What price is a good leader?

Law firms everywhere are experiencing change, which for the most part is being forced upon them by the market. Clients expect value-added services and better value for money, and, as a result, the competition just gets tougher. Peter Scott, a management consultant at Horwath Clark Whitehill, examines the role for leadership in these dangerous times where firms must quickly adapt to a changing world.

Every week we are seeing examples of once- good firms slipping away – being first taken over and then dismembered by stronger and more ambitious firms.

Why is this happening, or more importantly, being allowed to happen? A partner in a well known firm, which seems to be going nowhere special, recently said to me: “We may not make the best money, but then we are not a driven firm.”

This statement encompasses for me much of what may be missing in many firms today – both large and small. They have no-one driving them, no effective leadership that is capable of taking the firm forward to achieve its goals and those of everyone in the firm.

What is a good leader worth to a law firm? And are partners really prepared to pay the price needed to secure the services of a person in whose hands they would be willing to place their futures?

How much is it worth to a firm to be led by a person who can fulfil crucial leadership roles at a time when, as with so many firms today, it is at a crossroads? It may first be worth looking at what roles are now becoming (and which in reality have always been) critical for the sustained success of a law firm.

Then you should take a long hard look at your own firm and judge whether you have anyone of such calibre and abilities and, if so, whether you are rewarding them with what they are really worth to you. You might also ask yourself whether they might be worth even more to a competitor.

A law firm, to achieve competitive success, needs certain roles to be performed to the highest standards. Even though the extent of these roles, and the nomenclature given to the persons performing them, will differ from firm to firm, according to circumstances and needs, the essential nature of the tasks remains constant:

First and foremost in today’s legal landscape, there is a need for leadership that has a realistic understanding of what the firm is (and is not), and an inspirational vision of what the firm can make of itself, combined with a driving determination to achieve it. Can you recognise in today’s market those firms who lack leaders blessed with such qualities?

Firms that do not have good people on board, who can identify the big issues and find innovative solutions to turn their firms into competitive businesses, will inevitably, in the longer term, fall behind the rest.

And this is not about continually holding navel-gazing partner retreats. By all means, gauge the temperature of the partnership, but what is required is challenging leadership from the front, which has built and secured the trust and confidence of partners who in reality want to be led, although they may not be prepared to admit to it.

At a time of unsettling change, the need to provide pastoral support to partners is equally necessary in order to lead them through, get them to accept the process of change and understand what it may mean for them personally, as well as keeping the partnership together and united in its purpose.

Many partners, when faced with the prospect of becoming (at perhaps these days a relatively early age) the leader of their firm, will have serious misgivings. They perceive that they will lose their client base – and of course a client base can provide security. But it need not be like that.

A good leader of a law firm, as part of performing that role, can and should become one of the best (if not the best) rainmakers in the firm. We hear a great deal these days about client-relationship management, or CRM as it is known. The most successful lawyers have always practised CRM and today’s law firm leaders should be no different. They should carry out a vital client-relationship role with major clients, as well as take a lead in business development and profile raising. Clients, particularly senior personnel of clients, tend to want to meet others who they perceive to be on their own level. To do the job well means the law firm leader has to be able to deal comfortably with these clients on their level. This is no easy task for many.
So far I haven’t mentioned managing the day-to-day operations of the firm. Whether the same, or a different person, performs this role will depend on numerous factors: including the people available and willing to take on such tasks and the size and needs of the firm. The larger the firm then the greater the need to have a full-time managing partner responsible for the overall performance of the firm and reporting to an executive senior partner or chairman, who in turn is fulfilling the roles described earlier. Together they will be the key decision-makers within the firm.

So how much would you be prepared to pay for successful leaders who have the skills and qualities mentioned above?

A firm that cannot offer competitive rewards to those needed to carry out roles critical to the firm’s future success will be at risk of losing its best people. A firm that is leaderless and going nowhere may not be an attractive home for some partners. Partners leave firms for many and varied reasons, not always financial gain. Issues such as culture, quality of work and future career prospects are often greater motivators for moving on. If the perception within the firm is that there is no one at the helm, or that the firm will only succeed if led by a particular person (but the rest of the partners are not prepared to pay a remuneration package sufficient to attract that person to the job), then the firm is likely to begin to lose its best partners. Partners like to be on board a successful ship that is going places, not on a rudderless one going nowhere.

In the move away from lock-step to more merit-based reward structures, it seems that some firms are beginning to recognise the critical roles that need to be performed as firms grow and develop, and those that are needed to take them forward and achieve their strategic goals and financial objectives.

In particular, the realisation is growing, albeit slowly, that those taking on certain roles and responsibilities can be more valuable to the firm than fee-earning, who have traditionally been regarded as, “the reason we are all here and there is nothing more valuable.”

Leadership, business development, client- relationship management and operational management are roles in today’s law firms that are critical to becoming and remaining competitive. Paying the highest rewards for these important roles, however, tends to go against the traditional attitude of how one best adds value to a firm, that is, keep your head down at the desk doing the work, record the most hours and bill the most.

A partner, although recognised as a name in a particular field or the highest biller in the firm, will not be able to achieve his full potential if the firm itself has no discernable direction and no leadership to enable it to achieve its overall ambitions.

That can breed discontent and may lead (as we continue to see) to some firms haemorrhaging partners.

So what price do you put on leadership that can and does ensure its partners that the firm is the right firm for them – one that is going forward and achieving its objectives so that at the same time the partners’ individual ambitions can also be achieved?

Surveys have tended to indicate that leaders in law firms have often not been rewarded for their leadership qualities as highly as, for example, partners who are rainmakers. Indeed there are many examples of very good leaders of firms that have pure lock-step structures and who have never been rewarded with a penny more than any other partner even though the value they have created is there for all to see.

Even in firms with merit-based reward structures, managing partners are often not rewarded at the highest level. A recent survey1 also showed that professional chief executives (who may be employees rather than partners) are even more poorly compensated, being paid in line with a mid-equity partner where a significant proportion of their remuneration comprises performance/profit-related bonuses.

If law firms are to attract and retain the best people to lead them through the difficult times ahead, they need to begin to reward those who gave up hands-on fee-earning work in order to lead and build their firms, with some of the highest financial rewards. They should also make appropriate and adequate provisions for them when they retire from the role at perhaps a still relatively young age.

Being a business developer (used here in the broad sense of building the business) has for a long time been a pre-requisite for greater reward in some firms. Obtaining new profitable clients, developing greater profitability from existing clients and maintaining and enhancing important client relationships should all carry a premium when it comes to reward. These should be essential parts of the role of the leader of a modern law firm.

Likewise, within a partnership, developing the thinking and understanding around business strategy, and the successful implementation of strategies, should be rewarded at the highest level.

A managing partner, who is successfully driving forward the operational performance of the firm to ensure the business plan and budgets are achieved, the strategy supported and the internal environment and overall well-being of the firm maintained, should be rewarded at a higher level than most other partners.

Happily, some of these messages seem to be getting through to some more forward-thinking firms. There are firms who currently compensate their leaders with a remuneration package that can be anything from 25 to 50 per cent higher than the average equity partner earnings within the firm. Some firms go even higher and are happy to pay a substantial premium above the earnings of the next highest-earning partner to secure the leader of their choice.

But how do you measure the performance of a leader? Of crucial importance is the setting down at the outset, and at regular intervals subsequently, of realistic and achievable targets. So what is the leader of a law firm expected to achieve and over what period? Taking a law firm onto a higher level of performance is never going to be a short-term business. It is hard grind over a long period with, more often than not, incremental progress, rather than quantum leaps, being made along the way.

Financial performance of the firm is relatively easy to measure and in turn reward. Other objectives, often subjective in nature, are more difficult and require a broad and fair method of appraisal, which can be seen by everyone to be open and in which the partners have trust and confidence.

Key to successful measurement is ensuring that everyone knows what is expected of them and, in the case of the firm’s leader, that he or she is given the tools to get the job done. This will inevitably mean that some partners will have to consider whether they are prepared to be managed and commit to putting the interests of the firm before their own personal agendas. Without that pre-requisite, the leader’s job is going to be an uphill struggle and may ultimately lead to a cull of the badly behaving partners or, alternatively, the firm losing its leader.

Firms who continue to regard the performance of such central roles as in some way of lesser value than doing the work, and who fail to match rewards to the overall contribution that high performance can bring to a firm, are less likely to achieve their full potential. And if you are a partner in such a firm, or contemplating soon becoming a partner, then that failing could, in the long run, impact on your career in a very prejudicial way. You will need to ask yourself whether your firm has the requisite leadership in place and if you do have the right people available, are you prepared to pay them what they are really worth to you? How firms answer these questions is going to be critical for the future well-being of much of the legal profession.

Reference:

1. Carter Murray Salary and Staffing survey 2002

Peter Scott is a management consultant at Horwath Clark Whitehill. He can be contacted at: peter.scott@horwath.co.uk