From HBS's Working Knowledge, in an article entitled "Do I Dare Say Something?"

"Perhaps most surprising to us has been the degree to which fear appears to be a feature of modern work life. Whenever we talk with others about this work, such as on airplanes with strangers, we get a similar response—"Oh yeah, I can relate to wanting to speak up but biting my tongue."

"It's really a shame how much apparently untapped knowledge there is out there and how much pain and frustration results from this silence. That, too, has been somewhat surprising—that people are genuinely hurt and frustrated about their silence. This suggests that employees aren't failing to provide ideas or input because they've "checked out" and just don't care, but because of fear."

If you're remotely like me, doesn't this strikes you as a compelling reflection of tragic reality in too many firms?

Let's try to get behind the causes of this and propose some remedial measures.  And as we do, I'd like to suggest you keep in mind the peculiarly intense need for feedback and engagement from your youngest associates, the famous Gen Y'ers. 

Here's the background to the kick-off quote:  Harvard Business School professor Amy Edmondson and Penn State professor James Detert explored the challenges employees face speaking up to internal authorities.  They coined the term "latent voice episodes" to describe moments when someone considers speaking up—with the emphasis on "up," as in up to someone higher on the organizational food chain—and they surmise that whether or not an underling chooses to voice their observation, insight, or suggestion, depends on: (a) innate personality differences and (b) context.

So far, no surprise.  Some people are naturally more extroverted than others, and therefore more likely to speak up, and organizational context matters tremendously as well:  Do senior partners walk around and engage associates and staff spontaneously?  Are there regular and formalized ways of sharing information about the firm?  Videoconferences from the Managing Partner or executive committee, quarterly "all-hands" memo's, or regular departmental meetings, with Q&A?

Our good professors also speculate thus:

"Even from an evolutionary point of view, it seems we're all hard-wired to overestimate rather than underestimate certain types of risk—it was better (for survival) to "flee" too often from threats that weren't really there than to not flee the one time there was a significant risk. So, we've inherited emotional and cognitive mechanisms that motivate us to avoid perceived risks to our psychological and material well-being."

I wouldn't go quite so far, at least in attributing risk-aversion to evolutionary selection.  (Truth be told, as life-altering an experience as it was to read The Selfish Gene 25 years or so ago, I now have come to the view that mapping every human behavior back towards our experience on the primordial savannah is a bridge way too far.)

But:  As far as individual proclivities along the spectrum ranging from the instinct to speak up or to stand silent, lawyers are surely at the extreme end in the stand-silent crowd.  We are, after all, taught to be risk-averse, and if you say nothing, you can't be criticized.  (Well, it's a lot harder, in any case.)  Associates have done this cost-benefit in their head, consciously or subconsciously, and placed their bets.   Can we do anything about this?  No, in a word.

And before we let partners off the hook, consider that any conversation involves at least two interlocutors.  Partners who are abrupt, truculent, holier-than-Thou, or simply—and in my experience these are the most subtle and most devastating offenders—so sublimely trained in the adversarial arts that they can't resist any opportunity, however inappropriate, to "win" a conversation do far more to short-circuit these potentially valuable opportunities for subordinates to speak up than any associate's hesitance possibly could achieve.

What we can do is work on changing the cultural context, to encourage more speaking up. How do you change a culture?  The professors readily confess, "It's difficult!", and confirm that they've yet to encounter a single organization in their research that "has fully transformed itself from one of fear to one in which most employees would rate the organization as open or conducive to speaking up."

Is this the Managing Partner's job?  Yes, but it's the job of all of senior, visible management.  The most important single factor influencing cultural openness to speaking up is:  Leader behavior.

"Our lawyers are our greatest asset?" "Our firm's culture provides its distinctive strength?" "You'll have the opportunity of your life to grow and contribute?"

It's time to make these promises real. Let the answer to "Do I Dare Say Something?" be an unequivocal yes.

That's the headline that got my attention over at Harvard Business School's Working Knowledge.

As it turns out, there is understandable tension between "learning" and "performance," insofar as when you're learning something new you're probably not immediately very good at it. In other words, there's inherent tension between performance today (where you excel at doing what you've done before) and performance tomorrow (where, unless you're learning some new things now, you'll be behind the curve).

But back to the HBS research. 

Prof. Amy Edmondson started her research in the context of hospitals, where tracking and analyzing "errors" has been raised to a high science.  In hospitals, "errors" are an indispensable input to learning and organizational change.  So Prof. Edmondson assumed that she would find a positive correlation between high-performance teams and low error rates.

She found the opposite:  The more integrated, effective, and highly functional the team, the more error rates were reported.

And massaging the data in various ways only confirmed or amplified the result (for example, controlling for the severity of the patients' disease on the assumption that "better" teams might get harder cases just made the effect more pronounced).  Then the eureka moment:  In well-led teams, the climate of openness made it easier to report and discuss errors, as opposed to teams with weak or punitive leadership. 

Good teams, in other words, didn't commit more mistakes, they recognized and recorded more mistakes.  

If you're wondering how to transfer this from the operating room to the conference room, I have some thoughts:

• Poor communication, or an environment dominated by bullies and narcissistic perfectionists, will ensure that everyone in sight devotes tremendous energy to ensuring that mistakes are not recognized, or are blamed on innocent bystanders if recognized, or are turned into exercises in obsequious self-abasement if recognized and tagged to their owner.  A recipe for better performance next time?  Not.
  
• By contrast, a high-performing team, with a culture of openness and an "idea-friendly" approach, will acknowledge and make the most of "mistakes"—which, assuming beneficent intentions all around, are most likely just attempts to go the extra mile.
  
• When I say "making the most" of mistakes, I should clarify what I mean.  And to clarify that I need to explain that I think there are two fundamentally different categories of mistakes, or categories of learning opportunities, if you prefer:
  
  • Situations where someone fails at accomplishing a well-known task with ample precedents and a well-worn track record of success by others at different times and places.  These are failures to understand precedent:  To understand how to ride a bike, how to dance to a waltz in four-time, how to prepare for a deposition.  The learning opportunity here is simply to put the unfortunate under the guidance of a more experienced senior and let mentoring do its magic
    
  • Then there are situations where the "mistake" is because we're in unknown territory and you tried something that plausible might have worked but didn't in reality.  Here the learning opportunity is to de-brief, reanalyze what went wrong and what could have been done differently, and figure out how to do better next time.

Now, the question and the challenge for you as a senior manager is how to distribute the individual, high-performing, teams' learning across the firm. 

Sometimes, of course, it can't be done:  A new approach to summary judgment motions probably won't gain much traction with your tax lawyers.  But you can still celebrate the innovations and signal that your firm rewards creative thinking.

But your most important job may be precisely to help others walks that fine line between high performance today and stasis tomorrow. "Learning" is opposed to "performance" only in the temporal sense.  Learning today is an investment in performance tomorrow, but/and learning today distracts from performance today.

There's still one thing we know works:  Open lines of communication.  To identify mistakes as promptly as humanly possible, to diagnose the cause and apply the right "learning opportunity" paradigm, and to ceaselessly push into the future.

So it is with great pleasure that I can announce that the Georgetown Law Center for the Study of the Legal Profession will be hosting a symposium next April 17 and 18, 2008, titled "The Future of the Global Law Firm," which is actually about the prospects for precisely this type of reform in the US.

The impetus for this conference began with my proposing the concept of a derivative security, roughly reflecting a law firm's valuation, that might comply with existing ethical proscriptions against ownership of law firms by non-lawyers.  I shared this concept with Prof. Mitt Regan of Georgetown and Prof. Larry Ribstein of the University of Illinois College of Law, two of the most highly-qualified individuals I can think of to critique and extend my notion.

The conversation evolved into a paper just published today by Georgetown Law entitled Law Firms, Ethics, and Equity Capital:  A Conversation.

Here's how the Georgetown site describes the paper:

"The paper consists of correspondence among Professor Regan; Bruce MacEwen, an expert on law firm economics and editor of the online publication Adam Smith, Esq. ; and Professor Larry Ribstein of the University of Illinois Law School, an expert on partnership law. Current ethics rules in every state forbid any non-lawyers from having an ownership interest in a law firm. Beginning with an inquiry by Mr. MacEwen, the participants in the exchange first discuss whether these rules would permit firms to sell financial instruments such as derivatives whose value is based on the firms' profitability. The discussants then move on to the broader subject of the arguments for and against allowing firms to raise money in the stock market.

"Mr. MacEwen and Professor Ribstein generally support permitting firms to attract equity investors. Professor Regan is more ambivalent, but says that participating in the exchange made him appreciate that the question is far closer than most people realize.

"Going through this analysis forces us to consider basic assumptions about the roles that lawyers play in society, and how their ability to play those roles might be strengthened or threatened by equity ownership," says Regan. "There are some surprising possibilities if we consider the issue with an open mind." The aim of the paper is to encourage the profession to take this approach, and to lay the groundwork for a wide-ranging discussion about the future."

As I've said in personal communication with some of you, I strongly believe this is a timely and profoundly important conversation for our profession and our industry to have, and I am gratified to have played a very small part in occasioning it in at least one venue.  

The importance of these issues to our profession in the 21st Century demands that our approach not be determined by inertia, free-floating (and in my opinion, irrational) fear, or an undue reverence for tradition.

So let the conversation begin.

I will of course continue to cover this pivotal discussion between now and Georgetown in April 2008, and beyond. 

If you can't make the conference (attendance is, under current plans, by invitation only), you know where to read all about it.

Update: I learned that those of you who subscribe to my monthly newsletter—to whom I sent a separate notice of this event—may have been confused by a mis-addressing error: The emails went to the correct subscriber list, but didn't use the right salutation and greeting, so they appeared to be addressed to someone else.

File this under "Don't you just love technology?" 

Unbeknownst to me until it was too late, the database had suffered a hiccup, offsetting the names matched to the email addresses by one row. So you now know the identity of the individual immediately beneath you in the database.  My own copy was addressed to my mother-in-law.

At the intersection of the original Adam Smith and the 'net is, well, irresistible territory.  And now we have it in the current Forbes, courtesy of P.J. O'Rourke's "Adam Smith:  Web Junkie."

Here's the thesis, which is indisputably correct:

"I wonder if the know-it-alls at Wikipedia realize that the Internet was fully described and completely understood more than 200 years ago by Adam Smith, founder of free market economics. [...]

"In The Wealth of Nations , published in 1776, Adam Smith explained the three factors that constitute the free market: pursuit of self-interest, division of labor and freedom of trade. There you have the Internet without so much as a mouse click. [...]

"The Internet is not a wonderful new world. The Internet just is a natural extension of the free market."

But it's deeper than that, at least to my way of thinking.

Every time I see or read another hyper-ventilating media expose of that old devil the Internet, with its fraud, its cons, its porn, its deviants, and its identity thieves, I can't help but think of the marvelous, uplifting, inspirational, fascinating, and deeply challenging experiences that constitute my own personal history of exposure to the 'net.

And in trying to reconcile these views, the answer is really staring us in the face: Humans created the 'net, and the 'net reflects us.  So lots of traffic (read: attention) goes to news, sports, money, food, family, travel, sex (of course), health, shopping, commerce—you get the idea.  I'd wager that the proportion of off-line, "real world" assets and dollars devoted to each of those categories is almost precisely mirrored online.

But back to Adam Smith.

"In The Wealth of Nations Adam Smith said that an individual "stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons."

"Smith saw that the free market answered liberty's need for a larger network of voluntary association. The pursuit of self-interest means that the free market has built-in incentives for network maintenance and expansion."

"Since networks are self-organizing they are, like all do-it-yourself projects, a mess. This makes networks too hard for any one person to understand, let alone dominate.

" Most of our lives are spent in channels or chains of command or circuits.  Networks release us from this. We are presented with numerous alternative connections. On the Internet these connections are, without intending a pun, virtually unlimited. We can take our business elsewhere or be that elsewhere by starting a business of our own.

"Networks aren't egalitarian. Michael Dell always will be a bigger node than we are. But networks aren't hierarchal, either. There's no top and bottom to them, no magnetic north of authority. It's all side-to-side and back and forth. Detours, shortcuts and work-around's make a network."

In other words, the 'net permits us to create new connections, to launch new conversations, and to form new micro-communities neither foreseen nor exhorted by any person or group directing our actions or our attention. Sounds like a free market to me. If, as O'Rourke says, "the Internet is an advance for voluntary association," then Adam Smith would surely approve.

And of course he'd be publishing working drafts of Wealth of Nations online for critical commentary as they were done.

But based on some indicators such as the Hildebrandt/Citigroup Private Bank March 2007 Client Advisory, which reports that "the compound annual growth rates (“CAGRs”) of revenue and profits per equity partner for the 2001-2005 period were 9.8 percent and 10.6 percent, respectively," it's only fair to ask how long these tail winds and this sunny environment can prevail.

It's time, in other words, to mention the dreaded "R" word: Recession. 

[Time out for a Favorite Economist Moment: Alfred Kahn, the NYU-educated Cornell Professor of economics who headed the late Civil Aviation Board under the Carter Administration, and who we have to thank—seriously—for airline deregulation, was called to testify before Congress at one point during his tenure and, anticipating that the Senators would stray afield from questions about the airline industry to questions about the parlous state of the OPEC-shocked, stagflating economy at the time, President Carter firmly instructed Kahn that "Under no circumstances can you say that we're in a recession."  When the inevitable question arose on the Hill, Kahn replied calmly that "I have been instructed not to say that we're experiencing a recession.  So I'll tell you that we're experiencing a banana."]

Which brings us back to the word I have not been enjoined from using. First, another extract from the Hildebrandt/Citigroup report:

"Looking ahead to 2007, we believe that law firm revenues will come close to reaching 2006 levels but that net income will be squeezed by increasing costs.  Although firms will continue to manage their expense budgets carefully, we believe that growing pressures for discounts, coupled with increases in “big ticket” expense items (including compensation costs), are likely to limit both revenue growth and improvements in profitability."

Now, as innumerable jokes have it, economists/the Dow Jones/the Fed have predicted 12 of the last 5 recessions, so I'm not about to advance a prediction, but I do know that cyclicality is still a characteristic of even our 21st-Century economy. [A reader now tells me the most credible source of the 12-for-5 quote is Paul Samuelson, whose tireless revisions of Economics instructed generations of Econ. 101 students.] This raises the question: What, if anything, is to be done to prepare for the inevitable?

The good news is that law firms have high variable and low fixed costs.  The bad news is that your assets are elevator assets?  Yes, but in bad times that's a blessing in disguise.   It can be, and will be if the time comes, terribly painful from a human, and humane, perspective to unload idle people, but such would be the imperatives of the market, especially if your competitors are doing the same. Understand:  I take no satisfaction whatsoever in this.  But I point it out as reality, and as the ineluctable responsibility of those of you who get paid the bucks to be in charge.

Short, indeed, of overly ambitious lease obligations or (quelle horreur!) outsized debt obligations, there's little reason a law firm should be fatally imperiled by a recession.

Still, don't there remain smart and not-smart ways to prepare?

Yes, but don't take my word for it. McKinsey has released a study this month of how, during good times, you can prepare your firm to not only survive, but to thrive following the upturn after the next recession.  As usual, McKinsey's data is exhaustive:  This time, they looked at 1,300 US companies across a broad range of industries and looked at how they fared during and after the 2000—2001 recession, identifying those who emerged with gains in industry leadership. 

And yes, while some of their findings, which are focused on industrial companies and banks, don't relate directly to the peculiar economics of law firms, we as a profession are built to reason by analogy, so let's proceed.

The key findings support the intuitively correct notion that the more flexibility your firm has going into the bad times, the more svelte your operations, the more diverse your offerings, the healthier you will emerge.

So how do we translate this industrial/bank-land advice into law firm land?

Lesson #1 is that balance sheet strength matters.  We've all seen this in the bloody post-dot-com experience of many firms in Northern California.  Those with large liabilities—Brobeck's lease obligations being the most notorious—had a tough time.  Those with lower debt obligations lived to tell the tale. 

But balance sheet strength is not just what lets you survive:  It's what enables you to thrive.  One phenomenon of a recession is that previously-valuable assets can get cheap, as distressed sellers multiply.  If you have the wherewithal to pick them up at a local minimum price, why wouldn't you?   The flip side of this, of course, is that you don't want to be a "distressed seller."  If you've larded up, you may fit just that description.

#2, "operational flexibility," with the focus on "SG&A" expenses (selling, general, and administrative), has  a slightly different tale to tell.  In a law firm, the rough equivalent of SG&A is non-lawyer-related staff and associated overhead.  These costs are notoriously difficult to cut in the short run, unless you're already prepared. Ways to prepare include:

• outsourcing; and
• using a higher ratio of temps, contract workers, and part-timers to full-time full-benefits people.

The problem is that to prepare the groundwork in this fashion means you are substituting people whose primary allegiance lies outside your firm for people whose primary allegiance is (one can hope) to your firm.  A compromise that accommodates both goals of flexibility and loyalty may be to examine some lower-cost geographic regions within your firm's overall national or international footprint, and putting more "SG&A" expenses there.

#3, adjusting your mix of product and service offerings, may be the easiest for law firms to achieve.  If we're any good, we adapt to the economy and our clients' changing demands organically and continuously:  We just have to be more intense, focused, and relentless about it when times are tough.

How do you prepare for this?  Ideally, you want to have a geographically and substantively diversified practice before the downturn.   Then you will be able to see which clients with what precise legal needs are still spending—indeed, they could be spending even more.

Faithful readers of "Adam Smith, Esq." know that I'm a proponent of firms' placing an array of small, smart strategic bets rather than pushing out one or two enormous piles of chips into the center of the table.  (Northern California in the late 1990's, again, an historic phenomenon I will be eternally grateful to for its educational value.)

Two examples, both taken from the 2000-2001 downturn:

• Starbucks reacted not by discounting but by adding more services, such as Wi-Fi, the Starbucks card, and new products.  Result:  Same store sales growth continued virtually unabated.
• Verizon, like the rest of the telecom industry, was facing ever-declining revenue per minute of call:  From 27.5 cents in 1999 to 11 cents in 2003 (a 60% decrease in four years!). Nevertheless, they readjusted their services towards broadband, cellphone's, and value-added services, and their average revenue per subscriber (1999 index = 100) went from 100 in 1999 to 108 in 2003, while the industry finished that period at 100.

Am I forecasting a recession?   Harry Truman famously fumed that he needed someone to find him a "one-handed economist," exasperated with on the one hand, on the other hand prognostications.  And I myself have often found truth in the crack that if you laid all the economists in the world end to end, they wouldn't reach a conclusion.

But actually, I am decisively not forecasting a recession.  Still, we all know one lies in store sooner or later.  Will your firm be ready?

In 1999, Reed Smith's 610 lawyers generated $168-million in revenue, from 14 offices in the Northeast and Mid-Atlantic states.

At the start of 2007, its 1,500 lawyers are on track to do $900-million in revenue, from 21 offices across the US from California to Chicago to New York, and in the UK, the European Continent, and the Mideast.

In early April I had a chance to spend a couple of hours with Greg Jordan, the Firmwide Managing Partner and Chairman, who was elected to that role in 2000, at the start of that period of astonishing growth. Here's what we discussed. 

I started by asking if he had a vision for Reed Smith when he was elected that forecast where the firm is today, or if it has evolved.   He recalled that it was a contested election for managing partner, and that his views were summarized in the "Transition Document," which had six or seven key objectives. 

Primary among them was explaining to the firm why it needed to expand out of the Rust Belt, and how it could do that hand in hand with leveraging its relationships with its best clients. Looking at it again today, he says that the firm has pretty much achieved all of them.   To wit?:

• Establishing critical mass in California
• And in London
• Making serious strides in New York
• Expanding beyond the Pittsburgh center of gravity
• Adopting an international, not regional, outlook
• Improving teamwork and industry focus and getting more "share of wallet" from key clients

I remark that I'd been reading another AmLaw 30's "strategy statement" the day before, and that it sounded remarkably similar:  Go for more high-value, "premium" work, expand your geographic footprint, move from commoditizing to high-end practices, invade the key financial centers with meaningful personnel commitments.  So what made Reed Smith different?

"You're right; you're right!  Strategy is not the hard part.  The art is all in the execution.  The easy part is figuring out what to do; the hardest part is communication and outreach."

• "Do what you say you're going to do
• "Without forcing it
• "Lawyers like evidence
• "So provide it to them; follow closely how what you promised is working out."

Had I to have ended the conversation right there, I feel confident I could report to you this is Greg's philosophy.

What do you mean by "evidence?"

"Let me give you an example:  When we merged with Crosby-Heafey in California [January 2003, picking up a 230-lawyer firm known for its strength in litigation], I told people we would generate additional business that neither of our two firms alone would have gotten.  So we've tracked it.  And last year it was—care to guess?—$60-million. That's $60-million, which was first $10-million, then $20-million, etc., year by year.  10% of last year's revenue.

"Lawyers listen to evidence."

Greg mentions they've done the same on the diversity front, winning the Minority Corporate Counsel Association's Sager Award and becoming one of Sara Lee's top two law firms.

You achieve this by communicating all the time:  Tell people what we're going to do, tell them what we're doing, tell them what we did. 

But let's step back, I say; not every firm, presumably, could do what Reed Smith has done?

"It starts with who you are.  Look at the history of Reed Smith; in the late 19th Century, and continuing perhaps until World War II, we were, as my London partners kid me, the 'Magic Circle' firm in Pittsburgh—and it wasn't a bad place to be that, then.  Reed Smith represented Andrew Carnegie in the deal with J.P. Morgan that created US Steel.  Talk about high-end corporate work (at the time)....   So the first thing is to know who you are.

"Another thing we had going for us, even when I became managing partner in 2000, was our partnership ethos, our sense of teamwork and integrity. But at the same time we did not have any presence in many important markets:  We had no national reputation, let alone an international one, and we had a fundamental problem:

• We were too big to get small
• And too diverse in practice to be a boutique.

"So we had a choice:  We could become a strong, and hopefully durable, regional firm, or we could expand into the major national and international markets.  We decided on Plan B."

And what did that mean for you?  "It meant we had to get into London, California, and New York, and I believed the way to do that was to make the most of our star partners, our best client relationships, to aggressively recruit talent, and above all, to do it fast."

Let's change gears for a minute, I suggest: Let's focus on operations.  It's hard to say that any AmLaw 30 firm is "cheap," given that you face market rates on associate salaries, the non-negotiable requirement to be in Class A+ real estate in major urban centers, etc., but it strikes me that Reed Smith is reasonably economical.

"Here's our basic philosophy," says Greg, becoming animated (even for him):  "We try to figure out what the most powerful market forces are, and own them, not resist them."   Meaning?  "First, take globalization.  Our key clients, banks, pharmaceuticals, financial services, media, are all going global: So our response has to be to be where they are, not to stay in our comfort zone in Pittsburgh.  Second example:  Convergence [of clients' preferred firms into shorter and shorter lists]:  As our clients get bigger and want deeper relations with fewer law firms, we need to win.  And we are: We have fewer and fewer, say, $750,000/year clients, and more situations where that client goes either to $5-million/year or zero."

Can you quantify that?  "Sure:  One particularly large financial services institution recently cut its roster from 300 firms to 10.  We were in the 300 and I'm happy to report we're in the 10.  Here's another number for you:  Our revenue from our top 250 clients went up 400% in the past 5 years."

"Third, client pressures on fees.  GC's are on the warpath on costs.  Now, it would be nice and cozy to say, 'I just wish it would all go away.'  But it's not going away.  Instead, we embrace it and ask for more work from precisely those clients.  Sure, some work that goes to the New York 'bulge bracket' law firms ought to go to those firms, and I'm the first to tell clients that.  But there's also a bunch of work that we can do as well as or better than those firms.

"There's also a bunch of work that ought to go to small, regional or local firms, or boutiques.  I can't worry about that; the work goes where it ought to go.  Our response has to be to move up-market.

"Here's the key challenge:  To take this thing that we cannot change and figure out how to drive it to our advantage."

Is it more competitive now then when he took the job, or when he was a young partner?

"I gave a presentation that I called, 'The Good Old Days Weren't So Good.'  In the mid-1980's 24% of Reed Smith's business came from just two clients:  One was a bank that was under siege, and the other was an asbestos manufacturing company that was going to go bankrupt, like it or not.  Plus, we had 90% of our lawyers in one city—Pittsburgh—with a slow economy.  So maybe the good old days weren't really so great."

"But you still have to be true to your heritage.  One thing we have going for us is that we believe in long-term relationships and always have.  When something goes wrong on a case, or a transaction—and they will—if you can draw on a decades-long reservoir of trust and good will, you've got a lot of momentum to get you past the pothole.  That's why I tell everybody who'll listen that it's strong relationships with clients that drive value for them, and for us."

There's a school of thought that changes in law firm rankings occur glacially; if you look at movement in the AmLaw 100, it doesn't appear as dynamic as, say, in the S&P 500 or the Fortune 500.  Can Reed Smith really become a top 10 or 15 firm?

"Great question!  Look at banking.  Did the New York City money center banks look at NCNB in Charlotte 15 or 20 years ago and see a fierce competitor?  Today Bank of America is vying with Citi for most valuable bank in the country, by market cap. Look, we're a business like any other industry; there is no entitlement to incumbency."

Aren't law firms inherently fragile? At least compared to corporations?

"Sure they are; that's why you need a focus on relationships: Build relationships among partners, senior management, associates, staff, and clients. Then when the inevitable rough patch occurs, you have good will you can draw on to get over things. I try to spend a tremendous amount of time with clients and partners.

"For example, Sunday night I leave for London; I'll have two full days there, with our key people and some clients we're trying to build matters up with. Then I take the train to Paris for a day and half: Same drill. Then I fly to Dubai where I'll see, among others, some of our clients. Here's another example: I got up here [to New York] last night on the train from DC. Yesterday morning in DC I spent with key partners, meeting one-on-one. Then I had a client lunch, again just one-on-one. In the afternoon I spent an hour fielding roundtable Q&A's with all the DC associates—completely unscripted. I then gave our DC office pro bono award out, and had dinner with 15 Reed Smith lawyers, partners and associates both."

"My assistant for special projects, Patty Conner, who has an MBA by the way, tries to keep me in what I call—and what I tell our people I want them to do as well—'high impact' mode. What is the highest-impact activity I can be pursuing right now? It might be seeing a client. Or romancing a lateral, it might be talking to the media—you!—it might be making sure the integration of our latest merged-firm is going smoothly, it might be meeting some of my counterparts at other firms. But it has to deliver the most impact then and there."

On your watch, Reed Smith has done a substantial amount of merging with and acquiring other firms, and you've also hired a bunch of laterals. How are the dynamics of each different?

"M&A is what you need to do if you're entering new markets: You need to get credibility fast, and establish a base to work from. Laterals work better where you're building on established strength; it's very very difficult, and in fact we've never done it, to try to build an entirely new practice or open a brand-new office through lateral recruitment alone.

"But once you've picked your merger target and everything has worked out, after you announce the deal, that's when the hard work begins, the work of integration. This is how we do it:

• First, relocate some key Reed Smith partners into the new market, partly as cultural ambassadors, partly to seed the Reed Smith culture in the new location., and partly to show how important the integration is to all of us. That's why Michael Pollack [Director of Strategic Planning and a member of the executive committee] moved to London after the Richards Butler deal.
• Next, you need to hit the ground running operationally: Get the businesses running together as fast as humanly possible. YOu need to make sure that you can take advantage of opportunities that come from things that would not have been available before. Without operational integration, you can't track, or report on these opportunities.
• Third, once you start finding those hitherto-unavailable opportunities, you pound the message home that the combined firm is winning business that neither one alone would have been able to capitalize upon.
• Lastly, by executing on all these things, people begin to "think differently." They feel less and less a legacy of Firm A or Firm B, and more a part of the exciting new Reed Smith. And over time you get new people joining who never were part of either legacy firm, and who have signed on to the dynamism of the new place.

"If you can execute well on all this, the two firms will meld, to the point where it's difficult to find the seam."

Management Team

Very few firms have the pre-meditated depth of management around the managing partner that you do. How did that evolve and what are you trying to accomplish with it?

"One of the things I'm good at is knowing my limitations, so I focus on adding complementary skills. The dumbest thing I could do would be to build a team with another 5 or 6 Greg Jordan's. The idea is to broaden, not to heighten, the management team. From the outset of Greg's tenure, the key people have been himself—and he views his leadership style as instinctive, not from training (he's a trial lawyer, not a corporate lawyer). Also key is the highly energetic director of strategic planning, Michael Pollack, who was on the bus from the start. And then Eugene Tillman, Director of Legal Personnel. Eugene brings discipline, consistency, a detail orientation, and the ability to say no. I'm not really much good at any of those things, so he's been a life-saver. Gary Sokulski is the COO, and has done the job of melding together all of the operations, with an eye for detail and execution.

"Rounding out the team is Roger Parker, from Richards Butler, our European & Middle East managing partner; Dave DeNinno, head of the business and regulatory department; and Colleen Davies, head of litigation.

"But there are other people we can move around to do key things when we need them. For instance, Tom McGough is moving to Chicago to help with the post-merger integration there. He was the prior firmwide head of litigation, before Davies. [Tom's pedigree suggests he is up to the job: Princeton undergrad magna cum laude, U.Va. JD, clerk to Rehnquist.]

What do the members of the management team have in common?

"Well, first, they're a team of highly successful practitioners.  Today that's a prerequisite to doing the job; maybe it won't be in the future, but today it's required.

"Second, as I mentioned, they have complementary and not redundant skill-sets.

"Third, the longer we work together as a team, the better we get.  There's a level of consistency and of 'shorthand' that develops.  It just gets better and better.

"Finally, we're avoiding staleness;  we keep trying to add new viewpoints, including adding Parker (from Richards Butler in London) and Davies (from Crosby Heafey in California).   For example, Dave Egan, our Chief Marketing Officer, never worked in a law firm, much less was a lawyer.  So what I discover is that he's the most likely to ask why do we do things this way?  And he's often right that there's no good reason."  [For my profile of Dave, click here.]

"The bottom line on this wealth of talent in the management team is that if I get hit by a bus this afternoon, there's no risk to the firm; things will go on.  We could continue to be innovative and we could continue to pursue our vision."

How has the role of a managing partner changed?  Does your job today resemble what you thought it might be or what went before?

"The mind set before at many law firms was something like this:  Put somebody in the chair for three to six years and just hope he or she doesn't screw things up.  Now it's far more complex, and managing partners tend to have a longer tenure.  That raises the question of how long is too long?

"The answer is not term limits, and it's not when it's someone else's 'time.' The answer lies in how you react to these two questions:  (1)  Do you still have it?  and (2) Are others still willing to listen and follow?  As soon as you can't answer those the right way, time's up."

What do you do more of and what do you do less of than, say, five years ago?

Greg ponders.  "Fundamentally, I think what I do today and what I did when I started as managing partner are identical; but I now do it in a more purified form.  To me, it's all about communication: To partners, clients, laterals, the media.

"And I try to avoid getting bogged down in HR, in IT, in systems integration post-merger, in real estate negotiations.  I have the luxury of being able to truly delegate, and knowing that we have experts on the team who can drive each function."

"One thing that comes with size is the need to be serious about 'high impact.'  I travel 190 days a year, and that's part of it.  Everywhere I go, I try to set an example; it's definitely not what you say, it's what you do."

You seem to be  comfortable with change; hardly any lawyers are.

"I'm very comfortable with change!  The absence of it is very dangerous.  Look, Reed  Smith could have become complacent as King of the Pittsburgh Hill a long time ago, and where would it be today if we'd succumbed to that?  My predecessor, Dan Booker, set us on a path to embrace change and we have continued it. One of the best things that's happened has been change: It forces you to innovate, which is the true driver of capitalism.  [Greg had just read a book review of a new Joseph Schumpeter biography.] 

"Sometimes people will come up to me and ask, plaintively if 'we can't not change just for one quarter?'  And the answer is No, change has to be constant.  I keep working down the list of what has to get done, and by the time you get to the bottom, there are all these new things that have popped up, so you never get to the end of it.

"But the fundamental challenge is the same.  There are two things—aside from the hard work of executing on your strategy—that distinguish the successful firm:

• talent development; and
• honing client relationships

"Nothing else fundamentally matters. And the thing I love most about change?  There's an avalanche of opportunity out there for us:  An avalanche."

Are you happy?

"Oh!  Look:  Most people are happy when:

• they're doing what they like to do,
• when they're good at it, and
• when it's something that needs to be done.

"Put those three together and you've really got it."

Are you proud of what you've achieved?

"Yes, because we've done it as a team.  I'm proud of the team.  It goes throughout the firm, from the executive committee to the junior staff.  You want to know the best thing I get to do every year?  After the year-end results are in, I get to send out a firm-wide email to every single person on staff at Reed Smith, telling them that the firm had a good year and we're appreciative and want to demonstrate that by rewarding them for their role in it.  This year, on top of all the other profit-sharing and bonus programs, it was a $700 bonus for every single staff member—this can cost a lot of money—but it's the single best thing I get to do.  [This is on top of profit-sharing, which goes to all.]

"I've got to tell you, profits per partner figures are one thing, but this is more rewarding.

"And so it goes on.  We're going to keep scrapping our way to the top, scrapping our way to the top.  And we're going to do it as a team, scrapping.  Complacency is death."

I just learned the results of a survey distributed last month by Edge International asking law firm leaders two fascinating questions:

• Which law firm Managing Partner/Chair/CEO do you admire most for their leadership? [Outside your own firm.]
• Why does that individual stand out in your mind?

Now, the identities of the "winners" are fascinating in themselves, but far more significant to me is why those individuals were deemed standouts.

The envelope, please:

#1 by a wide margin, receiving 13% of all votes cast, was Bob Dell of Latham & Watkins, who was elected Chairman in 1994 at age 42. On his watch, Latham has grown from 598 lawyers in 11 offices to more than 1,900 lawyers in 24 offices, nearly one-quarter of them in Europe and Asia.

Tied for second with about 6.5% of all votes apiece were Regina Pisa, Chairman and Managing Partner of Goodwin Procter and Lee Miller, Joint Chief Executive Officer of DLA Piper.

Also in the top ten, alphabetically by firm, were:

• Ben F. Johnson, III: Managing Partner, Alston & Bird
• Cesar Alvarez: President & CEO, Greenberg Traurig
• Bob Odle (retired): Managing Partner, Hogan & Hartson
• Patrick McCartan (also retired): Managing Partner, Jones Day
• Ralph Baxter: Chairman & CEO, Orrick
• T. Kennedy Helm, III: Firm Chairman, Stites & Harbison, and
• Keith Vaughan: Chair & Managing Member, Womble Carlyle

Two aspects of this list strike me, one wonderful and one not so. The wonderful characteristic is the extremely broad array of firms represented, from very large (Jones Day, Greenberg Traurig, Orrick) to regional (Stites & Harbison). Clearly one can excel as Managing Partner in a wide array of contexts, and it's gratifying the voters evidently appreciated that.

Not so is that two of top ten are now retired. Combine this with the remarks by Patrick McKenna, an Edge Principal, releasing the results, who said that they received a significant number of emails from people who wanted to respond but didn't know enough of their peers to cast a vote, and you have at least a one-dimensional portrait of a group of law firm leaders who may feel relatively isolated.

But the second question is more powerful: Why did you single out that person for excellence in leadership? If you ever thought the job of the MP was "to first do no harm" and to be a passive caretaker, that's not why these individuals are admired.

• Committed to making change happen
  • Continually pushing the envelope in bringing business principles to the law firm environment
  • The firm appears well run but he knew it needed to change and led the way
  • Insisting on continuous re-invention as the legal cimate changes
  • Driving changes that are "elegant and inspiring"
• Has an ambitious agenda
  • Isn't afraid to fail some of the time; sets high goals
• Handles the tough issues directly
  • Doesn't shrink from tough calls
  • Listens very hard but then takes decisive action
• Aligns people behind his vision for the firm
  • Has mastered the art of building consensus
  • Understands where his partners want to go with the firm and gently guides them to bigger goals
  • Spends a lot of time talking with partners about the firm's future direction
• Maintains core values
  • Has rejuvenated a great firm in danger of getting too comfortable
  • Reaffirms core values that made the firm great
  • Focuses on values

Did you think you'd ever hear people saying of Managing Partners they most admire that, "If you haven't failed, you haven't set your sights high enough?" Digest that.

Ten years ago that criterion for excellence would have been inconceivable. But as they say in New York, "you should live so long." Apparently we have.

Pass the virtual champagne.

Fortunately, I have the crutch of McKinsey studying precisely this question, at least as it relates to the particular sample they used in Living with the Limitations of Success:

"To learn what we could about the world's most successful companies (as measured by market capitalization), we examined the performance of the top 25 largest nonfinancial companies in the United States over each of the past four decades—a total of 100 companies. Ninety-seven of them survived a full decade in the top 25. To make their performance comparable across time as underlying general market conditions fluctuated, we adjusted their total returns to shareholders (TRS) for market returns. We also looked at both the average and trends in operating margins, growth, and returns on capital over each decade to understand what drives TRS performance."

They start from the premise that executives at large and successful companies often promise such things as doubling the share price within five years or growing earnings at double-digit rates as far as the eye can see.  Doubtless they mean well.  The problem is simply that what they're promising is often not really within their, or their companies', control.

First, the data:

• Segregating the 100 companies into quartiles, by 10-year rolling averages:
  • the 25th percentile underperformed by the market by -2.9%
  • the median firm outperformed by 2.0%
  • the 75th percentile was at +4.2%, and
  • 23% of companies outperformed the market by more than 5%, albeit heavily weighted towards the lower end of that range (5-7%: 15 firms, 7-9%: 3, 9-11%, 2, >11%, 2)

Second, the interesting question:  How did they do it?

Lesson #1:  Every top-performing firm succeeded by sticking with or refining their basic business model rather than reinventing themselves.  And most that out-performed benefited from environmental and economic factors outside their control. 

McKinsey describes four scenarios that enable continued out-performance, and also says, since firms outside these scenarios were merely mediocre, in words of no uncertain cautionary tone:  "The message for executives: be careful about letting pronouncements on performance goals exceed your company's ability to meet them." Here are the four scenarios.

Perfect your model

Primarily consisting of high-tech and pharmaceutical companies who found themselves in a high-growth sector of the economy, all these companies had to do was adhere to the "if it ain't broke" advice.  Dell Computer used to be a good example.

The problem with this—assuming you're lucky enough to have this problem—is that the ground can (and will) shift beneath you at some point.  For example, after the 1984 breakup of AT&T, the regional Bells were on a roll until the mid-1990's when the rapid emergence of cellphone demand and the Internet required substantial investments at the same time their legacy revenue sources were eroding.

In law-firm land, a model might be investing in technology to make your already strong employment or patent prosecution practice very low-cost, so you can quote attractive fixed fees for large portfolios of business.

Extend your model

Firms that can capitalize on this generally have strong brands or intangible assets such as patents.  Think P&G with its multiplication of varieties of Crest, or adding Downy to Tide. 

For us, it might be taking a classic 1940 Act mutual fund advisory practice and extending it to private equity fund formation, or taking a robust environmental practice and extending it greenhouse gas/CO2 issues. (You heard it here first.)

Capitalize on commodity prices

Frankly, this has zero applicability to us—at least until first year associates are a dime a dozen—but I mention it for inclusiveness, and the general level of insight it provides.  This cohort of "winners" simply happened to be in the right place at the right time.

But it's not where you want to be:  The suppliers of commodities (oil, steel, basic chemicals) essentially cover their cost of capital and grow linearly with inflation-adjusted GDP. 

Turn around underperformers

This one's actually interesting, although its relevance to the AmLaw 100 may be increasingly in the past.  McKinsey's observation is simply that poorly-performing firms can make great strides by radical improvements to their sclerotic operations.

In our world, I think this kind of low-hanging fruit has largely been exploited out of the system.  I would like to think that virtually every AmLaw 100 firm has come to terms with the need to run its business side operations with the same degree of professionalism that they apply to their legal work. 

No, of course we're not all there yet, but permit me to point out that we're not competing with the superstars in this area like GE; we're only competing with each other.  As the battle-scarred joke of the two hunters encountering a bear in the woods has it, "I don't have to run faster than the bear; I only have to run faster than you."

Are these findings really germane to law-firm land?

Yes, and I'll recur to the pending release of the AmLaw 100. The import is this:

• If you're promising, or anticipating, supra-normal performance for your firm, be realistic about how difficult that is to sustain over a period of years.
• The move from, say, AmLaw #50 to AmLaw #30 is daunting, and a long, hard, challenging slog.  It's not strategy (who wouldn't endorse such a strategy?!), it's execution.  Be prepared to start early, stay late, and make more mid-course corrections than you would have imagined possible.
• The move from AmLaw #30 to AmLaw #20 is more intense by a factor of __ (fill in the blank as you please).
• And above #20, the air gets really thin.

That said, there is no entitlement to incumbency, and the disease of complacency at the top is in the Physicians' Desk Reference.  The most cursory glance at the changing complexion of the S&P 500 or the Fortune 500 over the past decade or two is proof of that.

Sustained excellence should be within the grasp of all of us; sustained outperformance of our excellent peers is another order of business.

If you've never run across Arnie Jacobs, a partner at Proskauer in New York, and a "dean of securities law," I hope the stars may align that you will.  Early in my career as a lowly associate at Shea & Gould, I had the privilege of working with Arnie starting the day I arrived at the firm.  His career has spanned a period during which firms, and our industry overall, have changed to an extent impossible to imagine when he graduated from Cornell with a JD/MBA in the 1960's.

Arnie is both an astute observer of our profession, with an insider's perspective benefiting from his many tours of duty on the executive committee, and a perceptive judge of human nature.  For now you'll have to take my word on that, but if you read to the end of this article I hope you'll have formed your own opinion congruent with mine.

Last month I decided it was time I sought out Arnie's perspective on some of the larger trends he's witnessed, and what he anticipates.  This is a report on our conversation.

When he started in the '60's, there was no associate movement between firms, much less partner movement—associates could go to clients, or leave the profession, but those were the options.  Arnie believes that the lateral movement of large groups of lawyers has had a profound effect on our industry, "making the strong firms stronger and the weak firms weaker."  He also observes that, from an interpersonal point of view, this might not be what you'd like—innocent people who are not readily mobile on their own can be trapped in declining firms—but "from a Darwinian perspective" it's inevitable.

Of course there are ways to acquire laterals and then there are ways to acquire laterals.  One model, the "revolving door," might see a firm take on 100 laterals and be fortunate to have 75 still around a year or two later.  Arnie is quick to point out this is not a model he endorses, but he observes that it can be successful in the short run.  Successful in the long run?  Both Arnie and I have our doubts.

His own firm, Proskauer, is "at the other end of the spectrum:"  While 60% of their partners are laterals, they do not make as many lateral partner offers as some other firms: But those who come stay.  And like any good lawyer he has the evidence to back up the claim:  60% of Proskauer's lawyers are in its New York office, and over the last 15 years a grand total of two partners (lateral and home-grown) have left for another law firm.

What, then, keeps a firm cohesive?, I ask.

"It's a conjunction of two things:  (1) partners who are great lawyers; and (2) knowing that they're not going to leave."  If you have those two things, you know you can cross-sell your partners' expertise to your clients, that they'll perform, and that they won't try to walk out with the client.

I ask him for his view of the "segmentation" hypothesis, that our industry is moving towards global vs. boutique, with very little in the middle.  He has a nuanced view:  "There will be more and more concentration of talent at the high end, and boutiques will always be with us."  But he also believes that middle market corporate work, middle market litigation, will be a defensible niche.  These firms may not be super-successful, but they will be reasonably successful, and he sees no reason they can't survive for a long long time.

"Every firm says it's competing for the high-end, premium, price-insensitive work:  How much of that is there really to go around?"

Actually, a fair amount, he opines:  When there's a large deal on the table, with lots of money at stake, time-constrained, rates don't seem to be an issue.

One of the most "material" (as we securities lawyers say) changes during Arnie's career has been Sarbanes-Oxley. I ask his opinion of it on several dimensions:

Re the impact it had on his own practice:  "Great!"  It came at a time of a general slow-down in transactional work, and not only did it mean the securities lawyers at Proskauer had to get their arms around the statute, they had to understand the real, on-the-ground, practical ramifications.

For public company clients?  "It's increased their costs, sometimes dramatically; I honestly don't know whether that has been a wise use of resources."  With smaller clients, the costs have been disproportionate; but very few have actually gone private—fewer, Arnie suspects, than the critics of SOX aver, but more than the SEC would like to admit.

What about the partnership ethos within firms?  How has it changed?

Partnerships by and large used to be far more partnerships. Today it's evolving towards more of a corporate model.  Yes, there's a broad range of firms, but this has been the seismic shift:  More command, less collegiality.    He puts Proskauer strongly on the "collegial" end of this spectrum, and tells the story of how he periodically gives a speech about the firm's insistence on, and living of, that value.  Sometimes after he gives such a talk a recent lateral will come and say to him, "You know, I really didn't believe that, but it's true."

I ask Arnie to talk about this a bit more; culture, I've always believed, is perhaps the #1 ineffable whose impact you can actually observe every day.  He reports that 25 years ago the Proskauer culture was decidedly different, but that a real change was driven starting then, from the top—from autocracy to democracy. (He avers that undemocratic management styles can work, as well, but he's discussing Proskauer.)  "It's ironic, but laterals such as me treasure our high 'collegiality quotient' even more than the home-grown partners do:  They've experienced the unhappy alternative."

How does Proskauer maintain this?

"We reject the 800-pound gorillas; that's a lot of it." Even those with a big book of business? "Especially those, if their personalities won't mesh."

What advice would he or does he give to associates?

"Oh, my, the law is a wonderful profession.  As I was riding down Fifth Avenue in a cab this morning on the way to work, looking at Central Park, I had the thought—which I have 3 days a week out of 5—that I'm one of the most fortunate people alive to be able to do what I'm doing.  People think this is hokey, but there's a real intellectual challenge to it; that's tremendously attractive to me.

"And another thing:  In how many professions can one be truly creative at a young age?  Maybe investment banking, certainly research, maybe some doctors, but there are very few.  Lawyers have that opportunity.

"Finally, there's the societal importance, which is deeply satisfying.  Litigation is not all and only about who has the deepest pockets; there's an element of justice to it.  And doing corporate deals actually accomplishes goals for clients.  I look forward to coming in to work every single day."

I ask Arnie for his perspective on how law firms build themselves and grow, since every strategic plan of the AmLaw 100 places that objective front and center.

"Build on your strengths." 

Don't try to work on your weaknesses?  "No—build on your strengths."  For example, Proskauer was active in private equity well before many other firms, but when we decided it was going to be increasingly important in a post-Sarbanes Oxley world, with tremendous liquidity sloshing across the globe, we devoted even more resources to it.   Case in point:  When the Testa Hurwitz firm closed its doors in Boston three years ago, Proskauer picked up a number of that firm's private equity/fund formation specialists, which they could do because Proskauer already had a strong practice in New York:  The attraction was mutual.  Result:  From a standing start (that is to say, zero lawyers) three years ago, Proskauer's office is now the 19th largest in Boston.

Moral:  Concentrate on your strengths; don't try to build something from the ground up just because it's sexy and everybody else seems to be doing it.

"How have the challenges facing law firm management changed?" 

The most obvious change has been the emergence of full-time law firm CEO's, who do not practice at all.  "Twenty or thirty years ago, the managing partner used to 'manage' during his commute, and maintain a full-time practice.  Today people don't do that, can't do that, and shouldn't do that."  The second most obvious change is that more power has been concentrated in the Chairman, with the benefit being that firms actually are run more efficiently and economically.

"Will we ever see a non-lawyer CEO of a law firm?"

No.

First of all, the CEO needs respect from the partners.  He or she must be not only a lawyer, but a practitioner they can respect.   Second, a non-lawyer would lack the knowledge base indispensable to actually understanding a law firm.  Sure, you might get somebody who was familiar with professional service firms in general, but there's nothing more horizontal than a law firm's structure.

So could we ever see it?  Sure, it's possible we could, but I'd wager it would serve as a cautionary tale for other firms not to emulate.

I mentioned that I worked with Arnie starting on Day 1 of my tenure at Shea & Gould, so indulge me in sharing a classic Arnie Jacobs story:  That day I arrived, eager as possible, around 8:00 am only to discover that most of the lights were still out and essentially all the offices empty.  At 10:00 am my phone rang with a summons to Mr. Jacobs' office.   Grabbing a pad, I thought, "OK, here goes the next month of my life."

Walking in to Arnie's office, I said, "Good morning, Mr. Jacobs."

"You've already made your first mistake," he replied.

"Sir?!"

"It's Arnie, not Mr. Jacobs."

Some time later that morning, my heart rate found its way back to normal.

One last thing you need to know about Arnie:  His intellectual output is staggering.  From the Proskauer site:

"Arnie is the author of 26 books and numerous articles on various aspects of securities and corporate law. They have been cited by the Supreme Court of the United States a number of times, as well as in hundreds of other cases and authorities. As a result of one of those articles, he holds the world's record for the law review article with the most footnotes (4,824 footnotes, to be exact).

His books are:

• Disclosure and Remedies Under the Securities Laws , a six-volume, 5,000-page treatise discussing what disclosure is required under federal and state securities laws, and the remedies for noncompliance.
• Litigation and Practice Under Rule 10b-5 , a six-volume, 5,000-page treatise dealing with securities fraud.
• Section 16(b) of The Securities Exchange Act , a two-volume, 1,000-page treatise dealing with short-swing profits.
• Manual of Corporate Forms for Securities Practice , a four-volume, 2,000-page treatise setting forth forms to be used.
• Opinion Letters in Securities Matters , a four-volume, 2,000-page treatise dealing in depth with opinions lawyers are to render.
• The Impact of Rule 10b-5 , a three-volume, 1,500-page treatise explaining various aspects of securities fraud.
• The Willliams Act—Tender Offers and Stock Accumulations, a one volume, 1,000 page treatise on tender offers and filings by large stockholders."

And to show that the apple doesn't fall far from the tree, a few years ago his son, A. J., published "The Know-it-All: One Man's Humble Quest to Become the Smartest Person in the World," which was on The New York Times best-seller list for nine weeks (as Arnie the proud father points out), recounting A.J.'s (successful) effort to read the entire Encyclopedia Britannica, A to Z, and thus to "redeem the family honor" given that Arnie had fallen off the bus somewhere in the "B"'s when he tried many years before.

We all know these things in our hearts, but now McKinsey has a report on the new book by Stanford University professor Robert Sutton, The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn't   (New York: Warner Business Books, 2007) and confirmed our worst fears. 

Do any of these caustic syndromes ring a bell?  (And the list does go on.)

• Damage to those on the receiving end
  • distraction from real work; time and energy devoted to coping or avoiding
  • honesty becomes not the best policy; a climate of fear, psychological safety undermined
  • motivation and energy knee-capped
  • absenteeism, slacking, turnover
  • and worst of all, a prolonged exposure to bullying can turn one into a bully
• Damage to the jerks
  • retaliation, if possible
  • humiliation if confronted
  • job loss
  • even long-term career damage
• Black hole for management
  • time spent appeasing, calming, counseling jerks
  • time spent cooling, reinforcing, nurturing victims
  • time spent reorganizing to get people out of the jerk's line of fire
• Litigation and HR costs
  • speak for themselves
• Overall impact of condoning jerks
  • stifles creativity and innovation
  • channels internal competition into evil routes
  • zero "discretionary" effort
  • external "suppliers" (technology vendors, expert witnesses, trial consultants) charge "combat pay" premiums

Lest this all sound rather soft and mushy, descriptive rather than quantitative, I've got some quanta for you.  According to this report* cited by McKinsey, 41 employees of a manufacturing firm in the Midwest carried PDA's for a few weeks and, at four random intervals, each was "pinged" to report their most recent interaction with a supervisor or a coworker, whether it was positive or negative, and their mood at the time.  The bottom line: Negative interactions hurt the moods of these employees five times more strongly than positive interactions helped their moods.

OK, let's pretend you've got religion.  Swell. So how do you actually do something about it at your firm?   For starters, realize that "no jerks" means no jerks. You cannot speak of "effective bastards," or "obnoxious superstars."

Publicize the rule by word and especially by deed

As the head of Barclays Capital puts it, “Hotshots who alienate colleagues are told to change or leave.”  Only when people feel safe calling a jerk on his bad behavior do you know you've achieved your goal here.

Live by it in hiring and firing

Perkins Coie, a Fortune "100 Best Places to Work" in 2007, for the 4th year in a row, reject rainmakers for just this "no jerk" reason.  As senior partners Bob Giles and Mike Reynvaan report, "We looked at each other and said, 'What a jerk.' Only we didn't use that word.”

Teach people to fight back

No, this doesn't mean descending into the Lord of the Flies war of all against all; it means "constructive confrontation."  When bullies win, well, then, bullies win.  Here we could all learn lessons from the military, where the fundamental understanding of the command and control  hierarchy is not really all about command and control; it's about "disagree, then commit."  Or, as the theme of Karl Weick, The Social Psychology of Organizing (New York: McGraw-Hill, 1979), has it, "argue as if you are right and listen as if you are wrong."

This also goes for clients

Don't let your people be abused from the outside or from the inside.  Even consider this:  Fire clients who are abusive.  Joe Gold, founder of Gold's Gym (550 locations in 43 countries) did this from the very start, in his first gym on Muscle Beach in Venice, California, where Arnold Schwarzenegger was an early customer.

Is being a jerk contagious?

Yes.

Which is why a jerk-free workplace begins with you.  And this only makes sense.  If I'm attacked, my first, albeit basest, instinct is to counter-attack.  If I lack the organizational status to counter-attack directly, I'll counter-attack obliquely, by becoming disenchanted, losing faith in the firm, giving less than my best effort (or certainly not going the extra mile on nights and weekends). 

Is it easier to have a race to the bottom than a race to the top?  

That's a metaphysical question I'm insufficiently qualified, spiritually, to answer.  But I do know merely from watching the syndrome of negative political attack ads during election season (I could come up with other examples, but this is a uniquely public one), that negativity dumbs down the surrounding environment. 

People who act angrily make you angrier.  These two quotes sum it up, for me:  First, the Arab proverb that "A wise man associating with the vicious becomes an idiot," and second that "a swarm of jerks creates a civility vacuum."

Don't let this happen to you.

* Andrew G. Miner, Theresa M. Glomb, and Charles Hulin, “Experience sampling mood and its correlates at work: Diary studies in work psychology,” Journal of Occupational and Organizational Psychology , June 2005, Volume 78, Number 2, pp. 171–93.

Update 12 April 2007:

A lawyer at an AmLaw 10 firm, but who requested anonymity (which I scrupulously honor), writes today:

I saw your post about the Care & Feeding of 800 Pound Gorillas, and ordered a copy of " The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn't."  I just randomly opened up to page 127, and saw this statistic:  "Researchers Charlotte Rayner and Loraleigh Keashy estimate that 25% of victims and 20% of witnesses of bullying leave their jobs, compared to a typical rate of about 5%.  But these numbers also show that most of the afflicted hunker down and take it.  Many people are stuck in vile workplaces for financial reasons -- they have no escape route to another job, at least to one that pays well."

That statistic and subsequent description sound eerily familiar to associate retention (or reasons why many associates I know still stay).  If this statistic is true and can be applied to biglaw life, then I shudder to think what this means for the profession -- in particular, the characteristics of those who tough it out to make partner (given that even an eighth year associate should have their pressing financial constraints eliminated by that point).

"What it means for the profession", if you ask me (Bruce), is that firms that tolerate, or worse reward, abusive 800 pound gorillas will end up selecting for them and against any "good citizens" who might have randomly begun their careers at the firm. Indeed, if the good citizens haven't decamped by their 8th year, they are either dense or insensitive, neither a desirable characteristic of a partner.

When both I and my friend Larry Ribstein are quoted in the same Wall Street Journal article, it's too rich to resist. So, hoping this constitutes "fair use," herewith the piece from today's paper, pg. B2:

Losing the 'LLP'?

With the trends of law-firm consolidation and globalization, and at a time when the private-equity partnership Blackstone Group has made headlines with its IPO filing, some in the legal industry are wondering if and when we'll see the first publicly traded law firm.

"I would be surprised if in my lifetime we didn't see a law firm go public," says Leslie Corwin of Greenberg Traurig LLP, who advises law firms on business issues. "And I hope I'm around to do the deal."

Why hasn't it already happened? Ethics rules prohibit firms from selling equity shares in law firms to nonlawyers. Theoretically, say legal-ethics types, a law firm could have a potential conflict between its duty of loyalty to its clients and its duty of loyalty to its shareholders. Another ethical conundrum: Lawyers vigilantly protect the attorney-client privilege, and some fear that as a public company, a law firm could risk divulging client confidences.

Still, Goldman Sachs Group Inc. is a partnership-turned-public-company that is very much in the business of servicing clients and protecting their confidences, and has managed the move well. Larry Ribstein, a professor at the University of Illinois College of Law, says a publicly traded law firm could be set up so that the lawyer-owners control the firm and the public shareholders have little or no control.

Adds Bruce MacEwen, a law-firm consultant and blogger, "The restriction against law firms going public reflects a medieval-guild mentality." He adds, "Today's law firms, which are sizable businesses by any standard, deserve access to the capital markets."

Eagle-eyed readers of my article reporting on my conversation with Ralph Baxter may have spotted where Ralph's essay that I referred to was published:  On Legal OnRamp. 

For the rest of you, if you haven't heard of Legal OnRamp, I intend to remedy that here and now.  Consider what follows one small step in the unveiling of Legal OnRamp.

A collaborative service of leading law departments and law firms, it's intended to pool and build upon the knowledge and experience of these two key constituencies of the legal community and, by doing so, to provide a 21st Century tool to help get work done faster and with higher quality.

Ambitious? Yes, but taking a page from the finest and most venerable traditions of the legal profession, insofar as the goal is essentially to help lawyers and their clients collaborate more effectively. Ten years ago I embarked on an attempt to achieve a similar goal as CEO of the late Pro/Se Systems, Inc., which was designed to:

• Bring together the combined legal content of willing members of the AmLaw 100—the tons and tons of client alerts, advisories, updates, briefing papers, backgrounders, presentations, etc., which is now sitting on shelves in 3-ring binders in major metropolitan areas—and digitize it, making it plain-text searchable;
• With the Fortune 1000 as subscribers to this massive content repository, able in seconds to find the most germane articles addressing their legal question du jour.

In other words, bringing together supply (AmLaw 100) and demand (Fortune 1000) to provide a sophisticated online service for answering day to day legal questions all for the price of a subscription:  "I own restricted (Rule 144) stock; what can I do with it?"  "I have to fire a 60-year-old; what do I need to know?"  You get the idea.

Legal OnRamp is that idea—and far far more—a decade later. For one thing, it's a reflection of how companies are doing things fundamentally differently now, with far deeper learning available from sectors outside the law such as CAD, web, and enterprise systems.

Here's just some of what it has to offer:

• Content: FAQ's on the law, updates and publications from firms, "blogs from legal thought-leaders" (yours truly is a member), and standard forms and templates.
• Community:  Designed to facilitate communication and business deals between the members of "LOR," with forums and online discussions.
• Collaboration: A way to get work done between outside lawyers and in-house professionals.

Other features include real-time flagging of who among the members of your personally selected community are currently online on the site ("Facebook" for lawyers), private and secure collaborative workspaces and wikis, with more to come.

Who's behind it?

Cisco, first of all, as foreshadowed in this earlier article of mine.   But on the law firm side, some names you are familiar with:

• Allen & Overy
• Baker Botts
• Cooley
• Eversheds
• Fenwick & West
• Frost Brown Todd
• Littler Mendelson
• Morgan Lewis
• Orrick
• Pepper Hamilton
• Pillsbury Winthrop

Curious to learn more?  Contact LOR, or email me. 

Whether or not it will be as seminal and as ground-breaking as it aspirations, I think it's not too soon to say:

• It's an idea whose time will come.
• The odds of success today—for a host of reasons ranging from dirt-cheap servers and open-source software to more creative thinkers in our profession as a whole—beat those of a decade ago, with a stick.
• It has deep-pocketed backers, a conservative growth model, and with its modest spending rate and some early revenue streams, can survive for a long time without needing to achieve escape velocity.

Part of my fascination with Legal OnRamp stems from an observation many have made about our profession: That law firms won't fundamentally change until clients demand it. Legal OnRamp invites firms to change—at least in some respects—in anticipation of where clients are going: To go where the puck will be, if you will.

If, like me, you're intensely curious about ways in which our profession can evolve, while staying true to its roots of placing client service front and center, you'll want to know about Legal OnRamp. I can tell you that it's a ride I've signed up for. 

As they say in Times Square, "check it out."

It can be a slippery concept, unusually prone to the "eye of the beholder" syndrome, but the uber -article about Web 2.0 was written by Tim O'Reilly, founder of O'Reilly Publishing and one of the truly thoughtful writers about our evolving online world.   Here are some of his thoughts about it:

Some of the key concepts O'Reilly posits as characteristics of Web 2.0 are:

The Web as a Platform

In Web 2.0, you don't "surf" or look at things on the Web; you do things on the Web, and Web 2.0 participants such as Google provide services

Harnessing Collective Intelligence

For example, eBay is essentially an enormous platform for enabling, categorizing, and collecting the joint activity of all of its users, and like the web itself, it grows organically in response to user activity. 

Similarly, Amazon sells the same products as Barnesandnoble.com, with the same jacket photos, ISBN's, and Publisher's Weekly blurbs, but it has become extraordinarily adept at enabling visitors to contribute their own reviews, and to participate in a myriad of ways on virtually every page.  Through a virtuous feedback loop, Amazon uses the visitors' contributions to, in turn, improve its search and recommendation functionality.

Most spectacular in this area are the successes of sites like Wikipedia, entirely a creature of visitor contributions, or flickr or del.icio.us.  In a formulation at once cunning and appealing, this is known as the "architecture of participation."

Data is the Next Intel Inside

This signifies that every Web 2.0 initiative is tremendously data-dependent:  Google, Amazon, MapQuest, mashups (if you don't know what a mashup is, go here, which combines, or mashes up, Craigslist apartment listings with Google maps—right, you just got the idea).

The End of the Software Release Cycle

Google is famous, or notorious, for constantly releasing new functions, or applications, in "beta."  Sometimes they formally graduate from beta-adolescence, sometimes they disappear and sometimes they seem to remain in a sort of permanent beta purgatory.

I have often wondered when—but not whether—this will pose a bedrock challenge to Microsoft's business model.

O'Reilly has a few other candidates for characteristics of Web 2.0, which tend to be a bit more geeky ("lightweight programming models," "software above the level of a single device," and "rich user experience," for instance), but I think the point has been made.

Great.  What has this got to do with you and your firm?

The usual suspect, McKinsey, has fingered Web 2.0 for a survey on how global businesses are using it.  With nearly 3,000 respondents, 44% C-level executives, the survey essentially constitutes a widespread, but careful, endorsement of Web 2.0 in corporate land.  Some numbers:

• Asked how satisfied they are with the financial return on their investment in Web 2.0 technologies over the past five years:
  • More than half are pleased
  • Three-quarters plan to maintain or increase investments in the coming years
  • Only 13% say they are disappointed
• Interestingly, those who described themselves as "early adopters" were more satisfied than those deeming themselvse "fast followers."  This confirms my own personal prejudice that in technology investments, speed is a virtue.

Separately, McKinsey asked the classic "hindsight" question:  Knowing what you know today, what might you have done differently to make your investments in Web 2.0 technologies more effective?:

• Invested at the right time but didn't invest enough:  42%
• Should have invested sooner:  24%
• Would do nothing different:  18%
• Invested at the right time but over-estimated potential: 10%
• Should have waited for technology to mature further: 7%

Back to what exactly "Web 2.0" means in the business context:  The most popular application is "Web services," which McKinsey defines as follows:

"Web services are software systems that make it easier for different systems to communicate with one another automatically in order to pass information or conduct transactions. For example, a retailer and supplier might use Web services to communicate over the Internet and automatically update each other's inventory systems."

In law firm land, one of the truly useful applications of "Web services" I've seen is the knowledge management system of an AmLaw 25 firm that draws from essentially every database in the firm—not just the document management or matter management systems—so that if you find (say) a brief of particular interest, you have simultaneous on-screen links to every pertinent piece of data related to that brief, from the lawyers who authored it to the client for whom it was generated, the number of hours billed against it, the office and practice group it emanated from, etc.

"Web services" are in use at 80% of companies surveyed.

Second is "collective intelligence," at 48% of firms, meaning methods of enabling online collaboration, for example by allowing multiple authors to edit a document in one space.

"Peer to peer networking," which enables efficient sharing of a file over the Net or to a selected group, by distributing copies of the file across many machines, was in use by 47% of firms responding. 

After that, the remaining technologies were all used by between one-quarter and one-third of firms responding:  These included social networking, RSS feeds, podcasts, wikis, blogs, and mashups.

But let's not exaggerate the penetration of these techniques:  Very few report that their companies are using three or more of these techniques, and more than a third labeled the entire sector "experimental."

Still, among firms using them, the benefits seem clear:   The key objective is to communicate more effectively and efficiently with customers, business partners (e.g., suppliers), as well as internally (think KM). 

Is any of this a surprise? 

Yes: Because the key source of dissatisfaction with Web 2.0 applications seemed to be adopting them too late, not too soon. 

But no:  Because business (as law) is all about effective communication with the people who matter:  Your clients, suppliers, and your own colleagues within the firm. 

"Web 2.0" is not, conceived that way, novel in the least.  It's simply another way to communicate.  If communicating is key, Web 2.0 is here to stay.