Facing Even More Facts

Facing Even More Facts

Dear Friends and Associates Towards the end of last year, I wrote an article called Facing Facts in which I exposed seven of the most common fallacies and dangerous half-truths evident in law firms today. In this newsletter, I propose three more to add to the list to make up the top ten tendencies for self-deception that I see in law firms today. As always, I welcome your comments and feedback Facing even more Facts My “Facing Facts” article highlighted the following delusions and dangerous half truths

1. “We only do High Level work”

2. “When the recession is over, all our work will come back”

3. “All our clients remain loyal”

4. “We are efficient at using Technology”

5. “We are well-managed and Disciplined”

6. “Commercial law is our route to success”

7. “We are well-known and highly regarded”

Here are three more typical fallacies or half-truths to make up my top ten!

8. “The normal rules of economics don’t apply to us!”

Even despite the recession and growing pricing pressures from clients, many law firms still continue to base their budgets and business recipes on an old-style hours-times-rate basis. Under this cost plus methodology, the firm works out its probable overheads, calculates the profit it wants to make and then assumes that it can then target the resulting revenue figure by multiplying available hours by a set of market-based hourly rates. If the resulting calculations fail to produce the right results, the big discussion then turns to how the firm can improve utilization, increase rates, improve margin by cutting overheads, or somehow further develop leverage. The debate is usually entirely internal and inward looking and begs all sorts of questions such as how the firm is going to try to develop competitive and compelling strategies, increase its market share or provide true value to clients. What should be clear is that the laws of supply and demand, as well as the relationships between the challenges of value, pricing and profit are faced by all businesses and law firms are no exception. . The problem is that the old profit-making formulae for law firms have served the profession so admirably for so many years, that some partners find it hard to adjust to the fact that law firms are businesses like any other, and may need to plan more strategically in the future.

9. “Clients always want a personal and partner-led service”.

There is absolutely no doubt that clients continue to value a strong relationship with their lawyers and the role of ‘trusted adviser’ is still a vitally important one. It is a mistake however to feel that any single partner is ever indispensable to any client. Clearly in many routine and commoditized areas or work, clients are more interested in efficiency and process than a strong partner-led relationship but even in complex matters, clients are very ready to be transferred on to someone who is more specialized or more cost effective to deal with their matters. Indeed, research shows that larger clients often become more tied in to their law firms where they have a relationship with more than one partner. The problem is that partners use this half-truth in order to justify client-hogging, as well as lack of delegation and cross-referral. In other words, every time a partner utters the words “this client needs me and nobody but me”, this can be a sign of partner paranoia rather than partner wisdom.

10. “The best business development is to do good work for satisfied clients.”

There is of course a lot of truth in these words, but at best it is a half-truth and a possible comfort zone issue of self-delusion. Many years ago I was a trainee lawyer at a firm in a suburb of London. It was the leading firm in its locality. I am sure it has continued to do excellent work for satisfied clients but the fact is that the firm has shrunk in size and has certainly failed to grow in substance over the last thirty years or more. It is now a very minor player in its market place. If a firm is to grow in stature and reputation, then it has to do more than serve an existing client base. Growth for growth’s sake is not a strategy. However, every firm needs to consider the minimum amount of growth necessary for the firm both to retain its existing market position and to develop its strength and ability to perform or survive. Clearly, all firms need to have a viable market standing. In a consolidating market, most firms therefore need a high minimum growth rate in order merely to stand still, or maintain existing competitive advantage and levels of profitability. Business development is one means of achieving such growth.

What can be done?

In my original Facing Facts article I suggested that the way forward for firms was to take three essential steps – working through what their foundation is for their competitive strategy, deciding their overall strategic direction and finally deciding the methods by which the firm might pursue its strategy. However, I am clear from many conversations with Managing Partners that they are fully aware of the dangerous half-truths and fallacies which I have listed. It is mainly back bench partners who are tempted to delude themselves with any rationalisations by which they can justify a ‘do-nothing’ attitude. Managing Partners may therefore still be left with a “hearts and minds” issue as they seek to persuade their partners and staff to face the facts and move out of their comfort zones.

Nick Jarrett-Kerr (nick@jarrett-kerr.com) is one of the leading advisers to law firms on leadership, management and strategy. Nick is Visiting Professor to Nottingham Trent University where he leads the strategy modules on Nottingham Law School’s MBA in Legal Services. For information and contact details please visit www.jarrett-kerr.com.