Brave New World

January 2, 2006

?We live in such a fast paced competitive world. We have to earn every pound we invoice – sometimes more than every pound – and client loyalty is barely a recognisable characteristic in anything we do these days??

So said one senior law firm partner to me recently in the sort of resigned tone usually reserved for describing how one?s teenage children do not tidy their bedrooms or how they rock back and forth plugged into tuneless noise and call it music.

Unfortunately I did not make him feel any better when I explained how it was going to get worse, a lot worse. Not about his children?s taste in music or the wasteland of clothing, computer games and makeup that pass for their sleeping quarters ? but the professional services market place where his (still thriving) city practice was establishing an excellent reputation for client focussed service.

You see while lawyers today are used to competitive forces and talk wisely about the need for differentiation, for excellence in service and legal expertise, the competitive forces they experience are relatively benign.

It is benign because competition in today?s terms is predominantly about the same type of people pursuing the same type of work from the same type of client with the same type of product the same type of service delivery and the same type of pricing model?

Not so much competition therefore as a game of ?some we win and some we lose?.

Of course it is harder to win new business, harder still to win easy, fat margin work and even if a great job is done, it is not easy to predict that the client will stay.

But the truth of competition in legal services today is that unless you completely screw up you will win your fair share of new work and client inertia will mean you retain enough of your existing clients not to precipitate a crisis of confidence.

So far then, so good; although I think I’might describe it as ?so far, a bit average?.

Even in this environment some firms are struggling to see a predictable growth strategy while others are looking for a merger partner. However, as I was explaining, it is going to get worse.

Deregulation is coming and with it a shockwave of ideas, new investment, innovative ways to deliver a service and a host of news stories around those who succeed and those who fail.

The recently published White Paper on legal services is delightfully vague about what might actually happen in the next three to five years but reading through a number of submissions to the Government?s pre publication consultation gives a clue to some truly radical thinking.

First, the Law Society, that bastion of professional conservatism, has broadly welcomed all of the Government?s proposals including ones that require it to fundamentally change its structures and services. No reactionary response here, just a sense that change might be an opportunity and a changing profession will need a changed Law Society.

It will be no good therefore looking to the Law Society as a principled defender of the status quo.

Secondly, private equity held by non lawyers (in whatever proportions are eventually permitted) heralds the further demise of traditional partnership structures. By implication it will also hasten the need to adopt truly excellent practices and processes in a number of management disciplines if firms are going to attract investors with their transforming capital.

So, for example, in areas such as I.T., in governance around decision making, in the execution of ideas and policies, in the development of teams and individuals and in delivering an efficient, timely and value for money service.

For those firms who are nimble, thoughtful and determined, the opportunity is now obvious. Firms must take time in the next three years or so to become as efficient as possible and to court those who can add both financial clout and management excellence to their proposition.

When the legal services market opens up (when not if) the competitive forces then unleashed will be like nothing seen so far.

To get an idea of this and what it might mean ? think about the motorcycle and car industries; think about textiles, think about accounting and financial services. Think about the changes you have witnessed in these sectors.

Darwin is sometimes misquoted as saying that the strongest and fittest survive ? what he actually said was that the species that survive are those most adaptable to change.

In legal services there is likely to be a radical overhaul of the profession from top to bottom ? small high street firms will be particularly vulnerable but not terminally so. Just two decades ago their were thousands of independent opticians and now there are national chains. It was the same with the estate agents too. The firms may change in terms of brand and marketing but the work is done by the same people, qualifying in the same way and delivering to the same clients.

Put in this way the brave new world might not be such a harsh reality for the majority at least. For the larger national, regional and City firms however there is more at stake.

The model I foresee is one where there will be a relentless downward pressure on law firm margins and a relentless upwards pressure on quicker delivery times, more accurate information to justify engagement and better management information during an engagement.

I also believe that clients will become less loyal to firms who do not invest in their own brand or values especially if those firms instead simply revel in the individualism of their rainmaking partners.

And in this last point there is a significant conundrum ? if outside investment is going to be a potential catalyst for internal change and greater efficiency, can change be effective in a culture where the rainmaker has been king?

The rain-maker enjoys autonomy, respect (even reverence) from colleagues and significant personal wealth ? these are not the people likely to embrace changes which may take some of this away. These are also the people for whom clients are often heard to say ? ?we don’t instruct the firm as such but partner X. Partner X is brilliant for us and if partner X should move to another firm we would move with partner X.?

Such firms are horribly vulnerable and who, frankly would invest in them? Would anyone seriously consider a seven figure investment in a firm where client loyalty was dependent on such flimsy foundations? Of course not.

The answer, at least in part, is for law firms to start to act like their bigger corporate clients. A strong brand, consistent values and excellent service help to cement loyalty, help to preserve market share and to encourage growth.

It is not by chance that brand and values are so much talked about and it is something that should scare the pants of managing partners everywhere that so many firms have not the first idea about their own brand and their own values.

My prediction is this:

Those law firms that invest now in building their identity internally with their partners, associates and staff and externally with their clients and potential clients, have a far better to chance to survive in a deregulated and ultra competitive environment than those firms who trust to luck.

Hope, in this brave world, is not a strategy.

The question in my mind is whether the ?corporatisation? of law firms is possible? What will it man in reality and how well equipped are law firms to make the necessary judgements today that position them for success tomorrow?

For me there are two fundamental issues to address:

? First law firms must have outstanding leadership and

? Secondly there must be consensus for a common purpose.

The question of leadership is less controversial and I will return to this theme a little later.

The common purpose element however is the tough one to get across. It is, in corporate terms, about a sense of brand and values; but as soon as any conversation turns to brand, mission statements, vision statements and values, eyes roll heavenwards and there is barely disguised cynicism for what is largely seen as marketing pap. We need to try to overcome this.

There is an old joke ? ?how does a consultant make you a small fortune?he starts with a big one? and another often quoted remark about marketing budgets ?half the marketing spend was incredibly valuable and half was not ? the trouble is we do not know which half??

The truth of the matter is that it is all too easy to spend hard earned money on consultants and business gurus, all with an expensive opinion to share about what businesses should do to take advantage of their changing worlds. Scepticism therefore has some place but please suspend your disbelief for the next few paragraphs.

At the risk of talking myself out of work let me break down the issue to make it crystal clear what is important and why.

Three questions drive the imperative for action:

1. Is winning new business getting harder?

2. Does about 20% of your client base provide 80% of your profit?

3. Do you look at some law firms and think of them as natural targets for you to emulate or from whom you can grab more market share?

My expectation is that the answers to these three ever so simple questions is:

1. Yes

2. Yes, and

3. Yes

My expectation is also that for most firms the answers are the same. Most firms are in this same space and as a result one conclusion screams out to me; you have only a limited amount of time to shore up your defences and to go on the attack.

That low rumbling sound you can hear is not your tummy telling you that lunch is due but the sound of the legal herd beginning to run and you had better be able to run with them.

So why are values an important ingredient in this mix?

Values are important for a number of reasons:

? They articulate what the firm stands for in a crisp, understandable and positive way

? They provide a benchmark for the expected behaviour

? Values are a means to judge performance in non technical competencies

? They help everyone in a firm from the post room to the senior fee earners to understand that they have a contribution to make

? They ensure the firm has a consistent outlook which means that the client experience is predictable and worthwhile

? Values help to build confidence around cross-selling opportunities

? They highlight poor performance in a non confrontational way

? They enable decisions to be implemented more straightforwardly

? Values provide a common vocabulary for success

In the last six years I have worked with forty to fifty major corporate entities and every single one of them have published their own values statements. I do not think they do this for the benefit of some altruistic job creation scheme ? I suspect they do it because in a competitive world where every second, every inch can make the difference, ensuring their clients and customers have a consistently good experience is essential to establishing value in the brand and therefore value in the company.

For law firms the journey is just beginning.

Of course, no law firm is going to come up with a set of values that will be revelatory ? they should not try to and that is not the point anyway. The point is to have a series of credible, meaningful statements that direct behaviour in way that is positive, consistent and potentially value adding.

When the statements are devised, and I would personally not recommend plucking words out of thin air, they should resonate with the vast majority of people in the firm.

If possible they should be derived from people in the firm through surveys and discussions and (dare I say) focus groups. In this way there is a real chance to not only find the words that will attract people in the firm but also to accurately reflect what the firms stands for in practice.

The hard effort then begins?simply publishing the statements on an internal web site or in the firm?s brochures is not good enough. Here they become mere platitudes, a remembrance of some fun in a workshop or a moderately interesting strategy weekend. In reality, however, at this level values quickly become a meaningless list of corporate mouthwash.

No ? what has to happen is that the law firm must embed their values in the behaviours of everyone.

To start with firms should look to develop and enhance their training, recruitment, induction and appraisal processes. The values should also be reflected in formal and informal rewards mechanisms and they need to be seen to be enforceable, so that even the crustiest old fart does not get away with studied non conformity.

All of this will take many months of hard and deliberate work ? but if successfully achieved the potential rewards are significant.

? The client experience across the firm will improve and as a result there will be more and better opportunities to cross sell

? The firm will build value in its brand (valuable in itself in a share owning society) but will also have better lines of external and internal communication and be more able to execute its decisions more effectively.

? Law firms will be able to collate and distribute better management information because values drive behaviours that support efficiency and therefore measures will be devised to demonstrate efficiency

? The brand will help clients to stick to the law firm even when significant individuals move on

? The values support a more cohesive management structure that will be more attractive to external capital

I could go on but the point is already made. I am sold on the worth of values ? Are you?

My second theme is about the quality of leadership that is required in our law firms today.

What is your vision of leadership? Is it Churchill, Thatcher, Genghis Khan, Alexander, Mandela, JFK? If it is you may be disappointed in even the most able management teams in law firms.

For me leadership has to encapsulate the following characteristics (let?s call them leadership values):

? Clarity of purpose

? Consistency of message

? Consistency in reward and punishment mechanisms

? Excellence in executing decisions

None of this is easy but none of it requires a tub thumping orator, a benign or malevolent dictatorship or the ego the size of the QEII.

Great leaders, especially in professional services, are often modest and thoughtful people but people never to be underestimated and people who combine my four characteristics most effectively.

I am sometimes asked if non lawyer managers add very much to law firms beyond their technical expertise. In my view the employment of truly excellent professional managers in Finance, I.T., H.R. and Marketing roles is essential.

I believe firms should employ the best people they can recruit and integrate them fully into the fabric of the firm?s culture and business; law firms can and should learn from their wider experiences in other forms of business.

It is also my view however that provided the dominant line of business is the expertise of individual lawyers working in unison on behalf of the firm?s clients, then the only true leader of a law firm should be a lawyer.

The talent pool in nearly every law firm is significant and once lawyers get their head round what true leadership means, they are more likely to succeed than anyone else in the role. No one will know their business better, know its people and politics and be able to influence behaviour as well. In a word they have credibility.

My four leadership values should be apparent in all managing partners but if not they should be developed quickly. I have worked with truly charismatic leaders but also leaders who were relatively shy and undemanding and leaders of every shape and size in between.

The difference however between the leaders who were effective and those who were not did not depend on the size of their ego and did not depend on their ability to either scare or enthral. The difference was really very straightforward?good leaders are clear about what is needed, consistent in requesting performance to meet what is needed and very, very good at getting people to do it.

In my judgement the next generation of leaders in our best law firms will share these leadership values ? they will deploy their talents differently but at the heart of their achievements will be a credibility built on these foundations.

In the next few years the profession is going to undergo a seismic shift in its own outlook, its performance and its expectation of what success means; competitive forces will be so harsh that many firms will have to merge to survive as their only strategic option.

Those firms, however, that use the next three years wisely, who build sustainable businesses based on a common purpose, expertly articulated and delivered will also build value in themselves and become the most likely not just to survive but also to thrive.

These firms will be the ones that challenge established thinking and their leaders will be respected inside and outside their firms for their thoughtful, articulate and consistent application of values that have made the firm successful.

Back to where I began and to my partner friend resigned to an ever more competitive world ? It is not so bad, you have time to prepare, you have the intelligence and talent to get things done and a track record of success. Start now in earnest ? the best is still to come.

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