At the Intersection: Magical Thinking

Who You Callin' 'Excess Capacity?'

Here's an example: Faced with plateaued revenues and steadily diminishing realization rates, one firm's executive committee recognized the obvious: The firm clearly was suffering from “excess capacity” ' too many mouths to feed (particularly partner mouths), and not enough fodder to feed them. Rather than take the painful approach of reducing the mouths, leadership's strategic solution was to try to increase the food, that is, to prescribe that henceforth all partners must (and we quote here) “focus on bringing in more business.” Unfortunately, this strategic priority was not accompanied by any tactical marketing initiatives, partner training in business development, or mandatory preparation of personal marketing/practice plans. The mandate from on high was “Hey, just do it.”

The Executive Committee engaged in magical thinking because it acted as if just asking for changed behavior would produce results. When the EC's exhortations did not work the first, second, and third times, what did they do? They asked yet again, thus exemplifying the famous definition of insanity: doing the same thing over and over and expecting a different outcome.

Despite the firm's “new strategic emphasis on business development,” the managing partner couldn't help but notice that most partners were not allocating much effort to business development. Instead, they were barricading' themselves in their offices and frantically trying to bill as many hours as possible, rather than seeking out expanded or enhanced sources of firm revenue.

You Get What You Incent

Why weren't they buying into the BD-driven strategic shift? Because it turns out the firm's compensation system continued to heavily reward meeting billable hour targets, even for partners. The firm had never prescribed individual revenue targets, and historically the assignment of origination credit was a highly subjective crap shoot delegated to a compensation committee not respected for its impartiality. Interviews with partners made it clear that to them, birds-in-hand were more valuable than birds-in-bushes: The best way to maximize this year's personal compensation was to draw on every possible method for amping up billed time, whereas undertaking client and business development would require six months to two years of lead time and might produce highly speculative results.

Most partners therefore acted as if they were oblivious of the hurricane warnings about revenue and realization trends from firm leadership, and they were perfectly happy to have the firm assign others the responsibility for improving business development.

The magical thinking in this case was the notion that billing partners will automatically want what the firm tells them to want, even as it clings to historical compensation incentives that support an entirely different set of personal behaviors. This, of course, is likely to create a huge gap between the firm's overall economic fortunes and way its partners' self-interest manifests itself.

There are five common components to magical thinking:

1. Reality Disconnects: Leadership may “get it,” that is, comprehend the economic shifts and realities that drive today's “New Normal” in the legal profession, but a lot of rank-and-file partners believe that the old days will return so that it will be sufficient to keep doing what they have always done.
2. Mind Reading: Firm leaders often assume that rank-and-file partners can and will divine the will and reasoning of the Executive Committee and will make the effort to keep abreast of firm economics, strategic decisions and operational guidance. Neither leaders nor followers are well served by making untested assumptions about the other's motives and priorities. In fact, however, many individual partners just don't seem much interested in their firm's overall well-being ' it's just a place to “do their thing.” Several firms have told us that they have stopped making comprehensive firm financial performance data available to all partners because no one was bothering to read it.
3. Cloudy Communication: Just because followers don't crave clear and explicit communication does not mean that leadership should be exempt from providing it. All too often, strategic and tactical decisions and policies are communicated in vague generalities and without clear and convincing authority. Goals are expressed in sweeping overgeneralizations, and performance standards and consequences are subjective, unclear or nonexistent. Once-a-year strategic updates and policy summaries at the firm retreat are not enough either to spread the news or build broad-scale buy-in.
4. No Consequences: If changed priorities are not accompanied by clear performance standards and clear consequences for substandard compliance, partners have no incentive to alter their behavior or their personal priorities.
5. Responsibility and Authority Muddles: Change initiatives bog down and suffer from “friction loss” where there is: a) a lack of role clarity that defines which lawyers bear particular task responsibilities; and b) fuzzy, “gentlemanly” or inconsistent lines of authority. This results either in org charts that do not adequately reflect real pathways of power, or individuals who cavalierly ignore the org chart and go their own way.

Next month, we will take a deeper look at the practical implications of Magical Thinking, and provide some suggestions for escaping Magical Thinking mind traps.

Editorial Board member Pamela Woldow is a Certified Master Coach with experience in individual lawyer coaching and in designing law department leadership development programs. Reach her at [email protected].

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Here is some good news: The strategic brain trusts of many law firms often are populated with realistic, forward-thinking leaders who grasp the sweeping economic and operational forces that are reshaping the face of the legal profession. They see the big picture better than many of their colleagues in the trenches who view the legal world through the narrower lenses of their relationships with specific clients.

Out of Alignment

The bad news is that even enlightened leaders often find it hard to get rank-and-file partners to align their individual near-term behaviors with the leaders' long-term strategic vision for promoting firm stability, growth, revenues and/or profitability. When trying to build broad-scale buy-in, leadership all too often falls into “magical thinking” that assumes that strategic imperatives ' particularly if they compel major change in personal behavior ' will be self-implementing' or self-aligning. The leaders may have a clear perspective on competitive market realities, but they may lack understanding of the incentives that shape their partners' behavior. These days, in order to implement needed changes, effective firm leadership requires street-level savvy in behavior modification.

Who You Callin' 'Excess Capacity?'

Here's an example: Faced with plateaued revenues and steadily diminishing realization rates, one firm's executive committee recognized the obvious: The firm clearly was suffering from “excess capacity” ' too many mouths to feed (particularly partner mouths), and not enough fodder to feed them. Rather than take the painful approach of reducing the mouths, leadership's strategic solution was to try to increase the food, that is, to prescribe that henceforth all partners must (and we quote here) “focus on bringing in more business.” Unfortunately, this strategic priority was not accompanied by any tactical marketing initiatives, partner training in business development, or mandatory preparation of personal marketing/practice plans. The mandate from on high was “Hey, just do it.”

The Executive Committee engaged in magical thinking because it acted as if just asking for changed behavior would produce results. When the EC's exhortations did not work the first, second, and third times, what did they do? They asked yet again, thus exemplifying the famous definition of insanity: doing the same thing over and over and expecting a different outcome.

Despite the firm's “new strategic emphasis on business development,” the managing partner couldn't help but notice that most partners were not allocating much effort to business development. Instead, they were barricading' themselves in their offices and frantically trying to bill as many hours as possible, rather than seeking out expanded or enhanced sources of firm revenue.

You Get What You Incent

Why weren't they buying into the BD-driven strategic shift? Because it turns out the firm's compensation system continued to heavily reward meeting billable hour targets, even for partners. The firm had never prescribed individual revenue targets, and historically the assignment of origination credit was a highly subjective crap shoot delegated to a compensation committee not respected for its impartiality. Interviews with partners made it clear that to them, birds-in-hand were more valuable than birds-in-bushes: The best way to maximize this year's personal compensation was to draw on every possible method for amping up billed time, whereas undertaking client and business development would require six months to two years of lead time and might produce highly speculative results.

Most partners therefore acted as if they were oblivious of the hurricane warnings about revenue and realization trends from firm leadership, and they were perfectly happy to have the firm assign others the responsibility for improving business development.

The magical thinking in this case was the notion that billing partners will automatically want what the firm tells them to want, even as it clings to historical compensation incentives that support an entirely different set of personal behaviors. This, of course, is likely to create a huge gap between the firm's overall economic fortunes and way its partners' self-interest manifests itself.

There are five common components to magical thinking:

1. Reality Disconnects: Leadership may “get it,” that is, comprehend the economic shifts and realities that drive today's “New Normal” in the legal profession, but a lot of rank-and-file partners believe that the old days will return so that it will be sufficient to keep doing what they have always done.
2. Mind Reading: Firm leaders often assume that rank-and-file partners can and will divine the will and reasoning of the Executive Committee and will make the effort to keep abreast of firm economics, strategic decisions and operational guidance. Neither leaders nor followers are well served by making untested assumptions about the other's motives and priorities. In fact, however, many individual partners just don't seem much interested in their firm's overall well-being ' it's just a place to “do their thing.” Several firms have told us that they have stopped making comprehensive firm financial performance data available to all partners because no one was bothering to read it.
3. Cloudy Communication: Just because followers don't crave clear and explicit communication does not mean that leadership should be exempt from providing it. All too often, strategic and tactical decisions and policies are communicated in vague generalities and without clear and convincing authority. Goals are expressed in sweeping overgeneralizations, and performance standards and consequences are subjective, unclear or nonexistent. Once-a-year strategic updates and policy summaries at the firm retreat are not enough either to spread the news or build broad-scale buy-in.
4. No Consequences: If changed priorities are not accompanied by clear performance standards and clear consequences for substandard compliance, partners have no incentive to alter their behavior or their personal priorities.
5. Responsibility and Authority Muddles: Change initiatives bog down and suffer from “friction loss” where there is: a) a lack of role clarity that defines which lawyers bear particular task responsibilities; and b) fuzzy, “gentlemanly” or inconsistent lines of authority. This results either in org charts that do not adequately reflect real pathways of power, or individuals who cavalierly ignore the org chart and go their own way.

Next month, we will take a deeper look at the practical implications of Magical Thinking, and provide some suggestions for escaping Magical Thinking mind traps.

Editorial Board member Pamela Woldow is a Certified Master Coach with experience in individual lawyer coaching and in designing law department leadership development programs. Reach her at [email protected].

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