Practice Group Management Forum 2005

Thanks to Susan Raridon Lambreth of Hildebrandt International, guru of Practice Group Management, I was able to serve as blogger-in-residence at this conference held here in New York over the last two days.  I'm happy to be able to report that the attendees were a lively and diverse group and that the panels were of uniformly high quality, revealing genuine insights and candid struggles with what is by any account an important emerging topic in law firm management and one whose precise contours are still being molded. 

Indeed, simply reviewing the titles of the various panels will reveal that practice group management is, in 2005, very much a moving target.  Many firms don't do it at all yet, and virtually no firm that does do it has done it for long.  We are, in short, all learning about this together.

If nothing else, that made for a highly energizing and exciting conference, with a palpable air of open exploration.  Thanks, Susan!

2005 Forum on Practice Group Management:
Glasser LegalWorks/The Hildebrandt Institute
The Grand Hyatt, New York, April 11-12, 2005

"The Latest Trends in Practice Management", Susan Raridon Lambreth

What's driving practice group management?  Isn't it just the latest management fad?  Some firms do indeed see it that way, and think that if they just duck long enough it will go away.  But look at your clients; running business units efficiently is scarcely a passing fad.  And as law firms grow and change, they need more sophisticated approaches to management.  These challenges also need to be effectively addressed:

• commoditization of legal services at one end vs. high-end work at the other;
• increasing focus on retention in the past year or two (after the 2000-2003 period of relative indifference to the issue); and
• using practice group management as a competitive differentiator, and as a tool to handle risk management.

Segmentation of legal work is increasingly a fact of life:

• Commodity-level work includes commercial real estate, employment, environmental, etc.
• Operational/bread & butter work includes most litigation, some M&A, most intellectual property
• Bet-the-company where price is no object:  The Microsoft antitrust case, high-level corporate investigations, transformational mergers and acquisitions, etc.

Note that in almost every area of practice, they often begin life "high end" and migrate to commodity work over the course of a decade or so.  For example, the ADA was cutting edge when first passed, but today it's a routine compliance issue.  Implication for law firms is that they must structure their ability to handle work so that it's in line with the clients' expectations.

Importantly, don't assume that the "high end" work is the most profitable:  Typically there's very little leverage available, whereas some of the commodity work can be highly leveraged and immensely profitable.  The risk, however, is that the better known you are for commodity work, the less credibility you have at the high end.  One tactical approach to this is to segment it off as a separate practice group.  The clear implication is that firms are expected to bill not based on how many years out of law school one is, but based on the value (or lack thereof...) to the client.

What has practice group management ("PGM") to do with this?

• It can minimize balkanization within the firm;
• Enhance integration of laterals and acquisitions
• Enhance morale;
• Institutionalize client relationships.
• Encourages mind-shift from regional/geographic/office-centric focus to practice group substance and building national or even international reputations as opposed to strictly local.
• Shift from automatically selecting rainmakers as practice group leaders to choosing those who actually have the best leadership skills.
• Introduction of full-time PGM professionals, with input into:  Compensation, including rewards for partners' contribution to group performance,  not just production and business generation.

What does a practice group leader need to do?  The evolution in the past few years has been towards increasing authority, including controlling over intake of matters and workload assignment, input into compensation decisions ("if you can't change incentives, you can't manage people"), and in general increasing clarification about PGM roles and expectations.

Elements of a job description for a practice group leader:  strategic business planning including "R&D" (where is the marketplace going?), professional development (including of partners), client/matter intake, quality control/risk management, workload assignment and utilization, and knowledge management.

Performance feedback and coaching skills are paramount, partly because they're so hard to do.  Believe it or not, most lawyer personality analyses show that lawyers are in fact nonconfrontational, and hate to candidly evaluate their peers.    Practice groups should also handle their own recruitment to ensure that new hires are actually a good fit with the practice area and not just in the firm at large.

There's a difference between truly strategic plans and marketing plans or "business improvement" plans:  The former include key differentiators such as recruiting, R&D into the marketplace, and are based on the realization that just letting prospects know you exist is not exactly a strategy.  What does "R&D" mean in the context of a law firm?  Looking at the marketplace and attempting to discern where it's going.  For example, in a corporate department, are internal investigations resulting from Sarbanes-Oxley sec. 404 issues going to be a real and substantive area, or a passing fancy, or a complete non-issue?  In products liability, it means determining what area might explode next and preparing to defend against it.

So how do you organize PGM?  There are four conceptual alternatives:

• by substantive department or practice expertise;
• geographically
• reflecting client-side industries (healthcare, high-tech, etc.) and
• by core clients

The first is not only the most common by far, but the most effective and the most conducive to the way lawyers conceive of themselves (as a litigator, a tax lawyer, etc.).  The second can reinforce PGM by providing local resources, and the third can be a further evolutionary overlay once PGM is firmly established.  The fourth frankly doesn't work for most law firms unless they happen to have one or two enormous clients.  (It does work, e.g., for McKinsey.)

The old (and still often current) paradigm was that of the rainmaker; the new paradigm is that of PGM with the "entire boat rising."

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"Success Stories in Practice Management"

Tim Pakenham, chairman of the partners' committee at Alston & Bird, opened by noting that when he was in business school he thought that the key ingredients to success were (a) having a good product/service to sell; and (b) financial management, and that all the touchy-feely issues about organizational leadership, change, and motivation were strictly academic.  Now, after nearly 20 years of practicing law, his attitude has completely reversed.  People come first.

Ten years ago Alston & Bird had a very traditional corporate/litigation organization, with about 100 lawyers:  Small enough that everybody knew what everyone else was doing.  But they also realized that would not work going forward.  Although it's been an evolutionary process without a grand strategy going forward, today the firm has 32 separate practice groups in four "pod" groups:  transactional, IP, litigation, and taxation.  A useful way to view the 32/4 matrix is as a quadrant on a circle with 32 compass points, each with its own business plans.   Each plan is revised annually and each partner within each group does a personal annual plan which must demonstrate tie-in to the group's plan.

The smallest group has three partners, but Tim believes larger groups are typically better. 

Alston & Bird is "highly committed" to PGM; spends a great deal of resources and time empowering practice group leaders, and they have meaningful input into compensation of partners within their group.

Bryan Schwartz, chairman of Levenfeld Pearlstein, a 60-lawyer firm, described the evolution of PGM at his firm starting in 1999.  The firm at that time had 7 name partners and, surprise, 7 practice groups.  The "strategy," such as it was, was "Hey, I see an opportunity over there."

PGM was then implemented with a vengeance in order to bring order to chaos:  The Executive Committee was reorganized and focuses solely on strategy.   An operations board consisting of the Executive Director and the practice group leaders handles precisely that.  Practice group leaders are compensated very competitively, which is necessary not just to obtain and retain talent but to confer credibility within the firm.  Benefits:  Firm operations are aligned with its actual strategy; profits are sharply up; professional development is now a serious priority; and PGM has credibility.

Two "I wish I had known that's:"   (1)  I wish I'd known it would take as long as it has.  (2)  I wish I'd started with the right people.

Lois Van Deusen, Managing Partner of McCarter & English (regional firm with 360 lawyers, based in Newark)

"No one likes change, and lawyers least of all, but McCarter & English has changed more in the past five years than in the previous 150."

Ten years ago the firm began to explore PGM, and as a result of doing their first strategic analysis, started a commitment to it.  The transactional practice took to it first, but the litigators resisted.  Today, there are 16 separate practice groups, each with its own business plan and with each individual therein having his/her own business plan.

"What are the benefits of PGM?  To me it's so obvious that I can't imagine a firm functioning without it."

"What do I wish I had known?  #1, how long it would take; and #2, that we'd picked better practice group leaders to begin with--we tended to pick people who weren't great leaders or coaches."

Donald Ridge, Managing Partner, Morris Polich & Purdy (LA), started in 1969 as an insurance defense firm.  Eight years ago they implemented PGM after realizing that every partner was running in his/her own direction with no teamwork.  Today they have 77 lawyers in 8 practice groups.  Immediately they picked the wrong people--rainmakers.  After two years they realized their mistake and committed to training practice group leaders, which all partners actually attended; this became a pivotal moment and effectively enabled PGM to move beyond marketing into real authority and decision making. 

Currently they allow people to belong to up to three practice groups, but there's a consensus that should change; belonging to just one works best.  Benefits?  Far more coordination, more systematic business development, higher profitability, more collaboration internally.  What he wishes he had known:  #1 what it takes to be a real leader, which is not a big book of business.  #2 the need to properly compensate people for managing, which permits them to take it seriously, and #3 bringing Susan Lambreth in earlier to teach them how to really do it.

David Tennant, practice group leader of the corporate/finance/M&A group of McCarthy Tetrault (Canada's largest firm with approx. 800 lawyers).  The firm resulted from a merger of several firms which initially created "chaos" with incompatible accounting systems, "no management that could go by that term," etc.  So starting approx. four years ago, they initiated PGM, and it was received with resounding success:  Associates saw it as giving them a structure and a career path, and partners found it made them feel more part of a firm and less isolated.

Organizationally, a ten-member Executive Committee is responsible for hiring a CEO who in turn hires four divisional head direct-reports.  Practice group leaders have tremendous input into year-end "allocations" (compensation).  Groups are organized into client teams, which also exposes any gaps in client coverage.  What do I wish I'd known?  I'm glad I didn't know any of the problems we'd face!  But overwhelmingly positive by strong consensus of the partnership.  (Profitability has gone up about 50% in the past three years.) 

Q&A:

How does practice group strategy tie into firm-wide strategy?

Well, for example, if you want to cultivate an M&A practice,  you need antitrust expertise.  So recruit in that area; then go out to ABA conferences, get name recognition, and keep groups focused on what they need to concentrate on.  (E.g., don't put an antitrust guy in Calgary; keep them in Toronto.)

"There's a lot of art" to aligning firm strategy to group and individual plans; communication is indispensable.  [BJM note:  A&B is "mature" in the Southeast, so investing over the next 3+ years in NYC and DC.]  Alston & Bird is, to be sure, pleased to have been on the Fortune "100 best places to work for" for the last six years, but "it's not coincidental" that year-over-year profitability has also increased throughout that period.  Communicate, communicate, communicate, and build trust through transparency--"there's no data that's not available [within reason]."  Regular town-hall meetings with associates, e.g., is a simple technique, so why not do it?  (A&B does.) 

Does profitability analysis track practice groups?

It depends.  At one firm, "there is no transparency on this," it's limited to the management committee only.  Why?  We don't want partners criticizing each other on the profitability matrix, and we don't want them gaming the system.  "Profitability by practice group is a very profitable tool and a very dangerous one."  It's also complex because some groups are natural exporters of work and others natural importers.  Analyzing profitability in a holistic sense is therefore a complex and sophisticated analysis to undertake.  It's important to distinguish between profits by group as a management tool and as a compensation tool.  Also, it's dangerous to share information about other groups--one's own group is fine, but sharing other groups' info leads to divisiveness.

What are keys to success with PGM?

#1:  Getting the right people into PGM.  "People who are great at bringing clients in and working on files are not great at this." 
#2: There has to be a connection to compensation. If you're asking partners to use a different associate than they want, e.g., they need to know that the practice group leader can actually have an impact on their compensation.
#3: Establishing clear roles for each partner.
#4: Walking around and asking people what's new and what's going on; not just in your home office, either, but across the firm's entire territory.

Do practice group leaders have fixed terms?

Most firms do not; the thought being that there's a learning curve so why remove someone (assuming they're performing up to snuff).  And, particularly in small firms, the talent pool is limited.  On the other hand, at A&B there's an unwritten rule that practice group leaders should rotate out after five years.  They spend a great deal of time and resources on leadership development and succession planning, which should begin almost as soon as one takes the job.

What are the selection criteria for practice group leaders?

"Hidden leadership potential," a high degree of energy, and some ability to tolerate conflict. 

Alternatively, just let the practice group itself pick; that essentially guarantees the person will have credibility.  A potential downside to this is succumbing to the temptation to choose someone who will be nonconfrontational and impose no demands--who will not, in other words, be a leader. 

"You have to break traditional notions of who can be a leader."  Younger partners are often the best, whereas older ones may want to keep doing what they've been doing, which is not necessarily strategically optimal. 

How are practice group leaders held accountable?  Typically informally, although organizationally they usually report to the executive or managing committee with a dotted-line "matrix" relationship to the executive director, finance, IT, marketing, etc.  It's also important to understand that practice group leaders need to redefine success, away from day-to-day practice of law and into far more intangible and inchoate issues, the longer-term vision issues.  The results of "success" will not show up in the quarterly numbers.  There's an element of "selflessness" to it, as well. 

Is there tension between big rainmakers and practice group leaders?  Can a young partner without a big book of business really have a difficult conversation with the department's 800-pound gorilla?  Certainly if there's no respect to begin with, there will be no meaningful conversation, but rainmaking ability per se is not a requirement.  More tellingly, without PGM rainmakers tend to max out at a certain level, whereas with PGM the department as a whole can grow through that ceiling.

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"Measuring Success of Practice Management"

Panelists:

Marion Baker, Department Operating Officer, Foley & Lardner
Peggy Giunta, Director Practice Management, Wilmer Cutler Pickering Hale and Dorr
John Sperger, Secretary to Firm and Special Projects Manager, Blank Rome
Reid Horovitz, Chief of Staff, Orrick

Orrick is organized into two divisions, transactional and dispute resolution, which in turn have practice groups below them; Reid's new title is over the entire group.

WCPH&D has 17 practice departments, 15 of which have leaders who report in a matrix relationship both to lawyers leading those groups and to Peggy--"the link between the legal side of the firm and the business side."

Blank Rome initiated PGM two years ago: 3 departments and 17 groups.

Foley & Lardner has 6 departments:  the role of the PG leader is to draw up strategic plans, annual business plans, and to provide all financial information as needed, analysis of profitability sliced any way people wish including by group, by partner, by client, etc., and also has managerial responsibility for all non-lawyers. 

What are elements of "success?"  Client satisfaction, attorney morale, growing profitability, growth itself, as well as more inchoate measures including "practice excellence" and each group's alignment with the overall firm's strategy.  Other soft measures of success include partner satisfaction levels, taking the temperature of everyone at monthly meetings, a sense that the firm's moving in the right direction, longitudinal results of client surveys, meetings with key clients, where there's room for improvement.

"Practice group excellence" includes things like associate retention, utilization of the KM system, growth in "interesting" new matters, and other impressionistic tools.  At Orrick, e.g., there's a committee that meets with all partners to solicit not-for-attribution feedback which is then combined into a report delivered to the entire partnership; gives a temperature reading.

Key debate is over how much information is shared and what's actually done with it after it's collected.  If your associates report, e.g., that morale is low, what do you do with that?  Also, don't underestimate the power of just telling people that XYZ is a problem; they may be motivated to actually do something about it.  Build on small successes. 

Even at firms where there is near- or total transparency, that can be a mixed blessing.  Data overload is a real phenomenon, and one responsibility of a PG leader may be to distill and condense the data into something meaningful.  And firm's policies on disclosure of, e.g., partner compensation vary widely.  At Foley & Lardner, every partner knows what every other partner makes, whereas at Blank-Rome it's boiled into the partnership agreement that one's compensation can't even be discussed.

Interestingly, when Wilmer-Cutler and Hale & Dorr merged, H&D had PGM in place and WCP did not.  So how come the merged firm has it?  Essentially, the advantages of it became self-evident to the WCP side and they adopted it without cavil.

OK, so what hard metrics are used?  "Quintile analysis" looks at best- to worst-performing groups in, for example, client profitability.  Key reports clearly include billing realization, A/R, work-in-progress, productivity vs. FTE count, and also permits for variation among departments and among what's disclosed where.

Utilization is one of the first things they look at at many firms, hopefully with an explanatory gloss by the PG leader.  Also look at billings, collections, realization, business development costs, FTE headcount and leverage.

The $64 question:  Profitability.  Based on a show of hands, a distinct minority of firms do profitability analysis by practice group, and further, only one firm present distributes it at all widely.  When it is distributed, it's in a spirit of "best practices:"  These are things you might look at, these are high-performing teams, etc., with nuanced awareness of economic factors (cyclical and otherwise) that may favor or disfavor specific practices.  When profitability analysis is drilled down to partner level, the goal is to identify pockets of underperformance that can be improved, not to beat people over the head with. 

What is actually done with the information?  At some firms, disengaging from clients, for example, beneath a de minimis level of profitability.  At other firms, "nothing--we do the analysis but we don't use it." 

How sophisticated is the cost side of the analysis?  Most firms allocate firmwide overhead, and some make it office-specific.  Others pro-rate costs by the hour, so that a highly productive lawyer (3,000 hrs/year) will cost less per hour than a low-productivity lawyer (1,800 hours/year). 

The numbers can be put to a myriad of uses, including cutting out or fixing or solving the bottom quintile and growing and expanding the top-most quintile.  All these things take time, however: 3-5 years at a minimum to get the information digested and figure out what to do with it.  At the end of the day, people can get a sense of how things are going.

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Hiring Professionals to Help Manage Your Practices--The Role of Practice Management Experts

The panel members consisted of:

Reid Horovitz
Peggy Giunta
Marion Baker
David Burlingame, Litigation Dep't Business Manager, Nixon Peabody
Debra Lawrence, Director, Business Management Analysis, Morgan Lewis

Morgan-Lewis uses an Elite product they've customized, called "WebView,"which enables partners to see information on their desktop.  What information?  Almost all financial performance metrics including profitability. 

What is the actual role or job description of a PG Leader?:

• oversee all internal staff issues of the practice group
• do standard and custom financial analysis
• coordinate and help integrate lateral recruitment and hiring
• work with underperforming attorneys to help them get back on track
• help develop annual strategic and business plans
• report in matrix fashion to leaders of practice group and also to finance, IT, marketing, etc.
• play a role in partnership compensation
• apply a profitability analysis model to prospective lateral recruits
• create annual budget, by practice group
• produce monthly P&L by group, including firmwide allocations of expenses like insurance, and leases, and a provision for net import/export of revenues
• play a role in associate workload distribution and professional development

[Note to BJM:  Cost of PGM @ Foley is $1-million/$150-million in revenue, and Marion's paid at level of 5th-7th-year partner.]

Orrick adopted PGM in 2000 based on a recommendation by McKinsey; previously they were on a geographic structure.  Currently they have two divisions, dispute resolution and transactions.  Reid thinks it's not a "must-have" for PG leaders to be former lawyers, but it probably helps a little with initial credibility. 

A key role for a PG leader is staffing matters:  The goal is to help young associates gain exposure to many sub-specialties within the group, find their "home," and rotate not just among specialties but among partners and clients.  Very important but very time-consuming.  WCPH&D uses a fairly large number of contract lawyers used to handle bulges of work such as the discovery ramp-up of a large litigation and intensive email and document reviews.  The benefit to the client is a whole different price structure and the benefit to the firm's associates is being saved from being buried in a warehouse for months.  Under almost no circumstances are they counted in any firmwide ratios; viewed as a separate business unit. 

What do PG leaders do aside from being merely the assistant to the lawyer(s) who runs the practice group?  First, provide all the hard metrics on billing, collections, etc., and also provide subjective comments about professional development, involvement in management, all while providing ears and eyes on the ground for the PG lawyer/leader.  Simply being able to free the lawyer/leader from a management issue frees them up to bill those same hours--which in itself usually more than justifies the cost of the PG leader.

PG leaders work with marketing and business development to create annual marketing budgets for the practice group, including sponsorships, events to be attended, associations to join, etc.  There may be individuals within marketing assigned as dedicated resources to certain practice groups.  Then obviously as issues arise during the year (RFP's, etc.), they work together very closely. 

Do PG leaders report, dotted-line or otherwise, to Executive Director?  Typically not; although PG leaders should make it easier for ED's to do their job by maximizing the effectiveness of marketing, finance, IT, and so on.

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Day 2

Creating High Performance Practice Groups

Panelists:

Marion Baker
Lois Van Deusen
Tim Oyer, Practice Group Leader for Chemical Group, Wolf Greenfield & Sacks
Frederick Leech, Practice Group Leader, Investment Management Group, Reed Smith

Keys to success of a practice group:

• serious buy-in from the partnership
• real training for the PG leaders
• selection of the right leaders
• significant authority for the PG leader, including a  major role in compensation and communication
• development of meaningful PG business plans
• succession planning.

In the 25 years Fred Leech has been with Reed-Smith, the firm has grown dramatically from essentially a Pittsburgh base to over 1,000 lawyers across the US and in Europe.  Firm is run by a senior managing team including a managing partner, the head of both key practice groups (litigation and business/regulatory), a director of strategic planning and a director of professional development.  Additionally, equity partners firmwide elect representatives of specific geographic areas such as London and Northern California.

Tim Oyer noted that WGS moved to PGM a few years ago and despite the fact that "change is painful," it has been without reservation a success; he would recommend it to all.  Since WGS is an IP boutique, there are inter-related practice groups which are not primary for anyone but are such things as startup firms, pharmaceuticals, biotech, whereas primary practice groups are things such as chemical, mechanical, etc. 

What is the job description of a PG leader?

• responsible for overall leadership, direction, and planning for the group including strategic business planning; participation in business development, client services/satisfaction, and determining compensation for PG members
• lead lawyer motivation and morale
• head of professional development for the group, as well as participant in recruiting and performance evaluations
• manage workloads and lawyer utilization
• participate in client intake and acceptance of work including alternative fee arrangements
• quality control including communication with clients and addressing any client concerns
• financial management including setting and meeting budgets and meeting productivity goals
• knowledge management and technology
• #1 communicator for and to the group

What are the goals of having PGM?  Why do it?

• delegate managerial responsibilities from executive committee
• create team mentality:  motivational within a smaller environment, and easier to monitor and manage
• create some autonomy:  give people ownership and they'll respond accordingly ("In the history of the world, no one has ever washed a rental car."--Larry Summers, Pres. of Harvard)
• develop leadership skills
• manage performance reviews and merit bonusses
• interestingly, serve as a decisional aid to partner selection process:  PGM lets individuals take a "test drive" in a managerial role, revealing some to be more and others to be less successful.  Improves the quality of partnership-promotion decision making.
• PG's serve as de facto business units, so they have responsibility for determining both avenues of growth and areas of retrenchment

Reed Smith recently established "Reed Smith University" in conjunction with the Wharton B-School  which is a formalized executive education environment.  It's anticipated that PG leaders will spend at least one week/year at RSU and the PG leaders are in charge of setting the curriculum (not Wharton). 

[Editorial insert from Bruce:  How blindingly obvious, and yet how inexplicably rare, is this in law-land?  The notion that once one graduates from law school one has learned all one ever will need to know is patently absurd, and certainly corporate America makes no similar presumption.  Bravo for Reed-Smith.]

What allowance if any is made for reduced billable's by PG leaders?

• at small firms (e.g., WGS), there's no room to afford any allowance for a reduction;
• at larger firms, there's typically not a formal allowance but certainly there's an understanding that a substantial commitment to PG leadership will have an effect on billable's;
• based on temperament, many "overachievers" manage to maintain their billable's at 2,000/year or more and still do their PG role effectively.  If, however, one's client-services oriented work declines significantly during a term as PG leader, it's "a difficult question" how to re-establish the client-side momentum.

"There's a sense that there's a 'right size' for a PG."  Once one gets very large, options are to split it up, to appoint co-chairs,* or to appoint geographic heads. 

How do you evaluate PG leaders?  Self-evaluations, for starters.  PG members also evaluate the leader, but ultimately decision re compensation goes to the executive committee, just as for any other lawyer.  Overall performance of the PG itself also counts, obviously, with recognition that there are elements beyond the group's control including cyclical economic trends. 

Interesting question:  How far do you go in being democratic and seeking buy-in before you just impose a decision?  Hard to say, is the short answer, but it obviously depends on what's being "sold," the degree of hostility or resistance, the justification (or lack thereof) for the resistance, etc.  Overall, the consensus seemed to be that if you can reach some indefinite level of support (40%?  50%?), you can proceed.

Is PG leader involved in demoting/de-equitising underperforming partners?  Only as to diagnosis of the situation and coaching to try to get the partner back on track; but if the performance doesn't improve, the PG leader steps aside and the managing committee addresses it.

Staffing and intake decisions are typically made simultaneously; and it's even possible that the originating partner will not end up working on a given matter if the PG leader determines it's ideally handled elsewhere. 

__________________________

*Susan Lambreth noted at the end of the panel that co-chairs as a rule don't work.  Typically they're set up between the person who should have the job and the person (a rainmaker??) who wants the job; generally people tend to undermine each other.

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Compensation Approaches to Motivate Practice Management
Blane Prescott, Director, Hildebrandt

Objectives of compensation for a PG leader:

• moving from traditional individually approach to group-oriented system
• reward group contributions not lone wolves
• prevent balkanization among the groups
• reward PGM success

Ultimately, the goal of any compensation system is to motivate the behavior the firm is seeking to encourage.  The problem is that it's incredibly complex to motivate highly intelligent, very skeptical people who don't take personal criticism well.

With compensation, "relativity" is one of the nastiest issues; if people are focused on what the other guy is paid, it's bad for morale, bad for leadership, and leaves almost everyone feeling dissatisfied no matter how much $$ is actually available to distribute.  Also important to understand is that compensation in and of itself is almost never an effective motivator, but if it's done wrong it can be a genuine barrier.  Money is not the world's greatest motivator.  (Thought experiment:  Could you, yes you reading this right now, get a different job paying more somewhere else?  You probably could, right?  Then why don't you?  See, money isn't everything.)

Trends in compensation:

• seniority is rapidly disappearing or has disappeared; it survives perhaps only in the sense that a senior person has more latitude for a "bad year" insomuch as the  have a solid track record indicating that's a genuine anomaly and not necessarily the beginning of a trend.
• concomitant shift to merit/performance-based system; but can we now define "merit?"  If it's billable hours, or collections, or client originations, each and every one leads to problems and unintended negative consequences.
• alternatively, there's a shift to profitability analyses--by  office, by client, by practice group, by individual, etc.  Sounds very businesslike but it's a very short-term measure: cf. being an IPO lawyer in Silicon Valley in 1999 vs. 2002.

But a little knowledge is a dangerous thing, and profitability statements can be very divisive if their import is not communicated well and if they're not used as a management tool generating insight going forward rather than simply a retrospective record that it's too late to change.  Data overload is more of a threat than data drought.

Evolution of Partner Compensation

#1:  Parity

• all partners paid equally
• no individual merit incentive
• but can foster strong team spirit
• typically only exist in very small firms with very high profits, a high degree of trust, and common working values

#2:  Lockstep

• in true lockstep, each level is pre-set
• typically there's a plateau, and often a sloping reduction nearing retirement
• very rare in the US, with the exception of some of the true creme de la creme in New York; more common in UK, but modifications are being introduced, including
• freezes, de-equitisations, bonuses
• BUT obviously there are no incentives for individual merit, and symptoms of failure or breakdown include
• declining or stagnant hours, a lack of leadership among younger generations, many partners working "minimums"
• work only in firms with incredibly demanding standards of quality and extremely high profitability

#3:  Formulas

• a true formula system is simply a mathematical formula
• exceedingly rare:  there is exactly one left in the AmLaw 200
• why?  to run a law firm, there are a myriad of factors you want to reward, so the formula becomes remarkably complex
• there are also year over year exogenous events which will be seen as "unfair" in the short term, inducing pressure to deviate from the formula
• worse, formulas tend to engender a "piecework" mentality--people only do what the formula encourages
• and at the management level, there's no reason to talk with anyone because the formula determines everything
• so as a result out of a few backwater pockets like insurance defense, they have virtually disappeared.

#4:  Subjective

• the largest, broadest category encompassing dozens and dozens of varieties
• and among the most popular and successful in the US today
• nevertheless, they don't work if there's little predictability or consistency from year to year OR when leadership can't be trusted OR when they generate surprises at year-end OR if they fundamentally ignore the data
• conversely, they succeed where there's an abundance of common sense--"we know good performance when we see it" AND there are true two-way dialogues about compensation with each partner, ideally in a two-on-one format; the goal of the entire exercise is to manage expectations.

The general content of the "comp interview" is:  Tell me about last year, tell me about your plans for next year, tell me what I should know that's not in the numbers, let's talk about your weaknesses and how the firm can help you overcome them, and talk about the handful of things you could do next year to increase your value to the firm and, hopefully (no quid pro quo) your compensation.

So, is there one best system?  NO.  But firms do better if they:

• manage expectations
• don't rely on data or numbers to send a message; it won't be received
• talk to partners regularly about what they need and what the firm will reward
• involve leadership of the firm in setting compensation (and if you can't trust your leaders, change leaders)

With respect to PG leaders, the same principles apply (including that there's no magic unitary answer), and if a PG leader is failing, whacking their compensation will not make them into a better leader, so they should be replaced as PG leader.

With respect to PG members, you don't reward people for participating--that comes with the partnership territory--but you should penalize them for not participating, and at a serious level like $50,000 year 1 and twice that year 2.  The penalties have to be meaningful if you're serious about PGM.

Dealing with Origination Credit

Counterintuitively, perhaps, firms that do not track origination are the strongest financial performers.  Why?  Because, realistically, everybody knows who the big rainmakers, the moderate rainmakers, and the non-rainmakers are.  Keeping strict, objective track only encourages divisiveness, arguments over sharing, etc. 

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Building a Client-Focused Firm--The Evolution of Client Teams

Panelists:

Jim Pagliaro, Leader, Global Litigation Practice Group, Morgan Lewis
Gordon Thompson, Co-Chair of the Business Law Group, McCarthy Tetrault (Toronto)
Tim Pakenham, Chairman, Partners' Committee, Alston & Bird

Jim admits he was skeptical to begin with, but is now a believer.  Before client-centric teams existed, information about clients was "silo'ed" in the hands of the billing/collections partner, but now information is shared widely so that, e.g., a corporate partner got wind of an impending major litigation, had the litigation partner with the pertinent expertise contact the client at a critical juncture, and the firm subsequently landed hundreds of related cases billing $1-million/month.

From a standing start three years ago, there are now 47 client-specific teams with all info available on the internal website including history of the relationship, partner-leader on the team, other team members, active issues, opportunities, limitations, competition, etc.  Each team meets religiously monthly, with follow-up and to-do issues specified.

McCarthy-Tetrault instituted a "key client" and "significant client" program about four years ago simultaneous with introducing PGM.  "Key" clients are about 40 that are significant in terms of revenue and/or one or more practice groups and/or regions.  "Significant" clients are about 125, generate less revenue, work with fewer lawyers, but may be up and coming.  The firm also uses this platform to advance internal goals such as grooming associates through specific client exposure, identifying "best practices," or attempting to break into new practice areas. 

Is there pushback from some lawyers?  Sure, but it's largely overcome by success stories. 

At Alston & Bird, client teams are just now being introduced, with about 10 formal teams up and running.  Initial resistance was to what was perceived as a another layer of bureaucracy, more memos to write and more calls to make, but once lawyers are thrown together and see the power of coordinating and collaborating on their approach to a major client, they get excited and it's never perceived as a burden.  Don't limit the team to lawyers; involve everyone critical to delivering service to the client. 

Client interviews are essentially indispensable, but you need to choose carefully who does the interview:  Independent third-parties are best by far, the managing partner probably the worst, although the managing partner should meet with key clients for other reasons such as communicating the firm's commitment to them.  When you need an objective assessment of what (say) the firm could do better, go to an outside consultant or perhaps an ex-partner of the firm.  If the "client audit" or "client assessment" can become routine and nonthreatening (to the law firm), then it can migrate to the managing partner or the practice group leader; the last person they'll tell is typically the actual lawyer who may be the source of the problem.

Associate involvement in client teams drew a divergence of opinion.  Mostly, firms appear not to involve them, but are sensitive to the notion (widely promulgated among associates, BTW), that just as associates can learn by watching partners take a deposition, draft a brief, etc., they can learn client-development skills by participating on client teams.  Still, most firms believe that until associates are at the senior-most level they should concentrate primarily if not exclusively on developing first-class legal skills.

Always useful to ask what keeps client's execs awake at  night--can lead to some interesting business development opportunities, and is an astute form of "R&D" to explore possible future growth paths for the practice.

Framework for analyzing how firms actually get hired:

Primary:  Selects	User: Impact is on his/her job
Gatekeeper:  Can screen out	Coach(es):  Guides

This actually exposes something of a myth in law firm marketing:  Firms normally assume they should go as high as they can possibly get within the client organization to be selected.  But in fact if a big-deal "primary" (say, the GC) essentially instructs a user whom to hire, the user will be deeply resentful.  Similarly, if a Board member tells the GC to have lunch or dinner with lawyer X, the GC goes into that meal negatively inclined.  The power of a client team in this context is to map the firm's personnel against the corporation's personnel at the same level.

Corollary benefit:  If the law firm and the client are joined together at multiple "relationship points," this tends to institutionalize the client and simultaneously makes it less likely that an opportunistic partner could jump ship and take the client along.

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Developing & Implementing Effective Practice Group Business Plans

Panelists:

David Burlingame, Litigation Department Business Manager, Nixon Peabody
Frederick Leech, Reed Smith
Tim Oyer, Wolf Greenfield & Sacks

Keys to PG plans that actually get implemented:

• plans are viewed as critical to resource allocation
• participation by most if not all members of the PG
• a few, clear, measurable objectives
• action items:  who will do what by when
• an assessment of the firm's market position
• incorporate feedback from senior firm management to the PG
• use the plan within the group:  discuss progress towards its objectives at monthly PG meetings
• use the plan with senior management:  discuss progress towards its objectives semi-annually with senior management

Goals and objectives should be as finite and discrete as possible, but action items are really where the rubber meets the road.  So, e.g., a "goal" could be as broad and inchoate as "win more high value work," but it would be better to say "expand our product liability practice in the chemical industry," and the associated action items might be focused targeting of two specific companies in that industry segment. 

How encourage actual progress towards goals?  Monthly meetings should generate rolling to-do lists; consider setting up an internal website where action items can be checked off (available to senior management, obviously).

At Reed-Smith, the use templates for plans across different PG's to encourage consistency.  E.g., "horizon 1" is what are our core competencies; "horizon 2" is logical extensions thereof; and "horizon 3" is what new core competencies should we attempt to develop?  Spend 10% of your time on 3! 

Began PGM in 1998.  In development of a plan, the first blueprint comes from partners; only then is it "rolled out" to the rest of the PG.  The basic template covers half a dozen or so topics with the intent of defining tradeoffs:  Managing is deciding not to do some things.  Critically, determine where to target expansion and where to frankly count on retrenching.  Explicitly looks at "barriers to entry" to new areas, and also looks at "barriers to exit"--an interesting concept.  Next up are questions surrounding competitors; is it a commodity or a specialty?  Next, clients:  their buying power, their number, the "share of wallet" Reed Smith might already have.  Next, legal talent; are talented lawyers scarce or abundant?  Finally, regulatory factors, which can cut both ways; tort reform could be a bad thing, but new SEC reg's could make investment management clients call for more advice.

At Nixon-Peabody, key ingredients of the plan include:

• an assessment of trends in the "practice space";
• the contribution of knowledge management to achievement of the PG's goals
• action items, including responsible personnel;
• automatic "population" of individual attorney's plans with those action items for which he/she is responsible
• an online search feature that, e.g., could highlight everywhere "Kodak" appears for a holistic view of that client
• a review/approval module that limits changes once approval has been signed off
• all now reflected in the evaluation process as well, which is to say the least an incentive to get the plans right

Because all PG plans are (or should be!) oriented towards long-term performance, how do you evaluate people's performance in an annual review cycle?  The short answer is, by focusing on execution rather than macro results.  In other words, assume that if the analysis going in was fundamentally sound, then meeting the executional goals should ultimately drive achievement of the macro result. 

A useful way to think about the purpose of PG business plans vis-a-vis the firm's strategic plan is that managing the firm as a whole is usually too amorphous.  Essentially, it's only at the PG level (in a firm of any size) that concrete opportunities can be identified.  Developing a firmwide strategic plan is then something of a two-way iterative process with the firm attempting to exploit specific PG goals to  move in the firm's desired overall direction and the PG's using the firm's overall vision to help focus on particular opportunities, since one can never pursue everything that's possible.

Examples of actual firm goals:

• rankings on scorecards or award lists (The American Lawyer, Corporate Counsel, Chambers, etc.)
• core client types: focus!  (strategic management is deciding, again, what not to do)
• marketplace image (be one of the top three in our region, e.g.)

Goals need, again, to be finite and limited in number, but if you're only going to have one, do not make it financial-performance.  As we know from public companies' suffering at the hands of Wall Street's expectations for quarterly performance, excessive focus on the bottom line per se can be very deleterious long-term. 

Posted by Bruce at April 13, 2005 8:27 AM
Posted to Compensation | Cultural Considerations | Finance | Leadership | Marketing | Partnership Structures | Practice Group Management | Strategy

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