Now is the Time for Law Firms to Maximize their C-Suite
By Christina Herrmann –
There exist critical moments in time, which compel progress. Now is one such moment for the legal industry. Law firms, heavily dependent on the solvency of their clients, must adjust to a client base severely depleted from the global pandemic. These adjustments will require business savvy, ingenuity, and specialized talents, all of which will call for law firms to maximize the use of their C-level executives.
In September 2008, Lehman Brothers filed for bankruptcy. This is widely viewed as the turning point of the 2008 global financial crisis, precipitated by the 2007 subprime mortgage lending crisis. Corporations were caught off guard – but most especially the legal industry, which had been enjoying decades of increased profits. Prior to the crisis, top AmLaw 100 firms had been recording revenue in the billions.
The crash brought about a reckoning. Firms, who could once assign a client-matter number to all work, and bill clients not only for their legal expertise, but also for things like making copies, found they could no longer continue this practice. Clients, similarly hit by the crisis, were starting to heavily scrutinize their bills, and with this scrutiny came downward pressures on fees. Yet, because the legal industry is so resilient, it came back strong, though the rebound was not a full resumption of business as usual. For example, downward pressures on fees gave rise to alternative fee arrangements (AFAs).
The global pandemic of 2020 will present another set of challenges for the legal industry, as firms begin to work their way back from deficits borne out of responses to COVID-19. Many of the same recovery issues seen after the previous financial crisis will reemerge. This time, however, given the expected protracted resumption of business operations, and the ever-shifting landscape, the challenges will be even greater. Firms will need to operate much more efficiently. Those that maximize the contributions of their C-level executives to achieve these efficiencies will place themselves at a competitive advantage.
New Market Entrants
In the years after the financial crisis, technology continued to force firms to further adjust their service delivery. Alternative Legal Service Providers (ALSPs) sprung up, creating a new source of competition. They offered new capabilities, for example, commoditized contract generation and accelerated document review.
In its nascent state, ALSPs could be as small as an energetic start-up seeking to penetrate the legal market by capitalizing on artificial intelligence (AI). But ALSPs quickly gained momentum when the Big Four (Deloitte, EY, KPMG and PwC) saw opportunity. Already buoyed by global networks giving them expanded market coverage, the Big Four were able to provide cost effective solutions through project management and streamlined processes. They embraced technology in ways that law firms hadn’t, enabling them to deliver high value in executing complex assignments. And they keep on coming. In the summer of 2020, Deloitte announced that it would be adding e-discovery, data governance, regulatory consulting and contract life-cycle management to its repertoire through the launch of its Legal Business Services practice. The availability of such services has changed clients’ perceptions regarding how best to satisfy their legal needs. Enlightened client demands meant the legal industry had to act differently.
Law Firm Evolution
Law firms recognized that they did not have the entire arsenal they needed to compete against these new market entrants, and they responded by welcoming new C-level executives into their ranks.
To build an AFA, you must train your thinking away from the billable hour (which lawyers have traditionally been bound to), towards consideration of things like contingency fees, flat fees and success fees. This requires the ability to determine the cost of delivering legal services and conducting a profitability analysis. Law schools do not train lawyers to be financial analysists. Enter Chief Pricing Officers (CPO). These are professionals with strong business acumen. They typically have a background in finance and must also have an appreciation for the legal industry. They can tell you not only how to achieve optimal pricing that will keep the client happy and not give away the firm. Amazingly, they can also project the length of time it will take a federal lawsuit filed in one district to work its way through court versus in another. This is invaluable information when battling low-cost competitors.
To assess the landscape (both ALSPs and peer firms), consider how to keep existing clients engaged, and seek new business development opportunities, firms needed to develop thoughtful strategies. Enter Chief Strategy Officers (CSO). These are professionals who have their fingers on the pulse of the culture of the firm, in order to determine what will work best for their enterprise. They are constantly scanning the horizon, and assessing industry trends. Importantly, they also maintain a constant eye on client needs to ensure that no strategy loses sight of what their clients want. In so doing, these professionals are squarely focused on clients and growth. They identify ways to increase growth, while simultaneously removing obstacles that prevent it. An attorney with a thriving practice will be hard pressed to both maintain their practice and successfully strategize at this level.
These roles reflect the strides law firms have made over the past five years to embrace the talents of non-lawyers. As we move beyond COVID-19, this use of C-level executives will have to continue.
The Challenge of Change
In his article “Why Law Firms are Rigged to Fail”, published in the Atlantic, May 31, 2012, Jordan Weissmann observed that “Large law firms are hampered by two things. Their structure and their culture. These are partnerships, run for lawyers by lawyers.” He was discussing the spectacular failure of Dewey & LeBoeuf, which was the stuff of legends. Still, this prescient observation holds today.
The path to partnership is grueling. It requires the demonstration of legal expertise, the ability to bring in business, and the ability to win. It is therefore understandably a position to be revered. Notably though, the path does not require, nor does it bestow business acumen. Equally, the path to becoming a C-level executive is challenging in its own right. In addition to the experiential, there are advanced degree requirements, certifications, which necessitate the demonstration of business acumen and specialized functional expertise, and ongoing continuing education requirements. These attainments should be no less revered. But in order for law firm C-level executives to gain full parity with legal personnel, lawyers will have to change their mindset regarding the value proposition of non-lawyers in their midst. First, they will have to allow business professionals to run the business – as is the case in most other industries. Then they must value those who run the business, as much as they value those who bring in the business, because those who run the business can help bring in and keep the business.
This mental shift will be no small feat. Dr. Larry Richard, founder of the consulting firm LawyerBrain, and renowned expert on the psychology of lawyer behavior, has profiled over 1000 lawyers on their personality characteristics. Richard’s findings are detailed in his report “Herding Cats: The Lawyer Personality Revealed”. Strikingly he found that lawyers consistently scored in the 90th percentile for skepticism, whereas the general public tends to score in the 50th percentile. Thus, lawyers as a whole tend to be cynical, judgmental and questioning of others. While this trait serves them exceptionally well in their legal practices, it is detrimental to management practices. Moreover, lawyers tend not to compartmentalize. They do not merely invoke skepticism in furtherance of achieving the best results for their clients. Rather, skepticism can permeate any interaction, even if not beneficial. As the world ushers in a new normal, a critical adjustment for law firms will be to harness this trait for the good. Lawyers will be asked to do more in terms of building their practices and serving their clients. They should not also be asked to run the firm when there are capable professionals who can do this for them.
The Path Forward
Corporate law firms are wonderful entities where the best minds come together to solve complex issues for their clients. The intellectual stimulation derived from working in this environment is like no other. The evolution of the legal industry has produced a new breed of C-level executives. Some, like Chief Pricing Officers and Chief Strategy Officers, did not exist ten years ago. Others, like Chief Talent Officers and Chief People Officers have evolved to reflect the growing needs of the legal industry. All are studied and schooled in their functional areas of expertise, just like lawyers who practice legal specialties. An IP Litigator knows patents, copyrights, and trademarks. A Corporate M&A attorney is adept at buying and selling assets. A litigator would never presume to know more about acquisitions than their corporate partner. They accord their brethren in law a certain degree of respect. Why then would any lawyer presume to know more about the complex administrative functions involved in running a major law firm than their C-level executives?
More than ever in the post-COVID world, lawyers must overcome their skepticism to accord their administrative executives the same degree of respect they extend to their legal counterparts. The need to focus their energies on the cost-effective provision of legal services will necessitate this. Lawyers must cede where they lack expertise, and acknowledge those who do. The extent to which law firms give full agency to all of their professionals to ply their respective crafts will result in a win-win situation for all. The thrill a CPO gets from formulating competitive pricing for a piece of litigation is equal to that of the attorney who secures the huge jury verdict. The satisfaction a CSO derives from having targeted the right industry and geography matches that of the corporate attorney who closes the multi-million-dollar deal. These are, through collaborative efforts, equal contributions to the success of the firm.
In November 2009, President Obama awarded Steven J. Sasson with the National Medal of Technology and Innovation for having invented the first hand-held digital camera. Working as an electrical engineer for Kodak, Sasson devised a way to record images without using film. He urged Kodak to move aggressively towards the adoption of digital photography. But Kodak executive leadership dismissed his expertise. They felt that they knew better. They did not believe that the masses would eschew a century’s old medium which could capture the moments of people’s lives through high quality imaging, to view pictures on a small electronic screen. They were wrong. The company that once boasted nearly 16 billion dollars in annual revenue filed for bankruptcy in 2011. Had they listened to their internal expert, they would have been first to market. But Kodak came around to digital photography too late, lost critical market share and was rendered inconsequential. Law firms that leverage their C-suite will surge ahead in 2021. Those that fail to do so will be left cherishing their Kodak moments.
Blog Author
Christina Herrmann is a C-level human resources executive. She worked for 12 years in the legal industry as the senior most human resources executive at AmLaw 100 firms. In this capacity, she has been the architect of transformational change including process improvements, benefits optimizations, and enhanced talent acquisition and development. Christina earned a BA in psychology from the University of Michigan, Ann Arbor, Michigan and an MBA from the European School of Management & Technology (ESMT), Berlin, Germany where her MBA thesis examined law firm leadership. She is also dual certified as both a Senior and Global Professional in Human Resources (SPHR, GPHR).