Today "BlawgWorld 07" is being released by the same crack team at TechnoLawyer that put together last year's (yes) "BlawgWorld 06."   Here's the link to the eBook (pdf format). 

They've done a nice job with making navigation easy, and I'm pleased to report that thanks to the wonders of alphabetical order, "Adam Smith, Esq." is one of the first entries listed.  Each of the 77 blawg's represented has an entry from last year.   The winning piece from "Adam Smith, Esq." is my April 2006 "Let's Assume Everyone Here's An Adult..." which, among other things, attempts to explain the remarkable durability of the deeply flawed billable hour with this observation:

"We all know the political folk wisdom that "you can't beat somebody with nobody," and I believe that pretty much all of the commonly proposed alternatives to the almighty billable hour amount to "nobody."

Take a look.  I think you'll be surprised (pleasantly or unpleasantly is for you to judge) by the reach, quality, and scope of the articles.

I'm pleased to announce that I'm now the US director of the Strategy Panel of the UK-based Managing Partners' Forum.  My co-directors are Andrew Hedley of Hedley Consulting (London) and Rob Millard of Edge International (Bahamas). 

What does this mean?

"MPF" was founded in London in 1995 and is currently chaired by Nigel Knowles of DLA Piper.  MPF is widely recognized as the leading association in the UK for professional firm leaders and their management teams.   (MPF membership is open not only to law firms, but to accounting and other professional services firms as well.)  Its mission is to promote excellence in management through, among other things, awards and other recognition for internal management expertise.  If you're US-based and not familiar with the MPF, you may be forgiven; it is just launching its US presence, so I am particularly pleased to be in on the ground floor of its efforts here.

A primary activity of the  MPF is to conduct regular—typically six times a year—surveys on topics of interest to its members.  From the invitation to participate in the study:  "Our recently formed Strategy Panel consists of managing partners and CEOs at professional firms interested in strategy. The inaugural survey focuses on the process by which strategic decisions are taken at professional firms worldwide. It can be completed by anyone on the management team in any firm and should take no more than 10 to 15 minutes. Anonymity is guaranteed."

Here is the outline of the first, and current, strategy panel survey:

"Our July 2007 survey on the strategy setting process at professional service firms covers:

• Attitudes towards strategic planning
• Responsibility for formulating strategy
• Sources of data used when formulating strategy
• Tools used in formulating strategy
• Assessment of opportunities and threats facing firms
• Frequency, duration and time horizons when formulating strategy
• Overall satisfaction with the outcome"

After the survey results are compiled, a breakfast meeting is held to present the findings and have a roundtable discussion. Participating in the surveys, and attending the meetings, is free; the MPF collects its revenue from membership fees but not from charging for admission to events.

The meeting to present the results of our first survey is tentatively scheduled for Thursday, October 11th, here in New York.   If you'd like more info about the MPF and what would be entailed for your firm to join, check out their basic information page, or else just let me know of your interest..  It would be delightful if we could meet on October 11. 

As often, the FT has the best coverage.  Peter Bloxham is a former bankruptcy partner at Freshfields who claims that Freshfields' overhaul of its partner pension program effectively forced him to retire last year, at age 54, and accept a 20% discount on the six-figure annual pension he had expected.  By contrast, partners aged 55 could retire with the full entitlement.  His claim is that, under Britain's new anti-age discrimination laws, that is impermissible.

Freshfields' rebuttal is first to simply deny age discrimination was afoot, and second to argue that the changes to the pension plan were justified and proportionate in response to otherwise unsustainable future obligations.  Finally, in amelioration, it points to transitional arrangements it allows for partners approaching retirement.

The case was heard for about a week and a decision is expected in a few months' time.

But to say this has been watched closely by the City firms is a great understatement.  Aside from the voyeuristic fascination of hearing about internal partner politics, with senior management on the witness stand (including Guy  Morton and Ted Burke), the wider implications of the case are unmistakable. 

To begin with, there is assumed to be a fairly large cohort of senior professionals and managers in their fifties and a bit beyond who have both the financial wherewithal and the limited alternatives offering comparable salaries and lifestyles that, together, give an incentive to pursue such claims.    The outcome of the Bloxham case will be seen as a bellwether for others waiting in the wings. 

Another aspect has to do with a peculiarity of the new British anti-age discrimination law.  It's this:  Age discrimination is not illegal per se, but is expressly justified if it is shown to be "a proportionate means of achieving a legitimate aim."  Now, if you think those words are squishy, join the club.  What counts as a "legitimate" aim and how that is weighed against the discriminatory impact are, at least until the Bloxham decision comes down, virgin territory.

Stepping aside from the British law and Freshfields' own pension plan reform scheme, here are the issues this saga highlights for me:

• How do we humanely treat individuals who have given, in many cases, their careers, to a firm but who are now on the declining curve of productivity?  What do we owe them?
• Since few if any firms introduced their senior partners to the new world of 401(k)'s and self-guided defined contribution retirement planning in time for those partners to actually take their own future economic well-being in hand, how do we manage the transition to the inevitable?  How short is that transition?
• There are senior partners and then there are senior partners.  We have the beloved, inspirational, profoundly respected, wise elders handing down orally and by example the finest traditions of the firm and of the profession; and we have the lingerers, the misty-eyed nostalgic, the rusty practitioners.  We all know the difference.  How do we handle the difference if equity demands disparate treatment and the law may require identical treatment?

Law firms, no less than nations, face intergenerational pressures and the pull and tug of cohorts with different time horizons.  We need to simultaneously pave with incentives the path of opportunity for our rising stars and ease the way through the door for those whose contributions primarily lie in the past.

This is equal parts an economic question and one of simple humanity.  Our firms will not be competitively robust, and places of intellectually creative ferment for clients, if they are shackled to interminable payment streams for services already rendered.  At the same time, senior partners are the embodiment of how we achieved our status today. 

Balancing our obligations to the past, and our responsibilities for the future:   Never again wonder why you're paid as handsomely as you are to help run the place.

Update (25 July 2007):  A regular reader from the UK writes that in his view it's important "to ensure that long serving partners are retained as consultants [so that] they may pass on their expertise to the organisation and its staff."  He also suggests that their knowledge should be captured within the firm's knowledge management platform and makes the inarguable observation (which I perhaps did not sufficiently stress in my initial piece) that "How we treat our people at the end of their working lives...demonstrates our values as a caring firm."

He was also kind enough to point me towards an article in The Economist, "Accounting for Good People," describing the efforts of the Big 4 accounting firms to husband their precious professional resources and the knowledge they embody.  Among the initiatives they're undertaking:

• Talent is becoming increasingly scarce (America's baby boomers are retiring; Europe is chronically greying; and while India and China may have huge numbers of graduates, this "masks [the] low numbers of truly high-quality candidates").  Sound familiar?  One answer is:
• To break an old taboo and bring in more outsiders straight as partners.
• Re-hiring "boomerang" former employees, now accounting for up to one-quarter of one firm's recruits in America.
• Ramping up alumni programs in general, and instilling a sense of loyalty and connectedness.
• Accomodating the career needs of women, although more clearly needs to be done.  (Women are half of new hires but barely one-quarter of partners; our own track record is actually worse.)
• Offering more international assignments to attract new graduates.

Intriguingly, the article concludes by mentioning McKinsey partner Lowell Bryan's new book "Mobilizing Minds:  Creating Wealth from Talent in the 21st Century Organization," which purportedly argues that the ideal organizational form would combine elements of the armed forces, a conventional company, and professional services firms.  From the armed forces  comes delegation to front-line managers to make tactical decisions on the spot; from conventional companies comes the inevitable hierarchy, but with a hard and fast limit of no more than four layers from top to bottom; and from professional services comes an expanded "partner-like" group of senior managers responsible for, among other things, recruitment, retention, and professional development.

Maybe we're not as organizationally dysfunctional as it sometimes appears.

Looks impressive, to be sure, and sounds strategically indisputable.  But not so fast:  We say that from the vantage point of  hindsight.  All was not so obvious at the time the investments had to be made.  From the preface to the second volume (Richard Rowland, qualified in 1969, speaking):

"A fundamental point about the internationalization, you have to remember, is that there was a strong body in the firm who felt that we should not be anything other than English lawyers and that we shouldn't have offices overseas.  When it was first proposed in 1980 that we should have an office in Hong Kong, it was turned down."

In the event, the firm recognized that doing cross-border transactions required local law expertise.  Only when the US became a serious entrant in global capital markets in the late 1980s and early 1990s was the die cast.  With the disclosure requirements imposed by US and other local law (Rule 10b-5 is specifically mentioned), "we then needed overseas lawyers to be part of the team, and if they were part of the team it didn't work very well if they were not also part of the organization."

From the preface, other observations about how matters have changed and what are the contours of the current competitive landscape:

• "The culture of the American firm and the way the firms work is extremely strong, and colors their whole attitude, I feel. [...]  The US law firms are also adapting.  T here are more and more US law firms in London.  They are recruiting English lawyers and they are expanding aggressively.  They have huge resources behind them.   And so they represent a challenge."
• "If you ask what is going to happen now [in terms of international financial capitals], I think that New York may come into its own again.  [But the obstacle is] that people are more circumspect about the legal system which has populist elements.  It doesn't necessarily have the goodwill that London has and it is still too closed."
• [On the impact of technology]:  "When I started as a lawyer (which wasn't that long ago), people were still sending telexes.  You had days between turning around drafts.  Now you actually have to have everything at your fingertips if you are going to play at the highest level. We are living in the world of 24/7, of always being accessible.  One of the challenges is to know when you can turn to your client and slow things down to take stock.
  "Pretty much on every deal I got involved in during the 1970s, the first document I pulled out was the airline timetable, because inevitably it meant actually traveling to the place where the deal was being done."

Internationalization

While the challenges to international growth can be daunting, the lesson of the past decade at A&O can be summed up thus:  "It's worth it." 

But again, that was less clear when commitments were being made, and the road in some markets—especially New York—has not gotten easier.   Nevertheless, a robust New York capability was seen as essential: 

"Eighty per cent of economic activity in the United States, by far the world's biggest economy, is purely domestic, and, if you add in Canada and Mexico, more than 90 per cent.  ... Then consider that our top 30 clients are doing at least a third of their business in the US and you can see why it is so vital that we have the resources and the capability to be able to advise them.  Put the other way, it's a gigantic disadvantage if we can't play where more than a third of their business is."

It's still a slog.  According to Dan Cunningham, a marquee partner brought over from Cravath, "We have to develop our reputation case by case, deal by deal and client by client.  There is no other way.  We have to do the deals to win the hearts and minds of the legal decision-makers in the big institutions for whom we are likely to act."

Similar stories are told of opening in Moscow, in Hong Kong, in Frankfurt, and in Eastern and Central Europe.  Each and every office presented its own challenges, opportunities, and time-lines.  There's no such thing as a cookie-cutter approach to internationalizing a law firm.

For example, to cite the ups and downs of the Moscow office alone, they have included:

• Opening not in an office building proper, but in a flat, where the fax machine was in the bathroom and meetings were held in the kitchen.
• Surviving the October 1993 storming of Parliament ordered by Boris Yeltsin, when A&O's Russian staff ignored strict instructions to the contrary to remain indoors and mounted barricades on the streets to forestall the Russian Army from storming the building.
• Similarly surviving the August 1998 moratorium on all foreign currency debt repayments—the first time since the Ottoman Empire that a sovereign nation had defaulted on domestic debt—and the immediate collapse of the ruble.   Ultimately the firm had to retrench from three floors to one.
• Even today, the Russian economy is scarcely the smoothly running well-oiled machine Westerners might be familiar with.  Power is excessively concentrated; the rich/poor gap is dramatic, shocking, and growing; the entire country is far too depend on oil and gas wealth; and the fundamental notion of the rule of law enforced by independent courts remains alien.

The Warsaw office also opened in an apartment, but with an added sleight of hand.  The senior partner at the time, John Kennedy, remained convinced that A&O should limit itself to English lawyers practicing English law, so the solution was to open with a Polish lawyer—and the first from any civil law jurisdiction— "Andrzej Siemiatkowski in association with Allen & Overy."  Also onboard was A&O's association partner, the French firm Gide Loyrette  Nouel.  In the three-room apartment, Gide took the nicest room, A&O another, and the secretaries the third.  One early obstacle to efficient communication was that there was only one phone, typically prompting a rush to answer.

Nevertheless, progress was possible.  The firm moved out of the apartment in 1992, and by 1994 had trebled in size to 35 people and achieved profitability.  By the mid-1990s Warsaw was the firm's third largest office, after London and Hong Kong.

But to bring our perspective straightaway to today, let us conclude by reflecting a moment on A&O's latest (2006 fiscal year) numbers, and the just-released Legal Week UK 50.  (The full chart is here, and I strongly commend it to you; it's fascinating.)

As A&O puts it:

"Strategic investment across the globe has helped fuel record 2007 revenue and profits, clearly positioning Allen & Overy among the top six law firms in the world.

"Highlights:

• profit before tax up over 36 per cent to GBP 395 million
• turnover up 20.5 per cent to GBP 887 million 
• total number of lawyers worldwide increases by 10 per cent to 2,600
• presence in key global financial markets strengthened with new offices and capabilities in Middle East, Europe and Asia

"Following another outstanding performance across all practice groups and jurisdictions in the year ended 30 April 2007, Allen & Overy reported a 20.5 per cent increase in annual turnover to GBP 887 million resulting in an increase in pre tax profit of 36.3 per cent to GBP 395 million."

And need we add that PPP exceed £1-million for the first time?

The key, for A&O as for its Magic Circle brethren, has been the payoff from their investment in internationalization:  "Clifford Chance (CC) managing partner David Childs said the results vindicated a decade-long run of foreign investment by the big four firms. [Clifford Chance, Linklaters, A&O, and Freshfields.]  He told Legal Week : “Our foreign offices are now maturing. We are seeing significant revenue increases from these offices and they are becoming more profitable. The model is proving itself.” "

For some who were initially skeptical, this comes as a surprise.  Tony Angel describes it thus:

“The US firms are quite surprised,” argued Linklaters managing partner Tony Angel. “When we and other global firms began investing in building networks there was a real sense that scale was incompatible with top-notch work, but the fact that all the firms have done so well shows you can do well and stay focused.”

The moral of the story today is simple:  The large gambles, and gambles they were, that the top UK firms put down a decade ago on the concept of a global legal marketplace are now beginning to seriously pay off.  The top four firms racked up £4.18-billion in fees last year, accounting for 40% of the UK's top 50 firms' income.    US firms have not made similar investments in internationalization (with a very few exceptions).

Simultaneously, the top UK firms have accomplished all the financial and managerial engineering needed to boost their PPP numbers up into the stratosphere, stretching leverage, restructuring, conducting rigorous partnership reviews, and holding associates' feet to the fire.   My question would now be:  Is it time to dial back the pressure on "managing to PPP"?  As the editor of Legal Week notes, "such gyrations have pushed cultures and businesses near to breaking point."

I will close this extended history of the 75+ years of Allen & Overy with some insights from some of the more prominent heads of London-based firms.

• David Childs, managing partner, Clifford Chance

  On the magic circle pulling away

  "Our offices outside of London are now maturing. We are seeing significant revenue increases from these offices and they are becoming more profitable – the model is proving itself."

• Tony Angel, managing partner, Linklaters

  On the market

  "A number of facts have driven the profits of the magic circle firms. It may be that the UK domestic market has not been as buoyant as the global market and within the global market the UK, and international law firms, have been increasing their share. Investment in growing international networks and the growth of London as an international finance centre have provided real opportunities to firms like ours. The sort of deals being done benefits firms with strong financial markets and cross border transactional practices."

• Konstantin Mettenheimer, co-senior partner, Freshfields Bruckhaus Deringer

On the US

"As a capital market centre, London has been increasingly important, with a very large number of IPOs compared to New York’s very few. There has been a lot of capital flow and economic activity between Asia and the Middle East, not necessarily via London and New York. The jury is out on whether we will see the development of a third financial centre on top of London and New York, be it Dubai, Mumbai, Shanghai, Hong Kong or Tokyo."

• Nigel Boardman, corporate partner, Slaughter and May

On the US

"The City has gained significant market share in the world financial and legal scene. Part of this is Sarbanes-Oxley. Also Arab money doesn’t like to go to the US, where it cannot necessarily get money back out again. New York is not as good as London for Asian companies to be headquartered in."

On London

"Ten years ago we were talking about Paris and Frankfurt being significant threats to London, this is no longer the case. As long as there remains differential treatment of personal tax, this will continue to be the case."

On equity/leverage

"Partnership culls will have hit leverage significantly. I would imagine that the magic circle has shed 600-700 partners worldwide recently."

We have indeed come a long way from coal stoves.

My friend Professor William Henderson at Indiana University School of Law—Bloomington just sent word of a new initiative the law school is launching in conjunction with the American Bar Foundation. 

Called the "Law Firms Working Group," the project includes no fewer than 14 research teams comprising 38 scholars in all, who will have access under a special license to the archival data of American Lawyer Media, which "includes cross–sectional and longitudinal information on law firm structure, financial performance, lawyer demographics, branch office size and location, lawyer mobility, associate satisfaction, relative law firm prestige derived from lawyer surveys, practice group prominence, and other facets of modern law firm practice."

What precisely are they researching, and what makes this initiative different from yet another set of academic papers on our complicated profession?

First, what promises to make it different is that the "LFWG" researchers will actually be working with data.  In other words, their work will be far more empirical than the usual armchair-observing and abstract-pontificating (and no, I'm not naming any names, thank you).

Second, their proposed projects include several that promise to be of genuine interest to those of us who are long since out of the academy and into the actual nitty-gritty of management and leadership.  Here are a few that struck me as particularly "real world" in focus:

• Lawyer Mobility:  "The investigators will study the volume of lawyer lateral mobility, and the and factors influencing it. They will explore the importance of a strong firm culture in the quality of client service, firm profits, firm stability, employee satisfaction, and associate attrition. After this analysis has been completed, Marc Galanter and William Henderson will utilize this dataset to study the relation of mandatory retirement policies to lawyer mobility."
• Interaction Between Law Firm Structure, Hiring, and Partner Promotion:  "John Gordanier will study the empirical relationship between the structure of law firms and the characteristics of associates and partners. His focus will be on whether a multi-tiered partnership structure [with equity and non-equity partners] changes the composition of a firm's associates and whether it affects the quality of the partners."
• Globalization Strategies of U.S. Law Firms:  "Carole Silver and Nicole DeBruin will combine Law Firms Working Group data with their own prior research into non-U.S. offices of U.S. law firms to analyze the consequences of different approaches to global expansion. They will examine a variety of factors, including the ways that offshore offices reflect or differ from their domestic counterparts, and the relationship between offshore office growth and financial success."
• The Professionalization of Large Firm Management:  "Elizabeth Chambliss will track the emergence of full-time ("professional") managers in law firms, focusing on the managing partner and law firm general counsel positions. Her research will examine the relationship between professional management and the economic success of the firm, and the sources of managerial authority for full-time versus part-time/practicing managers."

Other projects will look at the relationship between firm performance and a commitment to pro bono, the changing geographic footprint of global law firms, career trajectories of young lawyers, and race and gender in large law firms.

For some time now, Bill Henderson has been one of the rare law professors with a dominant "quant" gene and I for one will be fascinated to see the fruits of these various research projects.

And of course, you know that "Adam Smith, Esq." will be one place where you can read about those results as they materialize.

The only problem was:  The firm had no offices on the Continent, much less in Eastern Europe.  One of the A&O lawyers leading the charge to go international was Stephen Denyer, today International Development partner, and from 1997 to 2007 Regional Managing Partner for Europe, along with Michael Reynolds and Richard Rowland.  

But in 1989 Denyer had been a partner for all of two years and the primary obstacle to his argument that the firm needed to seriously internationalize was nothing less than management's continuing belief that A&O was a firm of English lawyers practicing English law, and under no circumstances would it be non-English lawyers practicing non-English law.  "Working within this limitation the Denyer finesse was to hire a local lawyer," the first being one in Poland, as a consultant "in association with Allen & Overy," and wait the 18 months or so it took the firm to come around to the notion that local lawyers might actually be required to fuel its growth abroad.

The key insight, and business development driver, of expansion into hitherto-unknown territories was that there were major companies there, which were successful and ambitious in terms of moving onto the world stage.  If A&O could get in on day one with local law credibility, they would be "tremendously well placed," as Denyer puts it, to develop work for those clients as they become more international and started to do bond issues, syndicated loans, and other financing issues under US or English law.

But those palmy prospects would be in the future; in the meantime, serious trouble had to be attended to in London. 

Bill Tudor John was the incoming managing partner in 1994 and "hardly had time to settle before being faced with a looming crisis."   For five months in a row, the firm was well below budget in billings; after another three months, it would be forced to borrow to meet cashflow.   An emergency review panel was convened to look at ways to cut costs, increase market share and, above all else, improve profitability.

Their findings were unsettling.  They asked for figures on how partners were performing—evidently a novel question—and learned, disturbingly, that some partners were earning 10 times more than others for the firm.  But putting individual partners' performance under the financial microscope was unheard of.   For years, the firm had been content to carry a partner or two who were plainly unproductive.  But times had now changed.

Thus was born "Project Alpha," whose raison d'etre, in a nutshell, was to put financial performance ahead of the traditional character of the partnership.  Because?  Only if the firm was successful could the professional and partnership ethos thrive.  As Bill Tudor John put it:  "Profits enable us to attract, motivate, and retain the best people, to invest in new offices, new technology, research and development training, to provide job security and a good career path for those who contribute to the business."    A list of the most poorly performing partners was drawn up.

The path from here to there was painful, of course.    Morale sank.  Partners avoided Bill Tudor John in the hallway.  Even productive partners were nervous and insecure.    Ultimately, five partners were excused from the firm, "with generous pay-offs," and others were informed they'd need to increase their productivity or face a similar end.  "Bruised but intact," the partnership continued.

Simultaneously with Project Alpha, the very texture of day to day life in the firm was being radically transformed.  Partners and associates alike began regularly billing late into the night and on weekends; by 1993 every lawyer had a computer; videoconferencing rooms were installed; mobile phones and laptops, and then BlackBerry's, followed.   We had come a ways from coal stoves.

In 1996 came another milestone:  Non-UK clients provided A&O with more of its revenue than UK clients.  The firm was truly international beyond doubt.  Just two years later revenue from non-UK clients would exceed 2/3rd's, the rapid international expansion made possible by something I've commented on here before on "Adam Smith, Esq.," namely the global exportability of Anglo-Saxon common law, with its phenomenal flexibility and mutability, able to accommodate a chattel conveyance last century and the tranches of a collateralized debt obligation now. 

So to what can we attribute the rise of A&O?

Surely, being in the right place at the right time—and with the right connections, starting with King Edward VIII—is part of it.  But, so in the right place at the right time were many solicitors in the City in the 1930's, the 1940's, the 1960's, and the 1990's.  Opportunity was there to be grasped, one might say in retrospect, but who actually grasped it? 

Political and military history may be written by the winners, as the famous apercu has it, but economic history is written by winners of a different sort—firms which, faced with marketplace conditions, opportunities, risks, and pitfalls equally plain or obscure to see for all, nonetheless made the combination of prescient, fortunate, and skilled choices that would distinguish them down the years. 

In the decade since the Big Bang, the number of partners tripled, staff quadrupled, and revenue more than octupled. 

Volume 1 of the history of Allen & Overy ends with some pregnant questions:

"Allen & Overy, by constitution a partnership, has become the equivalent in size to a mid-sized public company.  That statement of itself raises several important questions about the future direction of the firm. Can it continue to expand at the same rate as it has done over the past decade?  Can it continue to expand while maintaining the same absolute standards of quality?  More pertinently, can Allen & Overy possibly hope to maintain its partnership structure and ethos, so carefully nurtured over more than six decades, as it moves into the new century?

"The line between openness and unmanageability remains a fine one.  [...]

"From the vantage point of 1st January, 1930, the founders of Allen & Overy could not possibly have predicted what the firm would look like 70 years later.  Indeed, the extent of their time frame is unlikely to have been further than the decade stretching ahead of them."

Can we see more than ten years ahead for our firms?

To be continued...

As Guy Beringer puts it in his foreword, "Rather than simply update the existing history of Allen & Overy, I thought it would be appropriate to focus on the single most important change that has happened to the firm -- our internationalisation."

Together, the two volumes tell what I believe is a story worth summarizing here in the pages of "Adam Smith, Esq.," for what it has to say about fortuity and foresight, luck and preparedness, vision and blinkered sight, and building on strength and recovering from disasters.

The history is voluminous enough that I will report it in three installments. Here is the first.

A&O opened its doors on a remarkably inauspicious day, January 1, 1930, at the start of what we now know was to be the Great Depression.  And although it seems alien to our current thinking, recall that Europe had still not psychically or physically recovered from World War I; the Continent, in particular, was still rebuilding.  Fortunately for A&O, George Allen and Tom Overy came from their previous firm, Roney & Co.—which they left because they were generating a large portion of the billings and receiving a small portion of the compensation—with a number of good clients that would get the firm on its feet. 

Conditions were, by today's lights, primitive.  The lift to the office "wheezed," heat, such as it was, came from coal, and transporting client files from Roney to the new global headquarters of A&O was accomplished in an overstuffed cab with Allen and Overy doing all they could to keep the piles from careening off onto the pavement.  (One imagines the same transfer of documents could be accomplished today through one or two zipped email attachments surreptitiously to oneself @googlemail.com.)

The history calls George and Tom "The Odd Couple," and indeed they seem to have been.  Allen "was exceptionally handsome, a dark, somber face offset by strong piercing eyes" and with an, austere, precise, scrupulously tidy military bearing.  Overy, by contrast, was all of 5'3" "and, if anything, gave the impression of being smaller, with the sort of face that scares small children."    In the first of several remarkably candid notes, the history states flatly that "it is quite possible that they were not even particularly good friends."  But share a commitment to the development of the firm they did.

The firm's first big break came when King Edward VIII abdicated the throne in December 1936 in order to marry Wallis Simpson; George Allen was the King's solicitor and arguably his key advisor during the crisis, spending the climactic ten days in almost continual close touch with his royal client.  Allen's gift for succinctness showed itself at a critical moment when the King, on the phone with Wallis Simpson (who was in France), covered the phone with his hand and asked Allen what he should say to summarize the situation to her.  Allen wrote, and the King relayed, "The only conditions on which I can stay here are if I renounce you for all time."

Although sensationally high-profile matters such as that undoubtedly helped the firm's profile, it's worth pausing for a moment to note that all is relative compared to the A&O we are familiar with today. 

After proclaiming that "the firm picked up quickly once the war [WWII] finished," it immediately follows with numbers which would be less than underwhelming today:  Total revenue for the year 1947 was £100,000, and Allen and Overy each earned nearly £12,000, which, we are reassured, was "the equivalent of £275,000 in today's money."

But if the firm was doing well, something I can only describe as human tragedy was in the offing.  In the summer of 1951, George Allen and Tom Overy decided to consult with their accountants to determine what they thought would be a simple matter:  The terms upon which they would retire.

The key issue was how the ongoing partnership would be able to repay the capital that Allen and Overy had contributed, together with the additional goodwill generated as a return on their investment.  The sticking point came to be how long the partnership would have to make good on the repayment.  The accountant initially suggested at three-year period, which Allen endorsed on the ground that even young partners were enjoying a high income by virtue of being partners.  Overy, on the other hand, favored giving the young partners longer to meet their sizable obligation.

Time was not on their side.

The partnership deed was due to be renewed January 1, 1952, and relations between Allen and Overy "became increasingly acrimonious," to the point that they were communicating only by written notes.  On December 31, 1951, they finally agreed on terms.  But the story was not ended. 

Early in 1952, as the junior partners began to realize the burden they had unwittingly assumed, they began lobbying to extend the repayment period from 3 years to 7.  Overy sympathized and took their side, but Allen "detected a conspiracy" and threatened to resign from the partnership altogether.  He even refused to attend a celebratory dinner with the partnership planned for the occasion of his knighthood by Queen Elizabeth in June 1952.   In June 1953 he formally retired from the firm.

George Allen in a formal portrait

And alas, the strain Overy had gone through began to take its toll as the decade continued, and "he began behaving strangely and unpredictably."  So long as this could be cabined within the four walls of the firm, it was manageable if awkward.  But the last straw was when he appeared unannounced one day at the offices of Morgan Grenfell (a client) demanding to be taken to lunch.  A senior A&O partner was summoned to pick him up, and shortly afterwards he would be committed.

As the book candidly puts it, "It is not clear whether Tom  Overy suffered a full-blown nervous breakdown or whether it was a temporary mental illness," but in November 1960 he was hospitalized and never again worked at the firm.  He died 13 years later at 80.

Tom Overy (undated photo)

In the early 1960's Allen & Overy seemed to be humming.  A 1962 book, Anatomy of Britain, identified it as one of the top four firms in the City, the other three being Linklaters & Paines, Slaughter and May, and Freshfields.   Customs of that time—well within the lifetime of many followers of "Adam Smith, Esq."—are as quaint and beguiling as they are unimaginable today.  For example, following the annual Christmas partners' lunch, all would proceed to Locks the Hatters in St James's Street to be sized and fitted for a new bowler for the coming year.

At the offices, each partner—in the absence of his own secretary, which of course all had—could buzz down to the general office where a light would blink next to his nameplate, prompting someone to rush to his office.  We are told that "if it was 4:00 pm and it was Tony Overy's buzzer going, the office boys would know the order that was coming:  a packet of DuMaurier cigarettes from the tobacconist opposite.  Years later, the instruction would more probably be for a visit to the off-licence."  [The "off-licence" is a liquor store, and Tony was Tom's son.  He had been made partner as of right under the original 1930 articles of partnership, which entitled George and Tom each to anoint one son as a partner.]

After Overy's departure, the role of "senior partner" was assumed by a triumvirate of Godfrey Morley, Willie Martin, and Jim Thomson, but "in reality it was Thomson who called the shots."  By all accounts he was a superb lawyer—some have said his reputation was as the finest commercial lawyer in the City—but it was his drive and ambition that gave him the impact he would have. 

"He was fiercely ambitious, not just for himself but also for the firm.  He made it his business to know everything that was going on.  No one, from senior partners down, escaped his attention.  He would call up files opened in the name of other partners without telling the partner responsible.  Whenever he passed anyone in the corridor he would shoot them a question about how a particular matter was being dealt with."

Thomson's leadership of A&O came at a time when the profession was undergoing a sea change whose repercussions are still being felt today:  It was no longer possible or desirable to be a generalist.  An update to The Anatomy of Britain published in 1965 read:

"'The new kind of lawyer is a more adaptable and positive person; he is staking his claim in the new corporate world, and prepared to deal with any business, including tax, pensions, and hire purchase, that his client might have.'  Substitute the words 'derivatives,' 'securitization,' and 'mergers' for those last three examples and that same sentence could just as easily be written today."

While the firm had made great strides during the  '60's, several large shocks hit it as the '70's began.  In the spring of 1970 John New, one of the new generation of leading lights, died of a heart attack at age 42.  He was the first at A&O to pursue the new field of intellectual property (and to realize its coming centrality to a sophisticated practice), and his death "left a huge hole."  In 1971, Robin Broadley, a partner since 1964, left to go to Barings.  He had been indispensable in developing the firm's banking work.

But the worst happened in the spring of 1971.  Thomson was in South Africa on business with a client.  On July 8, 1971, the car he was riding in to the airport for the return flight to London was forced off the road by a swerving driver; it hit a barrier and flipped over.  Thomson died on the way to the hospital.  Each of the other three people in the car was seriously injured, but ultimately survived.

The firm was "devastated.  Everyone went into a state of shock and a numbness spread throughout.  Allen & Overy revolved around Jim Thomson."  As the chairman of a major bank client put it:  "That will be the end of Allen & Overy."

Jim Thomson (undated photo)

To be continued....

The FT is out with its second annual "Innovative Lawyers" Survey and much has changed since I reported on the original survey a year ago.  Primarily, the survey is far more ambitious in scope this year:

"The 2006 report covered only UK lawyers working in private practice. This year the scope has been broadened to cover mainland European law firms, in-house lawyers working in European companies, lawyers in the UK’s public sector, the UK Bar, US law firms operating in Europe and individual legal innovators. In addition, we looked at the UK judiciary to see if there are any judges changing the mould or standing out for their innovative work."

Here's the entire list; the top 5 firms are:

• Allen & Overy
• Clifford Chance
• Linklaters
• Eversheds
• Wragge & Co.

Among US-rooted firms, the only ones represented are:

• DLA Piper (#6)
• Latham (#10)
• Baker & McKenzie (#20)
• White & Case (#24)
• Dechert (#42)
• Skadden (#43), and
• Greenberg Traurig (#48)s

The top-line findings are hard to argue with, but worth summarizing since it is, after all, the Authority of the FT now underscoring what many of us already believed:

"The UK legal profession is more advanced than its mainland European counterparts: law firms are moving from being professional organisations to legal businesses. This sometimes controversial shift has been going on for more than a decade in the UK, but it is still in its infancy in mainland Europe. [...]

"The research for the FT Innovative Lawyers report also showed the cultural differences between US and UK law firms. In general, US law firms tend to be more lightly managed than their UK counterparts. Typically they are more akin to traditional models of law firm partnership, and they are largely organised as a group of individual partners running their own practices. Along with UK firms such as Slaughter and May, these US firms tend to focus their energies more on legal innovation than on the way in which they do business. [...]

"Another facet of the legal world that still shows no sign of radical change [besides the ongoing struggle for diversity] is the way in which law firms bill their clients. As in last year’s report, Billing & Fees was the least subscribed category. The hegemony of the hourly rate remains – although there were some notable exceptions of firms willing to share risk with their clients, or – as in the case of Norton Rose – to introduce third party funding to foot litigation bills.

"Lawyers in every branch of the profession are beginning to look forward and outward. Even the UK Bar, often described as “Dickensian”, is showing signs of a willingness to change traditional ways of working. Commonplace now are transparent bills, marketing and an ethos of client service."

So. to the awards:  What did these firms actually do  to garner awards?

The sheer variety is what's most impressive to my eye.  Linklaters came up with a way of helping finance vaccination programs overseen by the World Health Organisation and Unicef, among others, under which $1-billion of bonds have been issued and another $3-billion are expected to be issued over the next few years.  (The World Bank acts as treasury manager for the issues.)   Clifford Chance took on climate change by attempting to do for carbon and emissions trading what Michael Milken and Drexel did for junk bonds:  Standardize the disclosure and documentation to make the market more liquid.  CC also claims to have invented the world's first convertible Islamic bond, consistent with Sharia law. 

As for individuals, we have some truly impressive souls.  Mahnaz Malik, age all of  28, graduated in law from Cambridge in 1998 and is now tri-qualified to practice in England & Wales, New York, and Pakistan.   While at Simmons & Simmons—which she left 18 months ago to serve as a full-time advisor to governments on their relations with NGO's—she set up a  program to provide legal representation to children "detained in appalling conditions" in Pakistani jails; it now represents 92% of the children in Lahore jails.  Oh, and did I mention that she's published two novels and made a film?

Then we have Jim Rice, a  securitization partner at Linklaters, who spear-headed the global vaccination initiative noted above, and has a track record of inspiring teams of young lawyers pursuing ambitious pro bono projects.

Or Chris Perrin, the general counsel of Clifford Chance, who is a thought leader in the ever-more-important area of conflicts, now chair of a working committee to draft new conflicts rules for England and Wales.

Lastly, one of my perennial favorites, Tony Angel, managing partner of Linklaters since 1998, who the FT calls "a visionary and strategist in a sector that is not known for sophisticated management. He was one of the first law firm managers to take the job seriously," and rebuffs criticism that he has turned the firm into a corporation:  Rather, he insists, the partnership ethos is alive and well within a smoothly functioning and profitable environment.

Speaking of management, there's a separate category of awards for that, as well as for IT, HR, and client service.

Management

Regular readers know that I think benchmarking is a merely the starting line at best and a tar-pit of assured mediocrity for the vision-impaired at worst.  So I thoroughly endorse the piece on management:

"“Are we normal?” Law firms are always asking me this question. When I assure them that their organisational and interpersonal challenges are fairly typical of firms in their sector, they seem relieved. But they are missing the point. Being “normal” is not enough. To achieve competitive advantage these firms must aspire to being abnormal – in a good way.

"Very few of the submissions in the management category this year could be described as genuinely innovative (click here for rankings). Most clients would be unimpressed if they ever read their law firms’ submissions in this category. What feels radical and innovative to a law firm may seem like standard management practice to their corporate clients."

Eversheds takes first place for introducing "a sea change" in how partner compensation is calculated: 

"Eversheds has abandoned lockstep altogether but has done so in a particularly creative way. It has used the new method of partner remuneration as an opportunity to define and embed the most valuable elements of the firm’s strategy and the partnership’s ethos. In other performance-­ related pay schemes, an individual partner’s profit share is based entirely on retrospective performance. Eversheds’ scheme also takes account of expected future performance, recognising and rewarding an individual’s commitment to modify or fundamentally change behaviours in support of five defined criteria (of which only one is profit)."

To my mind, nothing, absolutely nothing, is more important to enlisting "hearts and minds" support for different behaviors than to embed rewards for the desired behaviors, and penalties for the same-old-same-old behaviors, into the compensation system. 

IT

Many of the entries here were of the to-be-expected variety.  For example, DLA Piper  allows clients to post advertising material for clearance by their lawyers; Baker & McKenzie has an IP database repository with, they claim, more than a quarter of a million trademark records under management; Mills & Reeve offers a free online healthcare law resource; Linklaters created a leveraged term sheet generator to cut production time from eight hours to 30 minutes; Simmons & Simmons offers an online age discrimination training guide; and Clifford Chance has a reasonably mature suite of online services now being used by over 20,000 people in 270+ organizations in 50 countries and eight languages.

But then we had the truly innovative.  Number one here is the creation of Derek Southall, a partner and head of strategic development at Wragge & Co., who has come up with a partly automated and partly human (with four IT specialists) system to advise clients on their own internal IT infrastructure needs.    One reason it wins?  This client quote says it all:

"Ian Leedham, senior counsel for the National Grid and an enthusiastic supporter of the Wragge & Co initiative, agrees. He points out that Mr Southall’s strength is that he was a lawyer before he became an IT expert: “This means that he really understands what the business needs.”"

90% of lawyer/IT miscommunication could be eliminated, I've often felt, if you can find one key person who truly understands what both sides of the table are talking about.  There's no substitute, here, for having a former or current practicing lawyer who's at least reasonably, if not intimately, conversant with IT. 

Human Resources

The adage that "people are our most valuable asset" is, as we know, honored too often in the breach.  This observation sums up the disconnect:  "“In a lot of firms, there is a reticence on the part of partners to engage staff in discussions in early stages of their careers,” says [David Miles, a partner at BDO Stoy Hayward, an accounting firm]. “For firms that do start engaging associates at an earlier stage, it actually forces them to identify what they are looking for in terms of making partner. But firms are only just waking up to the fact that they need to do that.”

Ashurst and Allen & Overy, among others, have taken the remarkably common-sensical step of compensating associates   not based on years post-graduation, but on actual competence, skills, personal attributes, and behavior.   Cobbetts has established a "leadership development center" focused on a two-day off-site program in which partners explore different business-focused activities designed to identify their relative strengths and weaknesses.

Latham, characteristically, has come up with one of the more "differentiating" programs of all—and one, of course, which is blindingly obvious in hindsight.  Rather than relying on the ad hoc approach, often dependent on chance hallway encounters, of finding associates on their way out posts in-house, Latham has formalized it to  include partners, departing associates, and firm alumni, all run through the firm's intranet.   Why on earth wouldn't your firm do that?  We all know that happy alumni can become your best clients.

While you're at it, don't ignore staff.   If your firm is roughly typical, you have at least as many staff as you do fee-earning lawyers; to ignore them could be crippling and is certainly morale-sapping.  This doesn't have to be expensive; the most popular benefit is career development programs—which, need I remind you, actually make them more valuable employees?

Client Relations

I've saved one of my favorites for last.   Impeccable legal expertise is now taken for granted; but clients want more.  The trend, roughly, is from detached advisor to business partner.    Critically, this has to go beyond online tools such as client relationship management systems, or KM systems with expertise-finding capability embedded.  The goal is to fundamentally change the way lawyers think about clients before, during, and after engagements.

For example?  At Addleshaw Goddard, 40 or so client relationship partners and their client relationship team members are being trained in business analysis tools at Cranfield School of Management—with a view towards enlightening them as to how the client might actually be thinking about their businesses. 

Wragge & Co. did something more innovative:  It offers free counsel to companies struggling to consolidate and downsize their "panels."  Or, as they slyly put it, "we became poacher turned gamekeeper."  The advice  covers the waterfront, from whether a panel is advisable in the first place to what criteria should be applied, how to handle firms' tenders, and how to get panel members to obey the ground rules.

But Linklaters wins for "the shift in approach with potentially the farthest-reaching consequences for the legal industry."  They fielded a pitch team for a global corporation's work outside the US that was made up of two lawyers—and one client relationship manager and one IT specialist.    We can end with no more apt tale than this:

"The firm says: “The client relationship manager and the managing relationship partner in charge of the team were something of a double act, which was unconventional by industry standards, yet highly effective. There were some conversations which Linde needed to have with a lawyer and other conversations which were easier with a senior person outside the legal team.”

"Should this become standard practice, and be taken up by other firms, it would truly be an innovation that could revolutionise the way law firms deal with their clients. It might also be part of a wider trend towards senior non-lawyers having greater power, and more exposure to clients, within law firms. And that is uncharted water for the legal world."

Trusting non-lawyers, indeed!?  Now that is true innovation.

Here's the entire article—and your bonus for taking a look is seeing me in the courtyard of our 1903 building.

Update:  Tues 11 July, 3:55 pm

I received this email with the reader's permission to append it to this article

"It seems odd to me that in the modern world lawyers should be so restricted in the way they can structure their business. The increasing move to LLPs suggests that many want some of the additional security of a more corporate style of ownership. In addition to an infusion of cash I wonder if the large law firm would benefit in other ways from becoming public companies. The change of status would mean that some aspects of their business would become more transparent. The lastest survey from The BTI Consulting Group, Inc. reiterates the age old complaints about law firms' poor communication, lack of urgency etc as perceived by corporate clients. According to the survey only 32 percent of executives would recommend their outside counsel to others. Perhaps if senior partners became directors of public companies the greater transparency would make handling these perceptions a higher priority. "

—from Dorothea Stuart of Stuart Associates Ltd. in London, whose website describes her as "an executive coach, personal brand strategist, and Human Resources & Business consultant for lawyers."

Thanks, Dorothea.  The issue of greater transparency is indeed a highly salient one, with potential repercussions we are only beginning to explore. 

With the release this week of The American Lawyer's "A-List," we revisit the perennial debate about the value of pro bono work and diversity.  Why?  The "A-List" methodology is to start with the AmLaw 200 and rank them on the metrics of revenue per lawyer, associate satisfaction, pro bono, and diversity.  Firms are scored for their rankings "inverted," as it were (so that the #1 firm in RPL gets 200 points), and the composite score, with RPL and pro bono rankings doubled, determines the firm's standing.  Of the 200 AmLaw firms, the top 10%, 20 firms, make the so-called "A-List."

I won't go into whether I subscribe to the methodology of the A-List, or to its PC-squared values—nor will I ask you to laud or denounce it—but I'll take the occasion of its annual publication to pose a different question:  Are law firm leaders contributing significantly to the public discourse?

I ask because McKinsey recently published "CEOs as public leaders," a survey of US business executives.   If its findings contain a lesson for our profession, as I believe they do, we have our work cut out for us.  Here are the top-line results:

• Half of respondents believe they and their peers should play a leadership role in publicly shaping debate on topics such as education, health care, and foreign policy, yet only one-seventh consider themselves to be actually playing that role.
• Among the few who do play a leading role, most by far are from private companies and say their motivation is primarily personal.
• Highly correlated with participation in the public sphere is a strong network of peers with a similar interest.
• The primary barrier to being more involved is a lack of time.
• When asked how involved business executives actually are in addressing public issues:
  • 35% say they play no role at all
  • 59% take the cop-out answer and describe the role as "some, in efforts to address public issues, but not a leadership role"
  • and only 6% say most play a leadership role.
• The disconnect between what executives think their public role should be, and what they actually do themselves, is even more telling. Here are the figures for the question, what role do you think most executives should play vs. what statement best describes your role:
• No role:  6% should, 27% me
• Some role:  51% should, 59% me
• Leadership role:  44% should, 14% me.
• Finally, in terms of enablers and barriers to engagement, the top three enablers were:
  • A strong network of peers with a shared interest in public issues (51%)
  • Comprehensive set of facts and understanding (50%)
  • Relationships with people who could have an impact (43%)
• And the top three barriers were:
  Lack of time (71%)
  • Fear of negative publicity (25%)
  • Short term financial pressures (23%)

Where does this leave us?

If we're at all like business executives, we're falling sadly short of our aspirations in contributing to informed public discourse about issues we know something about.  We have bully pulpits—we really do, just ask your communications people about getting an Op-Ed placed under your byline—but we're largely mute.

What might those issues that "we know something about" be?  Start with some small concepts like liberty, justice, equal rights, and the rule of law.  Invite your partners to contribute their expertise on topics du jour.   For example (and I remind you again, that "Adam Smith, Esq." is relentlessly nonpartisan and nonideological, at least in the political realm):

• Was President Bush's commutation of Scooter Libby's sentence justified?  Why or why not, and by what precedent?
• What should we do about Guantanamo?
• Was the Supreme Court's recent Tellabs decision changing the pleading standards for securities class action suits well or ill-advised?
• ...and you get the picture.

With all due respect for pro bono and diversity efforts, those initiatives may set fine examples and they unquestionably change the lives of individuals lucky enough to be personal beneficiaries of both efforts.  But we can do more.

We can contribute to the public discourse on issues that affect our firms, our headquarter cities, or simply the well-being of our nation.   We can talk about matters important to our firms or matters important to the nation as we conceive it.  (In the McKinsey survey, for example, the quality of education and of health care were seen as socially important but not critical to the CEO's businesses, whereas the impact of federal regulations and the price and availability of energy were seen as parochial critical to the business.)

If you believe the Google Zeitgeist, Britney Spears is the #1 topic Americans care about.    I leave it to you whether the level of our public discourse has reached an all-time low, but we can either bemoan and denounce it, or participate and elevate it. 

We have a voice, we are by and large articulate, rational, and can explain our opinions on issues large and small with particular rhetorical and intellectual force.  Let's use the platform.  Let's not, as McKinsey's survey of business executives revealed, aspire to more than we realize.

To paraphrase:  "We have a democracy, if we can keep it."

Happy 4th of July.