Elephants and Blind Lawyers

The Dean of the Stanford Law School, Larry Kramer, has an interesting Foreword to the recent issue of The Stanford Lawyer, basically questioning whether the current foundation of the legal profession is sustainable. It’s a quite interesting read (thank you to Stephanie West Allen for pointing it out to me). For instance, Kramer states:

Certainly our profession has changed profoundly in the past generation. The basic structure still looks the same: Most lawyers practice in firms, most firms are partnerships with cadres of associates, most work is performed for hourly fees, and so on. Yet it’s the traditional model on steroids: Big firms employ thousands rather than hundreds of lawyers, with offices around the world. Partner/associate ratios have changed dramatically, particularly if we focus on equity partners, while legal work has become increasingly specialized and expectations for billable hours have soared.

Such changes have consequences. Clients, especially corporate clients, are less willing simply to pay what firms charge and much less willing to subsidize the training of young associates. Technology has exacerbated this trend, enabling clients to do for themselves things they used to need from outside counsel. Making a practice profitable has increased demand for lawyers to bill hours, which has, in turn, forced firms to raise salaries, which has further increased the need to bill hours. Partly as a result, new associates seldom join firms intending to stay for more than a few years. Lateral hiring has exploded, undermining the culture and sense of community of many firms. And factors like these have stymied or undone progress that was just beginning to be made in advancing women and minorities into the top ranks of legal practice.

Twenty years ago, most lawyers would have scoffed at the idea that profitability, much less profits-per-partner, should be the measure of success and prestige. Yet that is where we are. Law firms are run like businesses by managing partners and committees whose time is almost wholly occupied with, well, managing. And competition is fierce: to be bigger, pay more, bill more hours, and open more offices. To be more profitable.

Does anyone actually want this? The lawyers, managing partners, and general counsel I meet are deeply concerned about what’s happening. Yet they feel unable to stop it, powerless to resist the stifling market forces that drive their decisions. And for good reason, because the problems are complex and exist at every level. Students say they want a better work/life balance, yet invariably choose the firm that ranks highest in The American Lawyer’s list of the top 100 law firms. … And on and on. No one can be blamed when everyone is to blame.

I have no answer to this. …

Bruce MacEwen over at Adam Smith, Esq. does have an answer. He’s labeled Kramer’s rant “nonsense on stilts.” I find Bruce’s point-by-point refutation of Kramer compelling, and agree with it as far as it goes.

The problem is, it doesn’t go far enough. The problems Kramer so ably lists are symptoms, not causes. The root causes are the failed management beliefs of firm leaders and the obsolete business model of law firms, as embedded in VeraSage’s Firm of the Past Practice Equation:

Revenue = People Power x Efficiency x Hourly Rate

This business model is obsolete in an intellectual capital economy, yet the legal profession acts as if they don’t recognize this fact. It continues to sell hours even though their customers are really buying intellectual capital. It continues to price by the hour even though the labor theory of value has been discredited for 136 years. The elephant in the room that nobody mentions is this flawed business model, and the mangement ideas it’s based upon.

This is particularly timely because I recently read Gary Hamel’s new book, The Future of Management. It’s excellent. In fact, it was so inspiring I presented a book report to my VeraSage colleagues at our recent worldwide meeting in Las Vegas. Here are some gems from Hamel:

Your company is being managed by a small coterie of long-departed theorists who invented the rules and conventions of ‘modern’ management back in the early days of the 20th century. Management is out of date. Like the combustion engine, it’s a technology that has largely stopped evolving, and that’s not good.

Today the most valuable human capabilities are precisely those that are the least manageable. While the tools of management can compel people to be obedient and diligent, they can’t make them creative and committed.

The real reason it takes a crisis to provoke big change: too much authority has been vested in too few people.

The billable hour and the timesheet date back to the Scientific Management Revolution of the late 19th and early 20th centuries! They are obsolete in a knowledge economy. This is what all of my writings, and indeed, the Purpose of VeraSage is dedicated to burying. Yet these beliefs are firmly entrenched in the minds of PKF leaders. It’s sad that they are not willing to challenge their most sacred ossified managment philosophies.

This is why I found Hamel’s book so compelling. It is a call to arms, a sort of Declaration of Independence from the outdated management beliefs of the past. Hamel makes the case that management ideas have created more wealth than any other type of idea, and he’s right. Our economy continues to innovate new products and services, new business models (Google, Amazon, etc.), but has literally stopped developing new management theories. This is tragic, especially since we are 50 years into the knowledge economy, yet most of our sacred management beliefs date back to the early 20th century.

When I read the book, I couldn’t believe how much it aligns with VeraSage’s New Practice Equation (see the top of our Web site page). Hamel has this three-step test to guage a true management innovation.

  1. Is a novel management principal, challenges long-standing orthodoxy
  2. Is systemic, encompassing a range of processes and methods
  3. Is part of an ongoing program of rapid-fire invention where progress compounds over time

Our New Practice Equation meets every one of these tests, which is why we encounter so much resistance from firms, especially large ones. I’m firmly convinced that human beings are far more guided by their beliefs than their knowledge, and changing those beliefs is no easy task, especially when they’ve had over a century to diffuse.

Hamel offers this four-step program as a line of attack for challenging present management orthodoxies:

  1. Is this a belief worth challenging? Is it debilitating? Does it get in the way of an important organizational attribute that we’d like to strengthen?
  2. Is this belief universally valid? Are there counterexamples? If so, what do we learn from those cases?
  3. How does this belief serve the interests of its adherents? Are there people who draw reassurance or comfort from this belief?
  4. Have our choices and assumptions conspired to make this belief self-fulfilling? Is this belief true simply because we have made it true—and, if so, can we imagine alternatives.

Once again, VeraSage’s work meets everyone of these tests. Our Trailblazers are the counterexamples—we refer to them as Black Swans, in tribute to Nicholas Taleb’s wonderful book of the same name—that are blazing the trail the rest of the professions are destined to (eventually) follow. The question is only a matter of how long will it take for other PKF leaders to challenge their outdated beliefs and face these new realities. They are adept at whining about the symptoms, but utterly fail when it comes to dealing with the causes—their anachronistic management beliefs.

Let us deal with the elephant in the room, no longer hiding behind theories that have been refuted in an intellectual capital economy. Let us make Adam Smith proud, restoring the magic of the marketplace and aligning it with the knowledge workers who create the majority of wealth.

It’s past time to change the management beliefs in PKFs. All leaders should read Hamel’s outstanding book. For those too timid to act on its advice, move aside for those who do.

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