step 3: Set your measures. How will the firm measure progress or success? For example, one firm was focused on realization improvement for all practice groups. Each group was asked to improve its return on rate (realization) by 5% over the next four quarters in a way most appropriate to the practice. Litigation had to stop giving huge billing rate discounts by using alternative fee arrangements or by becoming more efficient in its performance and its investment in matters. The transactions group was asked to focus on associate turnover in order minimize the waste of lawyer time in relearning client matters. And so forth.

Step 4: Have the task groups define the task by which they are going to show performance in each quarter. Would it be to provide training, project management training and implementation, providing mentors, project mapping, client segmentation and development, or other tasks that will produce improvements each quarter?

Step 5: Define the boundaries. These should not be difficulties, but areas where the task groups should be looking for opportunities. What are the programs that will have the highest impact and the highest probability of success? For example, the litigation group may choose to map many of its matters to become more efficient in assigning work to those best able to handle the task. The transaction group may also choose to map its matters so it would be able to give clients faster turnaround at a fixed fee, thus using its lawyers and staff much more efficiently.

Compensation

Also associated with the new challenges is compensation. As firms focus on efficiency and effectiveness, less time will be invested in matters and fewer fees will be generated, but realization will be higher. For example, in a $50 million firm, a 5% decrease in fees will drop revenues by $2.5 million, but also drops expenses. But a 5% increase in realization would generate $2.5 million with no increase or a decrease in expenses. All of the increases would drop to distributable income. Another problem will arise. Many firms base their partner compensation on the size of the lawyers' portfolio. But if the firm is increasing realization, a partner who achieves the highest efficiency and realization should be compensated the most. For example, a partner with a portfolio of $2 million and 72% realization should make less than a partner with a 98% realization and a portfolio of $1.5 million. See the chart below for a comparison.

[IMGCAP(1)]

Accountability

Accountability throughout the firm is a must if the new managing partner is to succeed. Accountability is a function of a vision understood by all, and a function of the firm's culture and core values. Collaboration is the key to accountability; collegiality is not. Collegiality is a group of people bound together by a common profession and independent of one another in their actions. Collaboration is a group of people bound together by a common vision and accountable to one another for the accomplishment of that vision. Without collaboration, working groups become dysfunctional within the firm. I found the following in “Murphy's Law.” Shanahan's Law: “The length of a meeting rises with the square of the number of people present.” My corollary is: “The number of alternative approaches to a problem rises as the square of the number of people in the meeting.”

So collaboration is key. There will be true teams working together to make things happen. They will have one focus on performing for the firm. They will be functioning within the core values established by the founders and leadership. Why do firms need this? Because of the increasing complexity of the managing partner's job, there needs to be a decentralization of decisions regarding training, client relationships, pricing, and management of practice areas and practice groups. Leaders must be focused on the desired performance of their groups and the overall performance of the firm. With collaboration comes accountability.

Authority

As stated previously, decentralization of the decision-making will be key to a successful firm and the success of the new managing partner. As the number and complexity of the issues facing the firm increase, the effective structure will be one of the primary success factors. Structures must be in place to put the firm in a client-centric position where clients' needs and businesses are served by interdisciplinary groups of lawyers who have the will and the authority to act. If various groups and their leaders do not buy into the vision and core values of the firm, service will be disjointed and inefficient. This era is not the same as the 70s and 80s. This era requires a concerted effort to focus on clients because the clients are stronger, they have better risk assessment systems, and they are the ones that determine value added to their business. As alternative fee arrangements get forced upon law firms, there will have to be decisions made at the client, practice area, and practice group levels to seek ways of achieving higher realization on rates. Each will have to make decisions on training, the distribution of talent and staffing, matter management, and the maps of approaches to the client matters that will enable alternative pricing.

Summary

As stated previously, law firms will be going through increasing complexity in management. The profession only has to look at the number of major law firms that have failed or been merged out of business because of weak or ineffective management. My answer in response the “merge or die” pundits is that “it is not the mid-sized firm that will fail, it will be the mis-managed firm.”

McKinsey Quarterly recently reported that only 30% of groups dealing with high-stakes issues were engaged in “productive collaboration.” When members had differing, entrenched interests, that figure dropped significantly. For example there will be very little collaboration and support of the new managing partner and the firm when members of a task group are trying to protect their own constituencies or their own book of business. This happens way too often in law firms and has made many ineffective in dealing with prevailing trends and the new era of competition.

There must be collaboration to produce accountability ' and accountability to produce decentralized authority ' so the new managing partner is not overwhelmed with decisions bubbling up into his or her office. That will require a strong, understood vision and a focus on the successful future of the firm in its market. To paraphrase Jim Collins, author of “Good to Great,” a firm must get the right people on the bus and get them in the right seats. If they cannot perform, they must be replaced. Or, get the right people on the team and the wrong ones off. Only by collaboration will the firm be able to make those kinds of tough decisions.

This article first appeared in Law Firm Partnership & Benefits Report, a sister publication of this newsletter.

William C. Cobb is the managing partner of Cobb Consulting (WCCI, Inc.) based in Houston. E-mail: [email protected]. Website: www.cobb-consulting.com.