Sherwood Business Blog

A large number of law firms are not going to survive in their present form. They are not viable in the long term. Those that survive and prosper will do so because they get right two fundamental deals – two sorts of business relationship – that are the basis of success for any professional firm. The deal with the clients and the deal with the firm’s people – all their partners and staff. How can they get these deals right and ensure success and survival? Not by adopting this year’s fashionable magic quick fix but by hard work and perseverance, attending to the things that most firms know they need to do.

First the problem

Firms that get better usually continue to do so. Firms that get worse usually continue to do so. There are two spiral staircases – one up and one down.

The way the spiral works is simple. Take the up staircase. If a firm can find itself additional, better clients, they will bring the firm better work. What makes work “better” depends on the firm’s perspective. It can be more prestige, size of job, attractiveness of the work to the lawyers doing it, difficulty or potential profitability of the work.

Better work attracts and retains better lawyers and the other professionals on which firms depend on so much nowadays, such as marketing, IT and finance people. Why? Because we love to work on demanding, prestigious, interesting work and to belong to an organization that is on the up rather than in decline. It’s not only that new people want to work with us. The best of our existing ones become more experienced and valuable. And they are motivated as they see themselves working in a firm that is going somewhere.

Better people are more skilled, harder working, better motivated. So they do the work better – quicker, more innovatively, in a way that pleases the clients more.

Having better people who are doing the work better raises the firm’s reputation with existing and prospective clients. The firm gets mentioned in law firm guides or recommended in conversation more frequently. More and better clients are attracted. And the whole spiral begins again, with even better clients and so on.

And so the up spiral goes round. But there is a down spiral that goes round too, but in reverse. Losing good clients or not attracting them in the first place means the work is not so good. As time goes by, it is harder to recruit and retain good people. The best are always the first ones to leave as they find it easy to get more exciting or better paid or more prestigious work elsewhere. A declining quality of professional is less capable and perhaps demotivated. The clients are less pleased. Existing clients become more open to the siren voices of the firm’s competitors. The most attractive clients are the ones who go first because they are attractive to the firm’s more capable competitors too. You get the idea.

The benefits of the up spiral are many. One of them is that the firm can provide better rewards for its people. There is more profit to pay better salaries, provide a better working environment and more training. There is more professional interest and development. And there is more fun working for a firm that is moving in the right direction.

For those firms on the down spiral, the effects are reversed. In the long term, the firm will go out of business. Most of them will become, step by step, worse places to work, less able to afford good people. Also step by step they will become worse for their clients. Few firms will go bust. Long before that, the general decline will force the partners into “a merger” – really being taken over. There are two early warning signs: see the Box 1

So it is really simple to describe. Fundamentally, the two key things to do are - somehow, anyhow - improve your people and improve your clients.

But what can we do?

Is all this peculiar to law firms? If it is, then we need to seek law-firm-specific solutions. If not, then perhaps we can get some inspiration and ideas from the world outside the law. Well, if you want to skip a few paragraphs, it’s the same in the outside world.

Peter Drucker is one of the longest serving of the business gurus. He was there when business management first started to be studied and taught. He is probably my favourite business author – mainly because he talks sense and isn’t swayed by passing fashions. His Management Challenges for the 21st Century (Harper Collins, 1999) is a fascinating read. Several of the challenges he identifies revolve around the role of knowledge workers. By knowledge worker, Drucker means anyone whose work is mainly the application of knowledge and skill, rather than physical effort. Clearly this includes the lawyer and the other professionals in law firms, such as the IT staff, marketing people and so on.

The are two important facts about knowledge workers:

• In knowledge work you can’t substitute capital for labour. In other words, however much money you’ve got, you can’t replace the knowledge worker with computers and machinery – you still need the person.
• In knowledge work, the worker owns the means of production. This is a more general statement of what law firms have known about their lawyers for along time. If a skilled lawyer walks out of his or her job, that person’s knowledge – both legal and client knowledge, how to do the work and how to get it – walks out at the same time.

These go some way to explain why it is our people that figure in the spiral. The first tells us why, in most forms of legal work, capital investment and technology are not major factors. The second is the very basis of the deal with those people. They “own the means of production” so the firm’s deal with them is critical. And when you have done the deal with the knowledge worker – you have that bright young lawyer working for you - can you rest on your laurels? Not at all. You haven’t bought the lawyer, you are renting the means of production from him or her. If you can’t offer a market price in fun, money, interest – whatever it is that the particular person wants - he or she will do a deal with someone else.

Another part of the spiral is getting people to work better. This is a combination of things, one of which is productivity. Drucker points out that until around 1900 “it was axiomatic through history that workers could produce more only by working harder or by working longer hours . . . Since then [manual worker productivity] has been going up steadily at the rate of 3½ percent compound – which means it has risen 50-fold . . . On this achievement rests all the economic and social gains of the 20th century . . . In terms of actual work on knowledge worker productivity we are, in the year 2000, roughly where we were in the year 1900, a century ago, in terms of productivity of the manual worker.”

Does this sound familiar? The industrialist of 1900 would feel at home in many of today’s law firms – for them, better performance means making people work harder or for longer hours. There isn’t the space now for me to set out Drucker’s suggestions for improving knowledge worker productivity, still less to explain how they can be applied in a law firm specific way. I’ll keep that for another article. But think about the gains to be had. Even if Drucker is out by a factor of 10, a five-fold increase in productivity sounds like something that’s worth pitching for.

How to get and stay on the up spiral

I’d like to finish with five suggestions. Firms who are going to stay on the up spiral and be really successful in the long term should:

• Invest significant resources into know-how improvement, including your most important “means of production”, your people. This means good, practical training in the things that make them valuable to you. Not just the law but also client handling, matter management, improving supervision and training skills. Don’t worry that they might leave for a better job. If your people are the sort that aren’t attractive to other firms then you are on the wrong spiral!
• Concentrate on managing the “two deals” for value. See Box 2.
• Knowledge management is not just for big firms. Whatever the fashions, it comes down to two things: improving the way you do the work – improving speed, consistency and efficiency - and thinking of new things to do – new product development. None of this requires fancy techniques, armies of consultants or mammoth IT investment. You can use the tools that are already at your disposal: the skill and ingenuity of your people (partners, lawyers and other professionals), basic IT such as word processing and your network. Yes, sometimes outsiders or new investment can help, but to supplement your own resources, not to replace them. Remember capital is no substitute for labour in the know-how economy – which is good news for most law firms who usually don’t have much spare capital.
• Work at these things hard, patiently and systematically. You are not looking for flashes of genius – just steady perseverance in the things that good law firms have done for generations.
• Lastly, to make a success of these things will take years. For many firms, it will be a case of continuing to crawl inch-by-inch up the spiral staircase. I wish you every success.

Contact: Julian Boardman-Weston

This article first appeared in Managing for Success, April 2004, published by the Law Management Section of 113 Chancery Lane, London, WC2A 1PL (0207 316 5736) lms.lawsociety.org.uk