I've written previously about the economics of lateral recruitment—the piece I cite there actually prompted more reader feedback than most articles in recent memory.    Today I want to propose two counter-intuitive, or at least counter-received-wisdom, beliefs I have about lateral recruitment which live on the fascinating borderline between economics and culture. 

The ideas that follow are my own, and for better or worse I haven't found any "outside" source that I can allude to or cite anywhere in the remaining body of this piece.

Lateral Error #1: You hire them for their portable book.

This premise gets matters off on the wrong foot, both caustic and misguided.  "Misguided" because any partner worth his/her salt will have a practice two, three or five years hence that has evolved substantially from where it is today. (Isn't your time horizon that long?  If not, can we talk?)

But the "caustic" part is the worst part, and the important part:   Casting the conversation in terms of immediate revenue invites the lateral to view your firm as merely in the hunt for a piece of meat, and your incumbent partners to expect the expensive lateral asset to start delivering value post-haste or be viewed as a bad investment.   Expecting this to lead to bonds of loyalty is madness.

Do I, then, counsel ignoring the portable book?   Yes, I do.  The only possible exception is if you're entertaining the possibility of bringing over a small group with a marquee client—then and only then should you give more than a passing glance to the billable's.

Lateral Error #2:  Wanting them to hit the ground running

Is your goal to truly integrate the lateral into your firm?  Specifically, is  your goal to inculcate them with your firm's culture, your firm's "way," your firm's values? 

If so, the worst thing that could happen is for them to seamlessly move over, working on the same matters for the same individuals as they had been at their prior firm the week before, changing only a phone number, an email address, and the particular view out the window.  If this happens, they will bring with them their (unchanged) good and bad habits, their attitudes towards associates and professional staff, their expectations (or lack thereof) about their partners, and their cultural upbringing.  You will have accomplished nothing more than recruiting, as David Maister puts it, a "warlord with a following."

I believe the best thing that can happen when a lateral arrives is that their pipeline suddenly dries up, and they're thrown in together on a matter with some of your veterans.  Face it:  These people may be self-confident or even arrogant, but they're not stupid, insensitive, or unobservant.   I might even take this a step farther and skip the step of leaving it to chance whether the pipeline dries up:  I might recommend you send the new lateral on a brief "meet and greet" road show so that your incumbent partners know them and understand what they can offer.  In the meantime, their clients will just have to be handled by existing professionals, won't they?

They will see how your veteran partners treat their peers, how associates interact, the level of respect the professional staff receives, and the alacrity with which client phone calls and emails are returned.  They will see, and they will learn. And don't forget how motivated they are to succeed on the new team.

When their client does get busy again, that client will not experience being a client of Lateral X; the client will experience being a client of your firm.  We can hope that works out for the best; but if it does not, wouldn't you rather know sooner than later?

So if I think you should trash the conventional rationales about why you hire laterals, do I recommend you eschew them entirely?

Not at all.

Rather, I recommend a different litmus test for lateral recruitment:  Will they add to our "platform"?

Do they bring a skill-set, an industry-specific knowledge, a practice area specialty, that complements and (potentially) builds upon something we already do, but which we could do more effectively, more comprehensively, more thoroughly, for more clients, or with wider geographic reach?

If they add nothing to the platform, take a pass.  Or, as the chair of an AmLaw 10 firm put it to me earlier this month, "we hire to add capability."  What they do not do is hire to add revenue.  In fact, they don't even ask potential laterals about the size of their presumptively portable books—much to the consternation of some people they talk to.

That gets the conversation off on the right foot.

Update (31 May 2007)

Charlie Green of "Trust Matters" writes:

Well-seen and well said. 

Lateral-hiring for their portable book, and to hit the ground running, is like marrying someone else's spouse because they seem pretty good at the job of being a spouse.

There's no such thing as a "good" wife or husband, except in context of the particular husband or wife they're paired with.  Relationships, whether in marriages or law firm partnerships, are particular, not generic. The baggage one brings to either relationship is largely positive or negative not on its own merits, but depending on the relationship one is entering.

Or so it seems to me.

The fact remains that nothing takes a back seat to the long-run health of the firm.  According to McKinsey's "Anatomy of a healthy corporation," here are the traps that take our eyes off that ball:

• What they call "mindfulness," or the temptation of succumbing to the press of daily business rather than doing the truly heavy intellectual lifting of contemplating (say) the competitive landscape your practice group will face five years hence.
  
• Cognitive traps:  Thinking that organizational health is soft and fuzzy and will take care of itself.  Or that short-term performance will ensure long-term health (guess again).  Or that impaired firm health exists only in some dimly imaginable future, not today in the here and now.  (Checked your cholesterol lately?)
  
• The self-knowledge trap:  A/k/a our weakness for saying or believing one thing and doing the opposite.  McKinsey cites this example, but we can all come up with many too many closer to home:  "The managing director of a North American chemical manufacturer we know talked a good game about regenerating and replacing assets—and then promptly promoted and lauded two site managers who had met their short-term financial targets by starving the facility of maintenance capital."

We recur, then, to how to achieve organizational health—knowing the traps enumerated above are in our way.

First, we need to define what organizational "health" means.  Lovely as it may be as a metaphor for our bodily health, we need to clarify its dimensions.   Fortunately, McKinsey has done the work for us, with their characteristic exhaustiveness.  I'll let them explain the methodology:

"First, in an effort to mine what was already known about the question, we reviewed more than 800 empirical-research papers, journal articles, and books published from the 1950s to 2005. Second, we analyzed 60,000 responses to an organizational-health survey we have administered to employees and managers at hundreds of companies over the past five years. Last, we distilled what we learned from a series of executive forums and more than 30 in-depth interviews with functional leaders across all disciplines.

"We winnowed the resulting insights to find those that had support from empirical evidence; were broadly applicable across companies, industries, and geographies; and could be acted upon in a practical way. Then we distilled the survivors into five overarching characteristics of business health: resilience, execution, alignment, renewal, and complementarity."

Fine; so what do each of these five characteristics of "health" entail?

Resilience:  Is simply the ability to gracefully recover from unexpected disruptions.  Be it as simple as good IT backup and disaster-recovery hygiene to planning for the sudden loss of a key client or partner, healthy firms quickly recover their balance after being knocked down.

Execution:  Means getting the basics right.  Rising markets, lucky bets, and indulgent clients can mask sloppy execution for awhile, but the healthy firm pays attention to execution constantly, just as the winning sports teams drill on the basics relentlessly.

Alignment:    Without doubt one of the most abused terms in all of managerial literature, "alignment" is actually an inarguable good.  It means cohesiveness of purpose across the firm—partners, associates, staff, marketing, IT, finance, etc.   With today's international firms, this can be difficult to achieve unless there's a compelling, consistently articulated vision for the firm, communicated to one and all, and reinforced by incentives and conscious measurement in performance evaluations.

Renewal:  Sounding dangerously fuzzy, "renewal" simply means investing in the future of the firm, grounding forays into new areas on well-established beachheads with existing clients and practice groups.  For example, your firm might try to extend expertise in mutual fund formation to expertise in hedge fund formation, or familiarity with representing LBO takeover artists to representing private equity acquirers.

But there's also a cultural component:  The future can quickly overtake your firm if your firm isn't prepared to change.  McKinsey cites an iconic brand, now long dead:  "Markets and industries move quickly; most companies do not. Smith Corona was a peerless and highly successful typewriter maker until the electronic age overtook it."

Complementarity:    This is a perhaps overly fancy word simply meaning that every element of the firm should act in concert.  Your associate recruitment techniques should reflect the strategic vision you have for the composition of your professionals ten years hence, which should in turn be incorporated into the compensation system, reflected in the makeup of the staff you hire, and expressed in bricks and mortar in the cities where you seek to build or to withdraw your presence. 

A Suggestion:  Two Sets of Books?

Coming back to the tension between short-term demands and long-term health, rather than trying to sweep it under the rug, why don't we confront it directly and set up, as it were, two sets of books, at least when it comes time to divvy up compensation?

I'm suggesting a first set of books for immediate performance:  Hours billed, quality of technical proficiency, imagination and innovation in transactions, clients satisfied, matters successfully concluded.  And then a second set of books for long-term orientation and good firm citizenship:  Associate mentoring, contributions to strategic planning, building practice group management, pro bono commitments and general firm brand-building efforts, etc. 

We can do this both in terms of the income statement and the balance sheet.

For the "income statement" categorized by personnel, consider something like this (I'll focus on the expense side, since that's where investments in "health" will obviously appear):

And for the income statement categorized a bit more conventionally, consider:

Needless to say, you aren't necessarily discussing these alternative financial statements with your CPA's, but I do suggest them as management tools.

Let's return to where we started.

How do you deal with the incessant pressure between temptation, and the demands, of short-term performance, and the long-term health of the firm?   A good start is by recognizing that the only way to produce impressive results on a sustained basis, and for the long run, demands attention to the fundamental health of the firm be embedded in all  you do.  Including compensation.

As noted in the WSJ Law Blog, on law.com's legal blog watch , and by my good friend Larry Ribstein, the Australian law firm Slater & Gordon, a personal injury specialist firm with 21 branches in the country and over 20,000 clients, became the first publicly-traded law firm in the world yesterday when it listed on the Australian Stock Exchange.

And it had a pretty rich first-day "pop," opening at AUD$1.32 vs. the issue price of $1.00/share and closing up 40% at $1.40.   The Times of London also reports on the move, reciting the received wisdom that:

"Observers in the UK suggest that the top City firms, including the "magic circle", are unlikely to need to seek outside capital, at least in the short term. However, they expect the prospect of an IPO or private equity investment to prove attractive to those in the second tier, particularly firms specialising in highly commoditised, consumer-facing practice areas."

As for me, I believe this view may well be true in the short run, but is highly questionable in the long run.  Moreover, I believe that once one or more "second tier" firms demonstrates aggressively what can be done on the competitive landscape with access to meaningful capital, other firms may lose their complacency.  This is the simultaneously destructive and creative engine of capitalism.

Back to Slater & Gordon:  The firm is up-front about where it sees its priorities' being, and maximizing shareholder value is not first. Indeed, it's not even second. According to the discussion of "risk factors" in the prospectus:

"Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the Company’s business as an Incorporated Legal Practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of Shareholders or the short-term profitability of the Company." [...]

"To the extent that there is a conflict or potential conflict between those duties, that conflict shall be resolved as follows:
• the duty to the Court will prevail over all other duties; and
• the duty to the client will prevail over the Company’s other corporate responsibilities and duty to shareholders."

Likewise, managing director Andrew Grech—who himself owns more than 14-million shares, making him worth nearly AUD$20-million, or about US$16-million—confirms those priorities. "I don't think being able to operate your business sensibly means you have to sacrifice the quality of the professional work you do for your clients and the way you deliver those service to clients."

Don't these declarations and disclosures essentially answer the fear of the traditionalists that there can be no marriage between a professional, client-centric ethos, and outside investment?   What S&G is saying, if I read them rightly in plain English, is that they know compromising ethical obligations to the court or to the client is the way of madness, and that they shall not go there.   I'm unclear what more one could ask.

Well, you protest, one could ask that they not open themselves to the profit-maximizing expectations of the outside-investor cohort to begin with.    How then are the plainly-disavowed interests of those passive third parties more powerful or motivating than the profit-maximizing desires of full equity partners in a private firm, who collectively distribute 100% of the spoils at year-end?   If the problem, in other words, is the collision between "professionalism" and "profitability," I suggest Slater & Gordon has just ameliorated, not exacerbated, it.

The Australian Financial Review (the down-under equivalent of the Wall Street Journal) has the best coverage, not just reporting the facts of the offering, but extrapolating to other what other major Oz firms might be worth on comparable bases. (They appear to be using a P/E ratio of about 13, a figure also attributed to "a Sydney investment banker" as plausible. Slater & Gordon closed its first day of trading at P/E of about 12.5.)

Their analysis claims that each of the top five Australian firms would be worth at A$2-billion or more in market capitalization. For example, they value Freehills at A$2.65-billion, which equates to nearly A$13-million for each of its 209 equity partners. And, drolly, they have this to say: "While the major law firms have indicated they do not intend to float, the potential for a large windfall from listing on the ASX is likely to focus partners' minds on the prospect." Indeed.

There's more: Blake managing partner John Atkin is quoted as saying, inarguably, that "The partnership model is very unsophisticated... You have to pay the profits every year for tax reasons, which doesn't encourage long-term investment or thinking—but that could be possible with a different structure" (emphasis mine). Thank you, Mr. Atkin, for stating the blindingly obvious—and something which we as a profession nevertheless seem to remain perfectly comfortable ignoring utterly. To compete the thought:

"Where else do you find organisations which run a businss as large as ours which are unincorproated, other than where there is a regulatory reason for doing so? The answer is none."

But back to Slater & Gordon.

What will they do with the money?  I ask only because one of the most common objections I hear when I propose that US law firms ought to have full access to the capital markets is:  "Why do law firms need money?  They're not capital-intensive."

Indeed they're not, at least compared with most industries.  Law firms' assets are not fixed, they're "elevator assets."  Yet that's not to say creative initiatives couldn't be undertaken if firms did have access to meaningful capital.  (You may not know the answer to the question until you have the resources to actually pursue answers.) 

As for Slater & Gordon, they intend to do several things with the money—$15.4-million specifically targeted for the following:

• Pursue acquisitions—perhaps the local Australian equivalent of a "roll-up" strategy for consolidating the personal injury/contingency bar nationwide.
• Invest in marketing.
• Strive to double or triple their client base (largely grown at retail, so capital helps).

I've read through the rest of the prospectus and it reads, at least to this securities lawyer, precisely as one would expect.  They make the business case for the firm:

• Pointing out that the personal injury law firm market is highly fragmented, making it ripe for acquisitions;
• Disclosing that they received an impressive 30,000 potential new client inquiries last year;
• Reporting on a survey that shows they had over 80% brand-name recognition in their key market.

They also articulate the risk factors, including:

• The aforementioned loyalty to courts and clients ahead of shareholders;
• Reputational risk if fails to meet client expectations;
• Inability to complete its aggressive acquisition plans, or greater than expected competitive pressures;
• Over-reliance on key personnel;
• The competitiveness of the market for high quality lawyers;
• Potential changes in the regulatory environment;
• And so on.

Why do I list these?

Because they read like:  Any Other Prospectus.

And that's precisely the point, isn't it?  How truly extraordinary is the public listing of S&G?  Not a bit.  The story is that a nicely performing, fairly small firm, with a promising future but in an iffy industry, offered its shares on an exchange and the investment community responded with a one-day pop of 40%.  They could be gone in a year or three or they could be a mid-pack, index performer or they could conceivably—though I would be the last to forecast this of a firm run by lawyers—be a shooting star.   The most important point is simply that it happened, as a routine transaction on the Australian Exchange. 

We have lost our virginity.  Fine, done.

Now let's try to learn what this is really all about.

Several weeks ago I heard about a group of disaffected and activist institutional shareholders that took on the management of Take-Two Interactive Software, videogame company and maker of the marquee title, "Grand Theft Auto," at the company's annual meeting recently. Not only did the activists succeed in replacing the entire Board of Directors with their own slate, but they did so without a proxy solicitation or proxy fight, then and there at the annual meeting.

I wanted to hear more about how they pulled off this unorthodox move, so I arranged to sit down with Adam Kansler, a Proskauer partner who represented ZelnickMedia, the leader of the consortium of institutional shareholders. Here's what I learned.

Proskauer's client, ZelnickMedia, led by its founder Strauss Zelnick, thought Take Two was a company that was fundamentally sound although it had been doing certain things badly—such as permitting a stock options backdating controversy to escalate into a criminal indictment of its CEO (something of a feat in itself), and being threatened with de-listing by NASDAQ for not having held an annual meeting, or filed a 10-K or 10-Q, for 22 months. (When I heard this and expostulated to Adam that "I didn't think you could do that," his comprehensive and understated reply was: "You can't.")

Let me first set the stage. After that, I commend to you Adam's summary of the preparations for the annual meeting, and how the team navigated the myriad of complex, intersecting issues of federal securities law, Delaware corporate law, and the bylaws of Take Two itself, that made this unprecedented board "takeover" possible.

Four institutional shareholders owned a combined 46.1% of Take Two, and while they all were sorely disappointed in incumbent management and thought it had to go, some were more active and others more passive in promoting that objective. The initial spark for the no-proxy-contest approach came from the client, who essentially asked Proskauer, "Can't we just call these four or five people up and change control?"

Adam points out that they were not wrong: As a general matter, Delaware corporate law lets the majority control. But Delaware corporate law also runs smack into federal securities law (or vice versa, if you prefer), as neither corpus was designed to follow the other.

Multiple paths were carefully considered, but it was an action by Take-Two – calling a stockholders’ meeting - that ultimately set the stage for investors to show up at that meeting, nominate a new slate of directors from the floor, and proceed to vote them in on the spot. A few key circumstances came together to enable this:

Ownership in Take Two was highly concentrated, enabling a small handful of actively-minded investors, notably less than ten as provided in an exemption from the proxy solicitation rules, to effectively act to force a change.  Also, Strauss Zelnick had put together a strong management team, with a reputation for running things well. This meant that should the activists succeed in taking over the Board, it would not be a hollow victory: They could actually make a positive difference. 

But a somewhat subtler aspect was as important: There has been a change in the way institutional investors behave. In the past, institutional investors were essentially mutual funds and pension funds, and their universal attitude was one of passivity, in the sense that dissatisfaction with a portfolio company did not imply they'd try to change the company; it meant they'd sell. But within the past five years, this has changed, as money has piled into hedge funds, and they have become more strategically driven. They are no longer just arbitrageurs, but money managers willing to be active.

Although none of the participants was interested in doing anything truly “hostile” or "destructive," as Adam put it, they did look to some extent at hostile takeovers as a model for what they planned to do and for being prepared for potential reactions by Take-Two. "And was there resistance from incumbent management?," I ask. "Well, with nearly a majority of shareholders on our side, the incumbents probably found it hard to comfortably say no."

Although the notion of replacing the entire Board of a public company without a proxy fight seems innovative enough to me, Adam is a bit more modest: "This was not really the invention of something completely new, like the poison pill, but more the discovery of and careful navigation down a path previously undiscovered." As they say, we report, you judge.

I commend to you the admirably readable summary of the legal issues involved provided by Adam and his team [here's the *pdf describing more of the legal machinery]. 

All I'll add, to goad your professional interest, is to ask if you know the answer to this question: If you are the record owner of stock held at a broker-dealer (non-certificated, that is), which has been leant out in the ordinary course by the broker-dealer to a short seller or other third party, you still have the right to vote those shares, don't you?

But I also think this unorthodox transaction opens a very nice, broader question: What does the massive liquidity and increasing activism of private equity imply for the landscape of public companies in the United States? After all, as Adam points out, we're no longer in plain vanilla mutual fund land, where the solution to problem management is simply to sell.

Two competitive pressures at once are converging on private equity and public companies: It's less and less attractive to be public, and at the same time the easy, out-size returns for private equity are harder and harder to grasp against the heightened competition for deals and pressure to pay up to the present discounted value of the foreseeable future gains.

The convergence of these trends may be more public companies willing to more or less supinely acquiesce to private equity's mandates for change, particularly as percentage ownership stakes in the hands of private equity grow. After all, if 46% of your shareholders are agitating for replacing management, doesn't it become awkward to defend your incumbency for the sake of incumbency? "Passive" private equity will be less competitive in the marketplace, and "to the ramparts" public company defenses may no longer be seen as worth the candle.

If I'm 10% right, look to see more innovative transactions such as that pulled off by Adam Kansler and his team at Proskauer.

And, if your firm doesn't have a private equity practice yet, I hope you have some chips on other squares on the green felt in the center of the table.

Dechert was #48 on the AmLaw 2001 and is #24 on the AmLaw 2006.   Under the headline, "Dechert Cracks the Code for Am Law 100 Success," The American Lawyer tries to explain how the firm pulled it off. 

I wish the article were more successful at answering the question it poses:  How did they do that?  But alas, I came away from the article (did you as well?) understanding that Dechert espouses the same inarguable strategic objectives of all aspirational firms—which we can all recite in our sleep—more "high value, premium, rate-insensitive work," higher caliber lawyers and clients, aggressive expansion into key markets such as New York, etc., etc.    But what I came away without was any insight into how Dechert actually accomplished this aspiration when so many others are struggling, or just plain failing, to do the same.

To be sure, the article is well reported and tells a variety of informative and entertaining stories about successes on the road from #48 to #24, but I wanted more of a real explanation—"real" meaning it doesn't just describe what happened, but it offers a coherent theory why Dechert was able to achieve what any firm near #48 five years ago presumably would have been aspiring to.

But first, to the facts.  With promise, the article starts by saying it's all been very clear:

"Dechert's formula has been fairly simple: Raise rates aggressively, expand head count while tightening up the equity partnership, focus on a few core practice areas, and grow the ranks in London, where the firm has 121 lawyers, and New York, home to 223 more."

Would that is all there is to it.

But ask any managing partner what keeps them up at night, and it's (a) rate pressures; (b) the relentless war for talent; (c) the disequilibrium entente between equity and non-equity ranks; and (d) the cut-throat, "house to house combat" challenge of building profitable, respectable practices in New York and London.  

I'd be as well advised to recommend that the route to happiness in life is to find work you're passionate about and for which you're amply rewarded, to marry ecstatically and enduringly, and to cultivate your aesthetic soul while tending to your physical vigor.  Easy for me to say.

To be fair, the article immediately adds that "Dechert has also been in the right practices at the right time."  This is a start.

Bart Winokur, 67, deservedly gets much credit for "shaking things up" starting in 2001, with a five-year plan to increase profitability.  40% of the partners at that time are now gone.   Here are some elements of what else has changed:

• The firm has increased revenue by an average of 20% per year for five years.
• It moved aggressively into London by merging in 2000 with 165-lawyer Titmuss, Sainer & Webb, a mid-market firm with a largely domestic focus and a laid-back 1,300 hours/year average.   When Dechert announced its expectation was for 1,750 hours and a far more up-market practice, at least 30 partners and 28 out of 53 London associates proceeded to leave.
• In New York, its jump-start came in 2005 with 57 lawyers from Swidler Berlin Shereff Friedman, including key partners in securities class action and white collar defense. 
• From a toehold in 1982 working on a single deal for Citicorp Venture Capital, the private equity practice has mushroomed to deals such as last year's $3.9-billion acquisition of mutual fund group Putnam Investments.
• Also in the "right place at the right time" category, we can add Dechert's landing litigation lawyers in Palo Alto from Oppenheimer Wolff & Donnelly; picking up 32 arbitration lawyers from Coudert Bros. in Paris, and bringing in 7 IP litigation specialists from Dewey Ballantine just this year.

"Chance favors the prepared mind?" 

I heartily subscribe to that adage, and reading between the lines one can credit Winokur for possessing—and acting upon—just such a mind.  For example, the Swidler-Berlin acquisition was negotiated at breakneck speed, to the point where some felt it was "rammed down their throats," but in hindsight all involved approve.

Other clues are buried in the article.  Winokur conducts a monthly videoconference to all partners in all offices (the article says "every week," but I take that to be a typo because it seems implausible), which reveals his proper, legitimate, and too oft honored-in-the-breach commitment to communication.

The firm is also, evidently, serious about backing up its talk about strategic priorities by committing real resources; the article mentions that "Mark Shapiro, a law firm consultant now at Blaqwell, Inc. who helped put together the firm's last strategic plan, prodded Winokur and several practice group heads to come up with a new set of financial targets" on one of the monthly videoconferences.  [Disclosure:  I know both Mark personally and Blaqwell as a firm, but I have no personal knowledge of the work they've done for Dechert.]

The last and perhaps most forceful of the techniques Dechert has evidently been using to pursue it strategic objectives is what I'll characterize (although the article does not, exactly) as "forced rate increases." 

By "forced," I mean that there appears to be an edict from the top that every practice group will increase rates by x%/year.  The rigor this enforces is self-evident, as explained thus: 

"Rates were hiked 10 percent in the first year of the plan, and then 6-7 percent a year, forcing partners to initiate the kind of financial conversations with clients that most lawyers avoid. It also priced the firm out of more rate-sensitive matters, such as environmental work and property sales for large real estate management companies. "It's been a very good discipline in making sure we have the best lawyers doing the very best work," says Peter Astleford, a top London hedge funds partner. "If you don't, then your lawyers will not be busy. And if they're not busy, you know you've done something wrong in your business.""

Perhaps this is the secret, after all:  Not "strategy" but "technique."  Or, as you hear people say, "Execution is the new strategy."

Let's return to where we began.  We can all recite in our sleep what we should do to separate our firms from those that take the alternative path available to Dechert in 2001:

"[We] could slowly have drifted down-market and been a very nice Philadelphia firm with maybe 200 lawyers." 

Mandatory rate increases across the board?

Monthly firm-wide videoconferences to communicate?

Sustained, committed investments in New York, London, and Hong Kong?

Careful and highly selective lateral recruitment?

Knowing what to do is not the challenge.  Doing it seems to be the challenge.  I bet that's how Bart Winokur sees it.

In doing some research about large law firm dissolutions (Brobeck, Coudert, Finley Kumble, Shea & Gould, etc.), I came across a November 15, 1983 article from The New York Times archives entitled "Business and the Law: Fall in Income at Big Firms." Join me in a brief time-warp tour through the looking glass.

The article stems from the release—or, actually, leak—of "the recently distributed Price Waterhouse study of law firm finances." According to the study, "the average partnership share at the 21 biggest New York firms that participated in the study - firms with 150 or more lawyers - was $232,110 in 1982, down 4.5 percent from $242,940 the previous year. Adjusted for inflation, the income per partner at those firms has dropped 11.6 percent since 1978."

To put those dollars in today's perspective, I ran over to the Fed's CPI Calculator and came back with the information that $1.00 in 1983 corresponds to $2.06 in 2007. Let's re-run the numbers:

First, let's try to produce today's list of New York's "21 biggest" firms. Since the article is evidently doing it by lawyer headcount, I took the most recent National Law Journal 250 (ranking firms by headcount as opposed to revenue, as the AmLaw 200 are ranked), sorted on "Headquarters City" (a self-reported datum), and came up with this, where the first column is the firm's NLJ 250 rank and the last column is their reported lawyer headcounts:

Whereas the cutoff was "150 lawyers," now the cutoff is 525. And some notables miss the cut—including Cravath, Cahill Gordon, Wachtell, and Schulte Roth.

But of course the real sex appeal lies in the partner income numbers. "Outside New York," according to the P-W study, "median net income per partner is $143,000"—or barely $300,000 in today's dollars. The New Yorkers, then as now, were outperforming, but using our CPI adjustment only gets them to an average of $478,000/year. And there's more:

"Another sign that the biggest law firms are getting squeezed financially is that they are borrowing more money. According to the Price Waterhouse survey, average debt per partner at the big New York firms was $18,000 in 1982, up more than $7,000 from the previous year.

"Then too, there is a decline of about 1 percent in the number of billable hours. At the big New York firms that took part in the study, the average partner was billing 1,530 hours a year, while the average associate managed 1,767 hours."

"The survey may offer a good overall picture of the finances of legal practice, but a memo leaked by one of the partners at Shea & Gould gives a more intimate look at how one firm split the partnership pie in their 1982 fiscal year.

"While William A. Shea and Milton Gould, the two politically well-connected name partners, received $646,000 each, 14 of their partners got less than $100,000 - and the newest partners, Harvey Feldschrieber, James E. Frankel and Mark L. Friedman, got only $55,000. [...]

"After Mr. Shea and Mr. Gould, the five [executive] committee members are the highest paid. Bruce Hecker, Bernard Ruggieri, Martin Shelton and Allan Tessler got $415,000 last year, and the fifth member, Thomas Constance, $410,000."

You can do the CPI calculation for yourself, and compare the short-sticked partners to today's starting associate salaries, but before returning to the 21st Century with you I want to point out an interesting ratio: First-year associate salaries in 1982 were just shy of $40,000, meaning Shea & Gould's executive committee members earned about 10x what a first-year did. I would be very surprised to learn today that any of the 21 firms listed above have executive committee members making "only" 10x what a first-year in 2007 makes. If CEO compensation in corporate-land has outstripped proportionate growth in middle management compensation since the 1980's, perhaps our industry is following the same path.

On the other hand, associates have enjoyed a real, inflation-adjusted doubling of their salaries, so maybe we are making progress after all.

But then, there's always Wachtell. The article concludes thus:

"If those numbers sound good, consider Wachtell, Lipton, Rosen & Katz, where even the junior partners earn $450,000 and senior partners like Martin Lipton, the takeover specialist who has made the firm's fortune, get more than $1 million a year. Wachtell, Lipton lawyers work hard for that money, though, averaging about 2,500 billable hours a year."

Try Joseph Schumpeter, at least if you believe Thomas McCraw, the Isidor Straus Professor of Business History, Emeritus at Harvard Businses School, who has just come out with Prophet of Innovation: Joseph Schumpeter and Creative Destruction, from Harvard University Press.    Working Knowledge has an interview with McCraw, and I believe it holds manifest and powerful lessons for firms.

Schumpeter is surely most famous for his phrase "creative destruction," celebrating the power of the entrepreneur to upset the most entrenched of industries.  Here's how McCraw summarizes the concept (emphasis supplied):

"The main takeaway is the absolute relentlessness of creative destruction and entrepreneurship. In a free economy, they never stop—never. Schumpeter wrote that all firms must try, all the time, "to keep on their feet, on ground that is slipping away from under them." So, no serious businessperson can ever completely relax. Someone, somewhere, is always trying to think of a way to do the job better, at every point along the value chain. Whatever has been built is going to be destroyed by a better product or a better method or a better organization or a better strategy.

"This is an extremely hard lesson to accept, particularly by successful people. But business is a Darwinian process, and Schumpeter often likened it to evolution."

(I told you Darwin and capitalism have a lot to say to each other.)

But let's give Schumpeter himself the floor for a moment:  According to him (this is from Capitalism, Socialism, and Democracy (1942)), surely his most famous work:

"[There is a] process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in."

He goes on to explain, "The first thing to go is the traditional conception of the modus operandi of competition. Economists are at long last emerging from the stage in which price competition was all they saw. As soon as quality competition and sales effort are admitted into the sacred precincts of theory, the price variable is ousted from its dominant position. However, it is still competition within a rigid pattern of invariant conditions, methods of production and forms of industrial organization in particular, that practically monopolizes attention.

"But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) - competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives."

McCraw points out that economists including Larry Summers and Brad DeLong predict the 21st Century will be Schumpeter's century, and McCraw agrees. For better or worse—wildly and indisputably for better, in my mind, so call me incorrigible on innovation—McCraw believes the current mantra of reciting "globalization" "understates the case" because no previous era of globalization included the Internet. And he believes as a historian, so "I don't say this lightly," that management today is "harder and more challenging than it's ever been before."

One of Schumpeter's more famous, because shocking, quotes is the question he poses to himself and answers (in Capitalism, Socialism, and Democracy [1942, recall]): "Can capitalism survive? No, I do not think it can."

What can this possibly mean, coming from the chief celebrant of the triumphs of entrepreneurial capitalism?

Although he backtracked a bit on this declaration later, he has, as usual, a fundamental insight.  He did not believe capitalism would not survive because it would fail; he feared it would not survive because it would succeed so miraculously. 

The paradox of capitalism is this:  By tremendously enriching societies—the real standard of living in the US has doubled every 30 to 45 years, depending on who you believe—capitalism enables society to afford a variety of restrictions upon entrepreneurship, all in the name of perfectly salutary goals, which cumulatively throttle the engine of wealth creation.

And isn't this the very paradox of Schumpeter, if you take his message seriously as leader of your own domain?  Do we truly welcome new creations which "strike at [existing firms'] foundations and their very lives?"

The answer to that depends, I will suggest, on your disposition and temperament.  As for myself, and in an attempt to resuscitate a laudable and quintessentially American rallying cry deeply sullied by its unfortunate recent use by our President, "Bring it on."

The American Lawyer asks "Is Shedding Partners the Right Way to Improve Profitability?," which is the wrong question—albeit a nice headline for a relatively substantive article.  

First, what phenomenon are they addressing?

The phenomenon is nicely encapsulated by the changed perspective Dan DiPietro of Citigroup Private Bank brings to the metric of partner "defections:"  Whereas it used to be "an absolute red flag," indicating a troubled firm, they've now re-labeled it as the less judgmental partner "departures," and "It [is] still something to track, but it [isn't] immediately seen as a bad thing."

To the numbers:  The American Lawyer's methodology was to identify 15 firms, using their lateral partner database, that lost more than 15% of their partners over the three-year period from October 2003 to October 2006.  (During this period, the average firm lost 11% of its partners.)   This yielded 15 firms.

Next, they looked at AmLaw revenue and profitability figures and found what I view as a draw, although they differ.  On profitability, 8 were above average and 7 were below:  A draw.  On revenue, this is what they have to say:

"Only six improved their all-important revenue per lawyer more than the Am Law 100 average of 15.3 percent. What our sample shows, in other words, is that partner losses can boost profits, but they don't often correlate with an improvement in a firm's overall financial health.

[...]

"If firm managers cull partners strategically, and with humanity, they can make their firms more efficient and more unified. If, however, they handle partner departures ineptly, says lawyer and legal consultant Bruce MacEwen, they can 'destroy morale and be caustic to the firm's ethos.'"

Let's back up.

Meanwhile, Cadwalader has pursued the most radical path of all, as I've described.   Cadwalader's wholesale revamp of the partnership wasn't really a renovation of the firm; it was a tear-down.

Orrick is cited as an example of a firm that hasn't eliminated practice areas, but has strived to push its practice areas to the famous "higher value" work ("higher value" being defined as of high importance to the client).  So, for example, an employment partner moved her practice from one-off representations to high-level executive defense and class actions:  "I transformed my practice," says [Lynne] Hermle. "One day I was doing Joe versus gas station, and the next day I was doing $40 million class actions."

Two other archetypes are presented:   The first is Duane Morris, which has aggressively (overly so?) gone after laterals, with a $7+-million/year recruitment budget, only to find that many do not work out—some, if you believe the article, flat-lining within six months of arrival.    Although they treat such flame-outs humanely, the Duane Morris model clearly risks erring on the side of promiscuous hiring.

The second and final example is Shearman & Sterling, which, rather than recruiting laterals that are not productive, has been shedding home-grown talent that is not productive—intentionally, in many cases.  In the short space from 2004 to 2006, S&S' total partnership ranks have shrunk by 18%, from 239 to 196.    Meanwhile, the entire firm shrank during that period by 130 lawyers.  Still, they have increased revenue per lawyer by 26%.

Finally, this is how the article sums up its findings:

"That's the new reality-partners leave or get pushed out of firms, and firms find laterals to replace them. The partners join new firms, perhaps pushing out a different group of lawyers in the process. Old-fashioned notions of collegial lifetime partnerships are only a memory at many firms. "

Is that all there is to be said?

I think not.

In fact, I have a completely different explanation for what we're indisputably witnessing:  We as an industry have not suddenly in the past three years lost our souls, become wealth-maximizing philistines, or abandoned all sense of humanity and proportion in dealing with our colleagues.

What has happened, at first glacially in the 1990's and with accelerating force in the 21st Century, is that our industry is fundamentally restructuring itself—in a way that will endure for the rest of our careers—to match the globalization of our client base and the rapidly evolving structure of those clients' portfolios of legal needs. 

For example? 

Structured finance didn't exist 25 years ago; today "CDO's" [collateralized debt obligations] are commonplace, and the income from David Bowie's royalty stream was famously securitized. 

Inbound project finance to the Chinese mainland?  Sarbanes-Oxley?  Derivatives accounting for hedge funds?  Private equity fund formation?  Shareholder oversight of executive compensation?

My point is simple:  The rate of change in the world economy is accelerating, and in league with that our firms must responsively adapt to clients' needs.

When a law firm needs to change the composition of its output, it needs to change the composition of its "factors of production"—which means changing the composition of its partnership.  

What all of the churn and sturm und drang recounted in "The Departed" reflects is a once-in-a-generation change in the structure of our industry.

So, going forward, we'll all be perfectly conformed with and aligned to our clients' legal portfolios?  Scarcely.  Evolution is constant, change ineluctable, and metamorphosis desirable.  But I still believe we're going through an exceptional period, a "local maximum" passage of change. 

And law firms don't change in the abstract; they change by changing the composition of their partnerships.  "Shedding partners to improve profitability?"  Wrong question.  "Shedding—and aggressively gaining—partners to remain at the forefront of relevance to our clients' needs," is more like it.

Actually, Jerome Groopman, a physician at Harvard Medical School who also writes for The New Yorker. The words are from his new book, How Doctors Think, which is actually about how doctors diagnose illnesses. It turns out there are lessons in there for managers as well, which is why Harvard Business School's "Working Knowledge" also has a piece on it.

How Doctors Think focuses, understandably, on cases where doctors got the diagnosis wrong, and attempts to map these errors systematically into various "failure modes" of reasoning, in the hope of making the mistakes more recognizable and avoidable. As Groopman puts it, "most errors [in medicine] are mistakes in thinking." Thus we have:

• "Attribution errors," where cognitive, rational thinking is influenced by stereotypes. To take a negative example, it's when five doctors over the course of 15 years all fail to diagnose an endocrinologic tumor causing peculiar symptoms in "a persistently complaining, melodramatic menopausal woman who quite accurately describes herself as kooky." To take a "positive" example (but one no less menacing to the patient), an emergency room doctor misses unstable angina in a forest ranger because "the ranger's physique and chiseled features reminded him of a young Clint Eastwood—all strong associations with health and vigor."
• "Momentum errors," where a previous diagnosis "like a boulder rolling down a mountain, gains enough force to crush anything in its way." An "enabler" of momentum errors is "confirmation bias," meaning our preference to emphasize data that supports our pre-existing view and discount data that contradicts or undermines it.
• "Availability bias," meaning the reflexive reach for a diagnosis that appears instantly obvious, and the failure to withhold judgment in light of the possibility of the same symptoms being caused by an entirely different mechanism: For example, diagnosing pneumonia when the real culprit was an aspirin overdose.

How, then, do we guard ourselves, as physicians or more realistically as managers against these psychological pitfalls?

Essentially, we need to insist that we ourselves exercise the most rigorous critical thinking we can muster. "It is a matter," Groopman writes, "of juggling seemingly contradictory bits of data simultaneously in one's mind and then seeking other information to make a decision, one way or another. This juggling . . . marks the expert physician -- at the bedside or in a darkened radiology suite."

Don't jump to conclusions.

Be aware of how your own emotions towards the subject—say, a mild antipathy to your partner proposing a novel initiative—will color your own reaction.

Ask simple questions, such as "What's the worst that could happen?" "What else might explain this?" "What doesn't fit?" "Could there be more than one explanation?"

Don't accept lazy explanations: "Profits were down in my practice group because we were less busy."

Permit yourself to say out loud: "I haven't figured it out yet."

Insist on utter clarity in communication. "Tell me again?" And actively encourage others to engage. Ask open-ended questions. Wake people up (mentally).

Make, in other words, the right business diagnosis.

The American Lawyer's famous AmLaw 100 has been out for about a week now, and it's time to release some preliminary number-crunching. I'll also have some more qualitatively analytic pieces in the next week or so, but here are the hot data dots for now:

• As widely reported, 11 firms broke the $1-billion revenue barrier
• 23 were over $750-million in revenue
• 49 were over $500-million in revenue
• The median firm's revenue was $487-million
• The average revenue was $567-million, reflecting the obvious skew at the left end of the curve.

Meanwhile, in terms of revenue growth in year over year terms (2006 vs. 2005), excluding a few firms with mega-contingency fees:

• The average growth was 11.60%
• Median was 11.75%

In chart form (click each chart to open a bigger version in a separate window):

As I said, these are only very preliminary looks from "Adam Smith, Esq." 

Coming soon I hope to have an analysis of the compound annual growth rate ("CAGR") for revenue per lawyer for the AmLaw 100 firms, as well as my commentary on the story " Is Shedding Partners the Right Way to Improve Profitability?"  My view of the latter, in a nutshell?  Wrong question.

So begins the January 2, 2007 annual report of the WSJ to its readers.

I intend to inaugurate nothing nearly so formal here on "Adam Smith, Esq.," but what this publication is all about is communicating with you, my dear readers, and so it seems only fitting that I periodically bring you up to date on how things are going from the perspective of your faithful publisher.

First, a few basic facts:

• I started "Adam Smith, Esq." at the end of 2003 and launched it publicly in February 2004.
  
• As of today, there are 752 individual entries, or articles, on the site. If you printed out "Adam Smith, Esq." in book format, it would come to about 1,500 pages.
  
• All of my archives are and will continue to be available so long as I'm in charge here.  Server space is cheap; readers' time is not.
  
• My policy on comments is simple:  I approve them verbatim or disapprove them in their entirety.  Although, come to think of it, I can't remember the last (or even the first) time I did the latter.  But I never have and never will "edit" comments.
  
• Speaking of comments, several of you have told me of difficulties in contributing comments. You are not wrong.  I'm somewhat dissatisfied with the technology underlying the configuration of my comments system, but I've been to the wall and back with tech support to no avail, and at some point I have more important things to run to ground.  For the nonce, I humbly apologize and recommend that if you have something you'd like to contribute to the conversation, email your thoughts to me directly and I'll see that they get posted. 
  
• On the other hand, a minor technical victory I implemented recently was to create a "printer-friendly" formatted version of each article, accessible through the cryptically named "Printer Friendly Version" link you'll now find at the foot of each piece.
  
• "Adam Smith, Esq." runs on the  Movable Type publishing platform, which is the most sophisticated online publishing system that mere mortals can afford, and which supports many "blogs."  Movable Type incorporates such indispensable functions in an online publication as:
  • Archives by Category (down a bit on the left column)
  • A built-in RSS feed (top-most left column)
  • A site-specific search function (top left column)
  • A so-called "permalink," or unique, unchanging hyperlink address to each and every article (at the bottom of each piece), and of course
  • The default chronological order ranking of items.
    
• That said, permit me as Founder and Publisher to urge you to think of "Adam Smith, Esq." not as a "blog," a word which to this day comes with unfortunate connotations,  and a word I have assiduously avoided for at least a couple of years.  It is, in conception and in fact, a "publication"—one which happens to be online.

But enough about facts and stats.

Here's the stuff that matters. "Adam Smith, Esq." exists and, as you'll see, thrives because:

• The subject—the economics, strategy, and leadership of sophisticated law firms at the start of the 21st Century—is intrinsically fascinating to me and, I gather, to many of you.
• I knew there had to be—and you have vindicated me in this conviction—a smart, informed, opinionated and inquisitive reader community that would appreciate and follow a site devoted to that topic.
• The challenges facing our firms have never been greater, as the pressures of globalization, consolidation, and the war for talent intensify in ways most of us could never have imagined when we began our careers. And
• I do my utmost to address these topics with the level of sophistication, rigor, and nuance that I believe you are entitled to.

As some of you know, "Adam Smith, Esq." has expanded into the offline world as well.  Most of you probably know about my "Law Firm Finances 101" offering, which has been quite well received.

I'm gratified to report that last month the Dean of Career Services at Harvard Law School approached me about offering it to their second and third-year students—and now to their faculty as well—and I'll be presenting it in Cambridge next September.  Although I'm a Stanford Law grad, I'll take Harvard as my first law school client any day of the week.

Also, I'm being invited to speak at an increasing number of domestic and international conferences, and law firm partners' retreats and other offsite events, which I find one of the most challenging things I can possibly do.   Some of these have preceded, and some have followed, my being engaged by the firm to talk through strategic and financial challenges they're facing.

Most of you are aware of my free monthly e-newsletter, which features at least one piece of content not available on the site (subscribe here), and I'm pleased to report that less than one year after launching it we have as of today 1,875 subscribers, from around the English-speaking world.

Finally, a report on visitors to "Adam Smith, Esq."

Suffice to say readership has been constantly growing:  Which the economist in me takes as the ultimate sign of marketplace validation.  Here are the numbers. 

Last month, April 2007, was an all-time high in terms of number of visitors.  (The metric I favor is "page views," which means one person looking at one page.)  Here's the pertinent graph, going back to September 2006, of page views per month:

This shows nearly 300,000 page-views on the site last month.

But wait, there's more:   Based on reader surveys, about one-third of you subscribe to "Adam Smith, Esq.," by RSS feed. Your subscriptions are not reflected in these statistics since, technically, you are not "viewing pages" on the site.  So if we add back in another, say, 30% on top of those numbers, it means nearly 400,000 page views last month.

This is a deeply gratifying number—and one which is both humbling and slightly shocking.

It does, however, speak to the power and the loyalty of you, dear reader.  As I say to anyone who tells me they enjoy "Adam Smith, Esq.:"  "Tell your friends!"

Evidently you've been doing just that.  Keep it up, and remember that the publisher is always in.

This is prompted by a survey that opens with these vivid statistics:

"The search for reasons begins with the confounding fact that women and men have been graduating from law schools and entering the firms in virtually equal numbers for at least 15 years but, according to the MIT Survey #1 on Rates of Attrition women make up only 17% of firm partners. That number increases to only 21% if the period before women entered firms in large numbers is excluded, according to the 2006 National Association of Women Lawyers survey."

The report, “Women Lawyers and Obstacles to Leadership,” was produced by the MIT Workplace Center along with local bar associations. Of the 1,000 Massachusetts lawyers surveyed, 31 percent of female associates had left private practice entirely, compared with 18 percent of male associates. The gap widens among associates with children, to 35 percent and 15 percent, respectively.

The following quotes are, I think, striking (emphases supplied):

“I once heard someone describe their position as a junior associate at a large law firm as the best paying dead-end job they have ever had." [Female associate]

"Among associates, over 50% of women work more than 50 hours a week. Women with children, however, limit the number of hours they work. Among women with children, only 32% work more than 50 hours a week. On the other hand, male associates with children do not limit the number of hours they work in the same way women with children do. On average, over 75% of men work over 50 hours a week. Among men with children, 85% work more than 50 hours. Men with children, in fact, tend to work more hours."

"At the non-equity partner level, both men and women report working more hours than associates, but there is still a difference between the number of hours men and women work. Sixty-five percent of women non-equity partners work more than 50 hours a week, whereas only 55% of women with children do so.

"Again, the presence of children decreases the number of hours for women non-equity partners, but the same effect does not appear for men. At this level also, men with children tend to work more hours than women with children. 

"At the partner level, the same pattern persists with one striking difference. Both men and women tend to work more hours than non-equity partners. However, both men and women partners with children work fewer hours than those without children. This is the only point at which the impact of children on time spent at work is similar for men and women.

"Lauren Stiller Rikleen in Ending the Gauntlet: Removing Barriers to Women’s Success in the Law (Thompson/ Legalworks, 2006) argues that the essential condition for the success of flex-time systems is change in traditional firm management. At present, she says, management committees are usually made up of partners who are pre-eminent in their practice areas but not necessarily knowledgeable about management principles, economics, or finance. Their tendency is to follow traditional hiring and promotion practices without undertaking sophisticated analyses of their costs.

"She concludes that what is needed is a rational examination of sole reliance on billable hours as the basis for a firm’s profitability, and rational consideration of additional compensation structures.

"For this she strongly urges a turn to professional management for law firms."

I'm going to second her recommendation of "professional management for law firms" (I know: Regular readers will be shocked by this), in what may strike some as a radical way by the time I'm done with this piece, but first let's flesh out more of the survey's findings.

The survey also asked women taking advantage of "flex-time" options their reasons for doing so.  The responses were:

• Nearly 90%: More time with children
• Less than 10%: Everything else, such as:
  • elder care
  • more control of working hours
  • health
  • work not intellectually stimulating
  • wanted to pursue other interests
  • didn't need the money

What does all the foregoing demonstrate?  To me, one and only one thing. That one thing seems to have been lost in all the smoke and brimstone surrounding "gender equality," "sexism," and the endless, fought-to-an-exhausted-standstill debates between the societal and civic virtues of stay at home Mom's vs. the battle cry of those calling the sisterhood to the professional office ramparts.

That one thing is:  Having children is different.  It's different than taking a sabbatical or a detour into government or nonprofit service, and it's vastly different for men than for women.

The unspoken assumption—on both the part of the firm and the part of the individual lawyer—is that father/lawyers are more committed to their careers and more determined to succeed, but mother/lawyers have heard the siren call of the newborn and will never report back to the office feeling the same uncompromised commitment they did before. Isn't this what we all think but dare not say?

That's why "flex-time" has always struck me as such a weak, jury-rigged, and fundamentally ineffective half-measure. The dirty secret about flex-time is that it's 80% of pay for essentially the same amount of work. 

Just yesterday I was talking with a (male) former Skadden international deals lawyer who recounted, in sadness and not in anger, the story of a female colleague on maternal "flex-time" who was involved with a deal in Taipei, where it was the start of the business day around 9:00 pm in New York—and of course the investment bank client had bankers on the ground in Taipei on Taipei time.  You literally had to be there all night.

We've talked, at this point ad nauseum, about changing "attitudes," we've talked about cabining expectations, we've talked about the relative importance of child-raising and deal-brokering, we've talked about how no one on their death bed ever wished they'd spent more time at the office, etc., etc., etc. And we're stuck where we were 15 years ago. 

I don't know about you, but I have to conclude as at least a closet empiricist that these conversations, alternatively sanctimonious, defensive, patronizing, righteously indignant, and confused, have fundamentally failed to advance the ball downfield.

So I have a different and perhaps radical suggestion:  Can we not recognize that the fundamental problem is our insistence that a woman's prime child-bearing years coincide with the years of the tournament to partnership?  And if that is the ineluctable problem—the reason we've made pitifully little progress over two or three decades of massive investment in women's careers and endless exhortation—then, if we're serious, shouldn't we do something about that?

In other words, why can we not decouple those two ten-year time frames so that they're not coincident in time but at worst weakly and marginally overlapping? My proposal is this:

• On a voluntary basis, let women who want to take time off to start a family do so—firms could obviously set their own ground rules, but I would think a reasonable period of time might be as long as seven or eight years for the "family sabbatical."
• Why would women return to the workplace after that long away? Because many of them would want to: Remember, these are by hypothesis highly motivated, exceptionally well educated people not used to being "defeated" in any sense of the word. And after the kids are a little older, a high level of commitment to work is again feasible. There's an enormous difference between having a toddler or having an elementary school student.
• Women who aren't in a position, or who choose not, to start a family, as well as any brave hearts who want to plow ahead on the partnership track with kids at home, would do so. But: Motherhood/maternity would not be a permissible or recognized reason for requesting "flex time." In for a dime, in for a dollar. I think this one single change would do more to eliminate the ghettoization of motherhood as anything else we could do.
• When women who had taken years off returned, they would jump right back on the partnership track ladder, although some firms might choose to make them "repeat" the year they were in when they departed. (For example, if you left as a fifth year, you might come back as a fourth year.)
• The point of this optional "repeat year" is two-fold: To recognize that such an extended period of time away from the practice means your technical skills need a refresher (and the substantive law may have changed as well—imagine leaving the securities practice before SOX and coming back after it), but second to recognize that both men and women who followed the straight and continuous path would probably resent returnees' picking up precisely where they left off. Think of it as a form of requiring the returnees to "compensate" the firm for having received the favor of the family sabbatical.
• Some will object that after such an extended period of time away, no one can rejoin the partnership race. My answer to that is: What a patronizing and condescending suggestion. I don't believe anyone's in a position to say that, flatly, about all women (or men). Face it: Those who return will be highly motivated, and they will also have gained a level of maturity and picked up skills that will be of genuine value to the firm and its clients. (Think time management, prioritization, multi-tasking, and maintaining equilibrium in the face of unreasonable or inexplicable behavior.)

Does this mean women would work towards, be eligible for, and become partners a decade or so after men?  If I can do arithmetic, that may be its implication.  Would men, famously frailer than women in older age, want to retire earlier and would some rough justice in terms of overall career duration be maintained?  It's possible.

So I'm proposing that we confront head-on instituting a program that purposely "parks" women out of the workforce for five to ten years—with no stigma—so that there need not be a stark, dichotomous choice between spending a critical decade or so of your life either launching a family or pursuing partnership. You could actually get to take your stab at both, seriatim not simultaneously.

Would women under this hare-brained scheme have at last the "level playing field" everyone genuflects to? I think so.   Maybe women at last would have a fair shot, and that 50%/17% statistic could change.  On the merits.  No stigma; no Mommy Track.

Would one firm care to initiate their own little sandbox experiment testing this hypothesis?  In one department? With two or three class years of associates? On a tiny tiny scale?

The only thing you have to lose is the half of your starting associates who lack a Y chromosome.