How Do You Know If The Troops Got "The Memo"?

My professional friend Rob Cross is a professor of management at the University of Virginia and, I think it's safe to say, the leader in applying "social network analysis" (SNA) to business and professional organizations.   SNA is nothing mysterious; in fact it reflects one of the bedrock truisms of human nature, that people who trust one another work better together and share more information, resources, and contacts.

Rob is now director of The Network Roundtable at U.Va., a consortium of firms dedicated to teaching managers how to conduct and apply SNA to their own organizations and how to use it to promote, among other things:

• innovation
• large scale change
• post-merger integration
• closer connectivity with clients
• alignment of execution with strategy, and
• leadership development.

The membership ranks are blue-chip, including:  Accenture, Bain, BCG, British Petroleum, Ernst & Young, Goldman Sachs, Hewlett Packard, Hill & Knowlton, IBM, Intel, Lehman, Mercer, McKinsey, Merck, Pfizer, Procter & Gamble, PWC, and the World Bank. 

At the moment, no law firms belong—but Rob assures me he would be most interested in being able to include a few who would be interested in exploring the benefits of applying SNA internally.   Legal Week just issued a piece on the uses of SNA within law firms, so it's rising above the radar horizon.  That piece focuses on how SNA can contribute to and undergird efforts at Knowledge Management, primarily through the inter-related mechanisms of trust and reciprocity:

"People know who the knowledge sources in their organisation are and will gravitate towards them, not based on the sources’ formal organisational role but on the power and effectiveness of their knowledge.

"Sometimes people will provide information out of a sense of altruism, but there is a sophisticated market of barter for providing information within organisations which has the benefit of providing not only the theoretical but contextual tacit knowledge. There is an unwritten rule that the party receiving information will at some stage reciprocate."

Any readers who might want to learn more about what SNA might be able to do for their firm should start with this primer on what SNA can achieve within organizations, and if you and your firm would like to pursue it, please let me know and we can explore further from there. 

But just to whet your interest, here are two SNA maps of the same firm.   The context of this analysis was that, 18 months before these maps were drawn, the firm had inaugurated a sustained effort to get people to collaborate across practice areas and hierarchical levels on client projects.   Looking at the left map, you'd say they'd succeeded; but looking at the right, you'd say they failed.

In other words, if your reaction is "separated at birth," you're not far off; how could this possibly be the same firm? 

The answer:  The left map includes the top nine executives; the right map omits them.  In other words, the leaders had "gotten their own memo;" the troops had not.  Something worth knowing?  I'd say so.

It's Not 1977 Any More: So What Are You Going to Do About It?

It's a rare privilege to see a candid discussion of a major firm's strategy in the press, so I urge you to run to this piece in The New York Law Journal, essentially an interview with Rohan Weerasinghe, Shearman & Sterling's new chairman, about the challenges he faces as S&S starts to pull out of a four-year period of, as Weerasinghe puts it, having "done well but not as well as our peer firms" and calling those years a period "of significant turmoil."   

Weerasinghe, 55, was born in Sri Lanka but has been at S&S for nearly 30 years, arriving in 1977 with his bachelors', law degree, and MBA all from Harvard, and by all accounts has been a gifted strategic thinker from the beginning.   He's going to need every bit of it given the clear challenges facing the firm, but from the evidence of the interview he would probably agree with that observation.  In other words, he's already on his way.

First, let's review the bidding.  In 2000, S&S's PPP of $1.35-million put it solidly in league with its peer group—Davis Polk, Simpson Thacher, Sullivan & Cromwell, et. al.   But 2001 saw a 30% falloff to $980,000, as Wall Street hit a wall and S&S was even forced to lay off 10% of its associates that fall.  In fact, it took until this past year for PPP to resume significant growth, finally topping 2000 for the first time (and up 22% year over year) at $1.4-million.

Nice work if you can get it?  Sure, until you look at the peer set:

2004 Rank	2003 Rank	Firm	2004 Compensation Average, All Partners	Change From 2003	Equity Partners	Nonequity Partners
1	1	Wachtell	$3,500,000	35.4%	80	0
2	2	Cahill Gordon	$2,420,000	1.9%	60	1
3	6	Sullivan & Cromwell	$2,350,000	23.7%	156	0
4	4	Simpson Thacher	$2,330,000	20.1%	152	0
5	3	Cravath	$2,205,000	6.0%	79	0
6	7	Paul, Weiss	$2,155,000	17.1%	103	0
7	5	Davis Polk	$2,005,000	4.2%	145	0
8	8	Milbank, Tweed	$1,875,000	8.7%	107	15
9	11	Schulte Roth	$1,795,000	17.7%	71	1
10	12	Cadwalader	$1,750,000	18.2%	78	22
(The American Lawyer)

And it's not just New York powerhouses that are ahead of S&S in PPP:  Firm #11 on this measure five years ago, it's now tied for #28 with Bingham McCutchen.

What's the problem?  Essentially, S&S is relying on one main practice area while its peers have three.  S&S gets a steady flow of deals from Wall Street, and in public M&A (e.g., representing Boston Scientific in taking over Guidant for $27-billion), but it's severely lagging in litigation and private equity—two areas that helped pull other "bulge bracket" New York firms out of the 2001 swoon.

The other drag on S&S' numbers is actually an opportunity, or rather an investment which should bear future fruit:  Their Asian network is still a money-loser.  (But very profitable operations in the UK and Europe prove that S&S can succeed abroad, if given enough time.)

Now that we've laid the groundwork, what's Weerasinghe's dilemma? 

"But if the challenges facing the firm are clear, how Shearman should deal with them has been a source of controversy -- even acrimony -- among its partners.

"To boost underperforming practices, many partners and ex-partners argue the firm needs to abandon its white-shoe pretensions. They feel the firm should aggressively recruit lateral rainmakers and put a greater emphasis on business development in both partner promotion and compensation.

"Though the firm does not have lockstep compensation, in which partners are paid strictly according to seniority, Shearman maintains a relatively narrow spread of partner compensation. So partners who originate a lot of business are not paid a great deal more than partners who bring in relatively little."

Protecting this stasis is "an old guard" with "a sense of superiority, a sense of manifest destiny," according to a former partner:  "They'll say stupid things like, 'We need to work harder.'"

Aaah, yes indeed, the good old [non-]strategy that if only we work harder—at something that's not working!

Weerasinghe understands he has a culture to change, and in a promising sign made a point of visiting Shearman & Sterling's far-flung offices, meeting partners and associates alike, and admits that some earlier problems were aggravated by decision-making that was perceived as insular and secretive, most notably a "purge" (Weerasinghe won't use the word) of unproductive partners in 2004.

As for the firm's two primary problem areas, the unprofitable Asian network and the weak private equity and litigation practices, Weerasinghe pledges to stay the course or even up the ante in Asia, and sees it as a region of significant opportunity.  On this, he is surely right.  Not every US or UK firm that's on the ground in Asia (or that wants to be) will get it right, and ten years from now I predict the roster of firms there will look quite different than it does today.  But those remaining will be generating outsized profits as the first genuinely new economic superpower in a century emerges—the last one being the US at the turn of the 20th Century.

The key question, then, is not Asia.  Win, lose, or draw in Asia, S&S and every serious-minded firm that aspires to call itself "global" simply has to take a prolonged and disciplined shot at getting Asia right.

Rather, the key question is the issue of attracting top-notch laterals, and adding more flexibility to the "modified lockstep" in place at S&S.

This is the issue on which Weerasinghe may stand or fall as a leader.

I've written about lockstep vs. eat-what-you-kill often before, as for example:

• lessons from Clifford Chance;
• Peter Cornell's (CC again) legacy;
• the "perennial disequilibrium;"
• the "optimal" system;
• how they work out (or don't) in a merger; and
• "what a difference a pond makes."

Weerasinghe surely knows that 2006 is not 1977, and the system of collegial entitlements has, to celebration and lamentation both, passed on to the great beyond.  If S&S is to regain its stature among its peers, I believe a concerted effort to recruit, and to pay for, laterals with practice areas that fit firmly within S&S's existing portfolio, will be its salvation.  Today's marketplace calls for no less.  (Indeed, just last month S&S lost a high-profile five-partner investment management practice to Willkie-Farr; one cannot unilaterally disarm on this battlefield.)

The question, of course, is "the old guard."  If I'm making $1.4-million/year and have spent my entire indentured 30-year (say) career here, and suddenly an arriviste down the hall is making $2.8-million/year, I am going to become truculent at best, and will incite serious rebellion at worst. 

But consider the alternative.

The alternative is not to continue receiving an indefinite annuity, arm-in-arm with your colleagues of long-standing, of $1.4-million/year.  If any firm knows that expectation and model no longer works, it is surely S&S.  Continuing to rely on it means your $1.4-million is going to slowly slide.

Rather, the alternative is to have the genuine and realistic hope and expectation that, in a revived and prosperous firm in the pink of health, you can  confidently continue to receive your  $1.4-million while others around you do—indeed—do better.

Being resentful of your more-successful colleagues is, after all, manifestly unproductive, bordering on the juvenile.  And the fault, or the virtue, is not theirs.

It's simply that the economics of the profession have changed since you started practicing.   Weerasinghe surely knows this.  It shall be an interesting show to revisit from time to time.

"The Magic Middle"

Every once in awhile, it pays to stand back and reflect for a moment on the "Adam Smith, Esq." community—yes, dear reader, that means you.

The more involved I've become with "Adam Smith, Esq.," and the more readers I've heard from and even met in the real world, the more I've come to think of it not as a "blog" but as a publication, with all of the responsibility for accuracy, even-handedness, and citation of original source material, that that entails.  As the managing partner of an AmLaw 25 firm said to me, "The difference between you and The American Lawyer is that you publish a couple of dozen times a month."  [And there's a nontrivial difference in the cost of a subscription, but I chose to be kind and avoid pointing that out.]

Have I, then (horrors!), become "Mainstream Media"?!

Wrong question, at least if you believe David Sifry, founder and CEO of Technorati, the first and in many ways still the best search engine dedicated to blogs.  In a thoughtful and, blessedly, data-rich post, Sifry points out that some famous blogs, including the ubiquitous Boing Boing, have professional journalists on staff.  Other sites which he classifies as "MSM," including Slashdot, let readers spontaneously create and populate their content. 

The point is that the line between the MSM and the blogosphere is blurring, particularly as we gain more experience with what I think of as "Blogs 2.0:"  Sites, like "Adam Smith, Esq.," that are professionally produced, directed at a focused target audience, and (so people tell me) offer content equivalent in quality and analytic rigor to anything to be found offline in more conventional media addressing the same topics.

That said, blogs are never going to supplant The New York Times or CNN, as this handy little graphic makes clear:

It's also overly simplistic to conclude, as the hypothesis of "The Long Tail" would have it, that you're either on the A-List, read by millions, or you're nowhere.   Going just a very short distance further down the popularity distribution curve shows blogs gaining a lot of real estate on the MSM:

Sifry calls sites that are neither on the A-list nor irrelevant The Magic Middle of the attention curve:

"This realm of publishing highlights some of the most interesting and influential bloggers and publishers that are often writing about topics that are topical or niche, like Chocolate and Zucchini on food, Wi-fi Net News on Wireless networking, TechCrunch on Internet Companies, Blogging Baby on parenting, Yarn Harlot on knitting, or Stereogum on music - these are blogs that are interesting, topical, and influential, and in some cases are radically changing the economics of trade publishing. [...] 

"And what is so interesting to me is how interesting, exciting, informative, and witty these blogs often are. "

So it's official:  You are a subscriber in good standing to "The Magic Middle."  And "Adam Smith, Esq." is a publication in every sense intended by that moniker.

It's 2015: Do You Know Where the AmLaw 25 Are?

What will the structure of the global legal marketplace look like in, say, 2015? 

Before you exclaim either, "Who on earth knows?" or "What a silly thing to speculate about!," permit me to draw your attention to the duel, or at least face-off, in the November 2005 and February 2006 issues of The American Lawyer between the UK legal consultants Partha Bose ("The Tragic Circle") and Tony Williams ("The Empire Strikes Back").  [I know Tony personally, but not Partha.]

The debate in a nutshell can be framed as Partha's belief that "Europe's lawyers and law firms are in the midst of a structural shift that will make many of their products and services obsolete," primarily because in any industry with structural overcapacity, those with inefficient structures and outdated approaches will be eliminated—as opposed to Tony's belief that, partly because "U.K. firms are light-years ahead of U.S. firms when it comes to institutionalizing their client base," they will be more than amply able to compete and emerge as winners, to wit, to be among "the top international law firms for major cross-border and domestic M&A, capital markets, and complex litigation worldwide."  Tony adds, with bravado, "Let the battle commence."

Partha first.

Partha's key argument is that the key European and Asian markets "where the British law firms have reigned are stagnating-and even contracting."  That stagnation results from:

• US firms' ability to cherry-pick the biggest and most lucrative European M&A work.
• The commoditization of new equity and debt issuance.
• The failure—which some would surely count a divine beneficence—of US-style litigation to catch on in Europe, thus depriving firms of an enormous cash cow enjoyed, as it were, by US practices.
• The virtual absence, Parmalat excepted, of headline-making European corporate meltdowns (again, a blessing when I'm wearing my economist's hat, but a deprivation of fat Chapter 11, corporate-governance, and even white collar crime fees when I'm wearing my legal analyst's hat).
• And clients' alleged preference for "U.S.-style legal structures and documentation."

The only escape from this dismal prospect, Partha allows, is for firms to remain, or morph into, one of five categories—which on inspection are actually only three, as the population of the other two turns out to be the null set.  

• "Simply the best:"  Sure, nice work if you can get it.  Think Slaughter & May, Cravath, Davis Polk.   But how, pray tell, if one is not already in this empyrean, does one ascend?
• "Focused firms," a/k/a boutiques.  For example, litigation only, or regional powerhouses, or deep industry specialists.  A perfectly defensible and even comfortable niche to defend, but not, shall we say, feasible for the AmLaw 25 or the UK 10.
• "Low cost providers."  See above.
  
  and our two null sets:
  
• "Distinctive firms:"  Of which he fails to cite a single living, breathing example, either US or UK-based.  Calling it "the holy grail of competitive success," it somewhat tautologically is described as "whatever they do, they do it in a fashion that very few can imitate."  What I'm about to say is a theory I'm toying with, and haven't reached any intellectual equilibrium yet as to whether I endorse it or not, but try this hypothesis on for size:  The almost insurmountable difficulty of establishing a solid reputation as a truly "distinctive" law firm reflects the intrinsic inability of clients to accurately and consistently assess the quality of legal services.  In other words, a firm that wants to lay a (credible, ownable) claim to being "distinctive" can only do so by appearing that way to clients, and, since clients have the devil of a time evaluating the quality of their lawyers' performances, the predicate can never be laid effectively or in a widespread fashion—widespread enough to become recognized as a true marketplace positioning, that is.  As I said for now, only a theory.   Your thoughts?  Managing partners?   General Counsels?  Chief Marketing Officers?  Anyone else who's thought about this?
  
  And lastly:
  
• "Rule breakers:"  Here he cites as examples eBay, Google, and FedEx, which created entire industries after their own business model.  In law firm land, the best he can do is Wachtell, for the poison pill.  I'd be more willing to buy it if (a)  the poison pill weren't approaching 30 years old, and (b) some other truly memorable legal innovation could be pointed to in the interim.

Partha sees two other threats to the competitive vigor of UK/European firms.   The first is "merely" economic, the second reputational.

On economics, US firms simply pay partners and associates far more richly than UK firms.  Add to that a critical factor that many Americans overlook—but which the Brits certainly do not!—which is that in the UK careers end at much earlier ages than here, depriving partners of a decade or more of "climax phase" income, compared to their US counterparts.

The reputational issue is at least as potent:  As Partha puts it:

"European firms haven't grasped one other reality. For many U.S. lawyers, joining a European firm generally does not enhance their street cred. In the United States, most of these firms have little, if any, brand value; don't get the most exciting (and complicated) work; don't attract the best talent; can't place their lawyers into high-profile roles at, say, the Securities and Exchange Commission or the U.S. Department of Justice; and aren't as profitable as many top U.S. firms."

Despite my taking exception to much of what he's written hitherto in the piece, here he's surely on to something.  This is an enormous barrier to entry of the UK/European firms into the US.

Whether his insight can bear the weight he proceeds to lay on to it I cannot say, lacking the under-the-hood view to have an opinion on the matter, but Partha proceeds to claim that UK/European firms manage essentially oblivious to their own reputations and intangible assets, and that they concentrate myopically on operating metrics such as capacity utilization.  

If this further assertion is correct, we will indeed witness a race to the bottom as firms promiscuously offer 20-30% discounts to qualify for a beauty contest, toss on another 10% to win selection to the panel, and a few more percent to get the bills finally paid—all the while uncomprehending about what clients want and what value they actually place on it. 

Bleak House, indeed.

Tony Williams takes what can only be described as a cheerier view.   While conceding much of the factual prologue to Partha's argument, Tony draws strikingly different conclusions about the armaments UK firms bring to the challenge of creating globally dominant firms.    (Tony concedes, for example, that the US home market is vastly larger than the UK market, and points out with nice empiricism that AmLaw firm #200 [Lathrop & Gage] would place 44th on The Lawyer UK 50; similarly, 50 AmLaw firms generated profits per partner of $1-million or more, but only 12 UK firms.)

Of far greater strategic importance for the future trajectories of US and UK firms, Tony points out, was a nearly across-the-board "strategic error" committed by US firms (and specifically New York firms) in the 1980's:   The 1986 "Big Bang" in London abolished restrictions and opened up the markets to international capital.  US investment banks piled into London in a big way; US law firms did not.

Meanwhile, UK firms were, perforce, looking abroad.  While some expanded overzealously in hindsight, opening in marginal locations, those lessons of enthusiasm or ignorance have been learned, and far more gimlet-eyed metrics are now applied to foreign operations.  Tony believes this has positioned them well for three reasons:

• UK firms have a strong presence where it matters—e.g., Hong Kong, Paris, Frankfurt, and essentially every  important global financial center with the conspicuous exception of New York.
• A "new breed of law firm management" is bringing more businesslike, profit-minded approaches to the large firms' operations.
• And the international expansion build-out has been "bought and paid for;" profits going forward will be income, not return of capital.

While Tony readily concedes UK firms have not penetrated New York in a meaningful way—the elephant in the living room to many, which he is happy to point to—he makes an intriguing, somewhat converse, assertion:  That for all the ostensible success of US firms opening in London, "probably 90%" are losing money, and that the landscape as a whole reflects nothing remotely like true financial success.

Indeed:  Tony asserts that US firms' forays into London have, over the past ten years, cost them "in excess of $1-billion"!   How could this massive amount have gone missing, as it were?  Primarily through firms' failing to recognize the "all-in" costs of being in London, by, e.g., neglecting to properly allocate firm-wide overhead expenses such as training and IT, taking rent-free periods up-front rather than amortizing them over the lease's life, and, perhaps most important, failing to acknowledge the opportunity costs of moving productive US partners to London where they have to start over scrambling for work.

Assuming Tony's even half right, why and how could the US firms' have lost their collective heads?  He nominates four candidates, and I concur:

• A shocking proportion of US firms have no idea what they're trying to accomplish in London and why they're there in the first place.
• The easy, and false, assumption is that US-based clients will naturally shower the US firm's London office with work—ignoring the long-standing relationships that client already has with eminently competent UK firms.
• The difficulty, and protracted nature, of getting value from a lateral hire in London, where clients are institutionalized property of a firm, not a lone ranger.
• And the predictable failure to truly connect the London outpost into the firm's network:  A silo in a distant land separated by too many timezones, where they drive on the wrong side of the road, don't use US$'s, and speak in dialect.

Finally, two fundamental structural aspects of the New York/London marketplaces are acting to inhibit an aggressive invasion by the Americans.  One is quite new and, while potent at the moment, does not constitute a long-term barrier to entry.  The other is deeply problematic.

The first is the increasing attractiveness of the London capital markets vis-a-vis New York.  London's market share of international equity offerings is increasing, and New York's declining, because of the increased regulatory burdens in the US (read:  Sarbanes-Oxley) and the all-too-real risk of litigation.  This development gives an advantage to the Magic Circle and other London incumbents, to the short-run exclusion of their US competition.  Of course, like all such developments, it can be overcome by tenacity and flexibility; but there's no question that in London for now at least, it's score one for the home team.

The second issue begs of an easy solution.  Simply put, the world-class New York firms have it too good.  New York is too rich, their practices too successful, the profits too astronomical.   Tony may exaggerate when he says that at the top end of the New York market, firms "can sit back and wait for clients in crisis to come to them," but he's not far wrong.

Or, consider this jaw-dropping anecdote: 

"I remember being told in 1998, by a very senior partner in a major New York firm, "Everything that is innovative in legal services originates in New York. To operate outside New York is dilutive of quality and profitability. We will not do it." Apart from saying, "Have a nice day," I had no immediate response."

And what, you are asking yourself, is wrong with this picture?

Complacency!

Perhaps worse than complacency is the undeniable whiff of arrogance, with its traveling partner Lost Opportunities.  Particularly when combined with the equation of "outside New York" with "dilutive of profitability," we are staring at a profound barrier to serious, sustained, and substantial investment abroad.

So back to 2015.  Where will we be? 

Tony—and I agree with him foursquare on this—assays a landscape that looks like this:

• Clifford Chance, having reformed its US and international operations, will focus intently on growing profitability and—with or without another US merger—will stand out as one of the handful of truly top-tier international firms.
• Slaughter and May, Wachtell, Cravath, and perhaps a few others, will continue to generate astonishing financial performance as boutiques.
• Allen & Overy, Freshfields, and Linklaters lack critical US depth, and a game-changing merger with a top-tier New York firm looks increasingly unlikely.  They have one of the tougher strategic hands to play.
• The very success of the creme of New York firms on their home turf will seriously inhibit their overseas expansion and, if the US continues to be compromised in its historic comparative global advantage in capital formation, they could be looking at some surprisingly unhappy choices.
• The AmLaw 25 will be transformed, with a handful of truly dominant 1,000-lawyer-plus firms emerging with profits per partner comfortably north of $1-million/year, and a powerful geographic footprint based on the three legs of New York, California, and Washington, DC.

As Tony says, let the games begin.   This ride could get even more exciting.

What P&G Teaches

One of the most interesting major corporate CEO's on my radar is A.G. Lafley of Procter & Gamble.  He, as the famous phrase has it, "think[s] different."

Exhibit A is a low-profile piece from The Wall Street Journal this past week headlined, "Rewarding Competitors Over Collaborators No Longer Makes Sense."   In its legendary heyday during the 1950's and 1960's, P&G's famous brand management system was second to none. 

MBA's from name-brand schools in grey flannel suits would take the fruits of P&G's world-class research labs (this is no joke—P&G products, from Crest to Tide to Pampers, were materially technologically superior to their rivals upon market introduction, and strove to maintain their functional-benefit leadership) and market them through the mass media of the day, such as soap operas.

The dark side of brand management, and brand managers, is that they traditionally were rotated out of their jobs every two to three years, their future position dependent upon their brand's performance under their brief stewardship, with the perverse consequence of encouraging efforts at short-term market-share boosts such as coupons and promotions. 

While these shenanigans might polish the manager's resume at the time, the standing joke was that such efforts "can rent market share, but they can't buy it."  Nevertheless, the P&G "brand manager as king" culture meant that the ambitious were judged on their track records vis-a-vis their peer group and not on long-term brand-building.  The internal logic was ineluctable, even if the larger message to P&G should have been "be careful what you wish for."

Come we now to this:

"Managers have been raised on the mantra that to advance they must outperform fellow managers. Those who wrest the most productivity from employees and get the best financial results are generally rewarded with raises and promotions.

" But that formula is out of date, and adhering to it can undermine corporate goals."

And the corporation being cited?  P&G.  Not only P&G but Cisco:  Collaboration is good for business, says Diane Adams, vice president, human resources, worldwide sales, "dramatically improving productivity and helping us to grow."

Or Boeing, whose bet-the-company project of this decade is the development and launch of the 787 "Dreamliner."  Rather than entrusting it to a C-suite executive teamed with, maybe, an engineer, as in the past, here's the new model:

"Mike Bair heads the development team of its new 787 aircraft model, which is due to come into service in 2008. The job involves working with thousands of Boeing employees and nearly 100 global suppliers.

"Mr. Bair says his experience as a Boeing salesman to American Airlines in the 1990s helped prepare him for his current job. Then, he had just two direct reports, so rather than order a staff to perform specific duties, "I had to convince people across the company to do things to satisfy the customer," he says.

"As head of the 787 team, he has scoured the globe for suppliers to do a variety of design and engineering work Boeing used to do itself. He found some of them in the U.S. and others in Europe, Japan and Korea."

And back to P&G:  What, exactly, are the benefits of this "collaboration?"  Not fuzzy-mushy caucus-to-consensus.  Not let-a-million-viewpoints-bloom.  No.  Rather, hard-headed debate and hammering things out, the refining of strategies, plans, approaches, and techniques on the hot forge of different ideas freely expressed.

Lafley pointedly insists on dissent, indeed makes it a formal requirement of decision-making:

"Before he makes a decision or sets a new strategy, "he always asks managers to give him two different approaches and present the pros and cons of each,...  And at meetings, A.G. says, 'Before you jump in and inject your own point of view, make sure you listen and truly understand the other's point of view.'"

We're not done with Lafley and P&G.

According to McKinsey,  he has orchestrated one of the most seminal changes in P&G history in his relatively brief five years there.  And not by calling for radical shakeups or restructurings, and not by sounding alarmist calls about  how revenue, profits, market share, this, that, or the other needed to be shocked out of their comfort zones and doubled, tripled, or exponentially whatever'ed.

For starters, Lafley agrees with Lou Gerstner (IBM) that strategic visions can be a distraction, and so has simply never offered one.  He also agrees with Larry Bossidy (Honeywell) that it's all about execution, but also knows that exhorting great execution is feckless.  Rather, one needs to put in place:

• a disciplined strategy
• a structure that supports that strategy
• systems enabling a large and distributed firm to work together
• a culture of "winning" and
• inspirational leadership.

Brilliant execution will then follow.

What did Lafley inherit five years ago?  Essentially, a by-the-numbers, incremental-gain culture:  Grow market share 1-4% this year, take out a weak competitor, grab their market, keep up the pressure, re-invest, extend a brand, grab more territory, lather, rinse, repeat.  The only problem with this is it can lead to a culture of "complacency," not "winning." 

Let's bring this home to law-firm land.  What would a Lafley look like for your firm?

First, focus.

For P&G, the "core businesses" are "one, two, three, four.  Fabric care, baby care, feminine care, and hair care.  And then you get questions, 'Well, I'm in home care.  Is that a core business?'  'No.'  'What does it have to do to become a core business?' 'It has to be a global leader in its industry.  It has to have the best structural economics in its industry.  It has to be able to grow consistently at a certain rate.'"

Second, you can't micromanage.

Lafley views his role as a coach, but coaching "doesn't mean coddling."  My favorite of all his techniques here is his "not-do list."  We all know people hate to make choices, and believe it's better to have a lot of options, but sometimes extraneous options that have been ruled off the table have a habit of reappearing.  So he maintains a "not-do list," and anyone caught doing it has his budget excised.

Third, and back to the beginning:  Stick to your core.

Lafley started with P&G values and said, "Here's what's not going to change.  This is out purpose:  To improve the everyday lives of people around the world with P&G brands and products that deliver better performance, quality, and value."

On the other hand, "here's the stuff that will change.  Any business that doesn't have a strategy is going to develop one; any business that has a strategy that's not wining in the marketplace is either going to change its strategy or its execution."

So what do we have?

A manager who:

• insists on dissent and debate—he calls it "collaboration"
• yields to no one on the tie between strategy and execution
• reinforces the firm's core values while extending its perimeter to embrace new products, new markets, and new partners.

And who, by the way, took a company whose stock had fallen nearly 50% in the last few months before he took the helm into one that is now at an all-time high.

 

The Blogosphere & The Mainstream Media, or What to Do If You're Misinterpreted

We pause for a time-out to consider a metaphysical question:  Is blogging journalism, and whether or not it is, to what standards of accuracy and precision should it be held?

Actually, I have no intention of trying to answer these questions as posed.  What I will offer is my bedrock belief that:

• Sites such as "Adam Smith, Esq." constitute a new breed of publication, with no possible or conceivable analogue in the off-line world (imagine The American Lawyer publishing a couple of dozen times a month, to a globally distributed audience, and reaching them in milliseconds).
• Professionally produced and serious-minded sites ("Adam Smith, Esq.," I would like to believe, qualifying for inclusion in this category) can create and sustain a community of like-minded people who share focused interests which, again, it would not be feasible to aggregate in the off-line world.
• Speaking for myself, I always intend to hold "Adam Smith, Esq." to the highest possible standards of factual accuracy, tonal fairness, and analytic rigor.  I fervently welcome, and will hasten to publish, any factual amendments or corrections of misimpressions unintentionally generated.  The "letters to the editor" box is open!

Why am I saying this now?

Because of an article by my good friend Thom Weidlich of Bloomberg News, now appearing in The International Herald Tribune, about Shearman & Sterling.  The headline, which accurately sums up the thrust of the article is:  "As partners leave, law firms tries to stop others from following suit," and in it I am quoted in this context: 

"Shearman & Sterling continues to play at the top table in terms of its M&A and finance practice," said Kenneth MacRitchie, the firm's London managing partner. "But its profitability is significantly divergent from other law firms playing at that top table. And that is something that is becoming more and more obvious and something that has to be dealt with."

"MacEwen said partnerships must pay more attention to profitability. He cited as a cautionary tale Coudert Brothers, a 152-year-old, New York-based partnership that dissolved last year. Coudert's average profit per partner was 99th among the 100 highest-grossing U.S. law firms, according to American Lawyer magazine.

"While MacEwen said Shearman & Sterling is nowhere near Coudert's predicament, its profit per partner is overshadowed by that of New York firms like Sullivan & Cromwell, Davis Polk & Wardwell and Debevoise & Plimpton, the rankings show."

Now, how one reads that is susceptible to (at least) two interpretations:  (1)  S&S, as MacRitchie recognizes, has a profitability problem "that has to be dealt with," and I allude to Coudert only to call the reader's attention to the worst-case, melt-down scenario.   (2) Despite the "nowhere near" phrase, I'm implying that S&S could face Coudert's sad fate.

For the record, as people in my suddenly-awkward position will say, interpretation #(2) was and is the furthest thing from my mind.   Not having seen the article before it was published (which is journalistic standard operating procedure, as it should be, and to which I take zero exception), all I can say now is that I wish I had emphasized more strongly in my conversation with Thom how fundamentally sound and stable S&S is, and how firm is my belief that they'll accelerate out of this dip and be the better for it.   But evidently I did not—perhaps I assumed it was so obvious it need not be stressed—so there the article lies.

Is there a moral to this?  I believe so:  The power of the blogosphere is, among other things, its flexibility and power to lithely respond. 

I plan to submit a truncated version of this to the editor of the IHT, but even if he chooses to publish it, it will be tomorrow at best, and with no assurance readers of Thom's original piece will see it.

A last word:  Thom, you did nothing wrong, and I continue to count you a crack reporter.  The default in clarity was entirely mine.

---

Update: 16 Feb 2006, 1:05 pm

Here is the verbatim text of a letter to the editor of the International Herald Tribune which I emailed last night:

15 February 2006

 

Re: “As partners leave,…” (IHT Business Section, 15 Feb 2006)

 

via email: letters@iht.com

To The Editor:

As the law firm consultant quoted in “As partners leave,…”, I am impelled to correct the article’s astonishing implication that I could analogize the financial speed bump Shearman & Sterling hit to the sad, protracted demise of Coudert Brothers. The circumstances and events that led to Coudert’s closing its doors were years, if not decades, in the making, whereas S&S just yesterday provided convincing evidence that it has already accelerated out of its soft patch, with year-over-year revenue up 7% and profits per partner up 20%. These are not numbers posted by sick ward firms.

In alluding to Coudert in my conversation with the reporter, I merely intended to point out that, in a business of elevator assets, both vicious and virtuous cycles are extremely real phenomena, and a firm on the ascendancy can go from strength to strength, as higher-value work boosts revenue and profitability, attracting the cream of both legal practitioners (supply) and clients (demand). The reverse equally obtains.

I fully accept the possibility that I assumed that to any modestly informed observer the fact that S&S/day and Coudert/night are so obviously worlds apart meant that it need not be stressed: But let me loudly stress it now.

 

Bruce MacEwen

New York

Do You Have a Chief Strategy Officer?

When you see—or when I see, at any rate—sustained outperformance by a firm over a five-year span, I cannot help but ask myself: "How did they do that?"

What follows has a dusting of speculation at the end, but I think it's a path worth walking down, with more than enough hard truth along the way to give us firm footing.

The firm I have in mind this morning is Reed Smith, which announced its total 2005 revenue was up 12% over 2004 to $563-million, revenue per lawyer up 10% to $609,000 from $553,000, and its profits per partner up 21% to $800,000 from $662,000. 

And the five-year record?:  Revenue per lawyer up 62% and profits per partner up 154%.   Aside from one senior recruiter at BCG Attorney Search who sounds as though she took the reporter's phone call unaware of the Reed Smith results, and who expostulated "That's very good, very, very good," the real story is reflected in this range of comments:

"We basically doubled in size over five years," [Managing Partner Greg] Jordan said. "I suspect we'll continue to grow at about that pace."

"[Philadelphia-based legal recruiter Michael] Coleman said it is difficult to think of a firm that has transformed itself as dramatically as Reed Smith has over the past few years. "If one looks at Reed Smith over the last five years and each year had very significant growth in its numbers, one can't help but be extremely impressed with the management and direction the firm has gone in converting itself from a regional shop to a national powerhouse with some global offices," Coleman said.

"Chuck Fanning, global practice leader for the partner placement group at Major Lindsey & Africa said Reed Smith is clearly one of the firms that is moving up in the ranks. "It's a national -- and becoming a global -- player that is, I think, on the rise," he said."

Reed Smith has grown geographically, most notably with its 2003 acquisition of California's Crosby Heafey, and its UK practice, launched in 2001 with the acquistion of Warner Cranston, is growing at a rate outpacing that of the firm as a whole.

For historical perspective, in 1999, just before Jordan took over, Reed Smith was #79 in the AmLaw 100, with total revenue of $126-million and profits per partner of $335,000; the 2005 numbers would put them at #27.

So what's going on?  Jordan uses one critical phrase more than once:  "It's just the result of following through our strategy," and, "while the firm has achieved a lot of its strategic plan,...I don't think we're anywhere near becoming a finished product."   What are the elements of that "strategy?":

• to expand geographically, domestically at first and now internationally (they just opened in Paris late last year);
• to move the mix of work towards more complex, high-end work (which also enables cross-marketing);
• to focus on areas such as financial services and life sciences; and
• to command rates higher than were typically available in their home town of Pittsburgh.

A consistent and sustained campaign of moves like this, in my experience, is not an accident.    How, then, does a firm create and follow through on such a strategic campaign?  In the case of Reed Smith, by appointing a "Director of Strategic Planning."   In other words, if you're serious about strategy, make someone responsible for it.

Now we move into slightly more speculative territory.  In the 2nd quarter of 2001, McKinsey published a study, "Lawyers Get Down to Business," subtitled "New pressures are hitting the legal industry.  Now is the time to think through your strategy."  (The report is now behind a pay-wall, but I have a hard copy; anyone interested in learning more, please contact me.)  

McKinsey's premise then?:

"The legal industry is losing its immunity to the macroeconomic forces that have propelled consolidation and stratification in other industries.  Of the world's largest law firms (measured by revenue), all but the most profitable are in some peril. [...] 

"The more far-seeing firms will build national, and in some instances, global practices of distinctive depth and breadth of expertise—practices that can support high profits per partner and significant growth.  These strengths will set in motion a virtuous cycle in which such firms cherry-pick top talent from other, less profitable competitors and invest in geographic expansion and technology.  New talent and investments will help the leading firms put even more distance between themselves and the stragglers, which will be swept into an almost irreversible downward spiral, thus losing talent and stature at an accelerating pace until they unravel, get acquired, or reconstitute themselves as 'commodity' players."

McKinsey also discussed the "bifurcation" between routine legal needs and high-value practice areas, and proceeded to create a four-quadrant "profitability map" of the Global 50 law firms, showing their positions in 1993 and 1999, with number of equity partners on the horizontal/X axis and profits per partner on the vertical/Y axis. 

Saying that "a firm's position on the profitability map provides insights into that firm's strategic choices," they posited the following groupings:

• Upper left "specialists," with few partners but high profits, focused on a few related, highly lucrative practices:  Wachtel, Slaughter & May
• Upper right "shapers," with high profits and a large number of partners, combining a distinctive strategy with top-flight execution:  Skadden
• Lower left "incumbents," with small partner bases and low profits, lacking both world-class skills and scale:  Hogan & Hartson
• Lower right "full-service integrators," with substantial geographic scope but not stratospheric profits:  Jones Day, Latham, Baker & McKenzie.

So what?  McKinsey identified a key "winning strategy" going forward as that of becoming a dominant "megafirm," with a broad but coherent set of practices and a compelling geographic presence, "skilled at negotiating and struturing deals and at integrating and governing a large, diverse, and highly dispersed group of attorneys."

My speculation is that McKinsey did not prepare this report on a lark:  That it was an offshoot of a paid engagement by an AmLaw 50 firm facing an identity crisis in 2000.  And my nominee is O'Melveny & Myers.  Tea leaves:

• In 1999, O'Melveny was #18 on the AmLaw 100, with total revenue of $372-million, but no clear path to growth or even sustainability.
• In 2004, they were #16, holding their own against incredibly strong incumbents; this was not an accident either.
• Finally, as Aric Press puts it,

  "O'Melveny jumped into the first quintile [in Value Per Partner] in fiscal 2001 and has stayed there, finishing this year at number 20. The change started with a power shift too, this one after a contested election for chair that was won by Washington partner Arthur "A.B." Culvahouse... As Culvahouse saw it, the firm was already working hard, but the work varied in price. Quickly and aggressively, Culvahouse recalls, the firm sought "to move to higher-value engagements at the top of the market."

Sounds like the McKinsey strategy, and what a coincidence of timing.

I leave you with these questions:

• What is your firm's strategy?  Time's up if it takes you more than 5 seconds to reply.
• What specifically are you doing to be clear, consistent, and firm in its implementation?  Do you have a Chief Strategy Officer? 
• If not, #1:  Then who's the champion of your so-called strategy?  And don't reply that it's the managing partner; they have too many other irons in the fire to do this full-time.
• If not, #2:  Name a high-end professional services firm outside the law that has no such person or no such function—and if you can come up with one, let me know because I want to short their stock.
• If yes:  Is your CSO on the management/executive committee?  Are they, in other words, for real?

Does Italy Recognize a Right of Privacy?

File this under "Truly Useful."

Charles Glasser, Jr., Media Counsel at Bloomberg News, has just published the "International Libel & Privacy Handbook," subtitled "A Global Reference for Journalists, Publishers, Webmasters, and Lawyers."  As the reach of print, broadcast, and of course online media becomes worldwide, ignorance about the libel and privacy laws of seemingly far-away jurisdictions is no longer a viable option.

Glasser has put together certainly the most up-to-date and comprehensive, if not the first and only, nation-by-nation summary of these laws, written by legal experts in Europe, Asia, and the Americas, and concluding with a section on "Issues of Global Interest," including a cross-reference chart, discussion of special issues for book publishers, enforcing foreign judgments, and fair use (guess what?—it "stops at the border").

As Floyd Abrams says (and if you don't know who he is, you don't need to worry about media law),

"At long last, we can now compare on a nation-by-nation basis how countries in the Americas, Asia, and Europe deal with libel and privacy issues and how that treatment differs from that of the United States.  This book offers a sophisticated and reader-friendly response to the core questions that any practitioner frequently must consider."

Not available on Amazon, you can buy it through Bloomberg Books.

 

Stepping Out

"Adam Smith, Esq." is branching out.

Through a happy confluence of inspiration and opportunity, Bruce and the "Adam Smith, Esq." brand are stepping out from behind your screen into the off-line world:

First, I am pleased to announce the kick-off of what I hope will be an on-going series of high-end workshops for senior law firm management.  Working with Rich Gary, former chair of Thelen-Reid, these will feature a small group of attendees delving into strategic business issues that managing partners and their colleagues are wrestling with.   We will hold these workshops in major cities in the US, and they will typically take place over two days, starting with a cocktail reception and dinner on a Wednesday evening and adjourning after lunch Friday.  The workshops will include:

• Three focused modules dealing with important challenges to executives at the top of large and sophisticated law firms, such as "consolidation and globalization," "competitive and business intelligence," "leading change," and "creating a credible, powerful, and distinctive 21st-Century firm."
• The format will include presenting novel and substantial content; engaging the attendees in round-table discussions; "what-if" scenarios and thought experiments, both in break-out groups and as a whole; and learning from and interacting with some of the legal profession's  most prominent thought leaders, who will attend as our guests.

We hope the combination of a small group (no more than 15 attendees) in intimate surroundings, together with challenging thinking and interaction with some of the thinkers at the cutting edge of our profession, will make these workshops distinctive.

For more information, see the link in the left sidebar to "Workshops," or click here.

Second, I am offering "Law Firm Finance 101," 1/2-day seminars that I will conduct at your firm's offices, targeted at small groups of associates (partners invited as well!).  These were partly prompted by the overwhelming reaction to an entry from last September, "Name the Missing Law School Course." 

“Law Firm Finance 101” will enable associates to:

• approach their careers with more awareness of what’s expected of them;
• make a connection between their daily work and the firm’s strategic goals;
• appreciate the firm’s business decisions;
• understand what drives the metrics by which they’ll be evaluated, and
• be more realistic about attorney-client and partner-associate relationships,

all with the goal of making them more valuable to the firm more rapidly.

For more information, see the link in the left sidebar to "Workshops," or click here.

Third, my business manager and I are establishing an on-line research panel and inviting our loyal readers to join.  To ensure objectivity of the research results the panel will generate, we have teamed up with a leading independent, third-party on-line research company, "Affluent-Dynamics."   Fundamentally, the goal of the panel is simple:  To give readers who join the opportunity to have a voice which will be heard and listened to by companies developing products and services you use. 

If you're interested in "having your opinions count" on a variety of business and marketing issues, or if you're merely curious, click on the Affluent Dynamics box.   Membership is free, absolutely confidential, and every time members complete a survey, they receive a minimum of 3,000 frequent flier miles. And by the way, membership is not limited to the U.S.; indeed, non-Americans are more than welcome (the only requirement is English fluency.)

I'll keep a separate link up to the Affluent-Dynamics panel for the next week.

Finally, "Adam Smith, Esq." is accepting advertisements and sponsorships from a select few high-end marketers with products or services presumably of interest to "Adam Smith, Esq." readers.  One example is the ad for Sivin-Tobin Associates, LLC, legal recruiters headquartered here in New York.

The purpose of this program is to help strengthen the long-term viability of "Adam Smith, Esq.," and, I hope, to enable me to invest in developing additional, original content through on-site reporting and research.

That said:  Our marketing and advertising partners will never have the remotest influence on what you read here—and any with the poor judgment to seek it will be summarily, and publicly, dismissed with all the opprobrium the blogosphere can muster.

Anyone interested in discussing the wide array of customized programs—encompassing both online and off-line elements—which my business partner has developed, or who has suggestions or questions, should email Janet Stanton.   Janet is a true pro at what she does, with over 25 years experience in advertising and marketing, working with such household names (and sophisticated marketers) as Procter & Gamble, Colgate-Palmolive, Nortel, Pfizer, Johnson + Johnson, and the US Department of Defense; she has worked at prominent NYC ad agencies including Bates Worldwide, Benton & Bowles, and Grey, as well as being President of a mid-sized agency outside Philadelphia.  If you talk to her, you'll be in good hands.

And editorial questions/suggestions/inquries should, as always, come to me.

I hope you appreciate the reasons behind my expanding what "Adam Smith, Esq." stands for and what it delivers, and I hope you share a small bit of my excitement at these new developments.

Can't I Trade Some of this Money for a Week Off?

Professor Bainbridge compares an article from The Economist showing a steady increase in Americans' leisure time over the past 40 years with a story from the Chicago Daily Law Bulletin reporting on how over-worked lawyers are:

"The survey showed that how much money a lawyer makes corresponds almost exactly with how much work reduces family time. In the open-ended responses, lawyers said over and over again that achieving a high level of success in the profession simply demands putting in long hours."

To be sure, the Economist shows that less-educated workers have made even greater strides in gaining additional leisure time than more-educated workers:

But this doesn't answer Bainbridge's question: 

"But if lawyers can (and do) make more money by working more, why isn't that equally true of other professions whose practitioners seem to be enjoying more leisure? And why hasn't the market made available options for lawyers who would be willing to take a cut in pay to work fewer hours?"

What's going on here?

My hypothesis is that it's the product of the nasty intersection of the billable hour with increased productivity elsewhere in the economy. This quote from The Economist piece makes this point obliquely:

"There has been a revolution in the household economy. Appliances, home delivery, the internet, 24-hour shopping, and more varied and affordable domestic services have increased flexibility and freed up people's time.

"So women are devoting more hours to paying jobs, but have cut their housework and other burdensome tasks by twice as much."

In other words, assuming that homes are just as clean, or just as dirty, as forty years ago, that the refrigerators and laundry hampers of America are equally full or empty, etc., the productivity of household-work has doubled.

Meanwhile, in the "for-pay" part of the economy, or what the good economists who produced the study call work, productivity of everyone from pharmacists to Wal-Mart clerks to FedEx drivers has shot up tremendously--up 36% since 1992, so we can easily assume it's doubled or even tripled since 1965.  Most workers have split the additional income created by their productivity gains between increases in take-home pay and increases in leisure time—which is simply another way of saying that the more you can earn per hour, the more choice you have between working as hard or harder for more money or working less for the same money.

But lawyers have (a) increased their hourly productivity far more slowly than the average across the economy; and (b) remain all but universally tied to the billable hour, which creates a tremendous correlation between recorded hours worked and income.  For example, apropos the recent round of associate salary pay hikes at large firms in New York and California, would anyone in their right mind hypothesize that these firms will not expect equal or greater annual billable totals for their largesse?

Add in the ever-increasing visibility of, and pressure to maximize, profits-per-partner, and I'm not surprised lawyers are working harder.  

From a micro-economic perspective, the only way a law firm can meaningfully increase its profits, on a sustainable basis, is to increase revenue.   The costs of a law firm—almost entirely salaries plus benefits, and office rent—are not, realistically, expense categories where serious savings can be achieved.

So to increase revenue, firms can raise their hourly rates (which they are doing, to be sure, but there are short-run limits to this strategy), or increase the number of hours billed.   If we lived in the land of Alternative Fee Structures, there would be other options, but we don't so there aren't.  (Even in Alternative Fee Land, I question how effective the other options would be:  There is as yet no way to materially increase the productivity of a lawyer by adding in capital, as firms from Intel and Dell to FedEx and Wal-Mart can do with their employees.)

Finally, there's what I characterize as the "plasticity" of what the actual day-to-day of providing legal services amounts to. By "plasticity," I mean that one can always do more:  Research more case-law, comb through the acquisition agreement one more time, review a witness's proposed testimony yet again, rework the opening paragraph of an appellate brief, etc. By contrast, most tasks confronting other workers are finite: Lunch is served, the house is framed out, the exam is graded, the prescription is written.

This means that not only does the profit imperative demand more billable hours, their supply is inexhaustible. 

And as to why we don't have Alternative Work/Life Balance Land, where lawyers could trade, say 20% of their income for 20% of the hours they work, we have, as Point of Law nicely puts it, a "collective action problem."

The Way-Back Machine

Back in February, 2005 I authored the following piece:

---

Who Will Be Your Successor?

Succession planning is part of the Management 101 toolkit that law firms ignore at their peril.  Too many firm leaders are reluctant to attend to it, either intentionally ("it will all work out") or simply through preferring not to take up a potentially contentious, personality-intensive issue so long as there seems no urgency to it.  Of course, once it's urgent it's too late.

These observations are not academic.  I had the happy experience of being an associate at the late, great firm of Shea & Gould here in New York when it was in its heyday, but after both Bill Shea and Milton Gould retired in their 70's, the firm ultimately dissolved for want of strong and uniting management—a death that could have been avoided.*  Thinking about succession planning is also timely:  We've recently learned that Testa-Hurwitz is no more, two years after the sudden death of marquee founder Dick Testa, and my recent piece about Jay Zimmerman's leadership at Bingham-McCutchen shows the flip-side:  That good, not just bad, things can happen when a new leader steps in. 

So bravo to Larry Sonsini of Wilson-Sonsini for handing the CEO keys to John Roos.  Roos, who's been at Wilson-Sonsini as a corporate attorney for 20 years, is currently the managing director of professional services and, in the small world department, a friend of mine from Stanford Law School days.  (Yes, I have already congratulated him, and he has graciously and self-effacingly replied.)   Aside from my own delight at John's well-deserved elevation, why do I hold this out as a model of succession planning?  Consider:

• Sonsini didn't have to do this now; he's only 64 and clearly in a position to remain on the throne for as long as he chooses.
• Wilson-Sonsini may be at something of a strategic inflection point.  While it is pre-eminent in technology and venture capital circles, and sizable by any standard (600 lawyers, #46 on the AmLaw 100), it's heavily Bay Area-centric:  Palo Alto and SF aside, none of its offices has more than 30 attorneys.  If they aspire to be a Latham & Watkins or an Orrick, a different approach is called for.
• Sonsini has not attempted to clone himself and appoint a mirror-image successor:  Instead, he has self-consciously moved to "institutionalize" (his word) management.  While Roos becomes CEO, Jeffrey Saper, now managing director of business development, will become vice chairman and focus on client development.

John sums up the change with pith:  "We are a major company that needs full-time management." 

GE has been written about in the management literature as a virtual finishing school for CEO's.  AmLaw 100 firms could do worse than taking a page from that playbook.

*Trivia fact: Bill Shea is the "Shea" in Shea Stadium. Huuuh? you ask. After the Dodgers decamped from Brooklyn to LA, New York was for some time without a National League baseball team. Eventually Major League Baseball got around to talking about giving an "expansion" National League team to another city--but not to New York! Bill Shea, who was unbelievably well-connected politically, started a movement to create a third, new baseball league, the Continental League, and planned, of course, to award this new league's first franchise to New York. The National League blinked, New York got the Mets, and Bill got his stadium.

---

Comes now F. Scott Shea, an associate at Bingham-McCutchen, to "amend and extend" my remarks:

"For what it is worth, the info in your "Who Will Be Your Successor - February 8, 2005" is a little factually incorrect and somewhat misleading.

"Both Milton Gould and Bill Shea worked into their respective 80's. Bill having a stroke in 1991 at 84 on his way home from work, and Milton, retiring shortly thereafter, with the dissolution coming in February of 1994. Secondly the Trivia footnote gives the appearance it was MLB's idea to expand and that Bill Shea's whole drive was self-centered, i.e., to have a stadium named after him. This is patently incorrect. The National League had no intention of expanding and fought tooth and nail not to expand. This is why Bill and Branch Rickey created the concept of a third league - the Continental League - and this is why it took 7 years to the National League to expand back to NY. Bill's initial concern centered on the fact that NYC, with such a diverse population, needs as many unifying elements as possible within its society to help mitigate social and racial tensions. An additional concern was that the best city in the country was without a NL team. With respect to the naming, Bill wanted it to be named after the Mayor, however, the New York Times did a write in poll with five or so names on it, and Bill's name was unanimously selected. In response to that, and the work he did for the city for over the 7 or more years that it took to get done, the Mayor named it is his honor. In this same vein, when asked if he would accept a 25% interest in the team as a gift from Joan Payson, the original owner, he responded something to the effect of "I can't accept a monetary reward for something which I deem a civic duty."

" Thanks - F. Scott Shea"

Scott:  Many thanks for the informative and useful update; you flesh out the story of the genesis of Shea Stadium and the Mets beautifully.  And I apologize for mis-stating when Bill and Milton retired. 

Oddly, however, I was entirely aware when I wrote the piece that the last thing the National League wanted to do was grant NY a new team franchise—and I thought I was writing the piece from that perspective. Just goes to show that it's easier than one thinks to be misinterpreted.

In any event, Scott, I'm the one who owes thanks to you. 

Best regards, Bruce

"That Dapper Fellow"

Truth on the Market is also featuring "that dapper fellow," Adam Smith, as their favicon. But they use a different iteration than I do:

Are Your Firm's Financial Reports Like the Federal Government's?

Here's a thought experiment:  If you believe the cover story in the current issue of Business Week, the torrent of numbers coming out of the federal government measuring, sizing, and describing nearly every facet of the US economy are in many ways obsolete.  What if the numbers coming out of your finance department to describe your firm's performance suffer from the same problem?

Here's the issue in a nutshell:

"The statistical wizards at the Bureau of Economic Analysis in Washington can whip up a spreadsheet showing how much the railroads spend on furniture ($39 million in 2004, to be exact). But they have no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training, or any of the other intangible investments required to compete in today's global economy. That means that the resources put into creating such world-beating innovations as the anticancer drug Avastin, inhaled insulin, Starbuck's, exchange-traded funds, and yes, even the iPod, don't show up in the official numbers."

The "statistic set" the federal government tracks and publishes was essentially created in the 1930's and '40's when—surprise—the economy's composition bore little resemblance to today's.  Buildings, machines, and inventory were counted as investments in the future, but training, education, and R&D were all viewed as current expenses. 

Business Week performs the useful calculation of comparing the growth in R&D spending and capital spending since 2000 of the 10 biggest US companies:  +$1-billion (2%) in capital spending, +$11-billion (42%) in R&D.  But 11/12ths of that investment doesn't appear in BEA statistics.

Now to your firm:  Ask your CFO where on the balance sheet the expenditures for the following items appear (and while you're at it, ask if they're current cash expenses on the income statement, dollar-for-dollar subtractions from profit, or if they're capitalized as investments with an expected non-negative return):

• knowledge management systems, and the care and feeding thereof;
• associate development and training;
• executive coaching for partners in business development or other skills;
• client relationship management systems, and their support;
• the cost of developing new or enhanced practice specialties.

You get the point.  Those things are all critical, indispensable ingredients if you care about the future health of your firm, and yet the accounting department will list them as pure cost or, at best, as billable-hours-foregone. Yet what factors are more "real" than those to assessing the level of your firm's commitment to next year and beyond?

In December, Intel announced it would be building a new wafer-fab plant in Israel.  To cost accountants, the value of that foreign investment will be its book value—the cost of erecting and fitting out the building.  But imagine on opening day the plant could be turned over to trained and experienced Intel workers, or to an equal number of Israeli's picked randomly off the street (OK, go with an equal number of works from AMD or Texas Instruments).  Which team would actually make the plant productive?

Indeed, every time Intel launches a new fab facility, it relies on a program it calls Copy Exactly! which requires the new fab to be an absolute duplicate of an existing one that works well, down to what color the ventilation ducts are painted and what wattage the lightbulbs are.  Moreover, the workers-to-be at the new fab are put through a minimum of six months immersive training in Oregon, to pick up "tribal knowledge" about how Intel operates.  Not captured in the financial statements.

So next time you pick up your firm's financials, imagine that it's the 21st Century, not the Great Depression.  And if you believe that "you can't manage what you can't measure," how would you measure, and manage, differently?

What Color Is Your Toilet Paper?

Over in the UK, they're one step closer to the inevitable:  Whole or partial public ownership of a law firm.  (An investment bank is talking with "some of the largest firms" about IPO-ing them.)  Regular readers know that I've been following the progress of the "Clementi Commission" reforms in the UK, the most notable of which is removing the prohibition on law firm ownership by non-lawyer-partners.   In other words, IPO's for law firms.

Now, I would be the first to tell you that being public is not necessary, desirable, or attractive for most law firms as we know them today.  Law—certainly among the AmLaw 200 or the UK 100—is not capital-intensive, and to the extent firms need a minimal level of working capital, it's far easier and cheaper to generate it through partners' contributions to capital or bank debt than to take on the enormous overhead of public-company audits and filings. 

Then, of course, there's the simple issue of confidentiality:

"Any firm floating is going to have to issue a prospectus saying: "Come and have a look at us." As one UK managing partner puts it: "You'd have outside people crawling all over you, checking what colour your toilet paper was.""

But the Clementi reforms will accelerate one trend, which I can only applaud:  The increasing professionalization of the managerial and business side of large firms. This will be a salubrious unintended consequence of the disclosures attendant upon being a publicly traded entity: The non-negotiable demand of the marketplace that your firm strive for best-of-breed in your category.

Bruce Profiled on JD Bliss

The JD Bliss site, which describes itself as "for attorneys seeking career satisfaction, work/life balance, and personal growth," just posted an interview with me. 

Fortunately, they decided to categorize me as a "success story" and a supposed inspiration rather than as a cautionary tale to be read to young children.before bed for their moral edification lest they stray. As they say, "you decide."

But At Least Sarbanes-Oxley Keeps the Securities Practice Humming

Unfortunately, I don't believe there's anything remotely amusing about Sarbanes-Oxley.  There is increasing evidence that SOX:

• has made small public companies an endangered species;
• is threatening the vitality of our dynamic public markets and driving the US more to the model of institutionally-driven markets prevalent elsewhere around the globe;
• is driving foreign companies with a choice of where to list themselves to the London exchange instead of the NYSE; and most importantly
• decreases investor returns on firms complying with SOX compar