Building on the power of partnership: playing to the strengths of the traditional law firm

Many law firms are responding to the competitive marketplace by changing their management structure, expanding geographically and re-branding themselves as global businesses. By so doing, law firms may be hoping for a place in the top league but, as David Temporal, a partner at Temporal Consulting argues, they may be taking a risk too far.

Over the last year or so a number of law firms have reviewed their management and governance. Quite understandably, many have turned to their clients for ideas, borrowing both the nomenclature and the architecture of the corporate world with a heavy use of the terms ‘chief executive’, ‘chairman’, ‘chief operating officer’, ‘board’ and so on featuring in their revised management structures.

Some firms have simply imported these terms wholescale and have sought to implement a more corporate structure and style of management, taking power to the centre and removing all but a very few decisions from the partners including decisions about the strategy of the firm. These firms in our view are at risk of throwing out the baby with the bath water, and have failed to fully appreciate that a major source of the power and energy within a professional firm is anchored in its propriety nature. Those firms that abandon the principles of the partnership in favour a corporate style run significant risks: not only are they unlikely to realise the desired benefits in terms of management efficiency, but they are more likely to slow down the decision process, adversely affect both motivation and commitment of the principals and reduce the overall effectiveness of their organisation.

The problem does not lie in the nomenclature or in the architecture of the corporate world per se, but in a lack of a deep understanding about the relationships between the various structural mechanisms and, most importantly, a lack of understanding of the

need to ensure an appropriate balance in the relationship between the partnership and its organs of management. This article will explore some of the complex organisational issues to be considered when addressing the management structure and will point to the danger of a superficial treatment of the topic.

Are partnerships valid?

I was recently reminded of a story and it seemed appropriate to recount it in the context of the debate about ‘partnership’. A traveller lost in the countryside stops and asks a local man for directions. The local shakes his head ruefully and responds: “If you want to get there, I wouldn’t have started from here”. This anecdote illustrates, for many involved in law firm management, how ill suited ‘partnership’ is as a structure within which to operate in the modern and increasingly competitive world.

It is all too easy to dismiss partnership as an outdated institution whose day has come and gone and to abandon it in favour of a corporate structure and style. I understand the concerns and frustrations of those who hold this view. Decision making in partnerships is often highly consensual and can be slow; there is often a strong desire to maintain harmony between partners and so a tendency to seek compromise rather than to confront difficult issues.

But for all its limitations, a partnership and much of what it stands for, offers in our view the most appropriate framework from which to deliver higher value-added professional services. It is interesting to note that many high-end consulting firms such as McKinsey, despite operating in a company structure, govern and run themselves along partnership lines and reflect many of the most important principles of partnerships. Mckinsey recognises that the strength of its firm is built on the strength and quality of relationships and the bedrock of trust and confidence on which these are based, and many of the firm’s processes are directed at maintaining this.

For example, partners are fully informed about and involved in the thinking process and issues leading to major decisions. They operate in this way because it is recognised that if those who are to be responsible for leadership in the firm (which means each and every partner by virtue of their position) are to be committed to a decision then it is important that they have participated in the decision and have a deep understanding of the issues and reasons for it. This is basic psychology, but it is a basic psychology that is often ignored by some in their haste to develop a way of managing that appears to be more clear-cut and efficient.

The nature of the professional

It is critical that the psychology and motivation of professional people is considered when seeking to make the firm a more effective and efficient organisation. Professionals in general, and lawyers are no different, are highly intelligent, independent, autonomous people with a strong desire to influence their future and environment. Any system of management that significantly challenges these needs and characteristics will either be seriously resisted or worse, and create a sense of

dissatisfaction and demotivation. If motivation in the firm drops it is as certain as night follows day that so will performance and this is almost always perceived by clients. I recall one client expressing concern that his lawyers had lost something of their sparkle, enthusiasm and drive (he knew nothing about the internal management issues but had clearly seen its effect) and was unsure whether they were giving that little bit extra required to meet his requirements.

The drive for change

The increasing intensity of the competitive environment in which firms operate is a key driver for change. Competitive pressures have dictated the rules of the game and in response, firms have increased in size to achieve greater strength in-depth across a core range of services. Firms have also expanded geographically and are under pressure to achieve greater consistency in performance across their larger and more diverse organisations.

It is clear that if firms are to be competitive not only do they now have to do new things but also do many of the things they do currently, only better. For many firms this will only be achieved if they become more ‘managed’ organisations, which means operating as more cohesive and focused organisations, co-ordinating efforts and ensuring effective integration between component parts, be they offices or practice groups. Inevitably, to do so will require that the high level of autonomy enjoyed by many lawyers would need to be offset with a higher degree of discipline to operate within a more defined framework.

A recent example is a good case in point and illustrates the competitive disadvantage of firms that have yet to adapt to a higher level of management. A firm (which will remain nameless) that holds itself out to be international with offices throughout the world was asked by a client to offer a uniform pricing policy for various tiers of work across a particular region that incorporated a number of countries. The firm in question went to each of the offices to see if it could negotiate internally to do the deal but failed. National office issues prevailed over the wider requirements to serve a global client. The client went to another firm and the deal was done in a day. The latter was more cohesive, with an agreed focus on certain types of clients and work, agreed by and reflected wherever it did business. It had evolved the appropriate management mechanisms to take these types of decisions quickly.

Making partnerships work better

It is difficult to argue against the point of view that with the onset of greater competition so has the requirement for greater management increased. It is also clear that this requirement – given the size and diversity of many firms coupled with the need to preserve the sense of partnership – raises complex issues. Our view is, rather than taking the perspective that partnerships are just too troublesome and therefore seeking out something that is simpler, firms should focus on how to make partnerships operate in a more effective and efficient way.

As a starting point, it is important to recognise the inherent dichotomy in the role of the partner: both a shareholder and owner of the firm and someone who works within the firm. This duality can be confused in the minds of many partners, and while this is often not an issue in very small firms in which all the partners can exercise a much closer direct involvement in and monitoring of decisions, it does become a major impediment to progress as firms grow. Hence, a critical issue in moving forward is to ensure that each of the perspectives of a partner are recognised and reflected in the structure so that the partner feels that their rights as an owner of the business are being represented, as are their needs as someone who works in one part of the firm.

A key part of achieving the right balance between partner as owner and partner as senior manager/producer in the firm is to define the type of decisions to be taken and to ensure that these are taken at the appropriate level. Sometimes this will require a high involvement of a partner from their ‘shareholder’ perspective, for example, decisions with a significant capital investment or strategic implications for the firm. On other occasions it will be a more localised issue.

It is important to ensure that decision processes are clearly defined in terms of where and how they are taken and that this is clearly reflected in key roles, responsibilities, relationships and authority levels of the key management roles and mechanisms. Often firms fail to define adequately the management roles and mechanisms and this inevitably leads to tensions between management and the partnership that can and often does undermine the effectiveness of the firm.

Ensuring that the partners feel sufficient levels of trust and confidence to delegate decision-making powers to management is one of the most important challenges. When trust in the management or the management process is low, then partners tend to begin to second guess all of management’s decisions and often in defiance, reassert their autonomy.

Building and maintaining a high level of trust and confidence in management can be achieved by ensuring that there exists an appropriate degree of checks and balances to the powers delegated. The big concern for many firms is the rogue managing partner who, with unfettered power, pushes the firm to the brink of failure. I would have to say that these people live more in the minds of the partners but it does nevertheless raise an important issue. Often it is important to ensure that the partnership has some form of mechanism to act on its behalf to monitor (not second guess) management. Typically this is achieved either through the way the roles of the managing and senior partners are defined, through the use of an elected partnership council or through non-executive partners elected from the partnership to sit in on management meetings.

Firms should ensure that the appropriate processes exist by which the firm’s management account to the partnership for past achievements and future priorities. This is critical to maintaining trust and confidence and maintaining the participation of the partnership at the appropriate level. Many firms do this once or twice a year at their retreats.

Partnerships have too much to offer the professional firm in terms of the in-built sense of identity a partner feels for the firm and the motivation this engenders. Any firm that abandons this for an overly corporate structure and style does so at its own peril. It is no doubt, however, that many firms in the face of growing competitive pressures need to become more effective and efficient organisations: but in our view this can be achieved while retaining what is most positive about the partnership.

David Temporal is a partner at Temporal Consulting. He can be contacted at dstemporal@temporalconsulting.com.