Friday, December 29, 2006

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.
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17 comments:

Wabisabi said...

I think there may also be the case that large law firms may do well to hire full-time managers to do the managing. The problem is, most managing is done by partners, and partners resent spending time that is not billable, and some partners - though excellent lawyers in themselves - make horrible managers. So the management decisions always lag behind day-to-day needs. And then there is my favourite quote on management:

'Office politics occurs where there is a lack of strong management, and people have to resort to political manouverings to get things done.'

This would characterize the two law firms I have worked at. The partners take no action in management as long as they could get away with it. I could cite you horrendous examples. Had there been someone whose entire responsibility is to improve workflow, reduce redundant or unnecessary work etc, the firm could have saved itself from a lot of trouble.

But I am aware that I may be citing extreme examples from my jurisdiction (Hong Kong), where there is no labour law to establish maximun working hours and minimum wage. If a state of unsatisfactory conditions exist because of lack of management (or error in management), they could always make the staff work overtime to make up for it, and be none the worse off.

As you may be aware, I have been reading your excellent blog for some time. I think you have an authentic voice, which is not something that could be said of many blawgs there. And as you may also be aware, 'Sic transit gloria mundi' is not updated anymore, though this is.

John Flood said...

Thank you Wabisabi for your insightful comment. Basically, I agree with you. When management and administration are handled properly and in sympathy with the organization's needs and goals (assuming they are articulated clearly), the entire enterprise benefits in many ways. My gripe is when management thinks it has all the answers and effectively breaks off communication with its constituency. This is why I made the comparison between law firms and universities. If both professionals and administrators/managers can't treat each other as equals, the consequences won't be happy.

And by the way I'm changing my link to your blog What the Thunder Said.

ChinaLawBlog said...

First off, you have a great site. Second, thanks for adding me to your blogroll. I am honored.

A variant on this post was our lunch time conversation yesterday between me, one of my partners, and a lawyer from another small Seattle law firm. The topic arose because I had earlier that day received my first e-mail from the newly formed mega-firm of Kilpatrick Lockhart/Preston Gates.

We all thought Preston had done the right thing in going mega. We felt it needed to do that to remain a "big firm." We all agreed with the oft-repeated view that there is not much reason for there to be mid-sized "do everything" firms. But then we started talking about how instead of dividing firms into large, medium, and boutique, maybe the better way to do it is international, regional, and local. We skipped national because most of the national firms (outside of maybe labor law) are also international.)

There are many very good law firms in Seattle and Portland that have traditionally been considered large but probably no longer should be, at least in comparision with the Kilptricks of the world. At the same time, calling them medium consigns them to a category that also probably does not make sense. These firms, with 250+ lawyers are really regional firms and I think they can do just fine as that?

We even talked about Wachtell, but saw it as somewhat of an anomoly due in large measure to its overwhelming quality and we viewed it as really being more of a very large boutique (ultra high end corporate) than as a big firm.

So what do you think about categorizing firms as local, regional, and international?

Wabisabi said...

First of all, thank you for taking the trouble to update the link. ^-^

'My gripe is when management thinks it has all the answers and effectively breaks off communication with its constituency.'

Big-law does that, and in a cultural setting where employees are - well, I hate to use the word - 'docile', it really amazes one what management can get away with. And sometimes, as in the case of mega-multi-biglaws in Hong Kong, communication is and has always been two-tiered (the management speaks English and the local staff speak Cantonese) and neither make much effort to communicate beyond minimum needs. But then perhaps it is not just biglaws, but in the law courts as well. I will definitely write more on this on my blog.

I just noticed that I forgot to mention there is no labour law to make employers compensate employees for overtime work as well. Perhaps this may help put things in clearer perspective.

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