Not Much Difference Between Large Law Firms and Universities

A few years ago McKinsey produced an interesting analysis of which law firms would succeed in the "winner takes all" economy. Thinking back on this, they were both right and wrong in their results. McKinsey said there would be two types of winner: the full-service global reach firm like Clifford Chance and Baker & McKenzie; and the niche compact firms such as Wachtell Lipton, Cravath, and Slaughter and May.

The second part was right but the first was wrong. How so? The second group are actually extensive in the services they offer. What they don't possess are a posse of overseas offices around the globe. Instead they depend on "best friends", and these networks seem to operate well, especially when measured by returns to the firms.

The first group have become a mixed bag. Often made up of mergers or takeovers of a rag-bag of firms that might match or not. So although they have "global reach", they rarely encompass global quality. Clients are picky and are not reluctant to tell such firms that while they are happy to use the firm's London office, they will not use its, for example, Italian offices because they consider them substandard to the main ones. A firm like Baker invests enormous sums of money in trying, not always successfully, to produce the same quality of product in all its offices. But because of its system of hiring predominantly local lawyers, it often is stuck with what the locals produce and have not hired in their own firms. There is always a suspicion about someone who went to work for a law firm from overseas.

The other aspect of the "niche" players is that they are basically self-governing, self-accountable, collegial institutions. The upshot is that lawyers like working for them and enjoy the practice of law. When you look at the global reach firms you see managerialism and audit running rampant. As necessary as they are to complex organizations, they are nonetheless demeaning and essentially sap the collective spirit. The figures for revenue per lawyer and profits per partner demonstrate these differences. Moreover, the bigger firms have stratified into multi-tiered partnerships with fewer equity partners and a greater number of name-only, salaried partners who can pretend. They also have phenomenally high churn rates for associates.

Why then the comparison with universities? This comes about because Oxford University has been deciding on the future of its governance systems. Both government and its quangos, mainly the Higher Education Funding Council, have been exerting quiet pressure on Oxford to change its centuries old system of academic democracy into a more managerialist system with a dominance of outside governors. The academics have rejected these moves by the vice-chancellor in favour of maintaining their present ways. They say that the democracy has been a fruitful and productive mode of governance resulting in high teaching quality scores, extremely high research ratings, many spin-off companies, and a considerable contribution to the economy as a whole. Moreover, the academics enjoy what they do and how they achieve it.

If it ain't broke, why fix it? The pressures of the 20th and 21st centuries are towards centralization of control. We see it especially in government with the UK Treasury setting targets for every bit of government. Targets and audit are shibboleths, which doesn't mean that they are necessarily good or effective.

Let me therefore compare my own university, Westminster, with Oxford. Mine is an institution where the philosophy of managerialism has run rampant. It is an organization which proudly boasts having at least half, if not more, of its staff running the administration instead of teaching and researching. It is a little known fact--and I'd like you to gaze on this nugget of wisdom--that students' main reason for choice of university is how many administrators and managers it employs, since it is these that make their education possible and students adore them. The educators and researchers, of course, play a minor supporting role that is impossible without these legions.

What do these administrators produce? (And here ask yourself, how many obituaries do you ever see of administrators? Answer: hardly any because no one remembers them or even notices them except when they interfere.) Well, they produce reams of indigestible paper and systems based on notions of "best practice" for their "stakeholders" always "going forward". (Just don't ask them what any of that actually means because you would embarrass them as they don't know.) Good start, you might say. None of them does research or teaches. In fact they are actively discouraged from doing so. Most are appointed as permanent positions--no votes or sharing of responsibility here. And the result is that there is an unbridgeable divide between the academics and the administrators (or the now-named managers).

But what else? Out of around 30 departments in my university there are at most four that have obtained excellent research ratings (score of 5) in the last Research Assessment Exercise (RAE). That's not many for all the administrative and managerial work that's going on. (Virtually all of Oxford's departments scored 5.) My own department, Law, was one of the successful ones. We achieved our rating in spite of the university.

Let me be frank about this. Between the 1996 RAE and the 2001 RAE (when we scored 5), the university granted us no funds towards our research. Why? Who knows? I could never get an answer. Other departments were awarded research funds. Nevertheless by our own efforts we pulled the best research rating in the university out of the hat. We created our own research culture and funds. We were good. (It always surprised me that when the results came out that our vice-chancellor never said thank you or complimented us on our performance.)

Moreover, law is a successful discipline within the university. Our teaching is rated highly and our students are gainfully employed, but our faculty-student ratio is the worst and our budget is often raided to bail out less successful parts of the institution. The academic union says stress levels are high and the university's own satisfaction survey shows its members ain't.

Oxford is a stunning success: Westminster passes muster--just. Oxford governs itself: Westminster has a panoply of satraps issuing decrees. Oxford has said there is to be no gulf between administration and academia, while Westminster has said that academics should be subservient to managers. Is my comparison too simplistic? I really don't think so.

Back then to law firms. The really big firms and a number of the smaller ones have adopted the managerialist route over the self-governing ideal. It's usually in the name of efficiency and "best practice", whatever that may be. These are the firms that are squeezing their equity partners. These are the firms that are de-equitizing partners and finding that the courts are now saying that partners are employees with concomitant rights. That is you can't have it both ways. These are the firms that are getting into a mess.

Quietly, their hope is pinned on something like the new "Tesco Law" Legal Services Bill in the UK that will allow them to become publicly floated companies amenable to external investment. According to a Financial Times article, up to 60% of the big law firms want to take this route. They are bewitched and unable to see the reality. It will not bode well.

I say to law firms look at the universities. See how a once-famed institution--the British university--respected worldwide is fading and waning. This is your future. Not for the "niche" law firms, akin to Oxford, they possess one characteristic above others: self -knowledge. Unfortunately for the others, like the other universities, they will be beguiled by whatever management fad comes along. They will march hand in hand with Martin Lukes, the great chief leader of "a~b global", and always be unsure about their competence and abilities, but never admit to failings. And so...they fail.