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Adventures in Magical Thinking, Part I

Posted in Law firm practices

The good news is that the strategic brain trusts of many law firms often are populated with realistic, forward-thinking leaders who grasp the sweeping economic and operational forces that are reshaping the face of the legal profession. They see the big picture better than many of their colleagues in the trenches who view the legal world through the narrower lenses of their relationships with specific clients.

Out of Alignment

The bad news is that even enlightened leaders often find it hard to get rank-and-file partners to align their individual near term behaviors with the leaders’ long term strategic vision for promoting firm stability, growth, revenues and/or profitability.  When trying to build broad scale buy-in, leadership all too often falls into “magical thinking” that assumes that strategic imperatives – particularly if they compel major change in personal behavior – will be self-implementing  or self-aligning.  The leaders may have a clear perspective on competitive market realities, but they may lack understanding of the incentives that shape their partners’ behavior. These days, in order to implement needed changes, effective firm leadership requires street-level savvy in behavior modification.

Who You Callin’ “Excess Capacity?”

Here’s an example: Faced with plateaued revenues and steadily-diminishing realization rates, one firm’s executive committee recognized the obvious:  the firm clearly was suffering from “excess capacity” – too many mouths to feed (particularly partner mouths), and not enough fodder to feed them. Rather than take the painful approach of reducing the mouths, leadership’s strategic solution was to try to increase the food, that is, to prescribe that henceforth all partners must (and we quote here) “focus on bringing in more business.” Unfortunately, this strategic priority was not accompanied by any tactical marketing initiatives, partner training in business development, or mandatory preparation of personal marketing/practice plans. The mandate from on high was “Hey, just do it.”

The Executive Committee engaged in magical thinking because it acted as if just asking for changed behavior would produce results.  When the EC’s exhortations did not work the first, second, and third times, what did they do?  They asked yet again, thus exemplifying the famous definition of insanity: doing the same thing over and over and expecting a different outcome.

Despite the firm’s “new strategic emphasis on business development,” the managing partner couldn’t help but notice that most partners were not allocating much effort to business development. Instead, they were barricading  themselves in their offices and frantically trying to bill as many hours as possible, rather than seeking out expanded or enhanced sources of firm revenue.

You Get What You Incent

Why weren’t they buying into the BD-driven strategic shift? Because it turns out the firm’s compensation system continued to heavily reward meeting billable hour targets, even for partners. The firm had never prescribed individual revenue targets, and historically the assignment of origination credit was a highly-subjective crap shoot delegated to a compensation committee not respected for its impartiality. Interviews with partners made it clear that to them, birds-in-hand were more valuable than birds-in-bushes: the best way to maximize this year’s personal compensation was to draw on every possible method for amping up billed time, whereas undertaking client and business development would require six months to two years of lead time and might produce highly speculative results.

Most partners therefore acted as if they were oblivious to the hurricane warnings about revenue and realization trends from firm leadership, and they were perfectly happy to have the firm assign others the responsibility for improving business development.

The magical thinking in this case was the notion that billing partners will automatically want what the firm tells them to want, even as it clings to historical compensation incentives that support an entirely different set of personal behaviors. This, of course, is likely to create a huge gap between the firm’s overall economic fortunes and way its partners’ self-interest manifests itself.

 

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