Editor’s Note: This post is written by an advisor to law firms who has written extensively about the legal industry. It is a response to an earlier post about a Harvard Law School study that examined how collaboration at large law firms affects profitability.
By Patrick McKenna, Law Firm Consultant, McKenna Associates Inc.
I commend Harvard’s Heidi Gardner on her work promoting collaboration among law firm partners. A few of my comments on her March article in Harvard Business Review were published in the May issue, and I’m compelled to repeat a couple of my observations and add some new ones with respect to this piece.
Firstly, while the number of lawyers and/or practice groups serving a client should definitely increase a firm’s revenues as Gardner’s research suggests, simply adding more revenue does not necessarily translate into increased profitability. And professional service firms have been notorious for chasing revenues without really giving sufficient attention to whether those revenues, practices or clients are profitable. And unfortunately today, there is also a strong correlation between the number of attorneys / practice groups that a client uses translating into the increasing power of that client and even stronger demands for fee discounts.
Secondly, one of the things that gets in the way of collaboration is compensation systems that favor individual contribution rather than team work. What Gardner does not acknowledge is that the partner’s compensation spread in many large law firms is now anywhere between 10 to 1 and 20 to 1. That means that if you hear about how some major law firm is enjoying profits per partner averaging $1 million, you may rest assured that half of those equity shareholders are taking home about $500,000 or less, while some of their fellow partners are being paid $8 to $10 million. Now in the typical professional environment where any form of recognition, other than money, is hard to come by (and so the common mindset becomes “pay me a dollar more than that turkey and I’m a happy camper; a dollar less and I’m under-appreciated”), I would welcome hearing how you solve this collaboration hurdle.
Gardner makes the assertion, “No matter how much work the partner generates this year, if they refer that work to other partners rather than hording it, then their origination amount will increase significantly the next year.” While there may be some merit in that assertion, many of the General Counsel I’ve spoken with strongly contend that it requires some internal discipline that few law firms can accomplish. To be specific, many lawyers and firms will promote their ability to provide “seamless service.” And many General Counsel tell me they view that kind of hype as delusional, since there is rarely a common service standard across attorneys, groups or offices attempting to serve the same client. What that means is that until the relationship partner(s) set out in writing, some specific, non-negotiable service standards that any attorney working on the client’s matters will comply with, there is little chance that Gardner’s assertion will hold true.
This article clearly states that “the biggest complaint we hear from General Counsel is that their lawyers fail to understand their business.” And it is here that I believe Gardner nails it! Many professional service firms, and most every law firm, structure themselves based on the particular disciplines they were trained in (Consulting – marketing; Accounting – auditing; Law – litigation). So when you structure your firm in a vertical manner, it becomes rather challenging to have professionals collaborate across independent silos. That said, every industry study that we’ve seen over the past two decades clearly informs us that clients choose their professional provider based on an entirely different criteria. The number one selection criteria is based on “demonstrated understanding of my industry.” Read that to mean that those practice groups comprised of multi-disciplinary professionals, all serving a common industry (Bio-technology Group) do not suffer the same cooperation problems or the persistent pleadings from firm management to “please try to collaborate and cross-sell your fellow partner.”
Finally, here is yet another wrinkle: A new study by Stanford Graduate School of Business professor Jeffrey Pfeffer revealed that although reciprocity (paying back a courtesy) is still an established norm in private lives, its importance at work has significantly diminished. This lack of reciprocity is observed among colleagues. Reciprocity at work is a calculated and benefit-seeking task. Thus, colleagues tend to pay back favors only if they can benefit from that individual in the near future. “If you do a favor for me, as one human being to another, I feel a normative obligation to repay the favor, even if you aren’t going to be very useful to me in the future,” Pfeffer said, as reported by Insights by Stanford Business. “But we found almost the exact opposite in an organizational context. There, it’s all about calculations. If we don’t feel repaying the favor will benefit us much in the future, we won’t do it.”
Consequently, this mindset sadly reduces the possibilities of collaborative undertakings between certain partners in any professional service firm.