Managing the modern law firm

A research team based in the University of Glasgow Business School has been exploring these strategic questions with a small group of Scottish firms who, with the Law Society of Scotland, supported and co-operated in the research. In this article we review some of the most important issues and some potentially useful approaches to the challenge.

Are law firms different?

There is a vast literature, both academic and practice-related, on business strategy. Is it simply the case, then, that the ‘managers’ in law firms need to get to grips with the conventional analysis and apply it to their own situation? Our belief is that it is not as straightforward as this – and the research tends to bear this out. Current professional organisations still operate largely on a partnership basis, a format not necessarily suited to a competitive business environment, being dependent on consensus rather than executive leadership. All our firms had, however, taken recent steps to re-organise internally to establish a clearer locus of decision taking and speedier response.

But partnership is not the only issue. Law firms – indeed all professional organisations – provide services to clients who want the benefits of professional knowledge and practical experience embodied in the partners and legally qualified staff. The tradition has been that partners would essentially be self-managing, with support from associates and assistants, backed up by the office staff. The business ethos now demands a more managerial approach, but it is not clear that conventional management principles can be transplanted directly to the professions. The competitive capability here lies essentially in firms’ ability to manage and exploit their knowledge assets– and to sustain that capability over time. Legal services are very much part of the so-called knowledge economy, where the explicit and implicit knowledge of the staff and their professional routines are the key to competitive advantage. Unlocking that asset and putting it to effective use depends on leadership, the quality, motivation and commitment of staff, and the interaction of these forces in the firm’s culture.

What kind of firm?

Strategic thinking need not involve the conventional plan, set out in detail – and often left to gather dust on the shelf. Business strategy is more often a gradualist, evolutionary and continuous process, informed by awareness of the changing environment and the needs of customers and clients. In looking ahead, a key question for the law firm is what kind of firm it wants to be, in providing client services. We found Maister’s i # typology of great relevance. He develops a typology distinguishing the pharmacist, the nurse, the brain surgeon and the psychotherapist forms of client relations. Their main features are broadly summarised in Table 1 on opposite page.

In practice, the larger firms will tend to have a mix of types, perhaps even all four. Even smaller firms may have some mixture. Each type, to adapt to its clientele in an efficient manner, will have different organisation structures, operational procedures and staff mix. What is important from a managerial perspective is the mix of types within the firm and the difficulties posed by mismatch or imbalance. Depending on which profile exists – or is desired – there are many key issues that will be affected by the choice: staff selection and development, marketing strategy, managerial style, performance appraisal criteria, and use of IT, for example. Different types of service will require different approaches to these issues, and a multi-service firm may find that the prescriptions for each are in conflict. Therein lies the management problem: one approach will not fit all needs. The problem is one of managing diversity.

Consider the following issues:

• Recruitment and selection: go for the best brains or a mix of abilities and personality types to deal with different client requirements?
• Appraisal: is the firm even-handed and equally effective in appraising stars, median–flyers and ‘lemons’? And will the same criteria of appraisal be appropriate?
• Remuneration: will one system of reward satisfy all the needs of a diverse firm?
• Teamworking: how well will the individualistic brain surgeon mesh in teamwork situations? And what does this imply for team formation and roles within it?
• How does one reward team effort when the tradition is individual salary determination?

Significantly, these questions focus on the management of staff in the firm – the HR function. The growing number of appointments of HR specialists in the bigger firms shows that they recognise the importance of this area, though the potential may not have been fully grasped. On the one hand, clients are reluctant to pay for expensive expertise when the transaction is relatively routine: the brain surgeon and the psychotherapist are not needed. On the other hand, the firm needs to exploit its knowledge assets, embodied in the staff, and to achieve that, the staff have to be kept satisfied with their work content, their workload, and their remuneration. But the labour market for lawyers has changed too, and the long-serving, patient and secure form of psychological contract between employee and employer is fast disappearing.

Recruitment, retention and motivation

The labour market for lawyers has been transformed in recent years. The market for young lawyers with several years’ experience, particularly in the most prestigious firms, has become highly competitive. Individuals, even teams, and partners with specialist expertise and reputations, are much more mobile between firms – and many will baulk at the long hours and sustained pressure, and will take their skills to other types of business, perhaps even that of key clients. As they go, they take with them the accumulated experience and knowledge which we believe to be the core of the service being provided, which will have to be renewed. While traditionally the quality of recruitment has been an area of strong focus for law firms, the emphasis may now be switching to retention. And that in turn means the firm has to deliver job satisfaction, career progression and fair reward (as perceived by the staff themselves) if they are to stay. Firms increasingly have to ask not what can they get from the employed staff, but what they have to deliver as their side of the bargain.

Staff below partner level appreciate the importance of teamwork but we think few firms understand the management of real teams (leadership, differentiation of roles, communication and feedback). While some firms manage their appraisal system well, others are much less consistent. Feedback on performance is not always given – or as immediately as staff would wish. Workload expectations for many are heavy and relentless – the effect of increasingly demanding clients; and although the intrinsic interest of the work may compensate, this is not always the case. Associate staff, whose contribution can be critical, may find themselves in limbo, particularly where the prospect of a partnership is insecure. There is typically a divide between legal staff and other staff, despite the fact that teamworking requires contributions from all.

The more advanced firms have sought to circumvent some of the problems by investing in knowledge management systems, which ideally can take the drudge out of many tasks and free time for more rewarding work. IT is seen as part of the solution. Paralegal staff can be used to attend to the more routinised, ‘commoditised’ types of business. But the core of knowledge is the people, their personal development, their systematic involvement in debriefing, and the horizontal communication between individuals and teams concerning additions to the knowledge stock. The importance of this is recognised in some of our firms, but even in these we could not be sure that knowledge management in the above sense had become part of the firm’s architecture or culture. Knowledge management needs to be seen as part of performance management, requiring commitment, measurement and reward. It needs to be recognised in the appraisal criteria. If not, the staff will devalue the rhetoric and adapt their behaviour to meet those objectives that are seen to be measured and rewarded. The ‘people’ side needs to be given attention alongside the technological aspects.

The range of experience across firms in terms of knowledge management and team reward, as perceived by staff below partner level, is demonstrated in the following table, based on four of our firms. Knowledge sharing is generally satisfactory within practice units, much less so across units – and the culture of sharing knowledge is clearly highly variable. Again, the strong support for recognising and rewarding teamwork is remarkable, but the evidence does not suggest that many firms achieve this in practice. (See Table 2)

The Question of Culture

During our research we quickly became aware that the firms had variations in culture, defined as ‘the way we do things here’, the norms of behaviour and standards, the cement that hopefully binds the members of the firm into a cohesive unit. Not all our firms were comfortable with this concept, but it assuredly exists. Some of the recent steps taken to re-organise firms along more business-like lines have subtly altered the traditional culture developed under the older-fashioned partnership ethos. As many industrial and commercial firms have discovered, decentralisation can lead to fragmentation in the organisation and a loss of cohesion – and that too has to be managed.

We explored this aspect of our firms through questions to focus groups (drawn from staff below partner level, and including paralegals and office staff. Questionsii on social relationships within the firm (sociability) and commitment to getting the job done (solidarity) indicated that there were differences. While some firms appeared strong on both counts (a ‘collegiate’ culture), others had more of a ‘networking’ culture (stronger on sociability than commitment). While both of these might seem quite comfortable cultures, both strong sociability and strong solidarity have their drawbacks.

High sociability may lead to cliques, behind the scenes manipulation of policy decisions, and tolerance of poor performance. High solidarity produces co-operation so long as the individual incentive is clear, it can lead to ‘turf battles’ and boundary protection, and it may be disruptive of loyalty and commitment. If the chosen strategy is not right, solidarity can lead to all going over the cliff together! High sociability, though providing flexibility and creativity, may have as its downside a tolerance of poor performance, settling for compromise through consensus rather than the best solution and the undermining of due process. The partnership form of organisation tends to work in the same directions. What matters from a managerial viewpoint is to understand the current culture, its strengths and limitations, and to shape it in ways that will be supportive of the main drives of the business.

Conclusions

Our research indicated that firms were increasingly aware of the competitive environment in which they operated and had taken steps to adapt their organisation and management structures accordingly. Two key areas for continuous re-appraisal and development were client orientation and the contributions of staff, both of which require active management and are strongly related with one another. Changes in these areas will also impact on culture, which will in turn influence the ethos of the firm. Thus we see six themes (the 6 Cs), which will repay constant re-visiting and renewal, if the firm is to achieve competitive success:

• Changing circumstances: maintaining intelligence on the external environment
• Competitive advantage: understanding what it is that the firm has that makes it competitive in a sustainable and distinctive manner
• Client orientation: the need for understanding, shaping and delivering against client demands
• Contribution of individuals: the central role of the human resource of the firm and the skills and knowledge it possesses
• Corporate culture: the vital form of bonding material that determines ‘how we do things here’ and ‘what it feels like to work here’
• Combining these elements in such a way that the ingredients fit with one another and provide mutual support for one another.

The significant point now added is that there are many combinations of these different elements, and some mixes will work better than others. If the signals generated are in conflict with each other, the result will be a less effective strategy and a sense of confusion among those who implement the strategy and those whose working life is affected by it. There is no point in pursuing an apparently logical strategy that clashes with existing, and perhaps only vaguely understood, day-to-day realities within the firm. Conversely, if the harmony among these elements is strong, they can generate a synergy that will provide a powerful competitive platform.

For example, a radical strategy to energise an under-performing practice area may create tensions over recruitment policy, remuneration systems, firm culture, and the branding of the firm to its clients. A set of negative feedback loops can be triggered, that may distract management attention from the prime task of successfully securing a new set of business relationships; or worse, undermine effectiveness of the new venture, or cohesion in the firm as a whole. The oft-cited frequency of failed mergers in people businesses is another symptom of a valid competitive strategy undone by a failure to appreciate or manage adequately all the elements of the 6 C framework.

Using such a conceptual model is not a pre-requisite to good management of legal firms. However, in larger firms especially, as business life grows in complexity and rate of change, and staff expect ever greater involvement if their commitment is to be retained, this framework may provide a shared vocabulary for describing problems or opportunities, and through which possible solutions can be explored and tested.

Maister, David H. (1997). ‘True Professionalism: the Courage to care about your people, your clients and your career’: New York, London. Free Press.

Goffee, Rob and Jones, Gareth (1996). ‘What Holds the Modern Company Together?’. Harvard Business Review, November/December 1996.