Walker Clark Worldview

A new wave of interest in transatlantic mergers is forming in the waters between the United States and the United Kingdom.  (Living in Florida, I am always drawn to hurricane metaphors.)

Anthony Notaras has posted a good summary of recent and likely future developments at the International Bar Association website:  “Transatlantic mergers 2.0 – just don’t call them defensive.” There are several other similar  possible matchups that are currently being considered in Europe and North America, but which I cannot discuss at this time.

I would not necessarily call some possible transatlantic law firm combinations “defensive.” As noted previously in this blog, the merger that created Hogan Lovells made a lot of strategic sense in terms of moving each of the two excellent antecedent firms up to the “next level” of international capabilities.

But one also has to wonder whether there is a subtle herd mentality now at work among some excellent second-tier firms, on both sides of the Atlantic, that has contributed to this urge to race to the seashore.

Norman Clark

P.S.,  If you have not visited the IBA site in the past year, you have not had the opportunity to discover that it is now one of the best sources of reliable information (not rumors) about developments in the law and in law firms throughout the world.  We recommend to our clients that they visit the site at least once each week.

After you read Anthony Notaras’ article, click on the links to learn more about the IBA Law Firm Management Committee and its programs at the IBA Conference in Vancouver on 3-8 October 2010.  (In the interests of full disclosure, the author of this blog is currently the Chair of the IBA’s Law Firm Management Committee, which has 3,300 members worldwide.)

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

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

Thomas Friedman published an important column in today’s New York Times:  “The Fat Lady Has Sung.” I highly recommend it to readers of this blog outside the United States who seek insight and understanding about the leadership dynamics and current dysfunctionality in the American political system.

It is also required reading for the managing partner of any law firm anywhere.

Friedman is critical of both President Obama and the Republican Party.  Put your own personal political views aside as you read the column.  It discusses some basic truths that apply to law firms going through times of challenge and change, whether in the United States or anywhere else in the world.

Courage in a crisis

While consensus, trust, and common goals are essential elements of long-term success, times of challenge frequently require clear, directive leadership. I have seen a number of law firms fail to achieve goals and capitalize on opportunities. Why did they fail to implement what appears to have been obvious? In most instances, there were two reasons. They both relate to failures of courage.

I will state each one in plain but honest terms.

• Personal cowardice. No one is willing to step forward and assume the risks of taking charge. Crisis is not a time for “summits” and consensus building. Those can come later.  Clarity, direction, commitment, and resolve are what are needed now.

This does not imply dictatorship. The two greatest American presidents in my opinion, Franklin Roosevelt and Abraham Lincoln, did not seek or assume dictatorial powers, despite the criticisms of their opponents. (Some of Lincoln’s and FDR’s political opponents made today’s “Tea Party” movement in the United States look like…well… a tea party.) Instead, their great contributions were to set a direction for a country that, at the time, was adrift politically and whose long-term survival was legitimately in doubt. They consulted their opponents, were not constrained by ideology, and were not afraid of a pragmatic trial-and-error approach with respect to the details.

• Group cowardice. In some law firms, the partners are unwilling to go through the sometimes painful process of resolving internal disputes. Conflict is an essential part of the development of any business group. Without it, there is no hope of developing the genuine trust and common purpose that are essential to becoming a high-performance business team.

Responsible dialogue

Friedman’s article suggests is that “no” is not a responsible position for someone responsible for governing a country.  The same applies to law firms. Irresponsible minorities frequently betray themselves in one or both of two ways:

• The party of “no.” I have seen a few law firms wrecked or almost destroyed by the stubborn refusal of a willful minority of partners to accept any change whatsoever to a failing status quo. “No” is not a negotiating position. Instead, it is the first word in saying “farewell.”

• Taking hostages. Super-majority voting requirements in partnership agreements are usually a wise precaution when making fundamental decisions about the partnership or the business. The minority must use super-majority requirements responsibly, and not to hold the law firm hostage to the minority agenda or to no action at all.

The best way to test the legitimacy of opposition to change, especially in difficult times, is to ask questions.

• Probe the rationale behind the opposition.
• Feed back what you understand the opponents’ position to be.
• Ask them how they would apply their rationale to relevant hypothetical situations.

These techniques will usually expose intellectual dishonesty, if there is any, and allow everyone to focus on any honest issues that need to be discussed.  If all else fails, this truth-seeking strategy will also bolster the courage of the majority to deal with irresponsible factions in the partnership and, if necessary, to remove them before they can sabotage the future of the firm.

Norman Clark

If one picture is worth a thousand words, a stupid picture is worth a million.

Yesterday, our office received a brochure from a vendor to the consulting psychology profession. It was marketing a certification program to help people improve “leadership abilities and inspire greatness throughout an entire organization.”

Every photograph in the brochure was of a person who was white and of European or American ethnic background. The only diversity was hair color. There was not a single person of color — or even someone who might faintly suggest an ancestry other than northern European. Not even someone who looked even vaguely Latino!

Is this their visualization of leaders in a “great” organization?  No Asians or Africans need apply?

And this was from a company based in California, one of the most diverse and culturally aware states in the United States!

So what subtle message is your law firm’s website transmitting?

Is this the image you want to project?

Are you visually communicating a “thousand words” about being a diverse, progressive organization that welcomes people of different backgrounds and points of view?  Are you non-verbally reassuring people who have origins elsewhere in the world that they are welcome as clients?

You might might respond, “That’s not rational.”  You would be correct. There is a non-rational component even in the decision to purchase sophisticated legal services. In today’s international legal market, in which hundreds of good law firms and thousands of excellent lawyers compete, such subtleties could make an “irrational” but nonetheless decisive difference.

The vendor who sent that offensive brochure to our firm did not mean to suggest that only white people could lead  a “great” organization.  Nonetheless that was the non-verbal suggestion that comes through, particularly to people who are not white or of European background.

In all but the most extreme cases, the exclusion of non-Europeans from websites in North America and Europe is not intentional or malicious. However, for law firms that are actively trying to attract international clients — particularly multinational companies that consider their diversity be one of their most valuable assets –  such oversights might betray an indifference to, and lack of awareness of, the world around them. For some companies, a demonstrated commitment to diversity might also be a selection criterion for their outside law firms.

If these are merely benign oversights, why all the fuss about these stock photographs of people who are not even members of the firm? Please read the next paragraph carefully

Even with the very best of intentions, lawyers in North America and Europe who have enjoyed a cultural “white privilege” or “male privilege” all of their lives sometimes fail to appreciate how such images might be viewed differently by someone who has been disqualified by ethnicity or gender from such benefits. Even in countries with extensive civil rights laws and a general cultural revulsion at discrimination and bigotry, “white privilege” and “male privilege” remain social facts.

There is nothing wrong with having pictures of  “ordinary” people (not members of the firms or clients) on a law firm website (or a management consulting firm website like www.walkerclark.com). They can communicate personal warmth, humanity, and welcome. However, be sure that these same images do not also subtly communicate a million stupid words that you would never intend and would be horrified to hear yourself utter.

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

The New York Times reported this morning that in the last quarter of 2009 the U.S. economy posted its largest quarterly growth in the past six years: 5.7%, which was better than expected. Although this is a good sign, economists are not sure that this is the start of a sustained recovery. To quote from the Times article:

“It was an excellent report, but it’s not clear how sustainable this pace of growth is,” said John Ryding, chief economist at RDQ Economics. “We need numbers like this for the next two years, and I just don’t think we can achieve that.”

Like Ryding and others much more expert about this than I am, I remain concerned about the sustainability of  any recovery in the U.S. without a dramatic drop in the unemployment numbers, particularly in terms of long-term unemployed and underemployed people (who have jobs, usually part-time, at or below minimum wage, and without health benefits). The Obama government only recently appears to have begun to pay attention to some of these fundamental obstacles to sustained recovery.

What does this mean for law firms in the United States? Watch the revenue performance of small and midsize business law firms, in particular.

If this trend continues (which is too early to predict), small and midsize law firms with a predominantly commercial practice could see an improvement in fee revenues in the third quarter of 2010. Fee revenues from corporate and commercial work are usually a trailing indicator of the business cycle. This is also true for large firms, but the nature of their client bases and the types of transactions in which they get involved are somewhat different.

This suggests to me that if a genuine recovery is underway — and not just for Wall Street and the big banks — we should see evidence of the depth and strength of that recovery in law firm fees by September. This is because, for most business law firms in the United States, commercial transactions, construction, and investment on Main Street are more important than what happens on Wall Street.

Norman Clark

Groundhog Day in Punxatawney, Pennsylvania

Note for international  readers:  There is an old North American custom that on 2 February the groundhog (Marmota monax) emerges from its burrow, where it has been hibernating.  If it sees its shadow, there will be six more weeks of winter.  If not, there will be an early spring.  Groundhog Day is a major public event in Punxatawney, Pennsylvania, and Wiarton, Ontario.

I learned this morning of the death, on 7 January 2010, of one of the last of a generation of lawyers whose careers spanned the period from before the Second World War into this century.

Here is the announcement in the Pittsburgh Post Gazette.

SCHREINER CYRUS BRYSON, ESQ.

Was born May 21, 1913 in the Schreiner family home on Bower Hill Road in Mt. Lebanon and died January 7, 2010 at Friendship Village, Upper St. Clair. Schreiner grew up with Mt. Lebanon Township (established 1912), since his father, Samuel A. Schreiner, was the founding solicitor of both Mt. Lebanon Township and Mt. Lebanon Public School District. Throughout his life, he enjoyed sharing his knowledge of family and local history with the community. Bryson graduated with the first class of Mt. Lebanon High School in 1931, from Princeton University in 1935, and from the University of Pittsburgh Law School in 1938 with his L.L.B. degree. Admitted to the Pennsylvania bar in 1940, he practiced law locally until 2004. …[family details omitted] … A devoted member of Mt. Lebanon United Presbyterian Church since 1924, he served as an elder and member of several local and national committees of the denomination, including the General Council. He also served with joyful diligence on boards of the Mt. Lebanon Public Library, the South Hills YMCA, Mt. Lebanon Federal Savings and Loan, St. Clair Cemetery, and the Light of Life Rescue Mission–the latter for over 40 years. Since 1984, he resided at Friendship Village of the South Hills in Upper St. Clair, a retirement community that he helped launch and joined as a “pioneer resident” when the facility opened… [memorial service details omitted] … Memorial gifts may be given to Mt. Lebanon U.P. Church or Light of Life Ministries.

I knew C. Bryson Schreiner  as a family friend, a colleague, and as his client.

When I first was admitted to practice in Pennsylvania in 1973, Bryson formally moved my admission before the Pennsylvania Supreme Court. I was associated with him in Pittsburgh from 1973 through December 1974, when we parted on friendly terms so that I could gain more experience as a trial lawyer. From him, I learned (but never mastered at his level) an intense attention to detail that was somewhat contrary to my natural preference. I also admired (but likewise never equaled) his boundless intellectual and physical energy.

The son of a lawyer himself, Bryson was also our family attorney, and served four generations of us with a mixture of  professional excellence, common sense, wisdom, and commitment that were unusual, even then.  He practiced law until age 91.

Bryson’s passing at age 96 is one of the final grace notes in the passing of the last generation of old-fashioned lawyers. Being “old-fashioned” was more than just Bryson’s continued use of his old manual typewriter or the thousands of hand-written title abstracts that traced the history of almost every square centimeter of Mt. Lebanon Township, Pennsylvania, for almost a century.  He also displayed a personal honor, an intellectual vitality, and a commitment to our profession that are sometimes difficult to detect in the American legal profession today, but which were commonplace and obvious a half-century ago.

Anthony T. Kronman described Bryson and his generation of lawyers in his book The Lost Lawyer (Harvard University Press, 1993). Although Bryson would have modestly laughed at any suggestion that the term was descriptive of him, he was part of an tradition that Kronman called the lawyer-statesman, who was motivated and governed by values that truly defined the legal profession:

…At the very center of these values was the belief that the outstanding lawyer — the one who serves as a model for the rest — is not simply an accomplished technician but a person of prudence or practical wisdom as well. It is of course rewarding to become technically proficient in the law. But earlier generations of American lawyers conceived their highest goal to be the attainment of a wisdom that lies beyond technique — a wisdom about human beings and their tangled affairs that anyone who wishes to provide real deliberative counsel must possess. They understood wisdom to be a trait of character that one acquires only by becoming a person of good judgment, and not just an expert in the law. To those who shared this view it seemed obvious that a lawyer’s life could be deeply fulfilling. For the character-virtue of practical wisdom is a central human excellence that has intrinsic value of its own…

Having not had the same privilege that I had to know and, for a brief time, to work with Bryson Schreiner, most readers of this blog will not miss him personally.  His passing is nonetheless a loss for the American legal profession. All of us — lawyers and clients, in Pittsburgh, Pennsylvania, and elsewhere — will miss the wisdom, dignity, and high sense of service that Bryson and his generation contributed to our profession and our society. This legacy can serve our profession well for many years to come.

Norman Clark