Walker Clark Worldview

A surprising number of otherwise sophisticated law firms spend a horrifying amount of time and money pursuing strategic alliances, partnerships, or other relationships with other firms. Some of these relationships work well. Most, however, produce disappointing results for both parties.

This is the first of a series of posts that outline some the mistakes that law firms make when considering a strategic relationship, whether in a one-to-one relationship or in a law firm network.

By far the biggest cluster of mistakes is poor research. Law firm partners often waste hundreds of hours every year on “road shows” to meet other law firms. Most of these meetings a little more than cold calls. Not surprisingly, they produce few benefits other than an occasional free lunch in a law firm conference room.

We advise our clients to be sure that they have thoroughly researched the law firms they want to visit and the position of those firms in their respective legal markets. When we conduct this market research for our clients, we look for points of affinity between our client and the target law firms. Before we recommend that one of our clients visit a candidate law firm, we want to be reasonably sure that there are specific reasons to believe that any relationship that emerges from that free lunch in the conference room will be productive for both firms.

Norman Clark

If you have clients with business interests or investments in Africa, Legalbrief Africa is required reading for you.  This detailed and highly informative newsletter is a sponsored initiative of the International Bar Association.

It also serves as an information network for African lawyers and other legal professionals in the fields of the law, human rights, governance, constitutional issues, and legislation.

You can visit the Legalbrief Africa website for more information or to register for their electronic newsletter.

Norman Clark

Perhaps the most difficult challenge for small law firms in small legal markets is to recruit and — sometimes even more difficult — retain high-quality associates. The assumption is that the small markets and the small law firms are at a substantial disadvantage. Our firm’s observations, advising smaller law firms, confirm that there is a lot of truth to this perception. However that disadvantage can be overcome.  Here’s how:

• Expand the scope of your recruiting in law schools. Many small law firms still allow their recruiting strategy to be shackled by the myth that the only the “best” law firms and only the “top quarter” of the law school class produce good lawyers. Research has not established such a correlation and, if anything, the it appears that lawyers who graduate in the second and third quartiles of their law firm classes actually are more successful as law firm partners.

• Remember that retention is seldom about money. Over the years, our firm has conducted focus groups of almost 1,000 law firms associates worldwide. When asked, “What makes you want to remain in this firm?” money is never one of the top factors mentioned. Instead, associates — especially in smaller firms — tell us that the more important factors include: opportunities to learn legal skills and gain experience; the opportunity to work with, and learn from, a successful partner; and to perform increasingly important responsibilities for clients.

• Invest in professional development and career management. The successful management of professional talent seldom does not require a lot of money.  It does require a serious investment of partner time and attention. It is no surprise, therefore, that the small firms that are the most successful in retaining legal talent have serious mentoring programs, in-depth performance evaluations, and a clear career path for each associate in the firm.

Norman Clark

Let’s continue this week’s  discussion of the business challenges facing smaller U.S. law firm in smaller legal markets (i.e., metropolitan areas with populations of less than 500,000).

An article in yesterday’s New York Times, “U.S. Home Sales at Lowest Level in More Than a Decade,” is somber news for the thousands of smaller U.S. law firms for whom residential real estate is a significant part of their practice.

The seasonally adjusted annual sales rate for residential real estate in July 2010 was more than 25% lower than a year ago — during the depths of the recession.  This drop occurred despite the lowest mortgage interest rates in decades.  As one observer, quoted in the article, said:

“… sales volume will probably be in the tank at least until next spring.

This news tends to support what many observers have perceived for at least the past six months — that the so-called “recovery” in real estate was largely an illusion, fed by wishful thinking in the residential real estate industry and a bottom-feeding frenzy among predatory investors in distressed sales in the lowest quartile of the market.

It also suggests that there might be fundamental failure of the U.S. economy even to consider, much less to address, fundamental weaknesses in the economic foundations of the American economy, which may have increased the likelihood of chronic unemployment, economic stagnation, and deflation in the years to come. Unless the Obama Administration can find a way to help millions of people get back to work — notwithstanding an increasingly dysfunctional Congress — the sales volume in the U.S. real estate markets is unlikely to improve.

Some real estate lawyers in the U.S. report that their practices continue to sink with no signs of recovery or rescue on the horizon. At the same time, some real estate practices appear to have stayed more or less afloat during the continuing rough times in real estate — both commercial and residential — in the United States.

Thomas Carlyle (1795-1881)

With news like this, it is no wonder that Thomas Carlyle called economics  the “dismal science.”

But the prospects are not necessarily all bad.

Our firm has not done any in-depth research on these “survival secrets,” but four characteristics appear to be consistent in our observations of the “survivors” among real estate practices in smaller law firms in smaller markets in the U.S:

• First, there is a strong correlation between the absence of a real estate bubble in these smaller markets in 2005-2007 and the relative mildness of the impact on the local real estate markets now.

• Second, the real estate practices that appear to have done the best are in firms that had already established themselves as having specialized real estate practices — not just one or two lawyers who “do real estate work.”  This does not mean that a firm has to be a real estate boutique to be successful; but real estate law must be more than a sideline.

• Third, most of these firms operate ancillary title insurance businesses, which frequently reflects an integrated, and usually more profitable, approach to the management of a real estate practice than one might find in a law firm without an ancillary business.

• Finally, most of these firms have well-established banking practices, supported by long-term client relationships.

These four elements are not a guaranteed recipe for continued survival and future success.  However, they do suggest a possible strategy for smaller law firms that want to have competitive and economically viable real estate practices in what promises to be another bad year.

Norman Clark

A partner from a law firm in a small legal market (under 500,000 people) in the United States asked me this question a few days ago.

The answer is really one of definition. While the term  “general practice” is relatively benign, claiming to be “full service” can be toxic for a small law firm.

Business clients, even in smaller communities, are rightfully skeptical of small firms (which, for purposes of this discussion, includes firms of up to 20 lawyers) that advertise  expertise or significant experience in dozens of practice specialties.  When probed, many of these claims are based on one case or one transaction that might have happened years ago.

Our firm works with smaller law firms, both in the United States and worldwide, to develop and execute marketing strategies that work in smaller legal markets.  Our experience and observations suggest three points that a small law firm should consider:

• Avoid the temptation to tout yourselves as a “full service law firm.” Not only does such a claim lack credibility among sophisticated business clients and high net-worth personal clients; it can also unnecessarily raise their skepticism among the things that you really do well. And no news travels faster in a small market than the experience of a client who has been disappointed by mediocre performance or poor client service.
• Focus on the client sectors in which you are already strong.  If some of your best clients are, for example, in the construction industry, be sure that you understand their businesses better than any of your competitors.
• Don’t be afraid to refer a client to a competitor for work that is outside your area of expertise. Of course, there is a risk that the competitor might “steal” you client. If that happens, it probably was likely to happen even without the referral. The much higher probability is that sending a client to another firm, when you cannot give the client the best possible service, will actually increase the loyalty of that client to your firm, as well as make the client more likely to refer you to others.

The risk to small law firms that try to do it all is that you usually end up doing nothing particularly well. This is a sure formula for invisibility in the competition for the types of potential clients that your firm needs the most.

Norman Clark

The final demise of the British firm Halliwells, reported last week in the on-line edition of The Lawyer, is a good case study in the financial failure of a law firm.  The Lawyer summarized the factors that led to Halliwells’ failure earlier this month.

The failure and breakup of Halliwells is instructive for law firms anywhere that substitute wishful thinking for attentive management of operating costs and deepening debt.  From what I have read about the final days of Halliwells, they seem to me to have been about as orderly as the evacuation of the Titanic, with reports that more than 30 support staff were handed no-notice dismissals, apparently without any redundancy compensation or accrued vacation pay, at the end of the work day at a meeting that not one partner had the courage to attend.  (To be fair and tell the whole story, more than 460 staff found employment in one of the firms that acquired the surviving pieces of the Halliwells practice.)

A new post this morning in The Lawyer provides a glimpse of the “afterlife” for the parts of Halliwells that were acquired by other firms, who have created “firewalls” in the form of separate LLPs to protect the acquiring firms from the liabilities of the former Halliwells partners, as well as to enable a more reasoned pace of integrating the new partners into their firms.

Norman Clark

The recent on-again off-again status of merger talks between Mayer Brown and Simmons and Simmons illustrate how law firm mergers are a lot like baseball.

As I watch the World Cup, I continue to be amazed at how world-class stars take what is basically a simple game and play it at a level of skill and grace that is almost magical.  Football (real football…not the American version) truly is the Beautiful Game.  (As my firm has clients in almost all of the countries in the Round of 16, I will not disclose my allegiances at this time.)

By contrast, baseball is a very difficult game made to look easy by the skills of its best players.

Law firm mergers, if done properly, are more like major league baseball than World Cup football. Although the business case for the merger might seem strong, the details of execution are usually much more difficult — especially at the “major league” level of two firms like Mayer Brown and Simmons and Simmons.  The complexity of merger negotiations and post-merger integration, combined with the intense partner attention and involvement that a successful merger requires, are among the principal reasons why good merger opportunities often fail to be realized. Conversely, most rushed mergers, in our firm’s experience, produce disappointing results at best, and, in many instances, an anti-synergy that leaves the combined firm weaker than the sum of its antecedent parts.

Although I am not privy to all the details, it appears to me that Mayer Brown and Simmons and Simmons are right to take their time with a searching, in-depth, and fully-informed consideration of all aspects of the proposed deal. A successful merger of these two excellent firms could be wonderful to behold, like a triple play in baseball. A sloppy merger could be each firm’s worst disaster, like an own-goal in the 90th minute of the World Cup final.

Norman Clark

For more information about Walker Clark merger services to law firms, click here.

Nobel Prize laureate Paul Krugman has a very important column in today’s New York Times. His title “The Third Depression,” along with the thoughtful analysis that he presents, communicate a clear warning to law firms that depend heavily on clients in the United States and Europe.

His main point is that it is too early to celebrate an economic recovery.  He writes:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of the years following the Panic of 1873] than the much more severe Great Depression [of the 1930s]. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

Krugman warns us not too take too much comfort from signs of “recovery.”

…future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

What does this mean for law firms?

I think that there are at least three important admonitions implicit in Krugman’s views:

1. Take a long view when planning strategy. We need to think ahead beyond the end of this year or even next year. Do not base optimistic strategic plans only on economic improvements over the past six months.  Instead, law firm partners should ask, “What do we need to do in the next 12-18 months to support survival and sustainable business performance over the next five to ten years?” Taking the long view usually involves questions such as succession planning and improved productivity of internal operations, which are often overlooked in shorter-range strategic planning exercises.
2. Consider alternative economic scenarios. Strategic objectives must be supported and managed by reliable, relatively simple performance measurements. Because law firm revenue is often a lagging economic indicator, the strategic management of a law firm must include an increased alertness to economic and geopolitical events. Some law firms are now planning for a set of contingent scenarios. In other words, what will be the early signs of the next economic crisis and what should we do if they appear?
3. Do not count on policy makers to do the right thing.  Krugman has some very blunt criticism of the response of politicians and economic policy makers in the United States and Europe. He characterizes current government policy in both economies as:

…the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

This blog has previously communicated our firm’s concern that future financial crises, equal to or worse than the crisis of 2008-2009, are almost certain; because economic policy makers have failed miserably to address the underlying structural defects that caused the recent crisis and that remain relatively untouched.

In the United States, those basic structural weaknesses include:

• An alarming widening of the gap between rich and poor in the United States
• The continued submersion of formerly middle-class people into the ranks of the “working poor”
• “Permanent unemployment” for millions of otherwise able and willing workers
• A Federal taxation system that has collapsed under its own political weight
• The corrupting influence of wealth on the U.S. legislative and regulatory process

I want to be clear about one thing.  I think that the Obama administration has prevented things from getting worse than they could have been. But the weak foundations remain as weak as ever.

Fortunately, the world is no longer as dependent on the United States economy as in the past; but the failure of U.S. policy makers to address any of these basic issues in any rational way will continue to have worldwide effects.

And these effects will continue to be felt by law firms.

Law firms in many parts of the world — and their clients — have just come through very difficult economic times. Paul Krugman reminds us that the conditions that produced the recent economic crisis are still there; and wise law firm partners and managers need to plan for the next episodes in what is likely to be an extended period of economic uncertainty.

Norman Clark

“We all know that we should be cross-marketing and cross-selling, but we’re just so bad at actually doing it.” I frequently hear comments like this from law firm partners.

There are a number of reasons why a law firm can be so bad at cross-marketing.

• Lack of available, shared information about the best cross-marketing opportunities
• A partnership culture that produces a “my client” mentality rather than “our client”
• A partner compensation systems that do not reward — and in some cases discourage — cross-marketing
• Lack of adequate marketing support
• A misdirected marketing strategy that focuses on opportunities with relatively low return on investment

All of these are important factors; but, in our experience, the most important obstacle of all is simply that the partners lack the basic skills to work together as a high-performing business team. Unless and until partners can learn to organize themselves for the achievement of specific goals, manage internal disagreements productively, and build genuine trust based on the free flow of information and ideas, they will never — repeat never — achieve their full potential, whether at cross-marketing or any other worthwhile goal.

This sounds like a dogmatic statement, but there is simply too much overwhelming evidence — both in law firms and in other businesses — that supports the importance of group development as the make-or-break factor in the ability of a business group — like a group of partners or a practice group — to achieve its goals.

To quote the American comic strip character, Pogo, “We have met the enemy and he is us.”

The good news is that business groups develop their achievement potential through specific behaviors and skills that can be learned and improved with practice.

To learn more about how to do this, contact Lisa Walker Johnson by e-mail or through the walkerclark.com website.

Norman Clark

Focus groups of more than 900 law firm associates, conducted by Walker Clark members worldwide, have consistently identified the availability of career planning as one of the most important factors that cause good associates to stay at their firm. Associates typically express this in terms such as:

I want to know what I need to do in order to become a partner in this firm someday.

I want to understand clearly what the firm expects of me in terms of performance.

On a parallel intellectual track, many law firm partners have never considered in depth the professional knowledge and business skills that every partner in the firm should display, nor how those requirements translate into observable and, in some cases, measurable behaviors. This is why, for some law firms, election of a new partner is more an act of faith, supported by hope and guesswork, rather than a well-informed business decision.

Many law firms have purchased “off-the-shelf” or slightly-tailored from “career management systems” from human resources consultants.  A few of the packages are reasonably good in terms of providing a basic structure by which to manage associate performance and development.  Most of them, however, appear to me to demonstrate a fundamental lack of understanding of the practice of law in a law firm.

As one law firm partner told me, “It was like the HR consultant just crossed out the word bank from his last project and wrote in law firm.“

Or as another one once remarked to me, “I don’t think the company that sold us our associate career plan ever even talked to one of our associates, much less any of the partners.”

These criticisms might have been exaggerated a little, but they point out the risks and disappointing results of purchasing an off-the-shelf HR package and calling it a career management program.

Nonetheless, any effort to provide structure, policies, and processes to career management in a law firm is a good step forward. However, even the best career management plan cannot implement itself. Even in detailed and well-documented career management systems, there is always a risk that weaknesses can sneak into the system.  These are usually the result of a half-hearted implementation by the firm or of diminishing partner attention and participation over time.

This is why so many law firms have very elegant-looking career management manuals gathering dust on managing partners’ bookshelves.

As you consider how you manage the careers of your firm’s associates, remain alert to these frequent flaws.  They can creep into even the best-managed law firms:

• Performance standards and evaluation criteria that focus on “knowledge” and “attitudes,” rather than observable professional and business behaviors
• Promotion criteria that are not linked to specific, defined achievement of skills and demonstrated business and professional performance
• “Competencies” that have not been tested to ensure that they skills that associates need to master in order to become productive partners
• A lack of ongoing coaching and feedback between the formal performance evaluations
• Performance evaluations that exist only on paper and fail to include any meaningful discussion of the associate’s performance
• Inconsistent or non-existent mentoring, regardless of the existence of a formal “mentoring program”
• Weak business skills development in areas such as marketing, sales, negotiations, law firm economics, and coaching and feedback of junior lawyers and staff

A weakness in any of these areas can dramatically affect associate retention and readinesses (on the part of those who remain) to assume the responsibilities of partnership in a modern law firm.

Norman Clark