How Firm Leaders Can Beat The Odds

Published in the New York Law Journal
February 7, 2011

Does any lawyer really want to become managing partner or practice group leader in a law firm? The answer is very likely "no." Law firm leadership involves many organizational quirks, ethical responsibilities, partnership needs, and client service requirements that are unique to the law firm setting, and that make the senior governance positions in a firm unattractive.

Heading the list is the fact that managing partners of many law firms are still expected to maintain their own book of client business – akin to Apple Computer expecting Steve Jobs to continue designing electronic hardware and writing software code while running the company. Several years ago, press reports about an ultimately unconsummated merger between two high-profile U.S. firms contained a startling fact: the managing partner of one firm logged 3,300 billable hours a year, while the managing partner of the other had not practiced law in over a decade.1 The disparity in management cultures may not have ended the merger, but it does point out that law firms approach firm leadership differently from other business organizations.

Statistics on leadership arrangements are scarce. In 2008 the Smock Sterling consulting organization secured survey responses from nearly 30 law firms ranging in size from 75 to more than 1,250 lawyers, with a median firm size of 160 lawyers. At the majority of firms the managing partners all continued to practice law to some degree. Moreover, about half of all respondents reported they did not have any formal process for setting the compensation of managing partners and firm leaders, other than the normal process they followed for setting all other partners’ compensation. Feedback, if any, usually followed whatever sketchy practices the firm uses with all other partners. 2

Organizational Challenges

The leaders in a law firm have unique organizational challenges that are not present in other organizations, given the nature of firm governance structures. In larger law firms, management efforts may be split between a Chief Operating Officer or Firm Administrator (usually a non-lawyer), a CEO-Managing Partner (and Chair of the Management Committee), and then sometimes a Chairman of the Board (usually a former CEO-Managing Partner). None of these positions, with the exception of the COO/Administrator, is compensated at market rates. If there is the expectation that the CEO is the primary leader while there is another ego-bound lawyer acting in a leadership role as Chairman who conflicts with the CEO, the management structure means chaos and difficulty.

Ironically, firms understand the need to pay for physical assets, to secure capital for operating expenses, and to pay for lawyer and staff time as competitive conditions warrant. But in a business where the highest use of individual time is considered to be serving clients and thereby producing revenue, management is viewed as a sideline. The whole process is too often subjective and peer-based. No firm would tolerate the astronomical gap that exists between CEO pay at large companies and the rest of the organization. Even rainmaker compensation must make a nod to the firm’s "collegial" nature."

Of course, collegiality is a matter of definition. Consensus, even if only informal, likely rules in a firm with several hundred lawyers, which is large by most standards. In the extra-large firms of more than 1000 lawyers, consensus might not be the standard. However, no leader can be too far in front of the major rainmakers and still expect to stay in office. And the largest law firms are hardly "partnerships" in the traditional sense. Several years ago the Equal Employment Opportunity Commission reached an age discrimination settlement with a major global law firm on the basis that older lawyers who were forcibly retired were actually employees under federal law and partners in name only because they had no voice in the firm's management. The rationale was that, at this and other large law firms, governance was with a very few in the organization, making the remaining "partners" de facto "employees," not owners.

Ethical Responsibilities

In law firms with compensation systems that reward individual performance, most of the lawyers do not pay attention to management issues. They focus on rainmaking and their own billable hours. However, a leader’s responsibility for his or her own firm is magnified by professional ethics rules that extend beyond the basics of individual ethical practice. New York State Rule of Professional Conduct 5.1 says that a lawyer with management responsibility in a law firm "shall make reasonable efforts to ensure that other lawyers in the law firm conform" to the rules, and is in fact "responsible" for another firm lawyer’s violation of the rules if the lawyer with management responsibility, "in the exercise of reasonable management or supervisory authority, should have known of the conduct." 3 This leaves a lot of room for error by others, and personal responsibility for the firm leaders.

If firm leaders still have a major focus on rainmaking and their own billable hours, they may not be paying proper attention to catch the errors of others. It opens up a whole range of issues on how the firm allocates new work. Who makes the assignments and why – on the basis of skill, availability or favoritism? Does the firm work to ensure that lawyers, especially younger ones, are adequately trained for the work they receive? The answers can determine whether the firm is able to survive a malpractice crisis.

Written Statement

Because the stakes of unprofessional or ineffective management are so high, the senior governance body in every firm should be willing to provide a written statement of mutual responsibilities to the firm’s CEO, managing partner and practice leaders. This statement should foster the communication and accountability necessary for the firm leader to be successful. The firm’s responsibilities toward the firm leader could include the following requirements:

  • The senior governance body will respond to an inquiry from the individual leader within 24 hours.
  • The senior governance body will be available to meet with the individual leader for no less than one hour once a week.
  • The senior governance body should provide clear and direct communication in requests and directives to the individual leader.

The idea of a written statement of responsibilities is definitely a two-way street. Just as an engagement letter spells out both the lawyer’s obligations to the client, and the client’s obligations to the lawyer, so too must the practice firm leader’s engagement document.

Measurements for success must be clearly defined in the agreement so that leader understands the criteria by which the firm will make evaluate performance. If there are certain organizational criteria for success – profits per partner, revenue growth, number of clients – it must be clear which ones are considered to be within the individual leader’s control, and which ones are not. The firm or group leader must be told specifically what he or she must do, and how performance of those responsibilities will be evaluated. There should also be precise definition of the leader’s base level of compensation, and precise definition of the extent to which the leader is expected to maintain a personal book of business and client responsibilities.

Creating the written statement of responsibilities for a firm leader is only half of the job. The other half is to have continuing dialogue and evaluation that allows for reinforcement, modification or expansion of responsibilities as the firm’s circumstances, performance and expectations evolve. The most important function of all law firm leadership is to facilitate continuous communication to ensure that individual agendas continue to be attuned with one another. Law firm leadership and practice group leadership are subject to the same need to keep the communication process open, candid and frequent. Firm and group management all must be in concert, and all partners in the firm should assent. Clear lines of leadership are inseparable from effective functioning of the firm.

"Firm culture" is a primary determinant of firm success. Partners should like the work they do and those with whom they do it. Lawyers who are members of the same firm should share a camaraderie that shapes the development of a shared firm culture. Law firm partnerships cannot succeed without a sense of personal responsibility that begins with the firm’s leaders. This should not be a foreign concept in firms, because when lawyers join a partnership, irrespective of their earnings from the firm may be, they become jointly and severally liable for the debts of the law firm in the event of the firm's collapse. That discipline alone should emphasize the stake that all lawyers have in the quality of their firm’s management. And it should be the clearest reason why ensuring professionalism in and respect for those in firm leadership positions should be expressed in formal, written terms of engagement.

1 Nathan Koppel, "The Dewey-Orrick Merger: Breaking Down the Breakdown," Wall Street Journal, 1/22/07.
2 Peter A. Giuliani, Setting Managing Partner Pay – It’s a Two-Way Street, Smock - Sterling Strategic Management Consultants, October 2008.
3 New York State Unified Court System, Rules of Professional Conduct, April 1, 2009. Rule 5.1, p. 24.

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