Law People : Law Practice Management, Organizational and Personal Dynamics; Talent Management : Ronda Muir of Law People Management, Inc.

One of the more interesting topics that we covered at this week's audio conference for CCM on Partner Compensation systems are the trends occurring in the types of systems being used--globally, in the US in response to the current market pressures and in the course of an individual firm's development.

The data on global developments is not well updated.  A few years ago, a study done by Edge International found that US (at 86%) and Canadian firms (at 88%) strongly preferred subjective compensation systems, while UK firms overwhelming used lockstep systems (88%) and Australian firms were equally divided between the two. Also distinguished depending on geography were how frequently firms reconsidered compensation--with 3/4 of US and UK firms doing so every year, and Canadian (95%) and Australian firms (83%) even more consistently taking an annual look. The embrace of non-equity partnerships also differed depending on the country--with 58% of Canadian firms, 74% of US firms, 92% of UK firms and 100% of Australian firms having NEP tracks.  This information is supplemented by our and other consultants' experience in seeing local and recent changes. 

In the US, the death of lockstep has been declared a number of times over the past few years of market turmoil and there has been a concerted effort to analyze those subjective components  that can be evaluated and tied to efficiency and therefore profitability.  Hence the "project management skills" craze. Clark said he was seeing more interest in lockstep, particularly in the UK and South America, in recent engagements in an attempt to promote collaboration and firm solidarity. While we often recommend for this climate a system that similarly promotes "team profitability," we continue to see firms look to develop metrics beyond lockstep tin order to mold behavior and increase profits.

A single firm can cycle through a number of comp systems.  Smaller founder firms seem to often start out with a very subjective comp system that is essentially the founding partner telling each of the partners how s/he values their contribution.  As firms develop past the founder stage, more formulaic systems often are put into place to try to make the comp determinations seem more objective.  That system then often morphs into one that again considers more subjective factors, this time with sound reasons for promoting those factors.

Of course the primary concern that firms should be focusing on is what impact does their comp system have on the firm's profitability.  As pointed out in the call, money is not behavioral science's preferred motivator.  However, in the legal industry, there are few other metrics by which partners compare themselves. 

If we look at what little industry-specific research that we have says about the effectiveness of comp systems in raising profitability, the results are interesting but mixed, with particular uncertainty as to cause and effect.  Large law firms in the US with the highest profitability tend to base their compensation systems on more subjective factors (75% of firms with PPP higher than $700,000 described their systems as "subjective" while only 21% of firms with PPP of less than $300,000 did so), yet it may well be that rewarding subjective factors is simply a luxury that less profitable firms can't afford.  Yet again, rewarding those behaviors that are subjective may very well be the explanation for those firms' rising profitability.

Several years ago David Maister conducted a study to determine what factors made firms profitable, which he refers to in his book Practice What You Preach.  Of 74 factors analyzed, he found that 9 attitudes both predicted and drove profitability.  They are:

1. Client satisfaction is a top priority at our firm.
2. Putting individual interests ahead of those of the clients or the office is not tolerated.
3. Those who contribute the most to overall success are the most highly rewarded.
4. Management gets the best work out of everybody in the office.
5. Developing new skills is required, not just encouraged.
6. We invest a significant amount of time in what will pay off in the future.
7. We  treat each other with respect.
8. The quality of supervision on client projects is uniformly high.
9. The quality of the professional is as high as can be expected.

The big caveat is that having any one lawyer or group of lawyers agree with and comply with these factors did not a profitable firm make.   It was only those firms where ALL PERSONNEL--partners at all levels, associates and staff--endorsed these attitudes that profitability rose. 

Let us help you determine your firm's profile for profitability.

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Will Meyerhofer is a lawyer who worked at Sullivan & Cromwell before chucking it and getting his MSW to become a therapist. He is also gay. He writes the blog The People's Therapist and occasionally ties in issues relating to the legal community. His latest entry is about a recent podcast he did with the American Bar Association Journal on "Work/Life Balance." The only male among the panelists and the moderator, Meyerhofer clearly resented that the work/life topic got turned into a gender issue. Here's a sampling of his points:

"The unspoken “women’s lib” angle on the “work/life balance” at law firms is this: women give birth to children, and it’s impossible to raise a kid if you are a partner at a law firm, so women are less likely to become partners. If they did, they wouldn’t have time to raise a kid. It’s also impossible to meet anyone you want to have a kid with when you’re working 70-hour weeks...

Plenty of male partners have kids. They become absentee fathers, and their kids never see them. Nothing new there. But a social stigma kicks in when your kid tells his friends he only sees mommy an hour a week.

You also have to find time to be pregnant. If you put it off until you make partner, you face fertility problems. That’s a fundamental bummer about being a woman who wants a kid – when you’re mentally prepared your body gives out. At sixteen, anyone can get pregnant. At 39, you can only get pregnant if you don’t want to...

The solution to all this is obvious – have a kid while you still can, and let your husband do the raising.

That’s more or less where the other panelists ended up, but only after spouting “women can have it all” slogans and fabricating visions of “part-time partners.” The law professors on the panel had no concept of law firm reality. The young lawyer running an internet-based T&E firm receded politely when I pointed out the obvious: plenty of women would rather stay at home with the kids than work at a firm. Hell, I’ve worked with couples where the husband and wife fight over who has to do law for a living. They’d both rather stay home and play with junior. Wouldn’t you?

A second yawning gulf between me and the other panelists came with their determination to defend law as a profession. They were “pro-law” and I was “anti-law.” That’s understandable, since the ABA Journal represents the official propaganda ministry for Law, Inc. Law professors need to herd eager young things into school – that’s how they earn big bucks. And the internet lady was trying to drum up business, too – she has loans to pay.

I’m not from that world. I’m a psychotherapist who cleans up the wreckage of young lives decimated by the law school/law firm machine."

Meyerhofer's conclusion? "Homo or hetero, male or female we are all in the same boat... Humanophobia is the issue."

According to Meyerhofer, at least the last 10 minutes of the podcast were deleted from the ABA Journal recording made available to the public. What went missing?

"Work/life balance is impossible so long as the billable hour remains the holy grail of law firm life. Working “only 2200 hours per year” makes it impossible to have a family or any sort of personal life.

Sorry. That’s the truth.

And that’s what I was saying in those missing 10 minutes of tape that got cut.

In years to come, you’ll be treated to a few hundred fresh hours of Richard Nixon’s disquisitions on the racial inferiority of blacks and Jews – but if the ABA Journal has its way, you’re never going to hear those last 10 minutes of why it sucks to be a lawyer."

As Meyerhofer embodies, more men are claiming that the quality of law firm life is not an issue just for women or even for those raising families. In the 2010 AmLaw 200 Midlevel Associate Survey, the number of associates planning on leaving their jobs in the near or mid-term rose again. Nearly 45% said if they left, it would be for a better work/life balance, a 5% increase from the prior year. It's apparent that many feel that during the economic crunch their workload has been ratcheted up while their salaries and benefits have been put on hold or reduced. One Morrison & Foerster associate wrote, “Work/life balance is important to more people than . . . [just] mothers and lazy people.”

One might also question the sustainability of giving well-reasoned legal judgments through an endless series of caffeine-fueled, sleep-deprived 70+ hour work weeks, regardless of which gender you are. As well as the meaning of living such a life.

I will let you decide how legitimate these observations are -- whether, as Meyerhofer claims, work/life balance is nonexistent in firms and that its absence creates an issue not just for women.

But is there a female perspective on work/life balance that is unique to women?

Let me hear your view.
 

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In a Law Firm Leaders survey conducted by the Association of Corporate Counsel and The American Lawyer, one of the more interesting findings was that 93% of law firms reported being willing to discuss flat or other alternative fee arrangements in 2010. However, in responding to the same survey question, only 61% of general counsel at companies with revenues of $1 billion or less and 69% at companies with revenues greater than $1 billion reported finding firms willing to entertain non-traditional billing arrangements.  

Which makes it sound like there is not much meeting of the minds out there about where non-traditional billing is going.  Clients aren't perceiving firms to be as willing to discuss non-traditional billing as firms say they are.

Yet some of the other statistics reported from the survey shed additional light. The vast majority of legal work continues to be done on a billable-hour basis, with nearly half of respondents from corporations with annual revenues over $1 billion saying that their companies still base 95% or more of their legal spending on the billable hour. On the other hand, 91% of firms leaders said their firm used a flat fee for entire matters in 2010, up from 82% in 2009, and nearly 93% used a flat fee for some or all stages of matters last year, up from 78%. 

So in spite of what looks like a disconnect between what clients perceive about firms and those firms' actual interest in alternative billing, in fact clients are still relying on the billable hour as their major gauge of legal value. And law firms are, perhaps slowly but nonetheless, ratcheting up their offerings of fixed fee services. Maybe the two will eventually meet in a common perception.

This mismatch of perception and reality harkens back to a similar one reported a few years ago about the difference between what GCs expect from their outside counsel in terms of opportunities for giving feedback and what law firms do to provide that feedback.  Over 80% of GCs said they expected to be asked by their counsel about their satisfaction with the legal services performed, while only 20% of law firms said they routinely solicited comments from their clients.

That disconnect resulted in a number of responsive firms setting up internal departments or hiring consultants to send out client surveys or contact clients personally for their feedback. Those firms that instituted those programs, Reed Smith among them, extracted valuable information that they wouldn't have gotten otherwise--information that helped them provide higher quality service for existing clients and expand their reach into servicing other client needs.

Marti Candiello, now founder of ClientBridge, was Reed Smith's Director of General Counsel Relations and now offers her interview and feedback services to any firm willing to align perception with reality. Comments from her advisees make the value of the exercise clear.  "Clients said things to you that they have not said to us, even though we try to get them to be completely frank with us...about any shortcomings in our performance.  They also mentioned opportunities that go beyond what we had heard about from them. It shows the value of the exercise.”

Here's to the convergence of perception and reality!

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Muir's "The Unique World of Lawyers" explores the ways in which the personal style of lawyers differs from that of the majority of Americans and how it effects both what lawyers perceive and how they are perceived.

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Muir's "Emotional Intelligence for Lawyers" reviews the history of the development of emotional intelligence and how it applies to lawyers.

Muir's "The Importance of Emotional Intelligence in Making Partners" was awarded the Edge International Law Practice Magazine Award for excellence in writing. 

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