For those of you still with me, your firm may have been through a transformational period, may be in the midst of one, or may be contemplating one.  Or maybe you're out on the far end of the curve where you envision yourselves to be in continuous transformation (if so, email me at once—we need to get acquainted).

We can't get into whether your firm really is or is not undergoing a "transformation," whether it's well- or ill-advised, or whether it will likely all come to joy or to tears.  But we can get into how your managing partner/firm chair/CEO can maximize the chances of success, especially if we get a little help from McKinsey.

While it's surely the case that the chair's role in managing change depends on their personal style, the capacities of the firm, and the urgency of the situation, some generalizations apply.  Key among them are:

• Make the mission of the transformation meaningful.  People—especially highly motivated, competitive, Type A people—will move mountains for causes they believe in.  Make the transformation personal.
• Behave and conduct yourself as though the transformation has already occurred; model the behavior you want others to emulate.  Go through your own personal transformation.  Don't think people won't pick up on it.
• Build (recruit, if need be) and sustain a strong and committed top team.  If your current team doesn't have the motivation to finish this journey, make some tough decisions.
• "Relentlessly pursue impact."  You must be hands-on, personally involved.  Don't shy from tough choices where real financial or symbolic value is on the line.

Adopt a personal approach

Make the transformation "yours;" get past the canned PowerPoints and talk about what it will mean to you (and by extension, to your audience), how we will all get there together, and why time is of the essence.   Moreover, recognize that, while you may have "internalized" the change, you are by definition in the vanguard.  To bring up the rear, you need to relentlessly communicate:

"Once the story is out, the CEO's role becomes one of constant reinforcement. As P&G CEO Alan G. Lafley says, “Excruciating repetition and clarity are important—employees have so many things going on in the operation of their daily business that they don't always take the time to stop, think, and internalize.” Paolo Scaroni, who has led three public companies through various chapters of change, likes to find three or four strategic concepts that sum up the right direction for the company and then to “repeat, repeat, and repeat them throughout the organization.”

Begin to spotlight successes.  People need to see wins, even if they're small, to be persuaded the new model can work and that you and executive management value and will reward the behavior that produces (even small) wins.

In other words, don't focus on issues that arouse fatigue, blame, and resistance; emphasize successes, creativity, and ardor for the pursuit.

Walk the talk

Pretend everything you say or do could be on YouTube 30 minutes from now.

OK, I made that up.

But do assume you're in the spotlight, and that the hypocrisy-detection shields of those watching you are set to "stun."  Somewhat more poetically, Mahatma Gandhi's advice is, in this if not in all areas, worth following:  "For things to change, first I must change."

One way to make this commitment visible and give it impact is to engage in a series of symbolic actions:  "Symbolic" not in the devalued sense of politicians' lackluster and tired bromides, but symbolic in the original and truer sense of the small standing in for, and representing, the large.   For example?

When the Texas energy utility TXU embarked on a new business initiative, the CEO C. John Wilder spontaneously gave a large bonus to a woman who'd taken it upon herself to be a leader for the new initiative.    Was this hypocritical?  Not as he sees it:

"This leader's contributions generated real economic value to the bottom line," he explains. "Of course, news of that raced through the whole organization, but it helped employees understand that rewards will be based on contributions and that 'pay for performance' could actually be put into practice."

Building the Top Team

This may seem obvious, but the devil is in the details.  McKinsey suggests, and I endorse, the following disciplines for determining whether you have the right top team:  Build a 2 x 2 matrix with "business performance" on one axis and "adopting the desired behavior" on the other.  This produces four quadrants:

• high performance/desired behavior:  Stars
• low performance/bad behavior:  Motivate them, develop them, or lose them
• low performance/desired behavior:  The problem set; probably worth retaining and trying to develop later, once the storm has passed.  But lastly and most challenging and intriguing:
• high performance/bad behavior:  These are your "800-lb. gorillas," and they represent your strongest possible opportunity for Sending a Message.  Get rid of them and watch people take notice.

Now that you (presumably) have the right team in place, what do you do with them?  First off, understand that getting highly intelligent, ambitious, and autonomous souls to head off in a new direction together takes time.  The key is regular meetings, reinforcing through "80% dialogue and 20% presentation" (P&G's Lafley), conducted in-person (no conference calls, please) and with no allowance for minutiae or distractions.

"Relentlessly Pursue Impact"

This means rolling up your sleeves and personally getting involved to promote maximum impact.  Among other things, this means:

• Being open to discussion of problems; better yet, leading them
• Identify the root causes of shortfalls in the plan, and lead the charge to remedy them
• Get in the trenches when you need to, and even opportunistically when you don't.

Finally, hold practice group leaders, office managing partners, and other senior executives accountable for performance.  As they say, "if not them, who; and if not now, when?"

I reproduce McKinsey's executive summary because I cannot improve upon it:

"For CEOs leading a transformation, no single model guarantees success. But they can improve the odds by targeting leadership functions: making the transformation meaningful, modeling the desired mind-sets and behavior, building a strong and committed team, and relentlessly pursuing impact."

Are you ready?  Are you in the midst?

I take one paramount learning away from this:  If you're in it, you're in it for keeps.  Hypocrisy will be outed; half-heartedness will be outed; timidity will be outed.  Famously, successful people sometimes quail from new challenges because they fear failure, whereas less accomplished folks will happily charge the new ramparts.

Don't be a "success" statistic.  Charge.

The relentless onslaught of business and management books often feels (to me, at least) like standing at the bottom of the sluiceways of the Grand Coulee Dam.  Fortunately, all but a tiny slice of the dead-tree armada is utterly inconsequential.  Of the remaining few books that penetrate consciousness for a week, a season, or a year, my secret suspicion has always been that far more are bought than are read.

A still slimmer slice are those select few that become household (or perhaps "office-hold") words:  In Search of Excellence, The Innovator's Dilemma, Good to Great, The Effective Executive, et al.

But even more unusual in my experience is the seriously-pedigreed book that questions the very foundations of the genre:  The business book, in other words, that's a meta-entry in the category.  In case you haven't guessed, I'm nominating The Halo Effect, by Phil Rosenzweig, a professor of strategy and management at the International Institute for Management Development in Lausanne.  He's a Wharton Ph.D, UCLA MBA, and former Harvard Business School Professor.  (I did say "seriously pedigreed," didn't I?)

New reviews of Halo, published this month, are coming out virtually daily, so I can't and won't attempt an exhaustive literature search here; besides, that's not what "Adam Smith, Esq." is all about.  I do want to focus on a piece Rosenzweig wrote himself in The McKinsey Quarterly, which, alas, is not yet available online (I subscribe to the print version, which arrived last night), but in the meantime the most capable review I can point your browser towards is courtesy of the stalwart FT. 

Rosenzweig begins with the inarguable observation that "The quest of every high-quality corporate executive is to find the keys to superior performance."  In this quest, they "too often" put their faith in books and articles that "have claimed to reveal the blueprint for lasting success, the way to go from good to great, or how to craft a fail-safe strategy or to make the competition irrelevant."

If you're starting to feel queasy at the claims of these books, in my opinion ever-so-fairly characterized by Rosenzweig, get on line.

His indictment of the accumulated managerial literature can succinctly be stated, in my view, as falling prey to mistaking correlation for causation.  Specifically, many management books that focus on excellence, strategic success, enduring and powerful cultures, and so forth, start out by looking for companies that have succeeded and then trying to tease out and analyze what they have in common.  Rosenzweig's point is that, when the business writer begins the search for superior traits in firms by examining those who are (we now know, in our wisdom) successful, that the writers have by hypothesis excluded from the dataset firms that underperformed or even failed.

Yes, of course, you may be nodding, but the issue is this:  What if some or many of the sub-par performers shared  the traits the author proceeds to identify as indicia of success?  We would never know, because the authors never asked.

The "halo effect" itself is a phenomenon first identified in the 1920's by Edward Thorndike, a US psychologist, and is "the tendency to make specific inferences on the basis of a general impression."  This may at first blush seem abstract, but Rosenzweig fleshes it out thus: A firm that is conspicuously successful (say, Cisco during the late 1990's) is typically praised for "its brilliant strategy, masterful management of acquisitions,a nd superb customer focus."  Then, when the dot-com's collapsed, observers were "quick to make the opposite attributions:  [That] Cisco now had a flawed strategy, haphazard acquisition management, and poor customer relations."

Rosenzweig's insight follows immediately:  "On closer examination, Cisco really had not changed much—a decline in its performance led people to see the company differently."   After all, those various attributes ("strategy," "customer focus," indeed "management" itself) are profoundly subjective, or, as he puts it, "ambiguous and difficult to define."

Elsewhere, I have made the observation that the problem with statements to the effect that your firm is pursuing maximum (or higher, or optimal, or whatever) "profitability" is that as a manager there's no dial on your financial dashboard that tunes profitability up or down. It's the residual, if you will, of everything else you do, from professional development and cultural hygiene to the needs and preferences of your clients and the exertions of your competitors.

The dashboard/race car analogy may actually be useful. How? What a race car driver would really like would be a dial on his dashboard for "faster lap times." Of course there's no such thing, and we all must work with the pedals and wheels that we can control:

• The innate performance capabilities of your tools: The engine, suspension, brakes, tires, steering, etc. (think your IT infrastructure, your KM system, your office layout, your support and administrative staff).
• The external environment including the track design and condition (think the regulatory and public-opinion environment, and if you doubt it matters, I have three words for you: Stock options backdating).
• The abilities of your team-mates and pit crew (your colleagues, partners and associates and paralegals, and your line staff).
• What the other drivers and teams are doing (your competitors: If you subscribe in principle to the observation that "no battle plan survives its first encounter with reality," ask yourself if you are truly mindful of how your competitors might preditably react to your firm's new initiative X). And
• The driver's own level of experience, reflexes, risk tolerance, peripheral vision, etc. (your expertise as both a legal practitioner and as a trusted advisor to your client).

But back to Rosenzweig. He proceeds to deconstruct the promises of the books, in particular the promises of absolute performance and of enduring success, as having especially pernicious consequences for executives who rely on their false hopes.

As for absolute performance, it's largely irrelevant. All that matters is relative performance.  Need an example?  Try GM. Its US auto market share has gone from 35% in 1990 to 29% in 1999 and 25% in 2005. That's the relative measure—the only one that matters.  In absolute terms?  Without question, GM cars in 2005, compared to those it put out in 1990, were of far higher quality, safer, with more features, performance, and comfort.  Yet the comparison that mattered was not to itself in 1990, it was to the Japanese, German, and South Korean competition, where GM was (sadly, but richly deservedly, in my view) was getting hosed.

And as for enduring success? 

In today's globally competitive environment, there is no such thing as incumbency.  There's both a statistical and an empirical dimension to this observation. 

The statistical reality is simply that in any given population of X (human beings, fruit flies, wonders of the world, companies), there will be some remarkably long-lived examples.  The problem is that they are only identifiable after the fact.

The empirical reality is that long-term successful firms haven't magically "unlocked the secrets of sustained greatness:"  Instead, they've strung together a long string of many short-term successes.  Rosenzweig doesn't mention this example in the McKinsey piece, but I would nominate GE as a long-term-successful firm that has achieved that privileged position only by continually re-inventing itself at a pace that would shame Madonna.

Managers cannot rely on principles of this or principles of that, seven habits programs (or 12-step programs), 2 x 2 matrices, or other guru wisdom @ $29.95.  Instead, we must realize that the world is uncertain and indeterminate:  We are affected more than we'd like to admit by:

• technological change,
• capricious customer preferences, and
• unknowable internal capabilities within our own firms.

This means we must learn to "see the world through probabilities," as summarized in this observation from ex-Goldman Sachs, ex-US Treasury Secretary Robert Rubin:

"Once you've internalized the concept that you can't prove anything in absolute terms, life becomes all the more about odds, chances, and trade-offs.  In a world without provable truths, the only way to refine the probabilities that remain is through greater knowledge and understanding."

So is Rosenzweig's thesis a counsel of despair?  Can we, indeed, know nothing meaningful about successful management strategies?

I view it, as does Rosenzweig, as a counsel of inspiration.

In this unknowable world, what attitude and what approach grace us with the best odds of success?  Only one:  Critical thinking. 

This means rigorous and unblinking analysis of reality as it is, not as you want it to be; a welcoming attitude towards mistakes as learning opportunities and a skeptical attitude towards successes as profoundly time-and-place specific; and a severe allergy to formulae, knee-jerk reactions, and wilful ignorance of the new, the foreign, and the "other."

As Rosenzweig puts it, "If a set of steps that could guarantee success did exist, and if greatness were indeed simply a matter of will, then the value of clear thinking in business would be lower, not greater."

Would you want it otherwise?

This morning I delivered the keynote at the Ark Group's two-day conference starting here in New York, "Best Practices & Management Strategies for Legal Library & Information Service Centers."

My keynote was titled "The Law Library of the Future," and I want to share some it with you. But before I do: Many thanks to the organizers of the conference, as well as to the many attendees I had the opportunity to speak with (some of whom I knew and some of whom were new). Here's how the conference materials summarized my presentation:

9:15AM KEYNOTE: The Library of the Future
 
As information resources are increasingly delivered in digital format and online, and as new generations of lawyers show increasing preference for, and adeptness at, employing powerful search technologies to engage in “self-service” research, the role of the law library in the 21st Century is seen by many as threatened.  Indeed, comparing the physical footprint of a library designed ten years ago to one planned for tomorrow will show drastic down-sizing and profound functional changes.  In light of these trends, many are questioning whether the library can maintain its central role in the life of a firm.

However, what law firms sell is knowledge; and libraries, above all, are purveyors of knowledge.  Therefore, the library of the future will move from a tactical to a strategic resource, from a static repository to dynamic, on-demand portal, from one-way delivery of assets to vibrant communities of practice, and from a “one size fits all” commodity to a focused, adaptive resource tailored to the precise needs of your firm today.

Libraries are environments for learning, and human beings learn through conversations within their social networks.  This means that the mission of the library of the future is to sustain and foster these social communities.   The implications of this are that libraries move to the forefront of a firm’s knowledge management initiatives, that to provide the on-demand, highly targeted answers lawyers are relentlessly seeking, effective libraries will adopt Web 2.0 techniques, and that libraries will become increasingly central to differentiating a firm from its competitive set, and providing strategic advantage in the marketplace.

Bruce MacEwen
AdamSmith, Esq.

Let me flesh out what I talked about.

I opened by telling the (true) story of walking through an AmLaw 25's library with a junior and a senior partner, examining the space given to the library

Junior Partner (adamantly): "We need to get rid of all of this."   Senior Partner (wistfully): "Well, maybe not all of it...."

The fact remains that:

• The books are going away (nearly two-thirds of firms surveyed by The American Lawyer last year had cancelled West reporter subscriptions).  And
• The space is going away.  New offices designed today never feature the "monumental" library behind plate glass off the reception area.  In fact, one of the leading commercial real estate brokers in the country (in terms of law firm clientele) told me just last week that space planners' biggest worry about the library area is not that it will be too small but that it will be too big.  To hedge their bets,  new library areas are planned in advance to be flexible enough to be able to serve other functions, such as litigation "war rooms."

In general, the model for the new library is not the reading room at the Library of Congress or the British Museum, but:  Starbucks.  In other words, not the sacrosanct temple, but the drop-in, get away from the phone, casual environment ideal for reading in solitude or meeting informally to sling ideas around.

In pursuing this type of model, librarians need to understand that they are dealing with four generations of lawyers in terms of attitudes towards media, technology, and research.   This is roughly how I characterized it:

Reflecting on this topic spurred me to look up one of my favorite quotes on attitudes toward technology, which comes from Douglas Adams' Hitchhikers' Guide to the Galaxy:

• "Anything that is in the world when you were born is normal and ordinary and is just a natural way the world works.
• "Anything that is invented between the time when you are 15 to 35 is new, revolutionary, and exciting, and you can possibly get a career in it.
• "Anything invented after you are 35 is against the natural order of things."

Still, it remains the case that while the books may have gone away, the demand for knowledge has not—if anything, the demand is more voracious than ever.    This is actually good news for librarians, if they can transform their role from passive custodians of information to active champions of knowledge resources.  I portray it as follows:

Ultimately, I believe the law library of the future is Knowledge Management.  If I'm right, this is terrific news for librarians who can adapt themselves to this role and ensure that the conversation with the executive committee about resource allocation is cast in terms of scholarship, professional development, client and business intelligence, and competitive advantage through astutely marshalling the firm's intellectual assets:  And not in terms of overhead, square footage, the price of subscriptions, headcount, and non-fee-earners. 

If so, the library of the future will evolve:

• from a tactical to a strategic resource
• from static repository to dynamic, on-demand portal
• from one-way delivery of assets to home for communities of practice, and
• from a "one size fits all" commodity to an adaptive resource tailored to the needs of your firm today.

Such was my message, in any event, for those willing to re-imagine the the library's fundamental purpose, its clientele, the services it offers, and the firm's level of satisfaction with those services.

Update: 22 Feb.: Stephen Rosenberg of The McCormack Firm, LLC (Boston) wrote me with the following thoughts which he has given me permission to publish:

"Adam [he knows my name is actually Bruce], have long enjoyed your posts (long being a relative term in light of when the age of blogging dawned), but today's post was the first to provoke me to comment. Yesterday I posted an essay on the death of the law review, arguing that new sources of information - and the preference of younger lawyers to use them over traditional library sources - were replacing them in terms of relevance and usefulness. The post is at: http://www.bostonerisalaw.com/archives/people-are-talking--law-reviews-are-dead-they-just-dont-know-it-yet.html.

"Your post today seems to make the same point, only on more of a macro level: that technology is and will completely transform the entire legal research model, eliminating the old fashioned library in its entirety, and not just, as per my post yesterday, law reviews (at least if they do not change their DNA in a manner that allows them to join the on-line interactive world)."

I agree with Stephen entirely. Indeed, I would submit that if your firm has not yet "re-engineered" your library, your peers who have are in a position to steal a march.

I quote Guy Beringer, a partner in Allen & Overy's London office, from a speech he gave last May.  

Our topic for today, then, is whether professionalism and a business-like approach are incompatible.   (There has also been a meme percolating along these lines on the WSJ's law blog, but that has exerted precisely zero impact on my thinking, and for that matter on the timing of this piece, which I've been reflecting on for, well, for just about forever.)

For starters, as we are wont to do, it helps to define our terms.  There is a distinction between "partnership" and "professionalism," more capably summarized by Dr. Laura Empson, Director of the Clifford Chance Centre for the Management of Professional Service Firms at the Said Business School, Oxford University:           

"For the past few years I have studied partnerships and corporations in a variety of professional sectors, seeking to understand the distinctive characteristics of partnership, why it is so well suited to the management of professionals, what exactly is threatening its survival and how it should adapt in today's changing world. My research has revealed that it is fundamentally important to distinguish between partnership as a legal form and partnership as a state of mind. Essentially, partnership is an ethos — a shared set of beliefs and behaviours that define a community — and [corporate model] managers can do a great deal to ensure that it survives and thrives."

I wish to focus not on the trivial formalities of the organizational form (partnership or LLC or otherwise) but on what Laura nicely calls the "partnership ethos."  That is what the people Guy Beringer is talking about view as antithetical to a business-like approach.

So far here on "Adam Smith, Esq.," I have elided the distinction between the "profession" and the "industry," adopting the working convention or rule of thumb that I say "profession" in the context of partnership structures, leadership, strategy, and so forth, and that I favor "industry" when I'm talking about globalization, consolidation, IT, and finance.  In truth, I believe our beloved world is both, and Harvard Law School seems to agree, having launched three years ago their program "to examine the 'industry' [their quotes] of law practice."

Guy Beringer takes a straightforward approach to the putative conflict, positing these "cornerstones of the legal profession:"

• Independence
• Integrity
• Access to justice
• The rule of law

and asking whether "sustainable profitability" conflicts with any of these.  Indeed, he turns the challenge that a focus on profitability undercuts professionalism precisely on its head and offers "a better proposition, [to wit that] the greatest threat to professionalism is the absence of sustainable profitability."

Simply put, would you lay higher odds on a financially robust and thriving firm, or on a hand-to-mouth subsistence firm, putting those values into practice come hell or high water (in other words, the only times it counts)?   I rest Guy's point.

But he also extends the connection between solid profitability and meeting and surpassing ethical obligations to how  a firm generates profits.  Let's take as a given that higher-quality work commands higher margins, erego higher profits.  Now step back and ask precisely how "higher quality" work is generated.   Guy (and I agree with him) attributes them to:

• Training
• Mentoring and development
• Efficient and effective knowledge management, and
• Values which need to be articulated and followed.

Now, it strikes me that all of these are "luxury [or 'superior'] goods," in the lexicon of economics, meaning they are goods (like second homes, foreign travel, Chateau Mouton-Rothschild, and luxury cars) which you consume disproportionately more of the wealthier you are.  ("Inferior" goods are things you consume more of the poorer you are, such as rice and beans, rental housing [New  York City excepted], Wal-Mart brand clothing, and public transit [New York City excepted].)

In other words, the more financially sound and prosperous your firm, the more capable you are of providing the bedrock ingredients for "quality."  It's starting to sound like a marriage, not a divorce, for "professionalism" and "business."

Dr. Empson provides a more nuanced view of the intersection of the "partnership ethos" with other tugging and conflicting considerations.  For example:

• While partnership can form cohesive bonds, it can also work to exclude those outside the blessed fold, such as non-equity partners and extremely high-quality C-level executives.
• Are partners who view themselves as owners entitled to exercise "extreme and inappropriate behaviors"?
• Do clients and potential recruits (your firm's two key aspirational constituencies) understand and value the partnership ethos?
• If the "socialization process" that indoctrinates one for membership in the partnership is too effective, it can "represent a potentially serious block to change more generally...[the] partnership risks becoming a self-perpetuating collection of clones."
• Finally, the partnership ethos can be strengthened  not just by preferentially selecting those candidates who embody it but by dealing decisively with those who belong to the partnership but who, for whatever reason, no longer embody its principles.

This is where I come out:  The value of the "partnership ethos" is of paramount value to our profession.  On this we cannot compromise.  Period, full stop.

But in the 21st Century, the only sustainable way to support that ethos is by thorough-going, consummately professional senior executive management with a primary focus on financial performance, and empowered to operate, humanely, to get and to keep the firm on that robust platform.

Or, as my friend Tony Williams, former managing partner of Clifford Chance and of the late Andersen Legal, put it when I asked what he thought of the view that professionalism and a business-like approach to management were incompatible, "Arrant Nonsense!  Arrant Nonsense!"

Last month I had a chance to sit down with Pete Kalis, Chairman and Global Managing Partner of K&L Gates, for nearly two hours—and don't think for a moment that we even scratched the surface of all we wanted to discuss. The pretext for our meeting was the January 1st formal closing of the merger of K&LNG with Preston Gates & Ellis, but our conversation ranged far beyond that.

If you don't know Pete, he comes from the same West Virginia roots as Ralph Baxter of Orrick and Greg Jordan of Reed Smith; there must be something in the water. After getting his BA at West Virginia University, he was a Rhodes Scholar at Oxford, and he pursued that laid-back and unambitious course with a JD at Yale Law, where he was Editor-in-Chief of the Yale Law Journal. Continuing on the same elevated plane, he clerked for the late J. Skelly Wright of the US Court of Appeals for the District of Columbia, followed by clerking for the late Associate Justice Byron White on the Supreme Court.

What did we talk about? Globalization and consolidation, the war for talent, the difficulty of cracking the New York market, and the challenges of managing a global law firm in the 21st Century. For starters.

That said, Pete is as self-deprecating and engaging as they come—until he off-handedly drops a perfectly chiseled insight into the topic at hand with such casualness that you need a moment to comprehend the distilled truth that's just been revealed.

Suffice to say, the meeting was far too rewarding not to write up: So you, Dear Reader, get to be the ex post fly on the wall and read all about it.

Lest you doubt whether it's interesting, early on in our conversation Pete floated this thought experiment:

Q:   How will we know when law firms have truly evolved to the corporate model? 
A:  When they look outside their own four walls for a firm chair.

But as they say, just go read the whole thing.

I also took a quick sanity-check tour of the Web and confirmed that such professionally-done sites as The New York Times, The Wall Street Journal, The Financial Times, The Economist, et al., follow what seems to be an emerging or emerged Web convention of "wide-right."

So there you have it.

But another one of my standing resolutions in life is that you'll never know unless you try it, and that what you learn from a "failed" experiment can be at least as valuable as what you learn from successes. After all, without failed experiments we never would have had penicillin or Lucite, and we'd still be relying on the "ether" as the universal medium that transmits light.

So: Merciful readers, if the look of "Adam Smith, Esq." is suddenly illegible or nonsensical to you, please let me know at once and we'll re-admit the patient for a follow-up elective procedure.

Meanwhile, our fingers are crossed and our coders are standing by.

The first reader to email me correctly identifying the firm wins—well, wins fame and glory, at least here in the annals of "Adam Smith, Esq."

Honor system only, people. 

Those wishing to email me a guess, stop reading right now.

The rest of you, plough ahead.

Cadwalader.

Founded in 1792 and reputedly the oldest firm in North America, it has gone through changes making it unrecognizable under the reign of Robert Link, who became chairman in 1994 (the quotes are drawn from this utterly splendid article in The New York Law Journal).

Link recalls that when he took charge, "We [had fallen] asleep," he said, describing a firm that was still focused on fading areas like maritime law and trusts and estates.   He wasted no time.

I've written here before about corporate America's "right-sizing" initiatives, but Cadwalader under Link took that medicine seriously, indeed launching "Project Rightsize" itself, to cut underproductive practices and partners and abruptly jettisoning the 15-lawyer Palm Beach office.  The last move sparked a lawsuit by an axed partner, leading to this memorable quote:

"Such activity cannot be said to be honorable," Palm Beach County Circuit Judge Jack Cook wrote in his 1996 decision [awarding $2.4-million to the ex-partner]. "While life in the marketplace may well be made up of fear, greed and money ... life in a partnership is not so composed."

That was then, as they say, and this is now.  And according to reports, "the spirit of Project Rightsize still animates Cadwalader today."

Care to dimensionalize that?  Sure:

• "We're not going to be happy with a strong ego bringing in $1 million a year," says Link.  And
• Each equity partner should be responsible for "at least $5-million.

The discipline extends to the firm's footprint itself:  It only wants to be where there's a critical mass of financial institutions offering premium work.  Thus, no overseas expansion except for London and a beachhead in China. Domestically, its only non-New York offices are Washington, D.C., and Charlotte, N.C. (a new banking center).  "All other offices are dilutive," said Link.

So that is that.

Does Link still think they're on the right track?  I suppose, if you have to ask, it's rhetorical only; cats with his stripes don't, in the experience of you and me and all of us, change.

But let's give him the last word.

"I think we'll always have more flak and turbulence about our reputation," he said.

But he takes credit for being an "early adopter" of some of the changes now famously roiling the landscape.  "If you look at the last 10 years, you probably have more change in the legal industry than at any other time," he said.  Nor is he about to back off:   Confident as he is about the firm's positioning and prospects, he can't forget the complacency he saw a decade ago:  "Everyone should wake up in the morning and feel a little vulnerable," he said.

Finally, this being "Adam Smith, Esq.," and not the Cadwalader website, or, for that matter, The New Y ork Law Journal, the last word is actually reserved to yours truly.

Do I endorse the Cadwalader model, or do I condemn it?

This may disappoint the Manicheans in the crowd, but the short answer is neither.  I endorse it for those so inclined ("sharks," if you will, a species, we should recall, that has demonstrated tremendous evolutionary success and longevity), and I also will tell you in a heartbeat that it's not for everyone. 

One of my core beliefs about law firms is that they have to be "one-firm firms" to survive and thrive in today's hyper-differentiated and competitive marketplace.  No room at Cadwalader for dolphins?  Fine; there shouldn't be.  And no room for sharks at other firms?  Equally strongly, there shouldn't be. 

The NYLJ article is titled, "Does the Future Belong to Cadwalader?"  My answer is:  Cadwalader has distinctly earned its right to a conspicuous place in the future.  But it will share that stage with many other varieties of firms, with dispositions, temperaments, and internal ecosystems of their own.  Come to think of it, all of these firms will be evolving and metamorphosing over time.   The constellations are not fixed in the sky.

Just ask Robert Link.

Update: 11:45 am 9 Feb:

We have a winner! The first email in over the transom correctly guessing the identity of "Firm X" arrived less than half an hour after the piece went up. (The second one, also correct, landed four minutes later.)

Here's our winner, in his own words. Please consider yourself showered with fame and glory, Justin:

"Justin R. White is a 2005 graduate of Rutgers Law School and currently practices law in the idyllic Southern New Jersey region with the law firm of Basile & Testa.  Mr. White is unsure how or when he first stubled upon AdamSmithEsq, but is an avid fan, and is currently plodding through "The Wealth of Nations" as a result."

Well done.

It has been amply reported that last month New York, and then all major national, firms went to $145,000/year first-year associate salaries, and that the following "Simpson Thacher bump" raised the ante to $160,000/year.   Several people have asked me whether I thought major California-roots firms (Latham, Gibson Dunn, Morrison & Foerster, O'Melveny, Orrick—the usual suspects) would match the +$15K bump not only in their New York offices (where they have, for all practical purposes, no choice) but in their California offices as well.  My reply, delivered with steadfast confidence if admittedly less internal certitude, has been that I both  hoped and predicted that they would not match the bump on the West Coast.

Why?  Because New York is, as we all know, a sui generis market.  Revenues are higher, costs are higher, the supply/demand marketplace for everything from messenger services to senior private equity partners is deeper, richer, and dearer.  California-rooted firms would be entirely rational in walling-off the "bump" at the border of Manhattan, but if they reproduce it in California, there is no obvious next stopping point. The exhausted advocate's best friend:  The slippery slope.

Whether with prescience or with luck, my prediction that the California firms would hold the line now seems borne out. 

So much for the historical exercise.

Now, a more interesting question:  Why on earth is a first-year associate (and don't forget to flow the increase through years 2 through 8 or 9, in some roughly linear scale) worth $160,000?  Why not last year's $125,000 or some (inevitable) future year's $225,000?

Many perspectives can be applied to answer that question, but pricing (and all we're doing here is setting a price, even though it be on human heads) is one of the blacker arts.

Some considerations surely include:

• An element of recognition of the investment these anointed first-years have made:
  • Ivy League-league colleges
  • Name-brand law schools
  • Superior performance even in that exalted realm
  • An investment of an extra three years of their lives and perhaps daunting student loans
• Needless to say, what the competitors are offering
• What those gifted youngsters could do and earn outside the AmLaw
  • Investment banking
  • Private equity
  • Hedge funds
  • McKinsey et al.
• What the firms feel they can "afford" to pay (meaning, essentially, how much short-term pain is an acceptable tradeoff for how much long-term perceived benefit in staying in the creme-de-la-creme race)
• What clients will stand for (and yes, although all and sundry have trotted out the obligatory denials that the increased salary costs will translate into billing increases, the pig will, as it always does, work its way through the snake)
• And lastly, the sheer unpredictable dynamics of when the "tipping point" arrives and one finds oneself, unbidden, blinking.

Also at various times—increasingly until the dam broke in January, and, inexplicably, not once since—I've been asked whether I thought associate salaries were "due" for a bump given the ever-increasing PPP numbers, or the steady background drumbeat of the cost of living, or what the investment banks were doing, or what ever-higher piles student loans were amounting to, or what phase the moon was in. 

The short answer is that all those things (OK, not the moon) go into the mix in the long run. But making bets on them in the short run is a fool's errand.

My friend Prof. Bill Henderson of Indiana Law School/Bloomington is anything but a fool, and he's just come out with a novel and fascinating explanation of how first-years' salary levels at firms with over 500 lawyers compare to average PPP at the AmLaw 100.  Here are the numbers:

• At $160,000, first-year salaries are actually at the lowest relative to PPP in the last 10 years: Just 11.7%
• Ten years ago in 1996, with first years at $70,000, the proportion was 14.3%
• And it reached its high during that decade, of 15.4%, in 2001.

The National Law Journal has the full story.

Before we ask what this means, a methodological note: One former AmLaw 50 Managing Partner has already emailed me pointing out the obvious: This compares first-year associate salaries at firms with more than 500 lawyers with PPP at the AmLaw 100. The most recent (2005) AmLaw 100 shows 63 firms with at least 500 lawyers, so the NLJ is obviously comparing, to some nontrivial degree, two different sets of firms.

Now: Why would these figures be so?  Bill's hypothesis is that associate pay as a proportion of (equity!) partner profits is at a near-term low not because associates are being short-changed but because the premium placed on revenue-generating, book-of-business-toting, major partners has never been higher.

And he has the statistics to prove it. 

From 1995 to 2005, the change in various classes of lawyers—to the extent changes in the population of firms permitted (essentially, firms which appeared on the NLJ 250 both in 1995 and 2005, a total of 192—looks like this:

• Total number of lawyers:  +77.2%  [56,239 to 99,652]
• Total number of partners:  +64.2%
• Equity partners:  +31.7% [less than half the increase in "total lawyers"]
• Non-equity partners: +234.1% [from about 2,600 to over 8,500: increasing the ratio of non-equity to equity partners from 1:11 to 1:3]
• Associates:  +78.0% [statistically indistinguishable from the change on "total lawyers"]
• All other attorneys:  +159.9% [a very small actual number, and largely unimportant]

The astonishing increase in the ranks of non-equity partners is, I would submit, the real story.  The National Law Journal buried the lead.

Bill rephrases "the lead" as follows:  "But perhaps the major implication of the new large law firm model is that the next generation of corporate lawyers...are largely going to begin and end their careers as employees."

If you care to engage in linear extrapolations—an exercise that always brings to mind the esteemed economist Herbert Stein's famous crack that "unsustainable trends tend to come to an end"—I'd take it a step further. 

Associate attrition is clearly as bad or worse than ever.  (Blame the "Millennial" generation for not being as driven as we Boomers if you like, but blame is not a strategy for dealing with it creatively.) Decreasing numbers even aspire to partnership; the reward is seen as the famous "pie-eating contest in which the reward is more pie," and alternative careers are increasingly available.

If you couple that with the possibility (remote, I admit, but the possibility) of Clementi-style reforms here in the US, then we may find ourselves in the next decade or so re-examining the fundamental charter of what it means to be a law firm.

Of course, some may choose not to view that with alarm—contrary to the philosophy of cable news and talk radio, where viewing with alarm is the coin of the realm. After all, what does it really mean to "begin and end [your] career as an employee?" It means you work in corporate America. And last time I checked we were quite capable of maintaining our global economic competitiveness. (Don't tell me you'd really rather work in Tokyo, or Brussels.)  

But however this plays out—and it will almost certainly play out very differently for different firms—I'll be here, observing and commenting and participating in the fascinating evolution of our profession industry.

Called "The State of Technology in the Law," it's actually far far more than that; it's his vision of how our industry will be transformed by technology—and client demands—as the 21st Century unfolds:  Indeed, as some of us who hope to have decades left on our career will experience ourselves.

I'm quite confident I've never used the phrase "must-read" on "Adam Smith, Esq.," but this is my first nominee.  I'll attempt to highlight some of his key points and give you my take on them; but you should, to be sure, read it all.

Chandler frames his talk thus:

"I offer you three questions for our discussion today.
"First, how is technology driving change in knowledge-based industries?
"Second, what are the key areas of vulnerability in the legal services business to these technological changes?
"And third, what will it take to succeed in this changed environment?"

"Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year. And not one of our suppliers comes to us to tell us how much their prices will go up next year. So from my perspective, I don't care what billing rates are. I care about productivity and outputs."

You may think this is spoken like a procurement manager in disguise, but he's barely getting started.   The transformation of our industry is a subset of the transformation of access to information, which is moving from centralized, command-and-control hierarchical dispensers of content, to zero-marginal-cost transmission and duplication.  (What did in Tower Records?i ITunes and Kazaa; and recording industry revenue is down 25% in the last 5 years.)

Michael Spence, co-winner of the 2001 Nobel Prize in Economics, has said that the worldwide networking  of computers is the most important development in economic history since the opening of the trade routes between Europe and Asia in the late Middle Ages.  Why?  Because it changes where and how people can work.  And Chandler reels off a litany of Old World entities built on the information-is-scarce paradigm, suddenly made obsolete by information-is-free upstarts:

• Encyclopedia Britannica vs. Wikipedia
• Frommers and Fodors vs. ePinions and TripAdvisor
• Corner bookstores vs. Amazon
• Newspapers vs. eBay and craigslist

And then he turns to law-firm-land, meaning to question #2, "key areas of vulnerability."

The heart of the matter is that devil with nine (or ninety) lives:  The Billable Hour.  "Put most bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour."

And while the Baby Boomers may have bought into the model of toiling ceaselessly for a decade or so in an attempt to win the tournament for a chance at toiling ceaselessly for a few more decades, today's associates aren't buying it:  Associate attrition rates are 20%/year and higher, and Chandler adds that "The chairman of one firm told me that only people in their 50s and 60s are willing to put in long hours these days, that associates regularly turn down the chance to work on major deals if it interferes with social plans or a vacation."

This, may I hasten to add, is not the associates' problem:  It's your problem.

Would you rather bemoan it?  Fine:  Be my guest.  Denial is always a superb adaptive strategy.

But as Chandler puts it: 

"Upending one's life to support inefficient means of communication, driven by a billable hour system, to maintain a relatively slim chance of making partner, just doesn't cut it. And when the next generation heads for the exits, it's a sign of a business model under stress."

"Under stress" happens to be my own nominee for best single turn of phrase in the entire piece.

Here on "Adam Smith, Esq.," and in my life in the real world, I devote a fair amount of attention to knowledge management:  It is, I believe, at the very core of a high-performance firm, living at the intersection of professional development, marketing, and client service.  A firm with a frustrating or ineffective KM system is at a serious competitive disadvantage.

But KM can be a double-edged sword, as Chandler astutely observes.

His problem is that clients cannot benefit from firms' KM systems without going through the tollgate of the hourly billing model:  "The legal industry has spent millions on IT to up speed access to information. But the only way I can get that information is through an individual billing me by the hour."  Chandler is fed up, and he's not going to take it any more.

The issue is that the gatekeeper, the one-on-one relationship of client and lawyer, is profoundly obsolete:

"My contention is that the very source of success for firms today – the ability to manage client access to information and require clients to use bespoke 1:1 systems – will be the source of failure in the future.

"So my answer to question number two is that the greatest vulnerability of the legal industry today is a failure to make information more accessible to clients, to drive models based on value and efficiency. The present system is leading to unhappy lawyers and unhappy clients. The center will not hold."

Chandler foresees a world with law firms sorting themselves into a "dumb-bell" distribution:  At one end, a group who are able to commoditize and standardize services to manage costs and ensure predictability, "where very good is good enough."  And at the other end, providers of top-notch bespoke services.  Rare will be the firm that can pull off both.

Don't count Chandler an ingrate.  He understands the integral role of outside counsel, and proudly (and rightly) cites Cisco's record of "no records with its stock options, minimal comments on our 10-Ks, and only one piece of litigation listed in the last 10-Q, and that one has subsequently been resolved."  He's proud of our profession.

But:  New technology has resulted in new business realities.  Clients are demanding greater value.  Associates are demanding greater engagement. 

As tempting as denial may be, I for one do not believe it's an equilibrium solution.  Personally, I don't even believe it's remotely tempting—not in the least.

Let me propose a vision for a law firm that Chandler would hire, and hire enthusiastically:

• A powerful and supple knowledge management system is its key competitive weapon.
• The firm is not afraid—indeed, it trumpets—sharing this system with key clients (obviously, within the bounds of confidentiality, privilege, etc., etc.).
• Lawyers are freed to work on truly higher-value work.
• For which they bill based on a measure of value-received instead of by "cost of production," a/k/a the billable hour.

What does this accomplish?

• It aligns the firm's economic interests with its clients'.
• It separates the firm from the pack, which means
• The firm can (honestly, truly, deeply) tell its clients that it understands what they've been through in terms of
  • down-sizing
  • outsourcing
  • streamlining
• And that it's doing the same things its clients have been doing.

Let's face it:  Corporate America (corporate-world, for that matter) has gone through the looking-glass of rationalizing every process they execute into as streamlined, efficient, and cost-effective a posture as they can possibly imagine; and they're still challenging costs every day.  Law firms haven't even thought about it.

But the Mark Chandlers of the world are telling us that we'd better start reading from the same playbook they've been using for a decade or more.

Is this the opportunity of a generation, or what? 

Imagine if your firm was not pushed kicking and screaming into this absolutely positively inevitable future, but if it led the way?  What competitive distinction would that be for you?  How enduring would the advantage to your reputation be?

I was discussing Chandler's piece with a good friend a few nights ago, a fellow who works for an AmLaw 50 in a senior managerial slot, and his reaction was:  "I wish we had more clients like that; imagine what we could do for them."  He's ever so right.

You read it here first.

Update: Feb. 13:

Doug Caddell, CIO of Foley and Lardner, and a friend, writes as follows and asks me to include this as a comment. If you don't know Doug, yes, he's droll.

I generally agree with the above comments of Mark Chandler, GC of Cisco. However, I do take exception with one statement in particular.

Mark says, "Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year."

I thought about it: I don't know about my peers, but I receive a "letter" from Cisco every year informing me of my increased cost of doing business with Cisco. While these "letters" are not printed on stationary, the do arrive on Cicso invoice "letterhead". And each year the topic has been price increases. This is especially true with Cisco Smart Net, their maintenance "insurance" on routers, switches, etc. What used to be reasonable has gone the way of first year associate salaries. So much that we now only put critical gear on Smart Net, and "self-insure" the rest.

I'm waiting for this year's letter from Cisco. But, I don't need to open it to know what it says.

Doug Caddell, CIO Foley & Lardner LLP

Marco Antonio P. Goncalves writes me from Rio de Janeiro with these thoughts:

"Bruce, congratulations on the post. The subject is really interesting and has lots in common with something I wrote in a book on legal marketing that I'm co-authoring with another Brazilian legal marketing consultant. The book is not yet finished, but I try to explain the increase need by companies to look up to law firms that operate like them, like a business, as "corporate mirroring" (I believe this is the best translation from the Portuguese term I have used). In other words, companies want to see them reflected in the law firms they do business with. If they don't get this "reflection", they will simply look for another law firm who does."

Marco raises an insightful point: As the pressure relentlessly increases on Fortune 1000 GC's to operate their departments more and more the way marketing, manufacturing, finance, etc., operate—like a business—GC's and their teams will naturally look more and more for law firms that follow the same philosophy. The question is not whether your firm will get there, but when: And I invoke the bromide (in this case, truthful): "Lead, follow, or get out of the way."

The College of Law Practice Management was formed over a decade ago to "honor and recognize distinguished law practice management professionals, to set standards of achievement for others in the profession, and to fund and assist projects that enhance the highest quality of law practice management."  To date, over 200 practitioners have been inducted, from the US, Canada, and eight other countries.  The College is governed by a Board of 15 Trustees, and annually it sponsors the "InnovAction Awards," designed to identify innovation by lawyers and law firms.  The criteria for selecting among entrants are:

• Absence of precedent (never been done or done quite this way before)
• Evidence of action (the innovative idea was transformed into action and not merely reflective of best intentions)
• Effectiveness of innovation (there is some measurable outcome that would indicate that the innovation is accomplishing what it was intended to do)
• Action must have taken place within no more than three years prior to this entry.

Information about the InnovAction Awards is here, and I invite you to check out the inaugural issue of the online publication celebrating last year's awards.

So:  Have you or any of your good friends done something wonderfully innovative recently?  Nominations are open; what are you waiting for?