Walker Clark Worldview

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

The Law Firm Management Committee of the International Bar Association will participate in two outstanding legal management conferences in South America in June.

• Contemporary Management Issues in International Arbitration and Dispute Resolution Practices – Saturday, 12 June 2010, in Asunción, Paraguay.  This is a half-day roundtable conference aimed at the special challenges in the management of international arbitration and dispute resolution practices in law firms.  It is presented in association with CEDEP (Center for Studies in Law, Economics, and Politics), one of South America’s premier continuing professional education organizations.  It is part of the annual multi-day conference on international arbitration, which organizers expect to draw approximately 1,000 lawyers from Latin America and abroad.
• Managing a Modern Law Firm - Monday, 14 June 2010, in Buenos Aires, Argentina.  This one-day conference, co-sponsored by the IBA Latin American Forum, will investigate four key challenges for law firms in the decades of the 2010s:  (1) a business approach to strategic development of the firm; (2) marketing; (3) associate career management; and (4) management of knowledge and know-how.

For more information, please click on the two links above.

Norman Clark

Walker Clark Worldview has been in a state of suspended animation for the past 30 days, while I have been heavily involved in client work, primarily in the Caribbean and South America.  But today we resume…

The Lawyer reports that the merger discussions between New York based Orrick and London based SJ Berwin have broken off, with Orrick becoming at least the third merger candidate recently to decline SJ Berwin overtures. It appears that SJ Berwin’s financials were not to Orrick’s liking.

Trans-Atlantic merger discussions have revived robustly since the start of 2010, and my colleagues at Walker Clark and I expect them to continue, with one or possibly two significant mergers being announced by the end of the year. However, we also notice — and applaud — what appears to us to be a new sense of business prudence.  Great opportunities may be out there, but firms on both sides of the Atlantic are also saying, “Show me the money.”

We advise our clients to think through carefully the business case, when contemplating a merger with another law firm, and to exchange information — under appropriate confidentiality agreements, of course — early in the discussions. Every merger discussion between the firms should produce answers, not just more questions.

Norman Clark

The Wharton Business School of the University of Pennsylvania has recently published a very interesting article “Family Firms in the Middle East:  The New Rules of Engagement.”

A significant number of Walker Clark clients are “family” law firms in emerging legal markets. We have observed how the strategic management of such a law firm sometimes requires a thoughtful balance between:

• A compelling business need to complete a transition from what has been essentially a “family business” to a modern “institutional” law firm; and
• The continuing strengths provided by close family relationships, “traditional” workplace values, and the visibility and reputation of the family in the legal market and business community.

The Wharton article points out several important changes that family businesses in the Middle East are now undertaking.

• Creation and documentation of a formal system of governance, to replace informal ad hoc decision-making by family members
• Introduction of contemporary management structures, such as management boards, audit boards, and independent advisory boards
• A better definition of the relationship between the family and the business, with a clear segregation of ownership of the business from the operation and management of it

These changes are similar to those that Walker Clark, LLC, has helped family law firms to introduce and manage in emerging legal markets in Africa, the Middle East, and Latin America. If you practice in a family law firm, the Wharton article could be quick, but interesting and potentially valuable, reading for you and your colleagues.

Norman Clark

A managing partner of a reputable and reasonably successful midsize law firm recently told me, “We look for partners who are just like us, who we know will fit in.”

This is not the first time that my colleagues and I have heard about this “unwritten trump card,” as a senior partner in another firm describe it.  ”If we have two candidates who are roughly equal, we will usually give the nod to the lawyer who has the better chemistry with us,” a partner from yet another law firm once told me.

Especially in the traditional context of a law firm partnership, it is natural to want partners with whom one feels comfortable, with common backgrounds and points of view to one’s own.  We are more likely to trust and feel confident about people who are more like ourselves.

Is is perfectly natural.

It is also potentially lethal to any business, but especially law firms.

Our firm’s experience working closely with law firm partnerships and practice groups demonstrates that a group of professionals is better able to make hard decisions, manage change, and get the best results from innovations if it has people with diverse backgrounds, experiences, personalities, and points of view.

Such groups are usually better able to:

• See through unproductive business paradigms that most law firms continue to accept blindly as immutable truths.
• Apply a lively intellectual rigor and critical thinking to proposed innovations and, as a result, usually obtain a better return on their investment in them.
• Spot new opportunities before their competitors notice them and build competitive advantages that will be difficult for competitors to overcome.

By contrast, partnerships that are not diverse, where everyone is “just like us,” are usually more likely to:

• Cling to old business assumptions, habits, and “values,” even then they clearly do not produce desired results.
• Dismiss fundamental changes in the legal market as “fads.”
• Worry that recruiting and promoting women and ethnic minorities might “compromise our standards.”
• Fail to implement new strategies or management changes, even when the partners agree that they are needed.
• Avoid differences of opinion as being “damaging to our partnership culture.”
• Consider honest questions or doubts to be disloyal to the firm.

Which of these partnerships is more likely to grow?  Which is more likely to be in business 30 years from now?

Diversity is not just good social policy or a way to check a box on a client’s checklist of selection criteria. It is good business. Rather than look for “people just like us” when we select new partners in our law firms, we need to look for people who challenge us intellectually and who call on us to look at our firms and our profession in new ways.

Norman Clark

My Walker Clark, LLC, colleague, Bill Henderson has shared with me his notes for his address on 14 April 2010 to a business leaders conference in Zagreb, Croatia, sponsored by LIDER, a major business publication in Croatia. As our firm’s clients already know, Bill is an outstanding thought leader in the field of international business strategy.

Bill makes a great point about a serious gap in decision-making in law firms: the failure to take into account the human consequences of a business strategy. This mistake can do damage that it can take months or years to undo.

Bill provided me this morning with this advance synopsis of his presentation:

Business Intelligence is the process by which we make sound business decisions. Today, with the availability of the sophisticated computers, programs and the internet, business executives have the ability to garner information, have it analyzed, and have options presented for decision making  with incredible speed. Of course the information, analysis, and options presented must be objectively developed by honest, loyal, competent, and dedicated people – our employees.

The most important part of the Business Intelligence equation is the quality of the information we receive and that depends on the quality of our people. In today’s world, people are being referred to as “Human Capital.” This phrase turns up pervasively in textbooks, and professorial papers written by alleged scholars.  Such descriptive wording reflects  an unfortunate, mistaken, and dangerous dehumanizing philosophy.

Bill will present an analysis and new approach that should produce increased efficiency, better productivity, and safer decision-making — all of which can lead to greater sustainable profits.

This is not business-school theory. Instead, it is grounded in the reality of day-to-day business operations in law firms and in the numbers on law firm profit-and-loss statements. Our firm’s work with law firms worldwide demonstrates a clear and very strong correlation between the presence of the human factor in business decisions and the long-term sustainability of the benefits that the decision seeks to achieve.

Norman Clark

This is the final posting in a series about the characteristics of successful quality assurance programs in law firms.

How does one measure the success of a quality assurance program? When Walker Clark advises a law firm, we tell the partners to look for these indicators:

• Improved productivity by fee earners — because they can spend more time on billable work and less time fixing mistakes and responding to client complaints
• Higher collections realization rates — because the firm now manages the major reasons for fee write-downs and write-offs
• Higher levels of client satisfaction – because the firm meets or exceeds client expectations and gets things done right the first time
• Competitive advantage – because the firm can demonstrate quality, rather than just mumble slogans about it

As the previous parts of this series suggest, serious quality management is a challenge for most law firms.  People have to discard bad habits.  They have to sharpen their thinking about the routine work that they do every day.  In some instances, lawyers need to change some of their long-held, fundamental ideas about what constitutes quality in a legal service.

Quality management often involves a set of discrete journeys that a law firm must make…

• From considering errors and mistakes as failures to be hidden — to viewing them as data-rich opportunities to reduce or eliminate them in the future
• From assigning blame — to finding solutions
• From viewing quality in legal services as something that only a lawyer can define — to understanding quality in terms of the client’s needs, expectations, and perceptions

Each of these requires a profound cultural change for most law firms. It is a necessary change, as well; because law firms that are unable to manage serious cultural change are doomed to declining competitive performance and, eventually, irrelevance in the fast-changing, highly competitive legal markets of the 2010s.

The “quality assurance” culture also requires a seriousness of purpose and an ongoing commitment to the procedures and methods. Partners must be highly visible in their support for, and compliance, with the quality assurance program. They must reinforce among junior members of the firm that quality assurance is everyone’s job and is important to the business success of the firm.

Like most worthwhile investments, quality assurance sometimes is not easy, especially because of the cultural changes that it sometimes requires. But that effort produces profound and positive results that are:

• Long-term and sustainable
• Beneficial to almost every aspect of law firm operations
• Measurable in terms of dramatic improvements to profitability and financial performance.

Norman Clark