First:  Thanks to my (old) good friends at American Lawyer Media (particularly the always entertaining Monica Bay, expert on all things related to legal technology), I'll be blogger-in-residence at the Chief Technology Officer/Chief Information Officer Forum here in New York at the Hilton/Times Square April 6th and 7th.  Look for a full report to be posted here immediately thereafter.

Second:   Thanks to my (new) good friends at Hildebrandt International (particularly the estimable Susan Raridon Lambreth, guru of all things related to practice group management), I'll do the same at the 2005 Forum on Practice Group Management here in New York at the Grand Hyatt April 11th and 12th.  Look for, etc.

For both events, I can say in advance I'm excited and energized by the prospect of meeting old friends and making new ones—and learning many things that I'm sure I do not know in the process.

In "Do You Blog?," the cover story in this month's Washington Lawyer, reporter Sarah Kellogg provides a comprehensive recap and overview of how the legal blogosphere has evolved since its earliest days.  Not incidentally, she concludes with a rousing call to arms for more lawyers, law students, law professors, and law firms to start blogs:

"Observers say the horizon for law blogs isn’t even in sight yet, leaving an enormous amount of space for new lawyer bloggers to cover, from marketing to networking, from knowledge management to research."

• The early adopter Ernie Svenson describes his place in the legal blogosphere as sitting down in the front row of the auditorium: “When I got into blogging, I took a seat in the front row and then somebody filled in chairs behind me after that,” says Ernest Svenson. “I didn’t mean to take a front-row seat. There just weren’t any other seats available at the time."
• Denise Howell distills the essence of why lawyers and blogs were made for each other: “Lawyers are trained to write . . . and research. The writing they generate tends to have some credibility behind it. That is the crux of web logging right there.”
• Carolyn Elefant emphasizes the collegial and respectful nature of the legal blogosphere and points out a subtlety which was perhaps lost on me (as a blawg veteran of over a year!): 
  
  “Being inside [the blogosphere], you think it’s the greatest thing that ever happened.... People don’t feel quite the same way on the outside, but once you’re in, you do.”
  
  She started her blog, "My Shingle" (about solo and small firm practice) for altruistic reasons—to try to supply advice to a slice of the law firm market that conventional media seemed largely to ignore:  She sees it as a way for her to give back to the legal community.  “By having that type of resource out there, it helps make solo and small-firm attorneys more ethical and efficient practitioners.”
• Dennis Kennedy makes an indispensable point about credibility and trust, and implicitly distinguishes the blogosphere from MainStream Media ("MSM") by urging readers to make the intellectual effort to engage in critical thinking:

  “Everything today raises the issue of how do people think critically and how do you decide what information is valuable and what information you can rely on,” says Kennedy. “I think that blogs accentuate the process. You really have to do your homework.”

Enough said:  Just read it from beginning to end.  If you're a skeptic, you may have to rethink things; and if you're a believer, you'll learn something you didn't know.

Oh yes, at the end is appended a list of "the best the internet has to offer when it comes to legal blogs" and suggests "you can't go wrong checking out these favorites," followed by just over a dozen seriously superb blawgs, most of whose authors I know personally.  And indeed, "Adam Smith, Esq.," is listed and described as follows:

"Law firm management comes under the microscope at this blog, which takes a serious and studied look at continuing changes in the management structure of today’s firms."

Go read the article while I stop blushing.

It's not your imagination:   Mega-mergers in corporate-land are on the upswing.  According to The Wall Street Journal, the last five months have seen more than a dozen deals valued at more than $10-billion.

And the result is that "investors quake."  The sorry track record speaks for itself:  30% create added shareholder value, 20% have no effect, and fully 50% destroy value.  [One can bog down in an endless debate over whether merger-hungry companies are already in trouble and looking desperately for an exit door—which would mean the sample of mergers is top-heavy with doom-laden firms—but we are looking at empirical reality, not hypotheticals or a controlled double-blind experiment.]

Given that the M&A and consolidation trend among the AmLaw 200 has emerged as a fairly consistent theme here, can we draw any lessons from corporate-land?

The two Bain partners who wrote the Journal article think so, and it's worth a read: Their thesis is that "deal success is not random."  And among the key leading indicators of success are:

• Is management experienced in deal-making?  Rookies have poor at-bats, and "by far the worst returns accrue to companies that do large, one-off acquisitions."
• Will the acquisition strengthen the buyer's core?  Deals with large operational overlaps tend to reinforce the resulting firm(s), but veering off in a new direction leads to a lower stock price (read:  diminished value) two years out 75% of the time.
• Was real due diligence done?  On this score, take a look at the "masters" of deal-making, private equity investors like Blackstone Group or SilverLake Partners.  They assume nothing, including refusing to assume they know anything about particular businesses even in industries they know well.
• Will management address integration immediately?  "Bad deals unravel during integration."  Recognize that integration must be speedy and comprehensive, and that one and only one "cultural acquirer" will emerge—not necessarily the buyer.
• Finally, are you prepared for the unexpected?  If you're not prepared for mid-course corrections, you may find yourself skidding towards the guard-rail with no Plan B.

If, as I believe:  (1)  M&A in law-land will only accelerate; and (2) corporate-land M&A mortality statistics are sobering, then this is worth pondering.  After all, "it's only business."

What's your model for hiring summer associates?  Are you satisfied with it?  If not, how about trying this instead:

• Model a challenge for them on the hit reality TV show "The Apprentice;"
• Schedule call-backs on the spot;
• Send "very senior" partners and only very senior partners to do the interviewing; and
• Create snappy marketing material describing your firm culture including, for example, a handout with a picture of a squashed tomatos headlined "Smash Bureaucracy."

I'm making this up, right?  Well, with the possible exception of April Fool's Day, we never make up stuff on "Adam Smith, Esq.," and this would be the actual approach of Greenberg-Traurig . 

Before you give in to the reflex to label this gimmicky, and a transparent effort to stand out from the gray-flannel crowd, think about the real business and financial acumen behind it.   Given that average associate turnover is 40% within the first two years, how could it be anything other than beneficial to let candidates know what your firm's culture is really like before they sign up to come on-board—and since Greenberg-Traurig is consistently described, both by its own partners, as well as consultants and observers, as "meritocratic" and "entrepreneurial," it's not stupid to let newcomers know that's the environment they're buying into.

This sums up the business case to be made for it:

Raffaele Murdocca, southeast regional managing director of BCG Attorney Search, a national recruiting firm, predicted that approaches like Greenberg's could become more common in coming years.
"Years ago, I would have said [law firms] don't market very well," Murdocca said. "They would just come on campus and you have to know who they are. There was no real branding. I think in a lot of cases, young students end up in law firms where they really didn't know what the culture was."

"Not really knowing what the culture was"—has this ever happened to you? And the result was...happy or unhappy?

Greenberg-Traurig, from my observation, "thinks differently" across the board, and their unconventional approach has taken them over the last decade from a nice regional Florida firm to #20 on the latest AmLaw 100.  The question then becomes, is the conventional wisdom working so well for your firm?

"From pace-setter to basket case in the United States?"  Shall we all guess what firm got stuck with that donkey-tail over at law.com? 

Alas, of course, it was Clifford-Chance.  The questions du jour are (1) what went wrong? (not so we can point fingers but so we don't do it again); and (2) what's to be done?  My answers are (1) a towering case of strategic indecision; and (2) clarity of vision, and speedy and resolute execution. 

First, let's briefly review the bidding.  Back in 2000, Clifford-Chance merged with (or "took over," if you wish—let's not get bogged down in semantics) Rogers & Wells, then a solid New York firm with a fairly strong form of "eat what you kill" in place.  Rather than continue with that compensation model as it was, and rather than deciding on the strict alternative form of imposing its own home-grown lockstep, the firm temporized.  New York was to conform to the lockstep model except where it didn't—with some "super-pointer" partners paid above the lockstep scale in recognition of their marquee value.  While this might have appeared to be better than nothing, it seems to have been received as having been taken down a peg; and meanwhile, partners deemed enlisted-grade rather than officer material probably chafed at being publicly so branded.

Meanwhile, with the half-pregnant disequilibrium situation firmly obtaining in New York, Clifford-Chance expanded aggressively in LA and the Bay Area, famously raiding Brobeck, among other firms, and predictably paying the lateral recruits "above lockstep."  Cut to the chase:   The SF and LA offices have now been closed entirely (Silicon Valley is still open), and New York is today at 265 lawyers down from 450 in 2002 (a 41% drop).  Adding insult is that a 2003 proposal to formalize the exception made for super-pointers in New York faced "stiff opposition" from lawyers in Britain and was voted down (although a market-weighting form of it is evidently near a vote).

Two other aspects of the difficult-in-the-best-of-circumstances task of integrating firms across the Atlantic also came into play:

• Clifford-Chance's constitutional governing framework provides for and indeed requires far more consensus and even voting among partners than the American model of placing most authority in the hands of a managing partner or executive committee; and
• the very far-flung nature of the office network added another layer of delay and red tape to decision-making.

Now Peter Cornell, global managing partner, has moved to New York to attempt to right the ship.  Some doubt that he can:

"Peter is just a terrific guy, a really smart and really nice guy" said a former Clifford Chance New York partner who asked to remain unnamed. "But this is just too little, too late."

I disagree, but only if Cornell refuses to proceed by half-measures.

The core of what got Clifford-Chance in this toxic state was confronting the fundamental lockstep/eat-what-you-kill disparity with obfuscation, temporizing, and pretending to look the other way rather than with a cool assessment of their strategic objectives in coming to the States and what techniques are best suited to achieving those goals.   That five years have gone by is, well, too bad, but Cornell has made nothing if not a statement by relocating to New York and I believe he can seize the moment:

• Ditch eat-what-you-kill.  The firm's roots are solidly in lockstep and eat-what-you-kill was a bastard graft from the beginning.
• Besides, you've probably lost most of the marquee names you're going to lose, so judging by the practical (read: economic) impact, the worst should be over.
• And last and most important by far, trumpet the virtues of lockstep.  Don't retreat to it defensively, licking your wounds, and in a crouch posture of lacking better alternatives: Champion it!  It can create marvelously collaborative, well-oiled seamless machines delivering precisely the right mix of people and offices to each client engagement.  Plus, you avoid the bloody and counterproductive battles over origination credit, which neither burnish your firm's attractiveness to clients nor enhance morale internally.

Will this mean a de facto exit from the lateral-hiring market?  Indeed.  I am prepared to say flatly that lockstep and an active lateral-hiring effort are incompatible. 

So plan differently.  Don't be bashful or defensive about seeking personality types who value building strong institutional ties to a client over time, based on practice groups that are internally collaborative.  Forget, and loudly forget, the prima donna's.  Start now.  Stick to it.  There is no alternative; this plot line has ceased to be amusing.

The Indiana Unversity School of Law—Bloomington is in the process of streamlining its JD/MBA program with the Kelley School of Business.  The overall goal is to encourage more students—whether they "start" on the law-school side or the business-school side—to undertake the joint degree program by integrating the curricula more fully and promoting more collaboration between the schools' respective faculties. 

Since joint degree programs involve a larger commitment of time and money by students, the relevant empirical question is whether these programs generally produce greater career mobility or higher lifetime earnings. 

Some of our preliminary research suggests that there is a strong and growing demand for JD/MBAs.  For example, several prestigious law firms, including Latham & Watkins, Kirkland & Ellis, and Milbank-Tweed, now offer $10,000 to $20,000 bonuses for new associates with both degrees.  These incentives are quite comparable to the bonuses given to young associates who join the firm following a judicial clerkship. 

The importance of business acumen in law firms—which is not news to readers of "Adam Smith, Esq."—is further evidenced by the recent collaborative partnership between Reed Smith and the Wharton School of Business at the University of Pennsylvania.  Specifically, Wharton has agreed to provide ongoing executive education for Reed Smith practice managers, office managing partners, and other firm leaders (see Bruce’s August 13^th post, Blindingly Obvious.)

In many respects, readers of "Adam Smith, Esq." are the ideal audience for assessing the value of the JD/MBA degree.  Therefore, I would welcome your comments and observations on two specific topics:

First, does the JD/MBA degree produce a better business lawyer, or at least speed the ascension up the learning curve, thus producing a payoff for the law firm and, presumably, the associate in terms of advancement?  Does anyone have any anecdotal evidence that JD/MBAs have a better grasp of client development and rainmaking?

Second, Northwestern University School of Law and the Kellogg School of Management have mitigated the time-money tradeoff by pioneering an accelerated three-year JD/MBA program that charges a higher tuition than the regular three-year JD.  Is this program the wave of the future?  Alternatively, should law firms be wary that the emphasis on business has compromised a young associate’s legal training?  Or is the MBA curriculum ultimately a better use of the second or third year of law school? 

I have news for you:  If you believe that once The Wall Street Journal reports a trend, it's for real, then today is your day.  In "On the Case" (subtitled "rising legal costs may have finally met their match:  technology"), we learn that using secure extranets to create virtual deal rooms is old news.  For example, through a highly automated patent-application processing system (built inhouse for an investment "in the low hundreds of thousands") Cisco is now saving about $2.5-million per year, and that Dupont's use of far more generic technology (those extranets) has cut $5-million per year from their outside counsel fees.  You don't even need to outsource to India; try going about one time zone away, to the midwest or southwest for hungry, low-overhead law firms.

Next up: Cisco and DuPont, together with FMC and Clorox, are developing a "virtual lawyer" to provide automated online responses to routine legal questions concerning, for example, human resource policies.  And lest you think they're all alone out there on the early-adopter curve, they plan to license this tool to all comers.

For 2003 (the most recent year available), total revenue of the AmLaw 100 was just north of $41-billion.  What percentage of that work could be supplanted by applications like this?  More interestingly, is it eternally possible to keep moving "up the value chain" to produce work at an ever-increasing premium level that cannot be eroded by technology?  In prognosticating about that to yourself, keep in mind that the arms merchants on the technology side of this competition have Moore's Law in their camp, and we flesh-and-blood lawyers do not—indeed, we have the non-negotiable ceiling of 24 hours in a day.  

My good friends Jeff Rovner (Director of Knowledge Management for the Americas Region, Clifford Chance US LLP) and Ron Friedmann (Prism Legal Consulting) recently had a brief but enticing back-and-forth on this question, with Jeff astutely analogizing the predicament of law firms to that of firms overtaken by a "disruptive technology" as described in Clayton Christiansen's classic The Innovator's Dilemma.  Can it happen here?  Today HR, tomorrow structured project finance?  So long as we aspire to being truly wise counsellors to our clients and not anal document drudges, we're not fungible with silicon.  But that leaves first-year associates in a tenuous spot.

I have often written on the tension between lockstep compensation and eat-what-you-kill, and I'm coming to the view that a nuanced, subjective, and openly ad hoc approach is probably the best, all things considered.  Each of the polar end-points on that spectrum has deep flaws.  (Except, of course, when they don't—lockstep works wonders for the creme de la creme of New York including Cleary-Gottlieb, Davis-Polk, and Simpson-Thacher, whereas eat-what-you-kill has brought Greenberg-Traurig from a nice little Florida firm to #20 on the AmLaw 100 in the space of a decade.)

But here's something entirely different to consider:  What if legal regulation pulls the lockstep chess-piece off the board entirely?

Here in the states, the seminal case is EEOC vs. Sidley-Austin, 315 F.3rd 696 (7th Cir. 2002), in which, as you probably know, Judge Richard Posner concluded that Sidley's "partners" were not necessarily that given the intense centralization of power prescribed by the partnership agreement, and that they could be deemed for purposes of federal antidiscrimination law, "employees."

Now, in the UK, the EC plans to impose new regulations next year that could likewise threaten lockstep. 

Given that partnership compensation structures are just about the single most important tool management has available in its kit, wouldn't it be nice to be treated as responsible adults presumably capable of making intelligent decisions in your own best interest, and not have a key tool confiscated?  But I editorialize.

Legal Week argues, using the apparently unending saga at Clifford-Chance as a journalistic "hook," that the boundary zone between the two models is wide and flexible, not narrow and bright.

Now at one level, this is not news:  Pure-as-the-driven-snow examples of each model are, when one actually looks around, quite rare.   Even Clifford-Chance's fabled wrestling match with the issue can be read, in a sense, as teaching that a nuanced blend is essential and that a Manichean approach is economically perilous and divisive.  And then when it comes to actually dividing the pie at year-end (or driving markers in the ground during the year as clients and matters are "claimed" by would-be originators), things get even murkier.  Rarely is a new client truly bagged by one and only one partner—certainly if you asked the client they'd almost certainly report that while a personal relationship with the partner was instrumental at the moment of selection, the key business rationale driving the choice was a reliance on the firm's assets and expertise as a whole.

Moreover, the laundry list of behaviors which management wants to reward through remuneration includes (or should include) many having nothing to do with new client origination, such as:

• contributions to practice group management;
• associate recruitment and development;
• lateral recruitment and integration;
• pro bono, civic, and bar association activities; and
• active or leadership roles in firm governance.

Look at that list again and ask yourself what those activities best correlate with:  I would argue, with seniority.  So setting out to be "meritocratic" can intrinsically—and correctly—introduce a "seniority premium," just like lockstep.

Finally, the article observes, in an exercise in stating the obvious, that both lockstep and eat-what-you-kill can be done well or badly, and that it all depends on "what the firm is trying to achieve and how well it's applied."   To be sure.

I have a more specific theory:  I think an emphasis on one or the other depends on where a firm is in its "lifecycle."  A pure lockstep may be an anchor if you're just launching a practice, and a pure meritocracy may destroy a mature, "climax stage" firm.  So the question becomes, where are you?  And do you want to stay there?

Despite the stupefying fact that The Wall Street Journal reported late last year that 45% of Americans believe "literally" in the Biblical story of Creation, whereas only 31% subscribe to the theory of evolution (have you thanked a teacher today?), Darwinian selection pressures are every bit as valid in economics-land as they are in biology-land.  I've talked about this before in the context of the structure of the law firm market, but now IP Law & Business talks about it specifically in the context of the landscape for IP boutique firms.

Pop quiz:  Which of the following IP firms (founding date noted) is still around?:

• Fish & Neave (1878)
• Pennie & Edmonds (1883)
• Lyon & Lyon (1901)

Answer: None of the above. 

But many others have survived and even grown—not, I hasten to add, through any systematically-adopted strategy, but each through their own highly circumstantial, "fact-specific," response to marketplace pressures.  As the article puts it:

"But in evolutionary terms, [the survivors] were either born with traits that have allowed them to prosper in a hostile environment -- strong management, loyal clients, merit pay -- or they have adapted, rapidly."

Many are, predictably, moving beyond exclusively IP-centric practices, such as Fish & Richardson (one of only two IP firms in the AmLaw 100). With 350 lawyers and a respectable PPP of $755,000 in 2003, Fish & Richardson still plays to its strength as a "technical powerhouse," to grow its non-IP practice from its current 30% revenue share. "We can put four or five PhD.s on the conference call."

What do the survivors have in common, and what to the road-kill have in common?  The first group has adapted and changed, the second group never did. Evolution.  For example:

• A survivor:  "Any firm without strong management -- general practice or IP boutique -- is generally going to have serious issues with regard to retention of partners and firm viability."
• A survivor:  "The legal industry has changed -- we haven't."  But the firm is already on the right track; it has always had a merit-based pay firm and revenue per partner is rising at a healthy rate.
• A dinosaur: "Pennie & Edmonds never changed its compensation plan."
• A dinosaur: "Change is not easy.  Fish & Neave couldn't do it."
• A (potential?) dinosaur:  "If I'm at Kenyon & Kenyon, I'm sweating bullets."

Meanwhile, there are signs on the forest floor that a weird new species may be about to come into its own:  No, not mammals, but—the IP boutique!  Case in point:  10-year-old Lee & Hayes, a 25-lawyer patent firm improbably based in Spokane, Washington, with clients you've actually heard of including Microsoft, HP, GE, BellSouth, and Qualcomm.  "Bigger clients used to hire the bigger firms, Lee says, but 'the industry's changed.'"

The moral of the story?  Not by any means that the IP boutique—or the boutique market niche—is dead, but rather that across all segments of the market, Darwin rules:  Adapt or die.

Just when the drum-beat of KenLayBernieEbbersDennisKozlowskiMarthaStewart began to seem as unstoppable as, well, a tsunami, the always-refreshing Michael Schrage tees off at "the pea-brained 'ethics-ification' of business decision-making:" 

"Be honest. Would you look your employees in the eye and tell them something that wasn't quite true if it would dramatically increase the chance that your key IT implementation would be finished on time and on budget? I would.

"How about deliberately withholding important information from your boss because you know that its disclosure would provoke his immediate counterproductive intervention in an important project? I would."

From Schrage's perspective, too often people with hidden agendas, ulterior motives, or who just plain take issue with a decision try to turn a legitimate difference of opinion into an illegitimate ethical conflict.

But weren't Arthur Andersen, Enron, and WorldCom prime examples of ethical lapses on an operatic scale?  No—they were cases of fraud, misrepresentation, and criminality. 

Beyond Schrage's colorful rhetoric ["CEOs are supposed to be Chief Ethics Officers; CIOs should be Chief Integrity Officers. How noble. How politically correct. How silly."] is a real point:  Business decisions involve tradeoffs, and simply declaring one should do what's "right" typically resolves precisely nothing since "right" is in the eye of the beholder.

So weigh the tradeoffs astutely and clearly, make a decision, articulate the rationale to those concerned, and move on.  How refreshing.

It hasn't taken the legal blogosphere long—just barely over the weekend—but help is on the way In Re:  Decloaking Associates.  David Giacolone may or may not have been the first to suggest it, but as of this morning Kevin Heller at TechLawAdvisor has offered free server-space to any and all associates who want to be "de-cloaked."  According to Kevin's email:

"If you want to make yourself "available for hire" then please submit your information to me and I will post it on the Legal Jobs Blog under the title: Available: ....
If you simply want to have your contact information and biographical information listed then you can submit that and I will create a new directory entitled Decloaked Associates."

Monica Bay has also weighed in, "scolding" the firms for the mindset their actions reveal:

This is the stupidest move I've heard in a very long time. WHEN are law firm partners going to understand that you don't gain loyalty, commitment, and a sense of participation by treating people like second-class citizens.

Meanwhile, in separate private correspondence, I have heard from more than one recruiter that if firms are worried about associate attrition, the best way to call attention to themselves is to "cloak" their associates.  All the recruiters who mentioned this said they re-doubled their efforts at targeting associates at such firms, assuming the firm did it for a reason—i.e., that they had retention/attrition problems.

I will resist the temptation to dress this up as a morality tale, but I must observe that it is a serendipitous intersection of two of my favorite themes:  The power of the blogosphere combined with the always-potent law of unintended consequences.   Will it be long before there's a T-shirt:  "Free the Cloaked Associates!"

Cardinal Richelieu's words came to mind when Alan Abelson, the wry and engaging author of Barron's weekly "Up and Down Wall Street" column, considered the fate of Boeing's CEO, Harry Stonecipher, who as we all know tendered his resignation to the Board last week after it was discovered the (married) Mr. Stonecipher had engaged in a brief affair with a (divorced) female Boeing executive—despite the fact that this ungodly stupid frolic violated no express policy of Boeing.  More jaw-droppingly stupid than even that, Stonecipher recorded his transgression unto time immemorial in an internal email to his mistress.

What, you're wondering, has this to do with the economics of law firms?

We often pay lip service to the notion that reputation and integrity are everything, but if this tale doesn't hammer home the point, nothing will.  More germane for our purposes is that Stonecipher himself, when he came out of retirement to re-assume the reins at Boeing two years ago, did so with a mandate to be the Ethics Czar and to instill a culture of zero tolerance of gray or borderline practices at Boeing, which was just recovering from influence-buying and theft-of-trade-secrets scandals.

As much as any CEO of an F1000 firm, each and every partner in an AmLaw 200 firm puts not just their professional, but their personal, repute in play every morning.  The career you save could be your own.  Don't f*#@ it up. 

I'm delighted to report that I'm slated to be blogger-in-residence at American Lawyer Media's upcoming CIO/CTO conference the first week of April here in little old New York.

Look for a report immediately thereafter.  And thanks to my pals at ALM for making this gig possible, and for providing the opportunity for me to meet so many leading lights of law-land IT and hear their thoughts on what's hot and what's not.

If you believe Legal Week, the waters are already choppy and will become downright stormy for tech-centric California-based firms, particularly the two remaining powerhouses of Silicon Valley, Wilson-Sonsini and Cooley-Godward. 

[As to other late, great tech-centric firms, Venture Law Group was obviously absorbed into Heller-Ehrman as VLG's "you can pay us with equity" model hit a brick wall, and Gray-Cary joined up with Piper-Rudnick, while Testa-Hurwitz dissolved for essentially sui generis reasons having to do with a failure of succession planning, and the biggest of them all, Brobeck, got its capital structure famously and wildly over-leveraged.  Of these four high-profile endings, only Gray-Cary's, I would argue, is an example of a firm deciding it needs to be bigger and more diversified per se.]

Essentially, the article posits what is almost becoming received wisdom, namely that:

• Global firms, or at least seriously-national firms, will emerge at the top of the competitive food chain;
• A California firm without a serious New York City presence is compromised when it comes to the most sophisticated work (as is a New York firm with no meaningful California footprint); and that
• Unlike with Wall Street valuations, where a focused company commands a premium and conglomerates are so very yesterday, law firms need a diversified mix of practices to "motor through" the economic cycle.

Mark Levie, transactions group managing director for Orrick, puts it bluntly:

"Firms need a diverse mix of practices and operations in the financial centres in order to have stronger profits year-on-year. Marquee deals are fantastic but firms need a steady flow of work."

But wait?  Why can't one have both a "steady flow of work" and "marquee deals?"  

The reason appears to be self-reinforcing,  if not tautological:  Focused, medium-sized firms are in a disequilibrium position simply because "The momentum is clearly going in the direction of the nationals."  In other words, the market dynamics have changed because everyone agrees the market dynamics have changed. (And did you say "medium-sized" firms were threatened?!   According to the most recent AmLaw 100, Wilson-Sonsini was #46.)

To be sure, there's probably more to it than that:  F1000 clients are by and large pruning the length of their favored "panel-member" firms, the legal profession's geographic footprint should approximately follow that of its core clientele (and we know what that means given increasing globalization of you-name-it), and to the extent that savvy firms are beginning to truly adopt techniques such as knowledge management and customer relationship management, they may actually be bonding more tightly to their clients. 

On the other hand, markets are far from immune to the pack mentality.  As no less than John Maynard Keynes, himself a crack investor who died quite wealthy, once observed about the stock market:  "Unlike a beauty contest, the investor's objective is not to pick the prettiest girl; it's to pick the girl that most of the other judges will pick."

I remain convinced that, as evolution has taught us, there are many roads to success as a species.  Just because Cisco is down 75% from its all-time high five years ago this very day (and, at that moment, the single most valuable company in the U.S. in terms of market cap) does not mean the Internet is over.  In fact, by comparison, Wilson-Sonsini and Cooley have scarcely skipped a beat; there could be life in the know-your-niche model yet.

In my last post I noted at least anecdotal evidence about the cost of losing existing talent, and today The National Law Journal reports that firms are taking steps to make it harder for headhunters to poach associates, primarily by removing information about associates from their websites—information as basic as direct-dial numbers, email addresses, and biographical or practice-group data.  The first question this raises is simply whether it has any effect, and the second, more interesting, question is how the market for lateral associates differs in structure and function from the market for lateral partners.

As to effectiveness, it strikes me as borderline desperation.

Jonathan Lindsey, managing partner at the recruiter Major, Hagen & Africa, sees an increasing restriction regarding associate information on firms' Web sites and in the details they give law firm directories. Such an approach is "not a particularly useful exercise," he said.

If a recruiter is so lazy, incompetent, or technologically challenged that they cannot reach associates they want to in this environment, they're in the wrong career.   Believe it or not, children, but there were recruiters making good livings before the internet was invented.

As to the market structure question, there are actually two "associate lateral" markets—one to other law firms and one to in-house positions.  [Yes, there is also a "partner lateral" market to in-house positions, but on an entirely different plane of responsibility, and it is relatively small in scale compared to the associate/in-house market.]  Associates moving in-house is the easy case:  Law firms should love it when their alumni move in-house.  This is perhaps their single most fertile source of big-deal new business down the road.  Indeed, if this were the only market, law firms would be insane to shield associate information.

That tells me that firms believe the lateral-to-another-law-firm market is of far greater significance.  Economically, not only does the associate-losing firm forfeit their investment in training and development (if any—a tale for another day, or another year), which is captured by the "receiving" firm, but they lose the present value of that associate's future billable hours.  This is where it gets truly interesting.

For simplicity, let's assume all associates fit into one of three categories:  I'll call them schmoes, joe's, and pro's.  Schmoes are probably miserable themselves and firms are, relatively speaking, miserable having them on-board.  Losing a schmoe probably raises morale all the way around, and since their billable hours are likely to be both few and of low quality, the economic loss is immaterial.

Joe's are your journeymen associates:  They'll bill pretty much your annual target, you'll certainly make money off them, but they aren't on your A Team and are pretty certain to depart before the up-or-out year arrives.  The important economic point is that joes are fungible.  This sounds like an inhumane thing to say, and it is (and joe's know it as well, by the way).  When you lose a joe, you really have lost no irreplaceable revenue; someone will come along to take his/her place, and even if that person comes with a recruiter's price tag on their head, the cost/benefit to you of hiring them will, by hypothesis, be positive—otherwise you wouldn't replace the loss-making joe who left.  Again, no materially negative economic impact.

This brings us to the pro's:  Partnership material by all indications, these are the individuals you want to focus all your coddling and grooming efforts on.  Assign them to the high-visibility matters, keep them amply busy but not going into cardiac exhaustion, put them on display in front of your core clients, and, oh yes, pray that they stay until the anointed year.  Of course, "praying" is not taught at business school as a management technique.  The care and nurturing of a pro is a two-way street:  They are delivering top-notch work, and your firm in turn should ensure they receive a top-notch experience as they grow into their career.  If you do that, all the headhunters in the world can call, in vain.  And if you don't, the pro's know they're good, and they won't suffer being unappreciated.

So come off it; put the info back up on the websites.  And why don't you include the professional business-side managers of the firm while you're at it?  Just because Jeffrey Imelt doesn't generate billable hours for GE doesn't mean they decide to keep him off their site.

If you think practice group management is a fad that will run its course, you should read this piece by Patrick McKenna.  [Patrick is a well-known expert on strategy and practice management and, among other things, co-author with David Maister of "First Among Equals," a commendable book about managing highly sophisticated professional service firms.]

What's to like about practice group management?  To paraphrase the thoughts of a group of partners (at an un-named firm):  Practice groups

• provide us a critical mass in the marketplace;
• foster training and development of associates and partners alike;
• permit us to develop standard methodologies, thus improving profitability;
• make us more attractive in the market for recruits and laterals; and
• help us develop a genuinely distinctive intellectual advantage in our area of expertise.

More pointedly, practice group management addresses the two single most important challenges to your firm's long-term strategic prospects:  (1)  From the supply side, it increases your attractiveness to recruits by promising a "home" of like-minded practitioners working together off an economically sturdy base; and (2) from the demand side, it answers the question at the forefront of most clients' minds:  What really makes your firm different from your peer group?

It may be a truism to say that attracting new talent and retaining existing talent are both essential for your firm's future, but this statistic got my attention: According to McKenna, an LA firm calculated that losing a "junior" partner cost each remaining partner $23,000 over the next year.  I'll let McKenna describe how he clarified the source of the problem:

All of this prompted me in a discussion with one managing partner to pose the question; "Tell me, do you sense that you are losing your best young talent from those groups that you would consider your best organized, or from those groups that are slightly dysfunctional?" This particular managing partner paused for all of two seconds, looked at me and said; "You know, I think you’re on to something there!"

If it's the case that finely-tuned practice groups are so effective, the interesting question then becomes how to achieve their sustainable development and growth. The question is not so much whether organization by practice group is a wise managerial stratagem, but whether your firm can pull it off. And here, McKenna leaves no doubt, leadership from the managing partner is indispensable: It is his "attention, dedication, and commitment" that will make or break the effort. For starters, do something all lawyers like to think they're good at doing: Communicate. And then communicate some more and some more, even beyond the point where you're tired of it. Why?

Because first, people will not hear, then they will not understand, and then they will not believe.  If you stop emphasizing the point too early, people will conclude you were never serious.   But it takes your commitment, and your follow-through.  Are you ready?

"Adam Smith, Esq." has been invited to join American Lawyer Media's "Legal Blog Network," and I have accepted.  The other half-dozen-plus members of the network are all people I know personally or through email and the quality of their blogs is of the highest order; I consider myself in distinguished company.

That said, I made this decision after a fair amount of deliberation and after seeking counsel and advice from fellow members of the network, whose general consensus was that the benefit of increased visibility in cyberspace at large outweighed the aesthetic objectionability of that honking big garish ad to your right.  (Sorry, ALM, but when you're dealing with bloggers we're going to call a spade a spade—and if you ever animate the ad, all bets are off.)

If any readers feel strongly about this change one way or the other, please let me know.

To risk stating the obvious, a major downside of acquiring powerful lateral partners or small groups thereof is that they will not stay.  Now The American Lawyer has a piece covering the story of same over the past five years or so, complete with a helpful and informative scorecard ranking the acquiring firms with the greatest headcount of acquisitions. 

What do we learn?  In a nutshell, that strategy is one thing and execution is another.  Put differently, the smartest and most obvious-seeming acquisition of laterals (we're dealing primarily with groups, not one-off's) can run aground on the unforgiving shoals of failure to integrate them into your firm's culture, failure to anticipate that they will actually need to evolve into a new client base, and failure to appreciate that the portable book of business they might bring with them is not their primary asset.  Bruce McLean, the always-astute head of Akin-Gump, puts it thus:

McLean says that the firm has become smarter about hiring laterals that fit more clearly into the firm's long-range plans. Three or four years ago, he says, the firm was more focused on breaking into new markets and hiring laterals with large and portable books of business. "The very first question would be how big a book of portable business does a lateral candidate have . . . and, secondly, how do they fit into what we are doing," says McLean.

Akin Gump is more attuned to building the practices in which the firm is already strong, and for which its clients are more than willing to pay full freight, according to McLean. "Now," McLean adds, "the primary question [of a lateral prospect] is how do they fit into [the practices in which] we are already doing well."

Whether it's as simple as sprinkling the new group around your office so they're not isolated in their Siberian homeland, or flying them to headquarters on a regular schedule to cement relations, you should spend as much time and attention (OK, if not as much money—but that's the good news) on their integration into your firm as you did on selecting and acquiring them in the first place.

You know that churn among your associate ranks is remarkably costly, and while you may resent it and feel relatively powerless to alleviate it, churn among  high-priced new lateral partners is an order of magnitude worse.  The answer to associate churn is a smart, heads-up, formal (meaning partners get billable-hourly "waivers" for participating) professional development program.  The answer to new-lateral-partner churn is even simpler than that.  And the consequence of ignoring it is economically akin to buying a half dozen new Mercedes, driving them out of the showroom, and pushing them off a cliff.

• The firm I work for is currently engaged in a strategy designed to increase PEP figures, in order to improve our attractiveness for lateral hires.
• In the UK, the most significant ranking (The Lawyer 100) uses turnover as the most significant metric. (They also provide additional tables which focus on income per partner, income per fee-earner and profits per partner -- together giving a fairly rigorous account of performance.)
• Looking at the arguments the author ranges against PEP rankings, I am not convinced:
  • First, they compare apples and pears. It is not clear to me that "an M&A practice in NY or London will be much more profitable than firms with a strong focus on regulatory work in DC or in Brussels." They may have a greater volume of work, perhaps also done by a fee-earners at a range of levels of qualification, but a boutique may be very profitable in its own right.
  • Second, these rankings do not say anything about the quality of the work. Hmm. Does anyone claim that they do? The directories that comment on the quality of work (I am thinking here of the Legal 500 and Chambers & Partners in the UK) never to my knowledge rank firms according to PEP, or any other financial indicator.
  • Third, profit-per-partner based rankings distort the priorities of lawyers. This appears to be a complaint about how firms treat profitability, rather than how the market views it. And surely if "[e]ntire practice groups will be eliminated because they no longer belong to the strategic priorities of the firm (essentially making more money)", that must be good for the health of the firm?
  • Fourth, surveys show there is a correlation between the performance of law firms in these rankings and their level of prestige for prospective applicants. Well, yes and no. I have recently spent a considerable amount of time engaged in recruitment for my firm, and none of the prospective lawyers we interviewed mentioned PEP as a factor motivating them in the choices they were making. However, as I suggested above, PEP is clearly a relevant consideration for partner hires, because it impacts directly on their income. I am sure it is not the only factor (nor do I think Prof. Geradin would argue that it is), but few lawyers (being wealth-maximising individuals) would choose to reduce their income in their desire to change firm.
  • Fifth, when the profitability of a given firm declines ... this sometimes creates panic. This may well be true for journalists -- watch the coverage of Hammonds' fortunes in Legal Week or The Lawyer -- but I am not sure that we should worry unduly. A poorly performing firm may well collapse. One indicator of a poorly performing firm is likely to be a decline in PEP figures, especially if that slide runs counter to the market generally. If falling PEP causes partners to leave, then surely (assuming they know more about the firm than the market does) that is a better indicator of a failing firm than the PEP figures alone.
  • Finally, more profits-per-partner not only depends on revenues, but also on leverage. The argument here is that clients should be cautious when instructing firms with a high PEP because "the clients will often pay for the training of young associates." I am not sure how this sits with the first complaint, that M&A firms (which rely on armies of associates) can post a higher PEP than the niche regulatory practice (where one would expect to be advised by a real expert). In the first place, some leverage is necessary for lawyers and firms to develop. Secondly, the canny client must be aware that work is best done at the right level. A firm that makes partners do due diligence on a run of the mill corporate transaction is in as much trouble as the one that expects a junior associate to handle merger control negotiations with the European Commission.

To my mind, this exchange raises a bounty of fascinating questions—but since I concentrated on industrial structure and market concentration in my undergrad economics program, and since I allegedly practiced antitrust law as a young associate, that perhaps is to be expected. 

First, permit me to say that while the original (inflammatory?) post comes from a site, new to me, styled as dealing with "Antitrust," I see no issue here remotely related to antitrust concerns. 

[Sidebar:  Another loyal reader emailed me "off-blog" last week positing that if law firm mergers were subject to antitrust scrutiny, fewer would go through.  My response was that I always assumed they were, at least in the legal-jurisdiction sense, subject to such scrutiny, absent a statutory exemption [of which there is none], but that even a merger of, say, Skadden and Clifford-Chance, would bring them to less than a 2% market share in the AmLaw 100, so anticompetitive concerns are at this stage in the evolution of the industry a bit premature.]

Second, many perfectly legitimate reasons exist to doubt that PPP or PEP is the sine qua non of rankings.  The AmLaw 200 itself, a la the Fortune 500, is based on total annual revenue.  And I would argue that PPP is a number you can manipulate readily.  Reduce the number of "equity" partners, for starters, or, for those who may have gone to school on dot-com era financing, capitalize operating costs, switch income reporting from cash-basis to accrual-basis, and the list goes on and on.  If I have not said so here before, I apologize, but I have long believed that revenue per lawyer, or per partner, is far more difficult to fudge.

Third, if PPP is so flawed, why do we put up with it?  Obviously, because it's hugely informative and quantifiable.  Lifestyle, quality of work, diversity, commitment to pro bono, investment in professional development, collaborative quotient of the culture, enlightened fee structures, leadership training, clear-eyed strategic thinking, genuine innovation in delivering professional services—these are all qualities devoutly to be wished, and to which I hope I have devoted amply worthy space in these pages—but they are not quantifiable.

To me, the bottom line is that PPP tells a strong story about a firm:

• If it's declining vis-a-vis its peer group over a relevant market cycle, it's a call to "battle stations"
• If it's increasing [as above], it's a virtuous circle giving the firm the luxury of courting desirable laterals
• And, in the long run, it's how firms from Skadden, Davis-Polk, and Brobeck, to GE, GM, and WorldCom, survive and continue to thrive

Trust me, I'm keeping an eye on it.

Yesterday's post about the Hildebrandt/Citigroup annual 2004 recap said nothing about a topic they dwelt on which I deemed sufficiently distinct and newsworthy in itself to merit separate commentary.

Specifically, they cited four developments in firm structure and operations deserving of discussion:

1. "rationalizing" partner compensation structures to fit market realities;
2. a focus on formal "client relationship management" (CRM) systems;
3. the ongoing evolution of practice group management as "the key driver of firm strategy;" and
4. recognition of the importance of comprehensive professional development programs.

Partner Compensation

The good news is that profits per partner have never been stronger; the bad news is that "grid creep" means some partners are being compensated above what their contributions justify and/or above what they could command in the open market.  The tactical responses to this anomaly take various forms, but all have the goal of increasing case-by-case flexibility, including:  paying more compensation in the form of bonuses; "stretching" the point spread both at the top and at the bottom; forcibly moving some partners down in points or tiers. 

Second, firms just below the top tier find themselves exposed to the threat of losing their highest-performing partners to the first-tranche firms; the response, predictably, has been to increase compensation at the very top of those firms, even driving some to produce ratios as high as 10:1, including top-end bonuses.  (A more typical top-tier firm ration in the US and the UK is 3:1 or 4:1.)

Lastly, invoking "you pay for what you want to get," teamwork has emerged as a formally recognized component of evaluations.  Origination credits, beware!

CRM

While relatively new to law-firm-land, CRM systems have been common for years in the world of large accounting, investment banking, and management consulting firms.  As with knowledge management, getting CRM to truly work in a law firm is 98% cultural and 2% technological.  There is no "one size fits all" here, either across firms or across practice groups or clients within a firm.  If your firm (or its key partners) reacts to the notion of CRM with, "What's in it for me?," I highly recommend this marvelous, accessible, plain-English, clear-eyed overview of what enlightened CRM is and what it can accomplish (courtesy of Stanford University).

The bottom line?  Firms that intelligently and enthusiastically adopt CRM will enjoy a truly distinctive competitive advantage over those who don't.

Practice Group Management

Paying lip service to practice group management is, by now, all but universal, but the news here is that firms are getting serious about making it effective, by:

• aligning compensation metrics to encourage contributions to practice group activities;
• clarifying the role and authority of practice group leaders;
• dealing with partners—"including major rainmakers [!]"—who visibly undermine it; and, most importantly
• the continued evolution of the role of "Practice Management Professional."

Since this last item itself essentially embodies firms' commitment to practice group management, it's worth quoting directly how they describe the position:

"These persons are high-level business managers who assist department chairs or practice group leaders in running departments and practice groups. In many firms, they are now given significant authority for financial management, dealing with partners on issues such as client and profitability management, workload allocation, and input in evaluations. The roles are designed to take as much of the day-to-day management burden off practice group leaders as possible, so that the leaders can focus more effectively on those issues that can only be addressed by a partner or the leader of the group."

This strikes me as simplicity itself:  Let lawyers practice law and let the business-minded manage.  Breathtaking, isn't it?

Professional Development

It cannot be said too often:  Your associates are your future, and your partners are your current, revenue stream.  It is literally an act of insanity (in the sense of being divorced from reality) to be inattentive to these indispensable, core assets.

More importantly, leadership skills are not taught in law school, but today's complicated, globalized firms demand both strong and nuanced leadership ability.  Leadership is difficult to develop, but that's all the more reason to devote focused attention to it.  ("Reed Smith University" being a prime, laudable, example.)

So what?  So you now have a checklist of what the best and brightest of your competitors are doing.  To the extent they succeed, clients will notice; and if you aren't trying as hard as another firm, how do you plan to respond to your clients who do notice the other guy?

Hildebrandt and The Law Firm Group of the Citigroup Private Bank, with help from Baker-Robbins, are out with their 2004 year-in-review together with some prognostications for 2005.  The New York Times, in its wisdom, headlined the story, "Partnerships More Elusive at Law Firms, Survey Shows."  That is, to be sure, one way of looking at it, but to my mind the real story is one of healthy, even robust, economic growth.  Of the 143 firms that reported 2003 and 2004 data:

• revenue was up 9.6%;
• profits per equity partner rose 10.1%;
• rates rose 5.7% and gross hours 3.2%; but
• FTE lawyer headcount rose only 1.5%, the lowest in over a decade, while
• partner headcount rose 2.6% and associate headcount actually dropped 3.5%, also decade lows (and what, evidently the NYT decided was the lead).

I don't know about you, but I bet executives in industries from automobiles to investment banking would look at those results with envy.  Beneath the raw numbers is where, of course, it gets interesting.  And here, the survey recaps some of the themes you've been reading about on "Adam Smith, Esq." for the past year.

[I]  Mergers and consolidation are here to stay.  Activity in 2004 outpaced 2003 and 2005 should see even more segmentation.  This is often a pattern in maturing market sectors.  Interestingly, the survey foresees some potential (unidentified) unravelling of ill-conceived mergers.  I have my list of candidates.

[II]  Regional disparities continue.  While the Pacific Northwest, for example, has been weak for the last few years, Northern California is getting back on its feet and—let's hear it for the home team!—"Of particular note during the past year was the reemergence of New York firms as market leaders."  Sticking with the regional theme, a trend has emerged among mid-size firms to counter the increasing competition of mega-liths by staking claim to a regional territory.  Understanding that one may never command the super-premium work is a perfectly rational and sustainable strategic positioning, assuming the partnership truly comprehends that reality and is at peace with it.

[III] Globalization is here to stay.  US firms continue to expand in Europe (particularly London), in China, and, surprisingly or at least "under the radar," in Latin America.   The explosive interest in China is surely one of the past year's top stories, with 36 of the NLJ 250 now having at least one office there (vs. 75 who are in London, the single most popular overseas beach-head).  Whether we can reproduce in China the relative success we've enjoyed in the UK is of course an open question, but the survey confirms my repeated observation that US firms do better in the UK than UK firms do here (hindered in the market for laterals by the predominance of lockstep compensation schemes).

[IV]  Corporate clients are starting to push back on rates.  More than a decade after the "DuPont Legal Model" was invented, clients have figured out they actually have bargaining power with the AmLaw 100 and are insisting on deals such as volume discounts, multi-year rate freezes, and flat fees.  Reportedly, the managing partner of "one of the country's largest and most respected firms" said he had never seen such a high level of "hostility" to rates in his 30+ years of practice.  But given the non-negotiable nature of such mandates as Sarbanes-Oxley, I would venture that while the rate of increase might slow, the trend-line will continue up and to the right.

[V] IT grows up.  In our post-terror age, firms are investing in business continuity and disaster recovery efforts and making sure that they are squeezing the most out of existing investments and infrastructure.  Skadden, for example, now has three worldwide data centers rather than one at each office. 

Often viewed as part and parcel of "IT," although we know of course that it's a cultural beast at heart, Knowledge Management is winning more adherents as firms recognize it can increase their competitive distinctiveness and help drive profitability—and firms at least have the ability to measure profitability at a more granular level than heretofore, even if they still lack the courage to actually do something with that analysis.

What, then, of 2005?  A number of fairly non-controversial predictions are made, with which I largely agree:

• consolidation and segmentation will continue;
• overseas expansion will continue;
• client push-back on rates will take the form of reducing the number of eligible firms on a company's "panel;"
• outsourcing of the back office will accelerate, as more firms ask themselves why they should be in the business of providing support services; and
• firm "general counsels" will increasingly be responsible for the centralized management of conflicts, compliance, and risk in general.

Finally, here's a wild card for you:  What if the EEOC prevails in its suit against Sidley-Austin asserting that, because of the terms of the Sidley partnership agreement, many "partners" were actually "employees" for purposes of the Age Discrimination in Employment Act?  Back to the partnership agreement with a clean sheet of paper?