More Firms Put Non-Lawyers at the Top

After practicing as a partner at an AmLaw 100 firm for a number of years, a Labor & Employment attorney I know left to establish his own firm with a fellow partner. In the beginning, the two did everything themselves ' i.e., they found the office space, signed the lease, bought the furniture, managed the books, billed the clients and decided how, when and where to market their services.

Fast-forward 30 years and the two-person firm now employs 52 people, including 22 lawyers. Until very recently, the founder was still managing the firm. However, that has now changed. “It became increasingly clear that when it came to planning our long-term growth, determining the most sensible and productive investments, establishing the best equity structure for our partners, and articulating our mission across practice areas, I was not the best person for the job,” he explains. “And, on top of that, I wanted to practice law! That's why I became a lawyer … not to run a business.”

The point of this article is not to determine exactly who should run a law firm, but to explore some factors worth considering when contemplating the most effective and efficient form of law firm leadership.

Law Firm Leadership Is a Full-Time Job

Inertia is one of the reasons some lawyers think they can and should run a law firm ' it is the way it has always been done. And, after all, many have successfully led project teams and brought cases in on time and under budget, right? Well, there is a bit more to it than that … especially today. According to The American Lawyer, the 2011 gross revenue of all but seven of the AmLaw 200 firms exceeded $100 million. It exceeded $500 million for 60 of the firms, 17 made more than $1 billion, and the revenue of four exceeded $2 billion. Law has become a $100 billion industry. Big Law now equals big business.

Many see the rising revenues and new competitive and strategic demands as evidence that they need more dedicated, full-time guidance at the top. Having busy partners serve as part-time C-level executives and learn these tasks on the job does not fit with the realities of a national or international business. As Justin Cooper, a finance partner at Orrick, notes: “You can't run a billion dollar company during nights and weekends.”

The Wall Street Journal put it this way: “As the top law firms in the U.S. evolve from cozy partner clubs to billion-dollar global institutions, they are increasingly relying on professional managers, once an anomaly in the industry, to run many parts of their operations.” (“Professional Managers Gain Wider Presence at Law Firms,” WSJ, May 6, 2012.)

Expect Resistance

One of the biggest hurdles to bringing in a non-lawyer leader is the lawyers themselves. “The partners expect the overall leadership of the firm to be provided by a partner, someone with in-depth experience of their practice and clients,” confirms Don Lents, Chairman of Bryan Cave. Many partners believe that only other partners can understand the intricacies of practicing law and the attorney-client relationship.

Some have gotten around this by placing key partners in the captain's seat and hiring business consultants to provide them with periodic advice. But the management of a big law firm today deserves someone who is dedicated to it full-time and who has been trained in business, financial and management concepts. Terry Conner, Managing Partner of Haynes & Boone, explains: “One of the benefits of having a non-lawyer leader is their ability and willingness to apply business concepts and discipline to the running of the firm.”

Though Davis Wright Tremaine has not yet installed a non-lawyer as its CEO, it has placed non-lawyers in many other C-level positions. Dave Baca, the firm's Managing Partner, says even that has been a bit of a struggle: “It takes time for the 'outsiders' to build relationships and credibility with the lawyers, which is crucial to success. Some lawyers are skeptical of the ability of non-lawyers to understand and operate effectively in their world. Overcoming that takes time and attention. But it is worth it.”

Lents agrees: “Traditionally lawyers have been most comfortable taking guidance from other lawyers ' i.e., people who have 'earned their spurs.' However, modern law firms are often very large, complex organizations, functioning in a very demanding environment. It makes sense to have key functions led by experts, rather than by partners trying to oversee them on a part-time basis.”

One way to get around some of the resistance is to draw clear lines between what the non-lawyer leaders have access to and are responsible for. “Department and practice heads report to me, but I don't get involved with the practice of law. That's the wall,” Pepper Hamilton's newly appointed CEO Scott Green told The Wall Street Journal. Green is a Harvard Business School graduate and former accountant who previously worked at Weil, Gotshal & Manges and WilmerHale. It is also important to establish a Council of Advisers-type structure, where the non-lawyer leader has strong partners as his numbers two and three.

Conner agrees: “As with other CEOs, non-lawyer leaders are responsible to the Board, and to help overcome their lack of legal training, they should have the advice of the firm's General Counsel and the Executive Committee, which is made up of the firm's top lawyer-leaders.”

Then there is the “ownership” issue. Can someone from the outside, who doesn't have a stake in the game, care as much about the firm's future as an equity partner? There are also the issues of confidentiality, attorney-client privilege, and partnership agreements that stipulate active partners be the only parties involved in the management of the firm. All of these can complicate the leadership issue. But none of these supposed obstacles are insurmountable. Many industries deal with confidential information that others in the company end up needing to see. That is why people are asked to sign non-disclosure agreements. And partnership agreements can be amended.

Different Skills Are Required

Back in 2006, The American Lawyer published an article entitled “Are Law Firms Manageable?” by David Maister, a former professor at Harvard Business School and author of several books, including “Managing the Professional Services Firm” (see www.davidmaister.com/articles/1/92/). Maister declared, “The ways of thinking and behaving that help lawyers excel in their profession may be the very things that limit what they can achieve as firms. Management challenges occur not in spite of lawyers' intelligence and training, but because of them.” In other words, the things that make them successful lawyers generally do not translate into making them effective business leaders.

Cross-selling is a perfect example of this theory. Lawyers tend to work autonomously, and their individualism and unique approaches to things are often what distinguishes them from their competitors and makes clients seek them out. However, at the same time, clients are asking for greater efficiencies and many want one firm to meet all of their legal needs, thus requiring careful coordination across different offices and practice areas. Is a partner really the best person to oversee this kind of integration and collaboration?

Maister says it can be difficult for a lawyer who has been appointed manager to get other partners to work together. The partners' tendency will be to ask: “What's in it for me … my practice … my clients?” And since most partners have an impressive slate of clients and cases, it is usually difficult for them to cede power to anyone, including a firm manager, especially when it comes to how they work and who gets to meet with and talk to their clients.

Another thing law firms are famous for is slow decision-making, which just won't wash in today's quickly changing, competitive and global economy. In some firms, all equity partners are asked to weigh in on major decisions. One firm we know ' and it is a very typical top 100 firm ' has a nine-person Management Committee for the day-to-day running of the business and a 48-person Executive Committee tasked with making the longer-term strategic decisions. Getting widespread buy-in is a great concept, but definitely slows down the process. And when you have large committees like this, it is often impossible to reach consensus, which means that issues are tabled until a later date and sometimes never taken up again. This is not a good practice for businesses that need to evolve and keep up with shifting demands.

Lawyers also tend to be risk-averse and slow to change old behaviors. As Maister points out: “In other businesses, innovative thinking and action are considered a primary requirement for success. Companies eagerly search for strategic ideas and initiatives that their competitors have not discovered. In order to move ahead of other law firms and gain a strategic advantage, law firms have to shed their tendency to think something will work only if another law firm has tried it first.”

George Geis, a Professor at the University of Virginia Law School who teaches business to law students, says another problem that hinders a lawyer's ability to lead a dynamic business is the inability to act without knowing all the facts. “The typical law school education does not expose students to financial statements, business strategy or show how to make decisions with anything less than complete knowledge. These are things they might learn, in bits and pieces, if they go into corporate law, but they are essential if they're going to attempt to run an entire firm.”

Learn from the Past

Looking back at five of the most prominent law firm failures over the past several years reveals that four were led by lawyers. We are not suggesting that these firms would have survived if they had been managed by non-lawyers, but it does provide some food for thought. Though each firm had a unique set of problems, there are some common themes behind their implosions ' themes that people with MBAs may have picked up on and challenged while those with JDs saw them as simply the way law firms operate. These themes included: high salaries and guaranteed bonuses; excessive borrowing; and building up mountains of debt ' including obligations to lenders, long-term leases, accounts payable, and deferred compensation.

According to Larry Bodine, editor-in-chief of Lawyers.com,, there is usually a triggering event that sets the stage for failure ' e.g., overexpansion, defection of a number of major partners, the need to renew a major office lease, or loss of a “crown jewel” client. When faced with one of these external factors, the firm's unhealthy financials ends up delivering a one-two punch and it is unable to recover from the hit. As one observer put it about Dewey & LeBoeuf: “The combination of outsized debt and widely spread pay guarantees divorced from performance put the firm in a situation with almost zero margin for error.”

A study by Hildebrandt entitled “The Anatomy of Law Firm Failures” adds an exclamation point to the above. It found that failed firms have three things in common: 1) Below-average financial performance combined with a significant amount of deferred obligations; 2) Poor internal dynamics; and 3) Poor external dynamics. Bodine has added a fourth: Lack of a clear business development strategy.

Sounds like a lot for someone to take on, especially if they are also trying to keep a law practice going, which is why many believe the future is clear: “Progressive firms understand that if the hiring is done correctly, administrators from the outside will be better trained and more experienced at handling the business management activities of their firm than any partner. A trained business manager can do it cheaper, faster and better than most partners,” states Altman Weil principal James Wilber.

Conclusion

For quite awhile now, law firm partners have been willing to hand management and decision-making authority to non-lawyers in those areas where they readily admit they do not have the requisite training or expertise ' e.g., IT, HR, accounting and marketing. Many believe the time has come for them to look more closely at the tasks required of the top manager/CEO, too, and admit they're not equipped to take those on either. If their firm has multiple offices, an expanding organizational structure, debt obligations, new and increasingly complex technological issues, plans to grow nationally and/or globally, clients requesting greater efficiencies and collaboration between offices, a need to cross-sell and create more multi-practice groups ' or even just one of the above ' it may be time to consider looking outside their own ranks and outside the legal profession for their next firm leader or CEO.

“There is not a single right way to manage a law firm,” notes Geis, “but there should be a blend between the culture of the firm and the need for management expertise. Firms should often resist the temptation to place the most highly regarded attorney at the top, since there is not always a correlation between management ability and the ability to practice law and retain clients.”

As Maister puts it: “Many firms have collections of great lawyers. The time may be coming when clients will expect them to go beyond this and become effective organizations.”

David R. Maurer is a managing director in the Partner Practice Group at global legal search firm Major, Lindsey & Africa. Prior to joining MLA, he was an in-house counsel at Morgan Stanley. He can be reached at 415-646-0344 or [email protected].

After practicing as a partner at an AmLaw 100 firm for a number of years, a Labor & Employment attorney I know left to establish his own firm with a fellow partner. In the beginning, the two did everything themselves ' i.e., they found the office space, signed the lease, bought the furniture, managed the books, billed the clients and decided how, when and where to market their services.

Fast-forward 30 years and the two-person firm now employs 52 people, including 22 lawyers. Until very recently, the founder was still managing the firm. However, that has now changed. “It became increasingly clear that when it came to planning our long-term growth, determining the most sensible and productive investments, establishing the best equity structure for our partners, and articulating our mission across practice areas, I was not the best person for the job,” he explains. “And, on top of that, I wanted to practice law! That's why I became a lawyer … not to run a business.”

The point of this article is not to determine exactly who should run a law firm, but to explore some factors worth considering when contemplating the most effective and efficient form of law firm leadership.

Law Firm Leadership Is a Full-Time Job

Inertia is one of the reasons some lawyers think they can and should run a law firm ' it is the way it has always been done. And, after all, many have successfully led project teams and brought cases in on time and under budget, right? Well, there is a bit more to it than that … especially today. According to The American Lawyer, the 2011 gross revenue of all but seven of the AmLaw 200 firms exceeded $100 million. It exceeded $500 million for 60 of the firms, 17 made more than $1 billion, and the revenue of four exceeded $2 billion. Law has become a $100 billion industry. Big Law now equals big business.

Many see the rising revenues and new competitive and strategic demands as evidence that they need more dedicated, full-time guidance at the top. Having busy partners serve as part-time C-level executives and learn these tasks on the job does not fit with the realities of a national or international business. As Justin Cooper, a finance partner at Orrick, notes: “You can't run a billion dollar company during nights and weekends.”

The Wall Street Journal put it this way: “As the top law firms in the U.S. evolve from cozy partner clubs to billion-dollar global institutions, they are increasingly relying on professional managers, once an anomaly in the industry, to run many parts of their operations.” (“Professional Managers Gain Wider Presence at Law Firms,” WSJ, May 6, 2012.)

Expect Resistance

One of the biggest hurdles to bringing in a non-lawyer leader is the lawyers themselves. “The partners expect the overall leadership of the firm to be provided by a partner, someone with in-depth experience of their practice and clients,” confirms Don Lents, Chairman of Bryan Cave. Many partners believe that only other partners can understand the intricacies of practicing law and the attorney-client relationship.

Some have gotten around this by placing key partners in the captain's seat and hiring business consultants to provide them with periodic advice. But the management of a big law firm today deserves someone who is dedicated to it full-time and who has been trained in business, financial and management concepts. Terry Conner, Managing Partner of Haynes & Boone, explains: “One of the benefits of having a non-lawyer leader is their ability and willingness to apply business concepts and discipline to the running of the firm.”

Though Davis Wright Tremaine has not yet installed a non-lawyer as its CEO, it has placed non-lawyers in many other C-level positions. Dave Baca, the firm's Managing Partner, says even that has been a bit of a struggle: “It takes time for the 'outsiders' to build relationships and credibility with the lawyers, which is crucial to success. Some lawyers are skeptical of the ability of non-lawyers to understand and operate effectively in their world. Overcoming that takes time and attention. But it is worth it.”

Lents agrees: “Traditionally lawyers have been most comfortable taking guidance from other lawyers ' i.e., people who have 'earned their spurs.' However, modern law firms are often very large, complex organizations, functioning in a very demanding environment. It makes sense to have key functions led by experts, rather than by partners trying to oversee them on a part-time basis.”

One way to get around some of the resistance is to draw clear lines between what the non-lawyer leaders have access to and are responsible for. “Department and practice heads report to me, but I don't get involved with the practice of law. That's the wall,” Pepper Hamilton's newly appointed CEO Scott Green told The Wall Street Journal. Green is a Harvard Business School graduate and former accountant who previously worked at Weil, Gotshal & Manges and WilmerHale. It is also important to establish a Council of Advisers-type structure, where the non-lawyer leader has strong partners as his numbers two and three.

Conner agrees: “As with other CEOs, non-lawyer leaders are responsible to the Board, and to help overcome their lack of legal training, they should have the advice of the firm's General Counsel and the Executive Committee, which is made up of the firm's top lawyer-leaders.”

Then there is the “ownership” issue. Can someone from the outside, who doesn't have a stake in the game, care as much about the firm's future as an equity partner? There are also the issues of confidentiality, attorney-client privilege, and partnership agreements that stipulate active partners be the only parties involved in the management of the firm. All of these can complicate the leadership issue. But none of these supposed obstacles are insurmountable. Many industries deal with confidential information that others in the company end up needing to see. That is why people are asked to sign non-disclosure agreements. And partnership agreements can be amended.

Different Skills Are Required

Back in 2006, The American Lawyer published an article entitled “Are Law Firms Manageable?” by David Maister, a former professor at Harvard Business School and author of several books, including “Managing the Professional Services Firm” (see www.davidmaister.com/articles/1/92/). Maister declared, “The ways of thinking and behaving that help lawyers excel in their profession may be the very things that limit what they can achieve as firms. Management challenges occur not in spite of lawyers' intelligence and training, but because of them.” In other words, the things that make them successful lawyers generally do not translate into making them effective business leaders.

Cross-selling is a perfect example of this theory. Lawyers tend to work autonomously, and their individualism and unique approaches to things are often what distinguishes them from their competitors and makes clients seek them out. However, at the same time, clients are asking for greater efficiencies and many want one firm to meet all of their legal needs, thus requiring careful coordination across different offices and practice areas. Is a partner really the best person to oversee this kind of integration and collaboration?

Maister says it can be difficult for a lawyer who has been appointed manager to get other partners to work together. The partners' tendency will be to ask: “What's in it for me … my practice … my clients?” And since most partners have an impressive slate of clients and cases, it is usually difficult for them to cede power to anyone, including a firm manager, especially when it comes to how they work and who gets to meet with and talk to their clients.

Another thing law firms are famous for is slow decision-making, which just won't wash in today's quickly changing, competitive and global economy. In some firms, all equity partners are asked to weigh in on major decisions. One firm we know ' and it is a very typical top 100 firm ' has a nine-person Management Committee for the day-to-day running of the business and a 48-person Executive Committee tasked with making the longer-term strategic decisions. Getting widespread buy-in is a great concept, but definitely slows down the process. And when you have large committees like this, it is often impossible to reach consensus, which means that issues are tabled until a later date and sometimes never taken up again. This is not a good practice for businesses that need to evolve and keep up with shifting demands.

Lawyers also tend to be risk-averse and slow to change old behaviors. As Maister points out: “In other businesses, innovative thinking and action are considered a primary requirement for success. Companies eagerly search for strategic ideas and initiatives that their competitors have not discovered. In order to move ahead of other law firms and gain a strategic advantage, law firms have to shed their tendency to think something will work only if another law firm has tried it first.”

George Geis, a Professor at the University of Virginia Law School who teaches business to law students, says another problem that hinders a lawyer's ability to lead a dynamic business is the inability to act without knowing all the facts. “The typical law school education does not expose students to financial statements, business strategy or show how to make decisions with anything less than complete knowledge. These are things they might learn, in bits and pieces, if they go into corporate law, but they are essential if they're going to attempt to run an entire firm.”

Learn from the Past

Looking back at five of the most prominent law firm failures over the past several years reveals that four were led by lawyers. We are not suggesting that these firms would have survived if they had been managed by non-lawyers, but it does provide some food for thought. Though each firm had a unique set of problems, there are some common themes behind their implosions ' themes that people with MBAs may have picked up on and challenged while those with JDs saw them as simply the way law firms operate. These themes included: high salaries and guaranteed bonuses; excessive borrowing; and building up mountains of debt ' including obligations to lenders, long-term leases, accounts payable, and deferred compensation.

According to Larry Bodine, editor-in-chief of Lawyers.com,, there is usually a triggering event that sets the stage for failure ' e.g., overexpansion, defection of a number of major partners, the need to renew a major office lease, or loss of a “crown jewel” client. When faced with one of these external factors, the firm's unhealthy financials ends up delivering a one-two punch and it is unable to recover from the hit. As one observer put it about Dewey & LeBoeuf: “The combination of outsized debt and widely spread pay guarantees divorced from performance put the firm in a situation with almost zero margin for error.”

A study by Hildebrandt entitled “The Anatomy of Law Firm Failures” adds an exclamation point to the above. It found that failed firms have three things in common: 1) Below-average financial performance combined with a significant amount of deferred obligations; 2) Poor internal dynamics; and 3) Poor external dynamics. Bodine has added a fourth: Lack of a clear business development strategy.

Sounds like a lot for someone to take on, especially if they are also trying to keep a law practice going, which is why many believe the future is clear: “Progressive firms understand that if the hiring is done correctly, administrators from the outside will be better trained and more experienced at handling the business management activities of their firm than any partner. A trained business manager can do it cheaper, faster and better than most partners,” states Altman Weil principal James Wilber.

Conclusion

For quite awhile now, law firm partners have been willing to hand management and decision-making authority to non-lawyers in those areas where they readily admit they do not have the requisite training or expertise ' e.g., IT, HR, accounting and marketing. Many believe the time has come for them to look more closely at the tasks required of the top manager/CEO, too, and admit they're not equipped to take those on either. If their firm has multiple offices, an expanding organizational structure, debt obligations, new and increasingly complex technological issues, plans to grow nationally and/or globally, clients requesting greater efficiencies and collaboration between offices, a need to cross-sell and create more multi-practice groups ' or even just one of the above ' it may be time to consider looking outside their own ranks and outside the legal profession for their next firm leader or CEO.

“There is not a single right way to manage a law firm,” notes Geis, “but there should be a blend between the culture of the firm and the need for management expertise. Firms should often resist the temptation to place the most highly regarded attorney at the top, since there is not always a correlation between management ability and the ability to practice law and retain clients.”

As Maister puts it: “Many firms have collections of great lawyers. The time may be coming when clients will expect them to go beyond this and become effective organizations.”

David R. Maurer is a managing director in the Partner Practice Group at global legal search firm Major, Lindsey & Africa. Prior to joining MLA, he was an in-house counsel at Morgan Stanley. He can be reached at 415-646-0344 or [email protected].