Walker Clark Worldview

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

On Monday 14 June 2010, I had the privilege of moderating a panel discussion about the adoption of a business approach to law firm strategy.  This was part of the very successful Managing a Modern Law Firm conference, organized by the Law Firm Management Committee and the Latin American Forum of the International Bar Association, and was held in Buenos Aires.

As part of my comments, I discussed three general lessons that many law firms worldwide have learned from the economic crises in 2008-2009 (and continuing into 2010 for some countries).

1. The need to be alert to emerging economic and geopolitical trends before they arrive in the form of a crisis
2. The need for a more intense focus on profitability, particularly with respect to lawyer productivity and efficiency
3. The need for fully-informed business decisions, based on facts, not hunches or hopes.

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

Prague

Last Friday we launched our new Central Europe Group, to deliver global experience and local expertise to law firms practicing in five dynamic legal markets in Central Europe:  the Czech Republic, Hungary, Poland, Romania, and Slovakia.

The Central Europe Group originated from suggestions and comments by Walker Clark clients, as well as professional friends in the region, who are seeking a multidisciplinary approach to business strategy, management, and operations, that is not readily available from traditional consulting firms at a reasonable cost.

The Central Europe Group delivers country-specific services in:

• Strategic planning and implementation
• Profitability analysis and improvement
• Establishing clear competitive advantages
• Evaluation of mergers, networks, and other growth opportunities
• Improving the marketing performance of the firm and each of its lawyers
• Building the firm’s national and international visibility
• Law firm governance and partnership structures
• Compensation systems
• Performance management to get the best results from each person in the firm

The Central Europe Group has also published a series of country pages with up-to-date news and analysis of the major business and economic trends affecting the business of law firms in each of the five countries. We are also publishing a series of in-depth Background Papers on each legal market. The first of these, Foundations of the Modern Czech Republic, by Daniel E. Miller, Ph.D., one of the coordinators of the Central Europe Group, was published this past weekend and is available for download from www.walkerclark.com.

If you would like a complementary consultation about how the Central Europe Group can assist your law firm, please contact me by e-mail or by telephone at +1.239.466.8370.

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

Save the date!

The Law Firm Management Committee of the International Bar Association, in association with the IBA Latin American Regional Forum, will present a one-day conference on contemporary issues in law firm management in Buenos Aires, Argentina, on 14 June 2010.

The conference will focus on four timely subjects, each of which has a profound influence on the business performance and profitability of law firms everywhere:

• How to write, implement and measure results of a marketing plan
• Applying a business approach to strategic and tactical development of a law firm
• Career management:  What do associates need?
• Know-how management in a small or medium law firm

My Walker Clark colleague, Fernando Moreno — one of the top experts on law firm marketing strategy and tactics worldwide — will be speaking during the session on writing, implementing, and measuring the results of marketing plans.  I will participate in the session on a business approach to strategy and tactics. Other participants will include highly successful law firm leaders and managers.

This conference is designed for managing partners, practice group leaders, and law firm managers and their advisors.  For more information go to the IBA website. It also will be one of the premier networking opportunities to meet and become better known among the leaders of leading law firms throughout the Americas.

Norman Clark

An all-too-common sight on the bookshelves of many law firm partners is the thick, dusty binder labeled “Strategic Plan.” The partners, usually with the assistance of a consultant, developed an elegant, impressive, detailed strategic plan. They implemented almost none of it.

Implementation usually involves some significant changes in attitudes and habits.

• It requires a shift from a short-term mentality to a long-term commitment to sustainable business success. Partners need to focus on what they need to do now to build the long-term performance of the firm, and not just how much they can bill in fees this month.
• It involves discipline and a new ordering of priorities. These are essential to completing action items on time, measuring results against expectations, and making continuous improvements.
• It requires an understanding that the old ways of doing things will not necessarily work in the future. Many firms have done well in the past largely due to excellent lawyers, hard work, valuable clients, and good luck. The first two are excellent traits. However, at no time in recent years has client loyalty been weaker; and good luck eventually runs out. Past success guarantees nothing in today’s legal markets.
• It requires change leadership on the part of the firm’s managing partner and the entire management team. Unless the firm’s leadership team is willing to provide consistent, unequivocal, and unanimous support for the needed changes, the firm is probably wasting its time trying to improve.

Implementation is hard work, particularly for partners and managers who are already overloaded with everyday client work and administrative responsibilities. The choice for law firms is summed up in the old management proverb:

If you keep on doing what you have always done, you will get what you have always gotten.

Norman Clark

There are an interesting discussion and several related links in this morning’s National Law Journal posting “Spotlight on Laterals.”

The panel discussion focuses primarily on large law firms; and some of the comments and observations might not be entirely applicable to small and midsize firms. Also, as appears to be customary with the National Law Journal‘s American focus, none of the discussions take into account local market situations for law firms outside the United States. With those caveats in place, “Spotlight on Laterals” might be interesting and worthwhile reading for those of you who are NLJ subscribers.

Whether to bring in a lateral partner is one of the riskiest business decisions that most law firm partnerships will ever make. The opportunities can be very attractive, but like most things with the potential for great rewards, admitting a lateral partner also carries high risks, which much be identified, defined, and managed in advance.

I recommend to my firm’s clients that they use a methodology that is similar to that used to evaluate the business case for a law firm merger, and that they be satisfied that they have solid, factually supported answers to all of the questions.

We sometimes have to make business decisions based on a large component of faith and goodwill. Admitting a lateral partner into your law firm should not be one of them.

Norman Clark