By Timothy B. Corcoran, Principal, Corcoran Consulting Group, LLC
Businesses that don’t merely endure but thrive over extended time periods tend to attract and foster leaders who establish and maintain tight alignment between business strategy and business execution. Unfocused businesses with unfocused leaders generate sub-optimal financial performance even when things are going well. But when permanent market disruptions occur, a certainty in every market segment, unfocused businesses with unfocused leaders tend to flail until they’re acquired, dissolved, or relegated to a shadow of their former strength. This is a lesson that many law firm leaders have learned.
As law firm leaders valiantly struggle to overcome the consequences of market changes and maintain market share, they face several obstacles: Law firm partners don’t enjoy losing the autonomy to run their practices as they wish; most firms take an undisciplined “whack a mole” approach to driving change, responding primarily to variable client demand; and there are minimal rewards for partners to change behaviour. We won’t address the discipline of change management here, other than to say this: Leaders can’t drive change if they lack a comprehensive understanding of their law firm ecosystem and how each business function connects and interconnects with others. Without a multi-faceted and multi-year master plan, the odds of landing on the appropriate formula are significantly diminished. But let’s assume such a plan exists. Now what?
Follow the Money
If we hope to thrive in the new normal, we need to know how we make money, and how this has changed given the market disruptions. Law firms tend rely on a scant few performance metrics, most of which are focused on production, most of which are wholly internally-focused, and most of which are inefficient proxies for what we really wish to measure: profitability. For our purposes, profitability isn’t a crass or one-sided measurement. It’s a scorecard that reflects how well the law firm has deployed its unique assets to meet a market need in a way that’s mutually beneficial to the buyer and seller. Calculated properly, profits are a measure of long-term client satisfaction, not of “beating” the client in an adversarial game.
So we must understand the building blocks of our business, working ever backward from aggregate results, to the practices and offerings generating those results, to the matter types and activities contained therein, to the efforts necessary to win more of these activities. When we truly understand all that we do, and what we do well, and where we can improve, we can start to identify the critical behaviours necessary to generate greater success.
Acknowledge Different Contributions
Many law firms were built by exceptional lawyers who were as accomplished at generating business as offering legal advice, who were exceptional mentors and coaches, who were as adept with strategy as with operations. This is not most of us.
A successful law firm is comprised of different roles, different skill sets, different contributions. It’s necessary to understand the combination of contributions that generates success. Otherwise we risk the false assumption that “Success is primarily driven by business generation” or its opposite fallacy “We’re successful because we have top practitioners.” Of course these are true, just as a dozen other factors play a critical role. Only by understanding the unique combination of contributions by different lawyers with different skills can we establish a roadmap for replicating our success. However, we must acknowledge a fundamental truth: some contributions are more valuable than others, and this value may differ by practice, by matter type, by business cycle, by client industry, by year. Our objective in identifying critical behaviours is to maximise the contributions of all lawyers, rather than dilute our performance by asking, or allowing, lawyers to pursue that which is not their highest and best use.
Drive and Reward
Law firm partner compensation schemes, whether lockstep or eat-what-you-kill, subjective or formulaic, open or closed, tend to share one overriding flaw: they fail to proactively and clearly define the behaviours expected of partners in order to drive such behaviour. Instead, rewards are issued at year-end, in a process oft-shrouded in mystery, to partners who may not know what specific actions were valued, and how their specific contributions were valued relative to their peers. Changing lawyer behaviours requires leaders to set expectations in advance and to identify the rewards associated with the desired behaviours. Lawyers, generally acknowledged as averse to risk and uncertainty, are more likely to be dissatisfied when the incentive scheme is opaque rather than transparent. Managing expectations in this manner also helps to reduce feelings of inequity, because partners know the rewards associated with various behaviours and those willing to adapt can access different rewards.
There’s an old saying: If your compensation plan and your business strategy aren’t in alignment, then your compensation plan is your business strategy. This isn’t a reflection of selfish partner behaviour. In fact it’s the opposite. Sensible partners trust that their leaders have established an incentive scheme that rewards lawyers for activities that are beneficial to the firm. When leaders expect partners to act against their economic self-interest “for the good of the firm,” this isn’t boorish partner behaviour. This is simply inept management. It’s the leaders’ obligation to create alignment. The goal: What’s good for the partner is what’s good for the partnership. Settling for anything less than that outcome, and what’s good for the partnership might be better leaders.
Tim Corcoran is a keynote speaker at the 2017 ALPMA Summit, held from 13-15 September at the Brisbane Convention and Exhibition Centre. His presentation "Incentivising the New Normal: Linking what's good for the partner to what's good for the partnership" covers the importance of communication and how to embrace a collaborative approach. This year's Summit theme, Sailing the 4C's, focuses on the critical 21st century learning skills of Collaboration, Communication, Critical Thinking and Creativity. Registration is now open for the 2017 ALPMA Summit, and there are great savings for those who register early! Register now!
About our Guest Blogger
Timothy B. Corcoran is a New York-based management consultant with a global client base. A former CEO and corporate executive with several multinational businesses, his specialty is helping law firm and law department leaders adapt and adopt time-tested business practices in order to profit in a time of great change. Tim is past president of the international Legal Marketing Association, a Fellow of the College of Law Practice Management, faculty and affiliated consultant with Legal Lean Sigma Institute, a member of the Association of Legal Administrators, a regular keynote speaker at legal industry conferences, and author of the widely-read Corcoran’s Business of Law blog. He was recognised by LawDragon in its 100 Leading Consultants and Strategists for 2016.