Reducing Law Firm Real Estate Spend While Retaining Culture

The Opportunity

Remote working has revealed a new adaptability and capacity in firms, and many firms have landed on the following two insights: i) lawyers can be very productive without having to be physically proximate to their firm colleagues; and, ii) remote working has broken down significant cultural barriers associated with being attached to commonly shared physical space.

Over the past months, I’ve had many clients tell me, “Mike, even the most resistant, old-school dinosaurs at our firm, who often are the most senior and influential partners, have gotten comfortable with not being tethered to the office…” The connective tissue of most law firms has been disrupted and even the more hidebound firms are seeing needle-moving opportunity to increase distributable profits by reducing real estate spend.

It’s Complicated

“Ok, so let’s just ditch the office space as fast as possible; easy peasy!” Not so fast. There’s a reason real estate has always been one of the two biggest spend items for firms. For years, law firms have built and reinforced their culture, their values, their professional development and mentoring, and their way of working through immersive physical exposure to their colleagues. Firms are now asking these questions:

• How can the osmosis necessary for imparting learnings occur without regular physical proximity?
• How can we build and maintain institutional connective tissue without being around each other?
• If we don’t come up with a good answer, how do we avoid becoming the proverbial “hotel for lawyers” (a mercenary environment bound together by the economics and nothing else)?
• What are the lawyer retention implications to all of this?

“Despite the clear pathway to greater profits, this seems really risky, Mike. After all, pre-Covid, our firm’s most important catalyst of communal bonding were the foosball table and keg we placed in the large conference room. There’s no way for our people to enjoy that setup virtually!”

Addressing this complex opportunity while maintaining strong connective tissue requires balanced attention at two levels: the strategic, “Big Wheels,” that create strategic magnets for coherence, and the tactical, “Little Wheels,” that reinforce connectivity in the short term.

The “Big Wheels”: Signature Client and Team Member Experience

Physical exposure is not a primary enabler of strong connectivity. In the absence of strategic clarity of purpose, it is, at best, a contributing factor. The activities that build shared values, processes, motivations, standard operating procedures, and proprietary firm “IP” can be supported quite ably without experiencing shared office space. The same methods that I often use with firms to create a unitary firm within the context of merger integration are applicable equally to the remote working challenge. These methods begin with keeping the client at the center and inform the multi-year “Big Wheel” initiatives that drive cohesiveness, identity, differentiation, and a deep sense of “why we’re better and confer more value than our peers.” They are designed to help firms define and deliver “signature experiences” in the following ways:

• Define/deliver a signature, external client experience
  • What are the sources of value conferring technical legal expertise (good lawyering) that make our firm/practice different and better? What are the sources of value conferring non-legal external client value and differentiation for which clients are capable of giving us credit?
  • What can we create in addition to the above to support “signature experiences”?
• Define/deliver a signature, internal team member experience
  • How can we develop, be mentored, and collaborate in a way that supports our firm’s signature external client experience?
  • How can we build the right systemic support (processes, incentives, alignments) to deliver our signature internal team member experience?
• Use “team of teams,” ad hoc venturing and other collaboration principles to integrate and link the signature internal team member experience of your lawyers and staff with the signature external client experience you want to deliver to your clients (and prospects)
• Once defined, document it.
• Once documented, teach it.
• Once taught, monitor and measure it.

Structure of The Signature Experience Project Journey

So how do we go about building the “signature experience” scaffolding to create the durable institutional bonds we desire?

1. Outcome: begin with the end in mind, and work backwards; what are the business benefits and objectives you want to achieve for your law firm?
2. Intake & Present State: survey and interview representative clients; survey and interview representative lawyers and staff; review relevant writings; inventory existing firm practices and behaviors that support differentiated experiences.
3. Analysis: what are the unique external client and internal team member experiences your firm wants to deliver to different sets of external clients and internal team members? How do we need to work individually and together to link our desired internal team member experiences with our desired external client experiences? What best practices from the market and other firms can inform our analysis?
4. Roadmap: create a plan to achieve the recommendations generated by the analysis. Are there any “unwritten rules” and cultural barriers that could prevent us from executing the plan?

A great example of what we’re referring to is Goldman Sachs, whose professionals arguably enjoy and benefit from the strongest set of cultural bonds of any professional services firm. Goldman Sachs bankers learn from day #1 why they are different and arguably better than other investment banking firms. The “Goldman Sachs Way” (“GS Way”) is defined, specific, and articulable by each Goldman Sachs investment banker. The GS Way does not consist of conventional platitudes and bromides alluding to “excellence;” rather, it is made up of inputs and evidence associated with a way of doing business that put prospects and clients in a position to conclude (to infer) that the institution and its professionals deliver excellence. Each banker can explain how each element of the GS Way is designed to confer value on the firm’s external client. In short, prospects, clients and internal team members believe Goldman Sachs delivers a “signature experience.” Moreover, the common language (processes, incentives, trainings, differentiated market positioning, etc.) the bankers adopt is imparted independent of the physical office space they may or may not share.

The” Little Wheels”: Maintaining Connectivity in the Short Term

When a law firm decides to commit to a “signature experience” project, by definition it is doing something very strategic. The benefits are too big (removing the risk from re-capturing big margin that has gone out the door on real estate spend) and too durable (multi-year impact) to be viewed otherwise. “Big Wheel” engagement, efforts, and commitment across the firm are aligned and activated to effect transformational change (see “The ‘Big Wheels’: Signature Client and Team Member Experience” above) from which the firm will benefit for many years. However, firms that embark on a “signature experience” journey have to experience – and need to see – “Little Wheels” making immediate impact.

What do the “Little Wheels” look like? These are the low hanging fruit, near term opportunities to build and strengthen identity, differentiation, connective tissue and culture. They are easy to implement immediately and support. They also tend to create in team members a visceral sense of connectedness to each other and to the enterprise. They express inward empathy for the firm’s internal team members (employees, lawyers). The “Little Wheels” recognize that maintaining connectivity in the short term can no longer be addressed simply by rolling out the foosball table and keg. Across industries, particularly professional services, organizations are evolving best practices for maintaining connectivity at a distance. This includes launching virtual water cooler collaboration spaces, lunch and learns, pop up brainstorming sessions, and other deliberate community building and social networking approaches in addition to physical gatherings outside of the traditional office setting. The “Little Wheels” are not window dressing efforts but rather are purpose-driven, substantive experiences.

Conclusion

Reducing your firm’s commitment to expensive shared office space is a generational opportunity to increase dramatically the pool of firm distributable profits. “Signature experience” projects, which can last from one to six months, are non-disruptive to your current work streams and processes. ” Per Peter Drucker, “culture eats strategy for breakfast!” A well- designed “signature experience” effort, deployed through a detailed roadmap, is your firm’s insurance policy against the erosion of bonds that can turn your firm into a “hotel for lawyers.”

The Four Cardinal Virtues of Law Firm Culture

Law firm “culture” isn’t that hard to define. Culture is what people at the law firm actually do every day — or, less sunnily, what people get away with doing.

I’ve worked in organizations that struck committees to study and define the organizational culture, but that failed to appreciate that the most accurate definition of culture is what actually happens around here. A law firm’s culture is the daily manifestation of its explicit performance expectations and implicit behavioral norms — what is encouraged and what is tolerated. And the culture that a law firm develops and sustains has an impact on its productivity, retention rates, and morale — positive or negative, as the case might be.

What behaviors does your firm encourage, and what behaviors does it tolerate? If your firm is typical of the genre, it encourages:

• individual effort and achievement,
• competitive relationships with colleagues,
• prioritizing financial success above personal well-being, and
• the development of an adversarial subtext to the lawyer-client relationship.

Your firm’s culture, if typical, also tolerates:

• the application of different standards of conduct to high-earning lawyers,
• the differential treatment of lawyers and “non-lawyers,”
• the generous interpretation of “billable hours” assigned to a client file, and
• the emotional or verbal abuse of junior lawyers and staff.

I’m sorry to recite a list of such unpleasant cultural features. But the foregoing collection of encouraged and tolerated behaviors is so common within law firms as to virtually constitute a definition of the species. 

Whether this accurately describes your firm or not, what is indisputable is that a firm that develops and maintains a culture that prioritizes behavioral norms in polar opposition to these will be an outstanding exception to the general rule, and will accordingly reap tremendous benefits in terms of morale, productivity, recruitment, and differentiation.

If you want your firm to develop that kind of outstanding culture, you must do everything you can to encourage practical, everyday behaviors that will bring about these cultural conditions, and to apply a zero-tolerance approach to behaviors that will ruin it.

Allow me to suggest four “cardinal virtues” for law firm culture — core cultural values that law firms can and should prioritize and incentivize — along with examples of how they might be exemplified and how they would be violated.

A. Consideration For Clients. Displaying a genuine interest in, affection for, and devotion to the overall welfare of the firm’s clients.

• Exemplified by: personal engagement through regular communication; asking about ways to reduce clients’ unnecessary legal spend.

• Violated by: failing to keep clients informed or to respond promptly to inquiries; issuing an invoice containing unexpected fees with no warning.

B. Respect For Colleagues. Treating both lawyers and staff members thoughtfully, professionally, and in a collegial and kindly manner.

• Exemplified by: Politeness even in stressful situations; sharing credit for good outcomes and accepting responsibility for poor ones.

• Violated by: Yelling at employees or junior colleagues; fighting for business origination credits beyond what is reasonable.

C. Service To Community. Contributing valuable time and real efforts to the firm’s community service commitment.

• Exemplified by: Donating money to a firm fundraising event proportional to one’s means; rolling up one’s sleeves to lead a community project.

• Violated by: Refusing to join a community service committee without good cause; unreasonably withholding consent for charitable donation of some firm profits.

D. Care For Oneself. Paying close attention to maintaining one’s physical, mental, and emotional health, and seeking assistance when necessary.

• Exemplified by: Taking every day of allotted vacation time; adopting at least one hobby or outside interest to advance one’s well-being.

• Violated by: Relentlessly working nights and weekends without proper rest and recovery; inflicting undue amounts of criticism on oneself.

Not all of these cultural values are easily measured in practical terms, but many of their associated behaviors can be assessed. Survey clients about whether they are happy with the level of care they received from each person in the firm. Ask colleagues and employees to anonymously assess that person’s conduct towards them and others. Ask the person to file an annual report detailing his or her community service efforts. And retain the services of a counsellor to regularly assess the health and well-being of all lawyers and employees.

Your firm’s culture is expressed by what actually happens there every day. Decide upfront what kind of culture you want, identify the behaviors that will exemplify and develop that culture, and take active steps to encourage and measure those behaviors. That’s how to make a real culture, and how to make a culture real.

The Tall Poppy Syndrome and Origination Credit

Law firms talk a good game about sophisticated management but often, just when a firm reaches the verge of running like a business, its culture gets in the way. Case in point is business origination: should it be measured, how should it be measured and what do we do with the data?

Almost 25% of U.S. and Canadian law firms don’t keep track of lawyers responsible for business origination. That figure is 57% in Europe. With the surplus of lawyers in private practice and the aggressiveness of clients in managing legal fees, the generation of business and the filling of lawyer’s empty plates is one of the biggest issues for most law firms around the world. Why then wouldn’t firms be universally eager to keep track of which lawyers make it rain?

I believe the answer comes back to law firms’ cultures. First, in many firms it is somehow unseemly to keep any statistic that would recognize one partner over another. In Australia they call it the “Tall Poppy Syndrome.” That means that in a garden, if one flower grows taller and straighter than the other flowers, the gardener will cut that poppy back so all the flowers in the garden appear uniform.

In other firms, the partners can’t come to agreement on the rules under which the statistics will be kept. In part this is due to the inherent cultural distrust that one partner may gain some advantage to which he or she is not entitled, and partners who are primarily working lawyers don’t want to see the fruits of their labors going to the rainmakers.

But perhaps the most interesting cultural issue is how, after a firm decides to keep track of origination, it goes about doing it. In 88% of the U.S. firms that do keep track of origination, the credit has no expiration. That is, the lawyer who brings in the client gets credit forever – or at least until the lawyer dies or the client fires the firm. Actually, it’s often worse than that. In many firms, upon the retirement or death of the originating lawyer, credit is assigned to some other lawyer as an inheritance that he or she enjoys for their natural life (even though they may have been in elementary school when the client first came to the firm).

It’s time to stop blaming our culture for all the ridiculous things law firms do. Let’s start with origination. If you are not keeping track of origination, start doing so. Even if your firm doesn’t use it in compensation, it is important management information that you need to know. Undoubtedly your firm’s computer system will accommodate it and will probably allow you to divide it over a number of lawyers to encourage team efforts. And why on earth would we allow origination to be perpetual? Even LeBron James doesn’t get paid for three point shots he made five years ago. Put a sunset provision on origination with room for extension in cases of work in new practice areas. In fact, why not let origination scale back over a period of years to encourage institutionalization of clients?

Law firms’ cultures are wonderful things that should be treasured and nourished. We should not allow them to be used as excuses to avoid rational, businesslike behavior.