Integration Or Disintegration, That Is The Question

The objective here is not to be alarmist or suggest that there is a binary choice between life or death, as in Shakespeare’s allusion. It is, however, meant to draw attention to the need for continuous focus on what keeps a professional services firm, and more particularly a partnership, ticking and successful, namely the integration and collective behavior of its partners.

Integration means that partners are working in the same direction towards a shared goal, that that they are aligned in managing their teams and representing the firm and that their capabilities, knowledge, experience and relationships complement each other.

Disintegration is a danger when there are conflicting priorities amongst the partners and divergent opinions about the way business should be conducted and individualistic rather than collective behavior becomes prevalent. The partners or groups of partners become isolated and unhappy and the firm may become a composite of fiefdoms rather than a homogenous unit.

The current reality of disruption with rapid changes in demand and supply chains is challenging leaders and management in the corporate world. In a partnership such challenges are often magnified by the fact that partners consider themselves co-owners of the business, desire to have a say in how business is conducted and wish to share the benefits.

While overseeing the quality of work, client relations, finances, talent, business development and efficient operations, management needs to be attuned to the concerns, motivation and behavior of partners that, untreated, might be detrimental to the achievement of goals in all those areas. Just as a relationship of a married couple needs to be managed so does a partnership, except that in the latter case the marriage counsellor has to deal with multiple people!

Clearly management deals with partner issues on a daily basis and often this means putting out fires and/or spending a great deal of time in managing people’s expectations or explaining why a certain decision makes sense. Issues will always arise but would it not be more efficient to have integration as a permanent item on the agenda knowing that it will require continuous action as the firm grows and changes and as its partners’ careers advance and ambitions change?

Conditions that might indicate the need for greater integration efforts include:

• partner grievances or departures
• extensive partner discussions on strategy, structure or processes
• incompatibility between partners
• doubts raised by partners about contributions of others
• reduced partner performance or motivation
• unsuccessful lateral integration
• reduced retention rates of attorneys
• individual v institutional behavior
• offices or practice groups working autonomously
• different approaches to service delivery and client management
• little or no sharing of information
• “my clients” attitude prevails rather than “our clients”
• partner compensation system not perceived as fair
• complaints of excessive centralization or lack of flexibility
• inconsistent quality of service perceived by clients

These conditions might not have been a common trait but as a firm grows, the partner ranks grow, the number of offices/practices grow and the firm adapts to market conditions, they may develop quickly. If they are not isolated and become a pattern, management needs to evaluate the causes and adopt a remedial action plan.

As suggested earlier, it is preferable that this be done on an ongoing basis taking the temperature of the organization and the status of the partnership on a regular basis and adjusting accordingly – what we might call the integration “agenda”.

The integration agenda should aim to ensure:

a) Partners are “supporting sponsors”

The alignment of partners with the vision and strategy of the firm and their consistent adherence to common and agreed-upon principles is key to leading the firm in the right direction. They should all be supporting sponsors of the firm’s direction and communicate a consistent message in that regard. Partners are largely the face of the firm to clients and its professionals and their behavior weighs heavily on the way the firm is perceived.

b) Strategy drives structure

Whatever the message for integration, if a firm’s structure drives behaviors that are not aligned to that strategy, it will not succeed. As the Harvard Business Review once stated “leaders can no longer afford to follow the common practice of letting structure drive strategy”.

A crude example: if two offices of a firm are organized as two business units with their own local management and the partners in each office are compensated largely based on the results of their own office, a strategy of sharing resources and cross-selling might be prejudiced or, at a minimum, not incentivized.

c) A collaborative environment

Collaboration generates internal synergies (e.g. sharing talent and knowledge) and external benefits (e.g. client development) while allowing partners to feel more connected to each other, reduce their levels of stress (hopefully!) and enjoy more work freedom. Incentives and support for collaboration that reflects a more institutional approach to conducting business are to be encouraged. This is by no means inconsistent with an entrepreneurial approach to business or rewarding individuals for extraordinary performance.

It is not uncommon to find firms consisting of different groups or individuals that are somewhat autonomous, take different approaches to service delivery and client development and work largely in isolation from others (the “composite of fiefdoms” mentioned earlier). This is rarely a pre-meditated or deliberate action but rather derives from different cultures and work habits (resulting from previous experience in other organizations) and behaviors driven by the firm’s governance and partner compensation system (i.e. what is my decision-making authority and how is my compensation determined).

To be an “integrated” firm, a firm that is effective in providing solutions for clients and is efficient in its use of resources, it is imperative to create a unified culture and adopt governance and compensation models that motivate a one firm approach. Consequently, principles that typically underpin integration may be summarized under three headings:

Governance

• the governance and decision-making structure be clear and understandable
• the management structure reflects diversity of practices and offices, but with all decisions aligned to the firm’s strategy and to the best interests of the firm as a whole
• the governance structure reflects the importance of practice and industry groups as natural integrators across offices and jurisdictions
• authority and policies for decision-making be delegated as appropriate to avoid shackling the organization while allowing for risk mitigation
• Committees and task forces with appropriate partner representation deal with ongoing issues (e.g. Compensation Committee, Talent Management) and specific projects (e.g. Strategy Review, Remote Working), respectively
• a partner communication structure that allows partners to be continually informed and feel they are being consulted on issues of relevance to the business

Partner Compensation

• the compensation system provides clarity on expectations of contributions from partners and aligns compensation with such contributions
• adopt the right mix of compensation criteria to motivate and reward both behavior that drives the firm strategy (revenues, originations) as well as collaborative behavior that encourages teamwork and partner investment in the growth of the pie, rather than a struggle for a larger share (cross-selling, training initiatives)
• couple the collection of objective data with subjective inquiries to adequately measure partner contributions and allow for appropriate discretion in applying compensation criteria to promote fair and equitable results
• consistent partner feedback process

Leadership

• build and support a culture with a shared mission, joint long-term goals and shared risks and rewards
• align structure to strategy, clarify roles and responsibilities and enforce accountability
• promote transparency and open communication and be inclusive
• build trust and confidence facilitating interaction between partners and creating a healthy dose of interdependence amongst them

Firms can easily lose the focus on integration, an intangible asset, while they are busy dealing with the tangible issues of day to day operations, developing business, serving clients and controlling finances. It is better to manage integration than recover from disintegration.

Planning for Recovery

Originally designed for the Law Society of England and Wales, but relevant to all law firms globally, Edge International Principal Nick Jarrett-Kerr has created a series of four webinars on the topic of Planning for Recovery.  Each webinar lasts about twenty minutes and is available free of charge.

Episode One – First Steps to Recovery (Video 1/4)

Crisis Management and Financial Resilience

• The need for a crisis management team
• Leading from the front
• Business Continuity Planning

Essential Planning Points

• Creating a common purpose
• Analysis of market and resources
• Adapting structure and decision-making

Restoring Equilibrium

• Communicating to reduce stress
• Work on physical environment
• Flexibility for more remote working and technology

Episode Two – Interfacing with Clients (Video 2/4)

Client Contact in an era of social distancing – the positives and negatives

• Building, Developing and Renewing Trust and Confidence
• Building the four qualities – legal work, service, accomplishment and relationships
• Leveraging the opportunities for cost effectiveness and good LPM
• More communications to learn clients’ affairs
• Persistence, energy and oxygen

Communicating with Empathy

• Understanding what keeps the client awake at night
• Getting to stand in your clients shoes
• Avoiding the traps

Episode Three – Spotting Potent Opportunities (Video 3/4)

Reviewing practice areas for opportunities and threats

• Research and analysis
• The demand curve of emerging, growing, maturing and saturating work
• Capabilities

Redeploying Staff

• Skills conversion
• Finding ways of holding on to staff
• redundancies

Building an Action Plan

• Recovering/growing revenue and profit
• Tactics, tasks, metrics and accountabilities
• Objectives and revised budgets

Episode Four – Business Planning in a Changed World (Video 4/4)

Reviewing operations and resources for flexibility, resilience and a fresh start

• Operational Reviews
• Culture of Resilience
• Reviewing Governance for better decision-making

Developing bold but well thought out Strategies

• Making steps permanent
• Zero Budgeting
• Radical Restructuring

Ten essentials for a business plan in critical times

Zero-Based Budgeting in the Legal Profession

In my many years of managing law firms of all shapes and sizes, budgeting is often looked upon by the lawyers as a chore and a paper exercise which quite often, once prepared, sits in the bottom drawer of the desk and is only dusted off when it comes to looking at the next year’s budget. Sound familiar? This apathy to use an important annual strategic financial tool effectively is an exercise in futility and frankly a waste of time for all concerned. It is also not a very smart way to run a financially savvy business.

There are three basic ways for a legal business to budget:

1. Incremental Budgeting – Taking the previous year’s numbers and adding an incremental percentage factor (usually between 2% and 10%) to revenues and expenses. There is no real science or purpose to this and it is simply a yardstick of what the firm wants the Fee Earners to produce and the potential cost associated with this. In other words, it’s a “production target” with attributable “production costs,” with no real thought or strategic intent. Often this type of budgeting has very little accountability, and there is no real consequence if the targets are attained or not.
2. Activity-based budgeting – This is a very intricate and detailed way of budgeting whereby past activities are broken down into their component parts and a profile is built for the nature of work/product in the coming year. In my experience, this is almost impossible to do accurately in a legal business (or any professional-services business, for that matter). This is because legal firms, in general, do not have any idea of the true unit cost per hour for individual lawyers; we are dealing with human capital and there are many variables involved – including poor time recording and time management.
3. Zero-Based Budgeting (ZBB) –This method is intended to create a budget for each fiscal period from scratch (hence the term “zero-based”), with little reference to the past period. Enabling ZBB requires the firm and its management to focus on a vision and strategy. This is then formalised in a simple business plan for the coming year(s), which is then broken down into revenue targets and the various activities of people, other resources and capital expenditure in order to deliver on the turnover, vision and strategy. This more strategic method of budgeting helps focus the mind of the stakeholders of the business in regard to what they are trying to achieve in the short and medium term, and to prioritise the business investments and opportunities accordingly.

There are a number of advantages to adopting the ZBB method:

• It promotes the creation of a vision and strategy for the firm;
• This then is filtered down into the various practice and industry groups;
• It requires accuracy rather than a broad-brush approach;
• It creates efficiencies by focusing on current and future aspirations and goals rather than on prior results. In other words, it’s a forward-looking tool;
• Coming up with the budget requires significant co-ordination and consultation within groups.

There are also a few disadvantages:

• It can be time-consuming and rather involved;
• The firm may lack expertise in doing it well;
• It requires staff time.

Conclusion

The perceived thinking is that ZBB is just a cost-cutting exercise but this is an ill-advised and too simplistic view. If ZBB is used strategically, developing both the revenue targets and the costs associated with delivering those targets, it becomes a very powerful tool to grow a business.

It is my view that many law firms (especially small- and medium-sized firms) do not have much focus on what they are trying to achieve in the short and medium term as they are too caught up in their day-to-day activities. Adopting a ZBB approach forces the stakeholders to have a focused business plan outlining what they are trying to achieve in the next 12 months (and beyond). This “game plan” coupled with the ZBB becomes the “play-book” for the year.

Ikigai: Some Personal Reflections on Raison d’Etre and Purpose in Professional Firms

Introduction – Identity, Purpose and Vision for the Professional Firm

I have often written of the imperative for a professional firm to develop an overall and shared “Strategic Intent” as a great starting point for the development of the central part of a firm’s strategy. Strategic Intent (Identity, Purpose and Vision) provides and communicates an unmistakable sense of direction, identity and destiny for every person in the firm and identifies clear purposes and objectives which will drive the firm beyond its current limitations and constraints. Every professional firm is made up of its members and needs a raison d’être which transcends the desire to make money. Why the partners/members of any firm stick together and choose to be part of a particular firm has a lot to do with the mutual motivations and shared values of its members.

The problem is that many firms are made up of partners with differing views of what they need from the firm. It is difficult to main maintain unity of strategic purpose in a firm made up of widely different character types. Hence, the second part of Strategic Intent, and in many ways the most difficult, is to agree on the firm’s purpose: identifying why the partners are in business together and what seem to comprise the bonds – beyond the pursuit of profit – that drive the firm forward. A strong sense of purpose is necessary to give partners and staff good reasons for working late, going the extra mile, and investing their careers, money and resources in the firm. Strong values therefore form a large element in a firm’s sense of purpose – the issues and factors which are important to partners, which form the soul of the firm, and which help people to understand why the firm exists and what really matters to its stakeholders.

Sense of Purpose for a Firm Starts at the Individual Level

This higher purpose for a business needs to be built on developing and defining the sense of purpose that is important for its stakeholders. Businesses fail through lack of passion on the part of its stakeholders, and it is therefore important that the firm should be built or developed on the foundations of an agreed reason for being. Over the past two decades I have had the honour and pleasure of working with firms across the world with many different cultures, faiths and religious beliefs. In my engagements I often ask law firm members what gets them up in the morning, what motivates them and why they come to work. I have been astounded by the similarity between forward-thinking firms world-wide in the answers to these questions. I have, of course, come across a minority of firm members who are demotivated or bored and sadly treat their job or career as fulfilling no real purpose than the need to make a living. Most, however, feel passion for what they do.

As a practicing Christian I have found the answers to the really deep and difficult questions of higher purpose (for example “Why am I in the World?”) to be fairly straightforward conceptually, though less easy to put into practice in day-to-day life. My faith is based on knowing, growing and serving God, built on the fundamental premise that our higher purpose is to serve God “as the best and happiest thing in the world” – as one writer put it – and empowered with a desire and drive to work hard so as to try to bring more good into existence. Both Judaism and Islam have similar philosophies – the very name, Islam, means submission or obedience to God, and the Muslim is one who submits or surrenders to God and accepts that all created things fulfil their assigned purpose by serving God.

Other religions show a remarkable similarity of approach. The Hindus adhere to the concept of “purusharthas” which comprise the four proper goals or aims of a human life. These are Dharma (righteousness, moral values), Artha (prosperity, economic values), Kama (pleasure, love, psychological values) and Moksha (liberation, spiritual values). Not entirely dissimilarly, for Buddhists, the path to enlightenment is attained by utilizing morality, meditation and wisdom.

Towards an Ikigai Sense of Purpose

Whether religious, agnostic or atheist, these “Higher Purpose” philosophies can be summed up by the Japanese concept of Ikigai as illustrated by the graphic at the head of this piece. Ikigai roughly means “the thing that you live for” or “the reason for which you wake up in the morning” and provides a way of discovering the delicate balance between pursuing your own passion, serving others and earning a living.

I feel Ikigai can provide the common ground here between religions, culture and business practices across the commercial world in order to root the motivations of stakeholders into the values and objectives of purposeful organisations.

Putting Ikigai into Practice

If the sense of purpose valued by individual stakeholders is to act in any way as the glue holding an enterprise together, it is axiomatic that sufficient numbers of firm members must think the same way and hold roughly the same core values even if their cultural norms or religious beliefs (if any) are somewhat different. Whatever the history and tradition of the firm, it is important to go right back to understand what motivates and drives individuals in the firm. The ultimate goal of Ikigai is not happiness – it’s about a life practice towards fulfilment.

Prospering by doing what you love, what you are good at, what you find most natural and easy, and then working towards the needs of the world all form good tests for career planning, business planning and creating the purposeful glue in a business enterprise. The decisions made by businesses and individuals need to align with these purposes which can then be anchored into a culture of conscious choices and decisions.

The New Direction of Law Firm Leadership

There is no law firm management topic about which more has been written than Leadership. The presumption at the base of most of these discussions is that the most successful professional service firms have the best leaders. And that prompts all sorts of further discussion about leadership styles, techniques, and the eternal debate as to whether leaders are born or bred – i.e., is leadership a function of natural personality traits, or can people be trained to be good leaders?

The legal profession has had an extraordinary run of success over the past 20 years. In terms of gross revenues, numbers of lawyers, and profitability, law firms are the poster children for success. Of course, we assume that if law firms are successful they must have good leaders, so we start looking at the traits that are present among law firm managing partners. And we are disappointed when we find little commonality.

I often think of law firm leaders as being like symphony conductors. Conductors are responsible for running the orchestra. They hire the musicians, select the music, decide the speed and volume of each section, and make sure everyone starts and stops at the same time. There is a local orchestra near here. They call themselves a “Democratic Orchestra” because they operate on what they call a “consensus” basis: new musicians audition for the orchestra as a whole; the music, and how it is played, is selected through consensus-building discussions; and the conductor is elected by popular vote for a one-season term of office. They are, by any standard, a terrible orchestra. But they survive because – being located in a low-population area – they effectively have no competition. Does this sound vaguely similar to many larger and mid-sized law firms?

When you ask most law firm leaders what their most important job is, they respond that it is building consensus. For many firms, this means that the leaders see which direction the consensus is headed and then get in front of it. It’s a bit like many politicians who look at the opinion polls to determine what their policy positions should be.

Unfortunately this consensus model of leadership – so successful for us in the past – seems to be breaking down. As firms grow larger and more international, leaders must deal with a range of educational backgrounds, languages, and cultures within their firms, and even multiple time zones. The result is that leaders find it extremely difficult to reasonably understand what people are thinking, little less gain consensus. And when larger international firms organize themselves in the loose confederations that are involved in Swiss Vereins, the process of developing consensus becomes almost impossible.

As the world changes for professional service firm leaders, they will find that they need a new set of skills. Firms functionally can’t operate with leaders who simply enunciate what is already popular and accepted by their partners. This translates into three demands of law firm leaders in the future:

1. Leaders will have to be visionaries. That will require the creativity and intuition to be able to understand and plan for the future. The firms with the most accurate paths forward will win.
2. Leaders are going to have to be great communicators. They will have to be storytellers who can not only communicate their vision but also personalize it in a way that makes it compelling for their partners.
3. Finally, leaders will have to be builders. They will have to be able to implement by creating strategies to pursue their vision, and by building acceptance and alliances that permit their vision to be achieved.

In short, the easy money in the legal profession has been made. Becoming a successful leader simply by being in the right place at the right time will no longer work. Our future leaders will have to actually do what we have been crediting the leaders of successful firms with doing for the past 20 years.

Does “The Vision Thing” Work?

Specific behaviors by leaders can contribute to the success of a firm’s shared vision.

When law firms prepare or revise their strategies, we ask them to write a vision statement: “What do you aspire to be?” We find that discomfort is evident, and disagreement follows. Somehow, the statement gets written, and then adopted by the partners. But does anyone communicate it and push it beyond the day it was created? Leaders hesitate and wonder, “Does the vision thing work?”

A California entrepreneur named Harold Butler thought vision might work for his small shop when he opened Danny’s Donuts in 1953. He repeated this vision over and over again: “We will serve the best cup of coffee, make the best donuts, give the best service, keep things spotless and offer the best value. We will stay open 24 hours a day.” Pretty simple. At the time, “Always open” was a distinguishing feature of the brand. Butler was relentless about communicating his vision to employees and customers. Whatever happened to Danny’s Donuts? More on that later.

The job of communicating vision is often uncomfortable for law firm leaders. When I run leadership-development engagements in firms, I use an assessment called the “Leadership Practices Inventory,” developed by Jim Kouzes and Barry Posner from their book The Leadership Challenge. In this self-assessment of their behaviors, leaders most often give the lowest score to the group of behaviors called “Inspire a Shared Vision.” In brief, they just don’t think they do it or know what to do.

Many think it is a matter of repeating the firm’s vision statement. That is valuable and should be done at regular opportunities, such as monthly practice group meetings. Kouzes and Posner are more helpful. Because they study effective leader behavior, not personality, they suggest some things all leaders can do to “Inspire a Shared Vision.” With some editorial additions, they are:

• Talk about future trends influencing our work (and profession)
• Describe a compelling image of the future (e.g., New market share we will have)
• Appeal to others to share dream of the future (e.g., How you will contribute to our growth)
• Show others how their interests can be realized (e.g., Where your unique skills help us build business)
• Paint a “big picture” of group aspirations
• Speak with conviction about meaning of work (e.g., Speaking to juniors who are uncertain about how their work is used)

Broken down into these specific behaviors, the broad exhortation to “inspire” starts to make sense to the pragmatic, fast-moving leader. Now there are specific things I can do, or at least try.  Consequently, we find many leaders willing to try to improve the communication of their “vision thing” and they are surprised to hear it echo back to them after several months.

The Leadership Practices Inventory has been tested with hundreds of thousands of leaders. We know that the “vision thing” works. Before empirical studies, Harold Butler knew it 60 years ago. His Danny’s Donuts restaurant, now called Denny’s, has over 1600 locations in multiple countries. And it’s still always open.