How Can You Reach and Recruit Diverse Lawyers?

I’ve been gobsmacked by how many managing partners and firm practice group leaders tell me, “Mike, we’re having trouble recruiting a homogenous, non-diverse stable of lawyers; we want to grow our numbers but we can’t seem to break the cycle of onboarding lawyers who all look very different from each other and represent different life experiences, ethnicities, geographies and genders. Can you help us address this human capital challenge?” Alright . . . so I’m not hearing that! As you might assume, I’m hearing quite the opposite. Outpacing all other law firm laments- by a wide margin- is the frustration firms express about not being able to recruit successfully enough diverse and minority lawyers.

Why can’t firms win more than their fair share of recruiting battles for diverse lawyers, and why is this important? For one thing, culture matters to all lawyers- both diverse and non-diverse lawyers. Lawyers want to work in eclectic, stimulating environments. Non-diverse lawyers are a flight risk if they are denied the affirming experience of working with colleagues who represent true diversity. Moreover of course, corporate law departments for some of the same reasons want to work with a more diverse stable of providers and advisers.

The legal business is a human capital business. With GDP growth at 6x-7x normal rates reducing to “only” 3x-4x normal rates as the economy recovers, demand for commercial legal services will remain brisk for a long time. The challenge law firms face in recruiting diverse lawyers is in some respects a more acute form of the challenge they face in recruiting all lawyers. What diverse lawyers want to see in a firm to which they commit their career in many respects is what all lawyers want to see in a firm worthy of career commitment. Compensation of course is important, but what else should firms support to more reliably attract the most desirable lawyers to their firm?

Career Long Commercial Success

Make an explicit and detailed commitment to helping your diverse lawyers be successful commercially. Many firms view the path-to-partnership as a 10-year fraternity hazing experience- “we want autodidacts who can figure out success on their own- that’s our partnership readiness KPI.” What if you were simply better than your peers at teaching your diverse stable of layers the functions and vocabulary of business so they will have an easier time engaging with client prospects? What if you taught them from inception how to cultivate relationships, convert opportunities into paying engagements, and cause third parties to become introduction generators for their pipeline? I encourage my clients to demonstrate with concrete, tangible and packaged deliverables what their competency building experience at their firms would look like in these areas- you must show that you are as intentional and serious about building in them these skills as you are about building in them technical legal skills.

Help Them with Life

Committing to a law firm career = committing to an imbalanced life. Help your diverse lawyers- particularly if they’re new to the community-  build their supportive personal scaffolding so they can be even more effective at building their career. Get to know them and help them manage some of the non-work dimensions of their life that are rendered more complicated because of work. Do they want to send their kids to private school? If so, put them in touch with other partners who know something about that process. In what activities outside of work do they and their spouses/partners like to engage? Put them in touch with others who engage in those activities. How are they trying to build out their personal and professional network? Put them in touch with other firm lawyers who know people who would be interesting to them. Listen and learn, and then be helpful- pretty simple, huh? You should document what the firm does in these areas, and package it up (promote, educate others, and document) so that diverse recruits see that it is part of the firm DNA.

Educate Them with Expectations and Possible Roles

Many firms offer multiple paths and have cracked the code on how each flavor of lawyer can generate firm profits. Very few younger lawyers have a granular view of success over time at a law firm. We all know law firms can support thoughtful long term tracks for non-equity partners, fractional lawyers, and lawyers moving into business roles. Success in a law firm career is less binary and more complicated now. Firms expect to generate profits from all lawyers, no matter what title they have. All lawyers- including diverse recruits- need to understand what those roles look like and how they could be successful in each one.

Stop Being Cryptic

Many firms aren’t very open about what life will be like at a firm as a senior partner, or even as a young partner. AmLaw rankings may provide transparency into the financial benefits, but even those numbers don’t tell the whole financial story; e.g., amount of capital contributions, spread between highest and lowest compensated partners, what are the “doing my part” expectations at each stage. Also, be open about what people earn and why. You have much a better chance of convincing a desirable recruit to defer near term compensation gratification if they see a pathway to great financial security and reward down the road- but you must be specific and transparent here!

Control

Most lawyers care very deeply about blunting the imbalanced nature of law firm lawyering over a career by seeking control over what they are doing. “If I’m going to have to work this hard, I want to be able to do it on my terms . . . “ At bottom this means they need to see how they will build a client base of their own. How else could your firm help diverse lawyers establish control over their career- both long term and day to day?

If your firm is like 90% of the AmLaw 200 law firm that can’t throw more money at diverse recruits than your competition, then you have to be more thoughtful and holistic, if for no other reason than because your most desirable minority and diverse recruits bring their own thoughtful and holistic lens to these issues. Meet your human capital where they are, and give their long term career aspirations an intellectual bear hug- then you will begin winning more of these talent battles.

Resolving Conflict: Trouble at the Top and Why it’s sometimes best to part company

I have written previously (in an article in the Edge Communiqué entitled ‘Law Firm Armaggedon: How a major Law Firm nearly imploded and how the conflict was resolved’) about how the survival of law firms sometimes requires the capacity to resolve senior-level conflict. In that article I shared the story of one such conflict and how it was resolved through a long and difficult resolution process.

On that occasion conflict resolution achieved a truce between the key protagonists. In the situation described in this article the outcome was a recognition on the part of one of the key protagonists that it was best for everyone if he leave the firm.  While ostensibly a less dramatic situation, in reality this outcome was important for the continued flourishing of the firm.

My Relevant Background

I described my relevant background in my earlier article.

I am an ex-barrister (I practised at the Bar in London for 12 years), schooled primarily in an adversarial approach to dispute resolution.

Around fifteen years ago, I started to retrain as a psychologist, completing my undergraduate equivalency in psychology while still practising at the Bar. After leaving the Bar, I continued my studies and started to practise as an occupational / organisational psychologist. Over the years I have worked extensively in the field of senior-level talent development in law firms and corporate legal departments, both in the UK where I live and also in the US and internationally.

As I explained in my earlier article, given the breadth of my background, I have been involved in a variety of projects, which defy easy categorisation. Several of these projects have involved senior-level conflict resolution, which has become a significant strand of my work.

A Case Study: Trouble at the Top

Unlike my earlier case study there was no cataclysmic precipitating incident that sparked my involvement with the law firm in question. Rather I was brought in ostensibly to help the Management Committee of the law firm to work together more effectively.

The background was that the law firm was a mid-sized regional firm in the UK.  The firm had grown rapidly over the last 10 years, through a mixture of organic growth and as the result of a couple of large mergers.

The Managing Partner of the firm was half way through a second term of tenure, having been re-elected unanimously as Managing Partner prior to his second term.  He had been at the firm for over 20 years and was coming towards the end of a very successful career as a transactional lawyer.

The other members of the Management Committee were the heads of the firm’s key departments – litigation, property, corporate / commercial, banking & finance and private client – together with the firm’s finance director / COO.

My introduction to the firm was via a consultancy that had been helping the firm with the development of a new 5 year strategy and the implementation of some key organisational and technological changes.  The consultancy, in discussion with the firm’s HR Director, had identified that it might be helpful for someone to do some team development work with the firm’s Management Committee, as the Committee was not fully aligned on some key aspects of the proposed changes.

The HR Director felt that it would be helpful for the Management Committee to have a team charter and described this as the core of the necessary work when I first met with her.  I was unconvinced that this was really at the heart of the necessary work, but decided to refrain from expressing this until I was clearer about what was actually going on.

What was clear from my initial briefing, however, was that all was not well at the top of this organisation.  Although not presented as of key concern in this initial briefing, it was clear that there was a degree of conflict between members of the Management Committee. It was also clear to me that if the top team was unable to align it was highly unlikely that the planned changes would be fully effective.

Choice of Process

The HR Director was convinced that the implementation of a ‘team charter’ would help ameliorate behaviour of Management Committee members.  I initially tried to question why a team charter would be a panacea but it was clear to me that the HR Director was focused on the team charter and did not want to listen to other possible approaches to the situation.

Rather than continue to debate this issue with the HR Director I decided that the best approach was to agree that I would work towards the Management Committee embracing a team charter.  I suggested that I have a mix of conversations with the team members combined with a series of workshops dealing with issues emerging from the conversations.  I suggested that I speak first to the Managing Partner and that I then have meetings with the other Management Committee members. I explained that I felt that the Management Committee members might welcome some coaching and support in relation to their respective roles in the change process, in addition to my providing support to the Management Committee as a team.

First round of meetings

I met first with the Managing Partner.  He was very happy to engage with the process and acknowledged that the behaviour of the Management Committee was holding back the change process.  It emerged from the discussion that the Managing Partner felt that the head of litigation was a particularly disruptive influence on the Management Committee. He was resistant to many of the proposed changes, in particular to some of the proposed changes in technology and to more centralised resourcing.

According to the Managing Partner the head of litigation was undermining some of the work of the Management Committee and the external consultants.  He was apparently having ‘offline’ conversations with Management Committee members outside the formal Management Committee meetings, seeking to persuade them to hold out against some of the recommendations or to resile from changes that had already been discussed and agreed. The Managing Partner also suspected that he was ‘briefing’ against some of the proposed changes, i.e. telling his direct reports and possibly others that he was not in favour of the changes.

I tried to ask the Managing Partner whether he had called out this behaviour and, if not, why not – but it was clear to me that the Managing Partner was very uncomfortable discussing this and I was concerned that it would damage the relationship if I pushed him too hard on this.

The meetings that I held with the other Management Committee members confirmed that the head of litigation was a disruptive force on the Committee and highly resistant to the proposed changes.  The other Committee members all mentioned that he tended to dominate Committee meetings and that his contributions used up a disproportionate amount of the available airtime.  While it was clear that the Managing Partner was highly respected as a brilliant lawyer it was also clear that his leadership of the Management Committee was lacking and that he was, in the view of several of the other Committee members, highly averse to conflict and confrontation.

A couple of other factors emerged from these initial meetings.  First, it was clear that although the larger of the firm’s mergers had taken place several years previously it remained highly significant in terms of actual and perceived loyalties of the Committee members.  Several of the Committee members referenced the mergers and would refer to other members according to whether they were ‘original’ or ‘legacy’ i.e. whether they had been with the ‘original’ firm or one of the legacy firms with which the ‘original’ firm had merged.

It was clear to me that Committee members had retained their identities as either ‘original’ firm partners or ‘legacy’ firm partners and that those identities remained determinative of how partners were viewed by each other.  There remained a web of alliance and commonality between the ‘original’ firm partners and a similar web of alliance and commonality between the ‘legacy’ firm partners.  Each group was distrustful of the other group.

Second, it emerged that I needed to tread carefully in terms of my work with the Committee as a team.  Several of the Committee members referenced a previous disastrous engagement with an external consultant who had done some work with the team, which had backfired badly.  The consultant had held a kick off meeting without laying the groundwork by having individual meetings with the team members.  In the kick off meeting the consultant had done an exercise with the team where he encouraged the team to imagine their fellow team members as common animals (badger, beaver, lion, tiger etc.) and to explain why they identified which particular colleague with which particular animal, based on that animal’s behaviours and attributes.

The exercise had derailed in a spectacular fashion.  A couple of the team members chose to ‘zoomorphise’ their colleagues as animals which those colleagues regarded as, at best, inappropriate and, at worst, highly offensive.  Everyone maintained a polite front during the meeting but there were post-meeting recriminations, the work with the consultant was abandoned, and the exercise had clearly scarred team relationships for a while.  There was an understandable desire to avoid anything that might be a repeat of this disastrous experience.

I chose to meet the head of litigation towards the end of this first round of meetings.   He was ostensibly extremely affable and keen to emphasise that he thought the team development work was an excellent idea and that he welcome personal coaching.  However he was careful to extract several reassurances that our conversation was entirely confidential and spent a significant part of the conversation critiquing the proposed changes, emphasising the critical nature of his role to the success of the firm and explaining why, in his opinion, the litigation department was significantly different from the other departments such that his department should be excepted from several of the changes, particularly with regard to centralised resourcing.

I had been forewarned as to two of the head of litigation’s key traits – a tendency to interrupt while being asked questions and a propensity to keep on talking way beyond the scope of the question that had been asked.

The First Workshop

I decided to play it safe in the first workshop.  I thought that it was important to build rapport with the team and to have a relatively gentle workshop rather than trying to tackle anything too ambitious.

I gave the Management Committee some general feedback from the conversations that I had held with them.  I fed back with regard to the previous disastrous team development intervention and discussed with the team how that intervention had been counterproductive and caused considerable friction within the team rather than improving team relationships. I also spent some time discussing the fact that legacy relationships (i.e. relationships carried over from the ‘original’ firm and from the merger firms) still seemed to affect the dynamics of the group and there was general agreement as to this and how there was still a perception that some loyalty was owed to the legacy network of relationships.

We discussed in generic terms the key attributes of a high functioning team and the behaviours of such a team.  These were captured for later use in the team charter exercise. While everyone expressed a commitment to operating as a high functioning team there was an acceptance that it would take time and effort to shift the embedded dynamics of the team.

My approach subsequent to the First Workshop

Following this first round of meetings and the first team workshop I reflected on the approach I should adopt moving forward.

I decided to focus on the following areas in the one to one coaching conversations:

1. Legacy relationships – It was clear to me that the head of litigation was using the loyalty created by legacy relationships to undermine the work of the Management Committee as a whole. This was unfortunate as it seemed to me that the Management Committee – with the exception of the head of litigation – was broadly aligned around the importance of the proposed changes.  So I decided, in my one to one coaching of the team members, to encourage them to focus on the importance of working together as one team and to seek out opportunities to work more collaboratively with those with whom they did not have legacy relationships.  This could be as simple as having more regular catch ups with those individuals. I also encouraged the consultants driving the change process to ensure that the internal working groups driving the change were made up of a mix of players, so that the group members did not all share legacy relationships. It transpired that several of the key working groups had key members who had strong legacy relationships and these groups were gradually mixed up as a result of my recommendations.

2. Offline conversations – Much of the work of the Management Committee was being undermined by offline conversations seeded or coordinated by the head of litigation.  I decided to focus on steering the team members away from having these conversations, particularly conversations whose purpose was to undermine the proposed changes or to revisit decisions that had already been made by the Committee.  I thought that it was unlikely that the head of litigation would change his approach to a more positive one – and, assuming this supposition was correct, I believed that it was important that the other team members deprive him of the oxygen he was being given to fuel resistance to the changes.

3. Stronger leadership – I thought it was important that the Managing Partner showed stronger leadership, calling out bad behaviour on the part of the head of litigation. I was not sure whether he would be prepared to do so given his aversion to confrontation.  I felt that I needed to encourage him to do so.

Subsequent developments

I had further rounds of coaching conversations with each of the team members, each round being followed by a team workshop. The bulk of each team workshop was consumed with the team discussing detailed aspects of the strategic change process (with me observing this work) and a small but significant portion of each workshop was devoted to discussing the team’s development.

I followed the approach outlined above with regard to the one to one coaching conversations, focusing on the areas outlined above in addition to providing each individual with support in relation to their roles in the larger change process.

A number of things happened as a result of the approach I adopted:

1. Within a couple of coaching sessions the team members – with the exception of the head of litigation – increasingly realised and articulated in conversation that their interests were aligned to those of the firm as a whole rather than those of the legacy organisations. They became careful to consider whether their decision-making was based on loyalty or affiliation because of legacy relationships – and also to avoid intuitively conferring with legacy colleagues when making decisions.   Several of the team members were surprised at the extent to which they had previously been influenced unconsciously or intuitively by legacy colleagues, and less so by their ‘newer’ colleagues (even though these ‘newer’ colleagues had been their colleagues for several years).

2. The number of reported offline conversations declined, in particular conversations focused on reviewing or second-guessing decisions already made by the Management Committee. Specifically legacy colleagues of the head of litigation were careful to ensure that the head of litigation did not draw them into these conversations.

3. Both legacy and non-legacy colleagues of the head of litigation became more likely respectfully to call out the head of litigation at their team meetings. Whereas the head of litigation had previously been allowed disproportionate airtime at these meetings, colleagues were more likely to ask him to make way for other contributions and to point out where he was being unjustifiably negative about aspects of the proposed changes.

It also important to note that the Managing Partner himself did not call out any of the head of litigation’s bad behaviour.  When I raised this with him he attributed it to wanting the team to take ownership of the situation rather than imposing a solution himself – but I believed that the reality was that he was uncomfortable doing so, despite my efforts to encourage him to show clearer leadership.

In any event, within a couple of coaching sessions with the head of litigation it was clear that he was starting to feel marginalised as a result of the developments outlined above. He recognised that he was feeling increasingly isolated on the Management Committee and I encouraged him to explore with me why that was the case and what was going on.  I was able to give him some of the feedback that the Managing Partner had not given him and to explain to him objectively and respectfully my observations as to his communication style. To my surprise he took some of these observations on board and realised, at least partly, that he was responsible for his own isolation.

Decision to part company

In subsequent conversations the head of litigation discussed with me whether he was capable of adapting his communication style – and whether he wanted to do so.

He recognised that aspects of his communication style were entrenched but felt that he could modulate aspects of his style if he wanted to do so.  Indeed, he became notably more positive in a couple of team workshops and yielded the floor in those meetings to his more constructive colleagues to an extent that was noticed by the other Management Committee members.

Ultimately, though, he decided that he did not want to accept the new status quo.  The new status quo would see (from his perspective) his leadership of his department sidelined in two key ways.  He would have to agree that the technological changes would apply as much to his department as to other departments.  He would also have to agree to more centralised resourcing, such that resources from the litigation team would be available to other departments depending on patterns of work flow.

For my part I encouraged him to think through the issues around his communication style – but as he edged towards the decision to leave his role I did not try to persuade him to stay.  My view was that the team would work together much more effectively were he to leave.

I also helped him to think through the sort of environment that might play to his strengths.  He decided (rightly in my view) that this would be an environment where he could call the shots.  After exploring a variety of options he accepted an in house role heading a small team in a legal department that handled a heavy volume of litigation.

Outcome and Conclusions

As the work with the Management Team continued, the team charter itself receded in significance – as I had suspected it would from the start.  We put together and agreed a team charter but in reality the charter captured many of the behaviours that the team had already started to exhibit.  Those behaviours would not have developed without the coaching of team members and the team workshops.

As indicated above, the head of litigation parted company with the organisation to take up  another role.  This provided the opportunity to refresh the team and to bring in a new team member – the newly appointed head of litigation who possessed qualities of communication and collaboration lacking in his predecessor.

Following the departure of the head of litigation the team started to work together more effectively and became increasingly aligned with regard to the changes, most of which were implemented within a relatively short timeframe.  The firm has continued to grow, pulling ahead of some of its direct competitors.

By way of footnote the Managing Partner himself moved on within a year of my concluding the work with the team and the ‘new’ head of litigation was voted as his successor.  I can in no way claim any credit for this development – but the change in team dynamics enabled a new leader to step up and to replace a Managing Partner who himself had shown some clear deficiencies in his own leadership style.

For me, the core work illustrated that it is sometimes better to recognise that a key relationship (in this case the relationship of the head of litigation with his senior management colleagues) is not working – and therefore to part company – rather than to assume that every dysfunction can be resolved or that it is worth the time and expenditure of organisational resource to try to do so.

For further information or to discuss the issues in this article, please contact Jonathan Middleburgh at [email protected] or on +44(0)7973 836343

Edge Principal Jonathan Middleburgh consults on senior human capital issues and coaches senior legal talent in both law firms and legal departments. A former practicing lawyer who is also trained as an organisational psychologist, Jonathan has a wide range of experience helping law firms and legal departments to develop their senior legal talent so as to maximise business outcomes.

Why Taking a Broad Approach Drives Optimal Performance

A few years back, I was in England at a time that coincided with a reunion of my high school year. I had left England early in my professional life and thought it would be a great idea to reacquaint myself with school friends, most of whom I had not seen for over 30 years. I was really looking forward to the event and learning what people had done with their lives.

It was a shock when I discovered that the vast majority of my colleagues had lived their lives within a radius of 20 miles of our high school, and seemed to have a pattern of life that had been pre-programmed from the time they started work until the day they planned to retire. My initial reaction was, “How can people live such narrow existences?” but then I realized that I was selfishly pre-judging people based on my own experience of living and working in different countries. However, my initial reaction was also conditioned on observations over the years of the lost opportunities resulting from not thinking more broadly.

The Myopic Associate

I remember vividly dealing with a senior associate of a law firm who was hired to assist with the closure of a bank, where I was interim manager. The initial issues were of a tax nature, but the associate was aware that we also needed to divest of real estate and deal with employment issues, amongst others. We were satisfied with the resolution of the tax issue but, to my amazement, the associate never questioned whether his firm could assist with the other issues, despite the fact that the firm was a large full-service firm. We hired elsewhere.

Business as Usual

I remember discussing with leaders of a law firm’s “trade and commerce” practice group how to grow their practice and increase profitability. I asked them to identify their high-value services. The response was “trade agreements, regulations and commercial transactions” – nothing more than a generic description of what they do and not what generates the most value. After some discussion we discovered that litigation resulting from alleged trade-agreement breaches was where the highest value lay, and where there needed to be more focus.

Conditioned by Habit and Rules

I remember asking the leader of a practice group of a large law firm why the group had many large multinational clients, but those clients were not significant in other practice areas. The answer was that partners of the group were focused on delivery in their own practice area – partially because that is what they were used to, but also because work volume was the main determinant of compensation. Similarly, in another firm, I saw a huge predominance of clients in one industry but the inability to serve those clients outside of one practice area.

These observations illustrate the tendency to follow certain patterns of behavior that have been driven by experience and training and the culture and directives of organizations in which people work. People may be open to thinking and acting more broadly but they also need the motivating drivers – and that responsibility lies with firm management.

In the legal environment, specialization has always been viewed as a key element to success, and often as a competitive differentiator. Clients are looking for resources that have the specific knowledge and experience to resolve problems. However, with the advances of technology and the ability to provide efficient and low-cost solutions to legal needs, particularly those related to standard processes (contracts, registrations, search and discovery, etc.), law firms are addressing changes in their business models and how to leverage their resources to respond to increasingly sophisticated needs of clients.

In his book Range – Why Generalists Triumph in a Specialized World, David Epstein sets out “…how to capture and cultivate the power of breadth, diverse experience, and interdisciplinary exploration, within systems that increasingly demand hyper-specialization…”. Epstein recognizes that specialization is necessary and that when “… facing kind problems, narrow specialization is remarkably efficient.” However, following an analysis of the most successful individuals in multiple fields, he argues that when “facing uncertain environments and wicked problems, breadth of experience is invaluable.” He goes on to say that it empowers those individuals to excel in their fields.

Evidently organizations can and do endeavor to strengthen their bench through strategic hiring and programs of ongoing professional development, involving not just legal skills but also business and people skills. However, the real power of an organization is not in the “range” of each individual but rather in the ability to enable those individuals to work as a team and allow their collective skills and experience to benefit the organization and its clients.

To maximize the range of an organization I suggest that diversity, in the broad sense of the word, be considered, and that it be a key driver in the way the organization is managed. Diversity of capabilities, skills and experience should be considered in the composition of teams to most effectively address the agenda at hand, be it a client matter or an internal project. But it is equally important that diversification be considered when devising and implementing strategy, always visualizing how it can be used to achieve better results. Firms should strive for diversity in professional development to raise capabilities, diversity in approach to business solutions to enhance client service and satisfaction, diversity in performance goals and compensation incentives to drive the right behavior, and diversity in pricing and allocation of resources to maximize profitability.

Valuing diversity pervades everything we do. Yes, specialization is necessary, but cultivating diversity, collaboration and a broader approach drives optimal performance innovation and differentiation.

In subsequent articles I will discuss in more detail how to apply this concept in practice to challenge complacency, individualism and narrow thinking, and to sharpen the edges of your organization and business. In the meantime, I would welcome feedback and especially further examples of lost opportunities and their causes that may be of interest to our readership.

Splitting the Pie: Some Thoughts on Profit-sharing among Partners

According to the great David Maister, “Profit-sharing arrangements between partners are among the most difficult set of issues in professional service firm management”. The way partners share profit goes right to the heart of a firm, what it values, behaviours it seeks to foster and reward, the way it defines and recognises contribution, and the people it chooses to promote. There is no doubt about the difficulty of these issues, nor is there any about their importance.

Profit-sharing arrangements are inextricably linked to partner entry and exit, further complicating both complexity and importance.

First the facts. Contemporary alternatives

Individual sharing models vary from firm to firm. They can all work and they can all fail. Most models are a variation of the following:

Equity-based Sharing (Equal or Differential) with Valuable Goodwill

This model endures as the most popular model in the common law world. Although they garner little media attention, most law-firm partnerships have fewer than six partners. Partners are usually appointed internally from the ranks of associates. Firms are funded by partners. The volume of partner exit and entry transactions is relatively low and they are infrequent.

Under this model, a partner’s interest is valued – ideally using a formula based on sustainable profit, but usually by the firm’s accountant using a variety of methods that range from precedent to “using the force”. Profit is almost invariably shared equally, although some firms have differential ownership, allocating profit commensurate to ownership.

This is typically a small-firm model. It places strategic limitations on firms and, although it has endured for centuries, its appeal to the next generation of partners remains to be seen.

The idea of valuable goodwill in law firms has received a boost in recent years with the advent of publically owned (both listed and non-listed) law firms. These firms are demonstrating growth by acquisition intent, paying multiples of profit to current owners. Although limited to a small number of transactions to date, it is difficult to argue that goodwill doesn’t exist when there are people external to the firm paying for it.

Strengths

• an opportunity to build an asset
• tenure, security and “sovereignty”

Weaknesses

• tenure, security and “sovereignty”
• uncertainty of realisability of the asset
• limitation to merger
• limitation to lateral recruitment of partners
• difficulty experienced by incoming partners to fund purchase, usually at an expensive time of life

Lock-step to Equality

“Lock step” describes the means by which a new equity partner acquires his or her equity. A pure lock-step firm will typically admit new equity partners every year. New partners usually contribute capital equal to the amounts contributed by all equity partners.

In their first year of equity, new partners receive profits of an amount equal to 35% to 50% (depending on the firm) of those received by the full-parity partners. The timing of progression varies from firm to firm, although allocations are usually for a twelve-month period. In all firms of this type, partners progress in locked step with fellow entrants, acquiring an increasing proportional entitlement until they reach full parity. This progression takes five to eight years, depending on the firm. Full parity partners all share equally.

Equal sharing is rooted in the nature of partnership. Partners contribute capital equally and share business risk equally. Equal-sharing firms accept that, at times, some of their specialised services will enjoy greater or less demand than others. Equality offers highly specialised lawyers the opportunity to minimise longer-term risk by partnering with other specialist providers. As commercial advice – such as corporate merger and acquisition services – cycle with economic activity, litigation-based services – such as insolvency litigation – enjoy counter cyclicality. Those committed to equality believe that such risk mitigation will provide better financial outcomes over sustained periods.

In large part, individual performance in such firms is regulated by social-control mechanisms. Performance is measured across a range of parameters. High performers are acknowledged by the partnership and enjoy high status among their colleagues. Sustained poor performers are usually counselled and on occasions sanctioned. In extreme situations, underperformers may be asked to leave the partnership or even the firm.

Advantages

• affordable for incoming partners
• consistent with joint and several liability
• all partners benefit from referring clients and delegating files
• recognises that senior partners will contribute differently to younger partners
• minimises risk as some services experience less demand than others
• everyone benefits equally from the firm’s brand equity

Disadvantages

• possibility of shirking
• any dissatisfaction is usually felt by the best performers
• offers no financial benefit to partners who wish to do more
• relies on social control to prevent agency problems

Performance-based Sharing

Performance-based sharing models vary from firm to firm. Generally, individual partners are assessed against a set of performance criteria. These criteria usually include financial performance factors, leadership, business-development activity and other strategic considerations relevant to individual firms. Individual firms attach different weightings or significance to each of these generic performance considerations.

New partners usually contribute capital equal to the amount contributed by all partners, thereafter sharing according to their relative performance. Under this system, any partner – new or senior – may receive the maximum profit allocation, subject to performance.

Some firms assess performance and adjust compensation annually. Individuals are usually assessed by a remuneration committee. The assessment process usually involves a submission by the partner under review and is often open to appeal. Other firms require sustained high performance over a number of years before compensation is increased. In these firms, they prefer not to assess the entire partnership annually, instead making adjustments to relative shares as needs dictate: they cite the significant monitoring costs inherent in annual assessment as the primary reason for their chosen model.

Performance-based models have enabled aspiring mid-tier firms to grow their partnership through lateral recruitment, introducing partners from outside the firm. These partners are usually attracted to a profit-share system that maximises their return for their perceived effort. This phenomenon has enabled some mid-tier firms to grow at annual rates in excess of 50% for the last three years.

Advantages

• recognises over and under achievement
• provides the incentive of direct financial benefit
• attractive to hard working, young partners
• partners can earn bigger incomes earlier
• attractive to lateral recruits who feel disadvantaged under different models

Disadvantages

• introduces risk to specialisation
• requires close monitoring
• assessment may not be seen as equitable by all partners
• delays profit distribution until profit is allocated
• can encourage hoarding of clients and files as relativities become more important than absolute performance
• no formula can capture all aspects of performance
• any formula selected will necessarily prioritise aspects of performance which may cause neglect of others
• erodes collegiate culture

Hybrid Lock-Step Schemes

While the skeletal framework of the lock step remains, in this model progression is no longer dependent on time alone. Many hitherto pure lock-step firms have introduced the possibility of advancement ahead of time for high performance, and regression for poor performance. Performance gates have been introduced at intervals along the traditional lock steps. This has the effect of ensuring that partners do not progress beyond a certain step unless they meet performance criteria, effectively “parking” partners for a period of time or permanently, and individualizing the process quite significantly.

Some firms create a bonus pool that operates in conjunction with the traditional lock step. The relative size of the pool differs from firm to firm. The bonus is allocated annually, usually by a committee of partners that considers both the relative subjective and objective contribution of all profit-sharing partners.

Lock step has at its core the concept of entering partners all progressing in unison over time. It could be argued that any hybrid lock steps are in fact not lock steps at all, but are instead a differential sharing arrangement that includes time in partnership as a major performance measure.

Advantages

• recognises that all partners are not equal
• provides for recognition of outstanding performance
• allows for differing levels of contribution
• affordable for incoming partners
• provides for “slow down”, part-time contribution, and greater flexibility
• provides flexibility while maintaining culture of equality

Disadvantages

• all partners must be regularly assessed
• recognises contribution that is less than equal but not greater than equal
• requires the majority of partners to progress to full parity (if everyone elected to stay at 60 points out of 100 and worked less, all would suffer)
• sometimes used to manage parenting or special leave; seen as punitive and harsh

Discussion. (Not advice.)

What Are We Seeking to Achieve – Fashion or Strategy?

There is little doubt that as firms commercialised, evolving from collegiate fraternities to professionally managed businesses, most embraced some form of performance-based compensation for partners.

Many commentators, advisors and academics maintain that performance-based sharing is consistent with modern management and motivation theory: “Give ‘em an incentive, a reason to perform and stand back.” Theoretically we all respond to financial incentive by changing behaviours and improving performance. Oddly enough, many firms that share profits equally outperform those that do not, and many don’t. In fact there is a poor correlation both nationally and globally between profit-sharing methodology and firm performance.

Profit share (and partner entry/exit) should be strategic. It should have as its raison d’être a set of aims and objectives. I often encounter firms whose sharing methodology has morphed over time – not to achieve strategic business goals but to placate this year’s angry over-achievers. Similarly I encounter firms who plough on with equity-based sharing (cutting the pie relative to ownership) or equality, regardless of prolonged performance differences within the firm.

There is a stack of learned literature that details workplace motivation, and explores the issue of what drives us to succeed. Motivation varies from person to person, and I suspect that people are not born with a set of motivators but rather that these motivators are conditioned. The desire to rise, for instance, is probably significantly stronger for someone who spent their childhood in poverty than it is in someone who enjoyed a comfortable existence on Sydney’s North Shore. Sure, parental pressure can whip up a desire to rise, as can many other phenomena, but my point is that motivation is conditioned rather than innate. Of course, conditioning can occur over short time frames. In my experience, partners who earn seven-figure incomes become conditioned to them phenomenally quickly!

Despite this, most professional-service firms do not offer performance incentives to employees. We usually pay a salary, negotiated annually in a performance review that reflects market worth and internal relativity more than individual performance. To complicate this, in recent years the direct consequence of not achieving budget performance has been a pay rise.

We take employed practitioners who have never before encountered performance-based pay, and have never previously been directly compared to their peers, and expect them to thrive in a performance-based partnership. Strangely, many do. But sadly, many do not.

If we sampled a group of law firm partners and asked them why they became lawyers in the first place, I bet that few would say, “to make heaps of money”. The answers would vary but they would include altruistic reasons, prestige, the never-ending challenge, ego, love of the law, and so on. For many, promotion to partnership is more about perceived career achievement than money. How else could one explain the commercially fascinating construct of non-equity partnership, a position that encompasses joint and several liability with your employers.

We all know that objectives and motivators change over time; money becomes important to most at some stage in life. We become partners so we can be business owners, and apparently every business owner wants to maximise their profit.

I would contend that professional-service firms are quite different to other types of businesses and that generalising industry theory into the world of professional-service firms could be both wrong and dangerous. There are even differences among professionals: nobody likes a complicated formula more than an engineer; accountants don’t understand why anyone would be motivated by anything other than money; dentists actually aren’t motivated by anything other than money; doctors have been “done over” by the government and have forgotten what money looked like years ago; and the vagaries of patent attorneys remain the best kept secret in the country.

Maximising the performance of partners is likely to involve offering them what they were seeking when they became lawyers and subsequently partners, not just considering pay as a function of their monetary performance. This necessitates a wide definition of performance and a necessarily complex system of monitors and rewards.

Firms that have enjoyed great success with performance-based pay usually introduce this approach at the commencement of a career. In other words, they condition their potential partners to thrive, long before they become partners.

Perhaps you should determine what you want to achieve as a partnership. I would counsel against changing from equality to something else simply on the basis that “everyone’s doing it”. Determine answers to such questions as what you want your culture to become, what behaviours you want partners to exhibit and staff to learn, how you are going to choose the next group of partners and, of course, how much money you want to make. You should then build your profit-sharing methodology around these aims so it helps to create success, and tells your staff what you value and what you seek to reward. You should then tailor a similar approach to professional-staff compensation. Those who don’t fit will have left long before they are considered for partnership.

Leaving aside the top-tier law firms, in my experience there is little doubt that performance-based sharing is usually implemented defensively, as a retention tool. “We need to pay Barry more or he’ll go and we can’t afford to lose him”. In some cases it may be catastrophic to lose Barry but it usually isn’t. Barry may go as a result of quantum but rarely as a consequence of methodology (unless the firm’s current methodology is unequivocally unfair). There may also be a good reason to recognise and reward Barry, but this can be done within the framework of a lock-step. There is nothing wrong with one-off or regular prizes and rewards: these make good sense to me.

Redesigning the profit-share system to attempt retention is likely to be unsuccessful. Historic figures compiled by FMRC show voluntary attrition numbers are no better among the performance-based sharers; in fact they are worse, for both partners and staff.

I am neither for nor against any particular sharing methodology, I know they all work and they all don’t work; there is no best method. I also know that the success of any chosen method will largely depend on a firm’s culture, history and relative success.

I would encourage partners to hasten slowly, and to design a system for all the right reasons. A friend of mine told me an anecdote when he was the chairman of his firm – a major New Zealand law firm. He had recently attended an international managing partners’ forum in the USA. He recounted the envy with which he and his New Zealand colleagues were regarded there because many had stuck with lock-step to equality. “All of the Americans”, he said “had changed to performance-based sharing. They now longed for the simplicity of equality, but they knew they couldn’t go back”.

When Does Lock-step to Equality Work?

Equality is not easy. To succeed, it requires understood social-control mechanisms, good leadership, and institutionalised collegiality. Overachievers need to be acknowledged, and underperformers managed. If either are neglected or ignored, partnerships can develop conflicting factions. Partners like to know that someone is in control of these issues.

Successful partnerships that share equally have often literally grown up together. They usually recruit graduate solicitors, promoting them to associate and, ultimately, partner. These firms effectively operate an up-or-out tournament to success. Employed solicitors compete for limited partnership positions. They are successful or they leave. This sounds harsh but it is common to all of the world’s great professional-service firms.

The great majority of partners were employees of the firm for many years before they became partners. This has an obvious impact on culture: culture is rusted on.

In smaller firms, tournaments to success are not always practical. Often smaller firms need to recruit laterally at associate and partner level, sometimes recruiting over long-serving employees. In this circumstance, equality will succeed if cultural fit is the primary recruitment test. Many laterals find it hard to succeed in a well-established firm, equality or otherwise. They are, however, more likely to succeed if they quickly become recognised as “family members”.

It is also true to say that, in my experience, the higher the profit, the more likely partners are to be satisfied with equal sharing. Sounds cynical, but nevertheless it’s true.

The role of managing partner is critical to success in equal-sharing firms. In my view, managing partners should manage partners. It has been my experience that this is seldom satisfactorily done by employed practice managers, no matter their title. Evidence of this can be found in the recent history of the top tier of the Australian legal profession. Not one firm has retained a non-lawyer CEO. Although their profit-sharing arrangements may differ, they all have a partner as their senior executive. In the most successful of these elite firms the managing partner has been a partner of the firm for many years.

When Does Performance-based Sharing Work?

Performance-based sharing often works well in circumstances similar to the above, but that’s the easy way out.

Performance-based systems are more common among top- and mid-tier firms than are lock-step approaches, significantly. Interestingly though, of the four most successful large firms in Australia, two share profits with a lock-step to equality, and two have performance-based sharing. The same is true in New Zealand and in the United Kingdom.

Most but not all successful smaller performance-based firms are first-generation firms (i.e., the partners that put them together are still there); others have experienced significant growth in recent years. They are often a product of a merger, and growth has been achieved over a short timeframe by employing lateral recruits. There are of course exceptions to this but many firms have followed this path, expanding into multi-location firms, sometimes internationally.

Large performance-based firms see their profit-share system as an important tool, and have evolved to performance from equality to take advantage of the flexibility inherent in performance relative to equality.

The most successful performance-based sharers have either a totally transparent measurement and reward system, or (a) trusted arbiter(s) sitting in judgement. Nearly all of these firms have an appeals process as a part of the system.

I have heard of a partner who turned up for his performance discussion with his wife because “She’s a better negotiator than I am” and another who includes in his annual written submission, among other achievements, that he is “chief fire warden of the building.” It isn’t an easy process and it requires excellent leadership.

Measurement and Monitoring: What to Measure and When

A short time ago, I had lunch with a successful family-law lawyer who had been booted out of his partnership when his legal offerings had been deemed inconsistent with the corporate aspirations of his firm of 30 years. This lawyer had recently established a new boutique law firm with his fellow bootees.

As is often my experience, his initial bitterness soon turned to joy. “I’ve never been happier, Neil,” he said. “Do you know why?” Then, enthusiastically answering his own question in the manner of the truly enlightened, he said, “Sovereignty!” Don’t let anyone tell you that it’s not good to be the king.

The utopia of true freedom, the state of being left alone to do what you want to do when you want to do it, is rarely realised by professionals – let alone sovereignty: clients see to that long before partners interfere. That said, as partners we do enjoy a high degree of independence and relatively low levels of accountability. We don’t have to ask permission to duck off early, come in late, go and get a haircut, take the kids to their sports carnival and so on. Similarly we seldom have people looking over our shoulders, questioning our advice, workload, pricing or communication style. It’s not quite sovereignty, but it is good.

A good partner-performance monitoring system should not intrude on the freedom we can enjoy as partners. I would go as far as to say that it should foster it. Peer review is a coaching process. It should bring out the best in partners, not crunch them. In a good system, partners look forward to the process and enjoy it.

In my view a good system is a balanced system that applies equal weighting to a range of performance criteria. Some criteria will pertain to the management and leadership of staff, some to the management of clients, and some to financial management and performance. In a performance-sharing system, this should occur at least annually. In a lock-step system, it can occur by exception. In other words if partners are performing at expectation, leave them alone unless they request a review. Those who exceed expectation should be acknowledged publically, and those who fail to meet expectation should be subject to prompt review. Many firms, however, recognise the importance of maintaining the performance of the average so all partners are involved in annual reviews regardless of their relative performance.

Sanction for underperformance needs to be managed. Partners who have been reduced from equality or had their profit-entitlement downgraded usually feel it deeply. Sanction is often as cathartic as expulsion. In good firms sanction occurs with the consent of the partner concerned.

Some Comments on Diversity

For over twenty years the majority of law school graduates have been female. Female, full-parity equity partners are, however, a scant minority in most partnerships. In recent years the gender balance of graduates has been disproportionately tipped in favour of females. If firms are to continue prospering, partnership structures will need to take into account the needs of women lawyers.

By virtue of their employment brand, top-tier firms will, more than likely, always find graduates to fit their requirements. Other firms that compete for the rest of the graduating class and early career lawyers will have to develop their systems to suit the changing needs of future generations of partners, the majority of whom are likely to be women.

As I move around the profession I hear tell of the quality of recent graduates – no baggage, prepared to work hard, prepared to work long hours when clients require it, and so on. That said, smart firms are still moving to meet the needs of younger lawyers: money, flexibility, egalitarian cultures and so on. Partnership structures and sharing arrangements should reflect this.

In my opinion one of the mistakes that we made as an industry was lengthening the progression from employed solicitor to partner. Thirty years ago people became partners in their late 20s, now it’s in their early 40s. I think that firms are missing out on youthful innovative contributions that could be captured were they to evolve their sharing model to build more inclusive partnerships with greater diversity in age and gender.

This week, I’ve been engaged by the 50^th anniversary of the moon landing. The average age of the flight controllers that made this great achievement possible was 26. Flight director Gene Kranz demanded that they be ‘tough and competent’ and they responded. Many firms could benefit from enthusiastic, well paid young partners. I suggest modifying your sharing model and letting them in.

Dr. Neil Oakes has served the Australasian legal profession since 1989. Neil lives on the mid north coast of NSW near the small coastal town of Scott’s Head and enjoys all of the pleasures of coastal life. He has a large garden in which he tries to grow vegetables organically, battling every bug in Christendom. His interests include art, cooking, eating and the odd glass of wine.

Do You Understand your Firm’s DNA? What Are the Good and the Bad Bits?

The DNA acronym is sometimes used with reference to the inherent characteristics of a firm or a part of the firm. Unlike the originating definition of DNA – an organic chemical of complex molecular structure which codes genetic information for transmission of inherited traits – which is fixed, the important thing about this loose use of the term “DNA” to describe firms is that it can, with effort, be adapted.

I find this quite a handy concept and tool in discussions with clients, particularly where I am trying to persuade them to adopt certain principles, systems or practices – or make them part of their DNA. A handy off-shoot is that people invariably “get it” right away. It seems to gel.

I use “DNA” quite loosely to describe the intrinsic workings of the heart and soul of an organisation – i.e., what really makes it tick or, perhaps, not tick; what helps it succeed or not.

When something good truly becomes part of your DNA, it happens virtually automatically and becomes the way things are done with little or no leadership or management intervention. In this sense it is closely linked to culture (“how we do things around here”) but I like to distinguish between them, as culture, coupled with leadership, really determines whether some things become part of your DNA or not.

This DNA concept is important and has significant ramifications for every law firm. This is because what comprises your DNA will determine your success, failure or mediocrity.

Bearing mind that a firm’s DNA can comprise good and bad bits, let us consider briefly some of the advantages of making certain principles, structures, practices and so on positive parts of your DNA:

• People who come into the firm become quickly inducted into the way things are done;
• People see existing people doing things in a particular way and follow suit;
• This saves on leadership and management time, cuts back on training, and avoids micromanagement or the need to follow up;
• In some respects, these things become a type of ritual, therefore automatic and requiring little or no discipline to get them done;
• It saves time, which is a precious commodity;
• It means these principles, concepts or systems walk around in the heads of everyone in the firm;
• This sets semiformal but very powerful guidelines and standards;
• As noted above, it is an easy way to discuss such concepts and inculcate them in a firm, as people almost immediately “get it”.

On the other side of the coin, what are some of the disadvantages of having less good things as part of your firm’s DNA? Every firm has these “bad bits”:

• It is very difficult (if not, at times, impossible) to get rid of negative attributes, particularly if your culture is not conducive and leadership is not forceful. Getting rid of them takes some guidance, structure, possibly new systems, good leadership and management, and the right culture, and these are not always easy to source at the same time;
• Because they are part of your firm’s DNA, the downsides are not always obvious because the firm has “always done things this way.” This can be dangerous. An obvious example would be an unconscious bias towards hiring from a particular ethnic group or gender, or even a range of schools;
• Invariably, when steps are taken to address negative attributes regarding how you conduct business, there will be pushback from some partners who may be loathe to change how things have always been done. This is particularly true where the change may be uncomfortable for them.

What are some of the really important things you should try to make part of your firm’s DNA? Obviously, this will differ from firm to firm and jurisdiction to jurisdiction, but here are some examples that should apply to most firms:

• Every person in the firm, whether fee earner or support staff, has a particular person who is responsible and accountable for their personal well-being and professional development and success. It is astonishing how few firms achieve this in practice and, as a result, too many people “fall through the cracks” and never reach their full potential, or perform to their potential for the firm;
• Everyone in the firm has a common and correct understanding of “brand,” and the role they can play in strengthening it. “Brand”, after all, is why people want to work at the firm, why clients want to use the firm, and why others want to refer people to the firm;
• Self-management, responsibility-taking and accountability are sine qua non for all firm personnel, from the most junior to the most senior;
• Every partner is responsible to build the capital fabric of the firm – i.e., contribute to what I call the foundational, long-term, fundamental and intrinsic strength and value of the firm. This is a massive challenge for most partners, who tend to think short-term and only about their practices and clients, without paying too much attention to the firm’s future or to leaving something of value behind when they one day leave;
• No compromise on ethical standards and practices;
• Cultural diversity in the workplace is, in the widest sense, the norm, so that the firm hires people from all sorts of different backgrounds regardless of race, religion, personal preferences and culture;
• Being strict about hiring the right people, putting them in the correct roles, and moving on the management of people who are not well situated;
• Everyone in the firm accepting the three key principles: accessibility, responsiveness and reliability. It is surprising how powerful these obvious attributes can be when they become part of the DNA in the way everyone conducts themselves in an organisation. It also makes for a much happier workplace;
• Outstanding support services and operations. Some may be surprised to see this one on the list, as these back-office functions are not normally given priority status or attention. However, every successful organisation today recognises the importance of ensuring that such services and operations form an integral part of their service or product offerings to clients and customers. How a law firm delivers in these areas is as important as the complex legal work done by fee earners.

What are the things you don’t want as part of your DNA?

• Avoidance – that is, not addressing important or damaging aspects of the firm’s operations or practices. Unfortunately, this a common trait amongst law firms, even successful ones;
• Poor working capital and data management. How many times do firms do analysis around cash flow or working capital management, report on this and get partner agreement around the need to “tackle debtors” – only to find that six months later matters are not only not improved but may be even worse?
• Lack of diversity;
• Lack of genuine interest in the firm’s most important asset: its people – or in the success of others in the firm;
• A primary focus on money.

I hope this article prompts you to do an exercise whereby you try to identify the DNA of your firm. Be brutally honest about the good things and also about the not-so-good things. This exercise can form a powerful starting point to planning the future you want for your firm.