Edge International Communiqué

Edge International Communiqué

Insights and Analysis from Edge International, the Leading Global Consultancy to the Legal Profession

October, 2014

Collaboration and Compensation (Part 2)

Collaboration-evaluation tools can help law firms improve teamwork outcomes

by David Cruickshank

Last month, in Part 1 of this article, I discussed how to measure external business development collaboration. I now discuss internal teamwork, and how to assess all collaboration factors in compensation.

Internal Collaboration

To get beyond individual opinions and self-appraisal, there are three types of measures now in use in high-performing law firms.

First, upward reviews, held every one to two years, will yield data about partners and supervising lawyers. Upward review questions often ask associates to rate the team leadership, communications and collaborative planning skills of senior lawyers. The answers, if consistent over two upward reviews, will help a firm identify its high-collaboration lawyers -- and provide training and coaching to the lowest-ranking lawyers.

Second, by taking an important step in legal project management (LPM), you will get collaboration input from clients. In our LPM workshops, we stress the use of the post-project review. After closing the matter, interview your clients about what worked and what needs improvement. Did your law firm seem to the client to be acting as a team, or as disconnected individuals? How did any collaboration provide value to the client? If we track these answers across multiple closed matters, we will have a measure of client satisfaction with collaboration.

Third, many firms use individual partner interviews during the year-end compensation process. Here, you need to ask questions about the teamwork exhibited by peers. Who has broadened a team and shared client contacts in order to improve quality results? What are some leading examples of collaboration by peers in work production and in cross-practice and cross-geography activities? Converting these answers into a simple "high-medium-low" ranking will give the compensation committee an independent measure compared to the partner's self-appraisal.

Counting for Collaboration in Compensation

If you want your lawyers to measure all this, how can you demonstrate that it is valued at compensation time? First, you need to have a system that has a bonus component, a formula or a balanced scorecard that contains "firm investment" factors. These are often seen as "subjective factors," though we prefer the term "qualitative factors" in partner assessment. However, by using data-driven measures of efforts and results, you can begin to "objectively assess" collaboration.

Second, collaborative activity has to be broken out from other activities (e.g. collaborative vs. individual business development). Next, the components of collaboration have to be defined and held constant for a few years. Imagine, for example, that you could compare a partner's teamwork rating over three upward reviews. You could see a trend up, down or holding steady.

The third challenge is to weigh the various components within collaboration, then weigh collaboration along with other qualitative factors. This process is often communicated to partners as a holistic approach -- many contributions can receive weight and we can consider them all. I believe that firms can do better.They can:

announce that the separate collaboration factor has strategic importance and that it is going to receive at least equal weight as a firm investment activity, and
state that data-based evidence of collaboration (and successful results) is going to receive more weight than individual opinions and efforts. For example, the result of "landing two new matters after a team pitch" will get more weight than the effort of "20 hours of meetings with internal team."

We have a ton of anecdotal evidence that collaboration produces better business performance in law firms -- not by itself, but together with good governance, leadership, talent management and sound strategy. If more firms measure and reward collaboration using some of these "best practices," we may also discover a better data-based answer about the impact of collaboration.

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David Cruickshank advises firms on talent development, leadership and compensation. He has worked on modern compensation plans that reward collaboration and people skills.

Contact the author, David Cruickshank

Communicating with your Partners to Build Trust

A "them and us"' tradition can lead to grapevines, rumour-mongering, suspicion, cynicism and muddled goals.

by Nick Jarrett-Kerr

There are some significant structural and emotional barriers to good communication in law firms. Teams, practice groups and offices can easily lapse into functional silos, with poor communications even between people on different floors in the same building. In addition, the concentration on maximising the billable hour and the drive to prioritise time generally, combine to reduce interaction between staff. The use (or misuse) of email and stilted discussion at formal team meetings become a poor substitute for the easy interchange of ideas which can often take place in a semi-social setting. What is more, many firms have grown to the extent that fewer employees know each other. Whilst communication between friends is often difficult, communication between strangers can be fraught with problems.

The truth is that the traditional structure and hierarchies of law firms do not lend themselves to a culture of easy communication. A "them and us"' tradition -- even in the partnership sub-hierarchy -- can lead to grapevines, rumour-mongering, suspicion, cynicism and muddled goals. In such an environment, many partners have difficulty in perceiving what their tasks and roles are, and how they are expected to contribute to decision-making.

The leadership team and the partners can also often find themselves singing from different song sheets, and the fragmented results almost always have an adverse effect on morale. In response, there is a temptation to increase the number and length of meetings, memos, papers and e-mails, with less likelihood that the offerings will be read and understood. Conversely, some law firm leaders continue to act on the premise that knowledge is power, and purposely under-communicate within the firm so as to protect vital information and data from slipping out of their controlled grasp.

There are other distractions in the modern law firm. Today's partners tend to be sceptical of spin and cynical about what is increasingly seen as manipulative leadership attempts to inspire and motivate better performance. They are in equal proportions both rebellious and more demanding. They do not snap to attention or automatically do the bidding of their leaders. They tend constantly to question or criticise the motives of managers; they frequently suspect political agendas for even the simplest of communications initiatives.

Conceptually, most partners understand the need for better communications at the same time as complaining that the leaders of their firm are not communicating with them. Furthermore, the majority of law firm partners truly comprehend that the modern firm can no longer be managed by consensus arrangements by which all partners are fully aware of every single management issue. Consensus needs, however, to be replaced by timely consultation and appropriate communication on the things which matter. Complaints about poor communication can also act as code for a general gripe about lack of involvement. One law firm leader recently told me that in his firm, decisions which had formerly taken place by consensus had recently started to be taken by the board; partners were then complaining about lack of communication when in truth they were dissatisfied about their perceived loss of control.

The dynamics of any people business are both complex and fragile. Law firms, more than most, can be hotbeds of insecurity, paranoia and mutual distrust. Part of the reason for this stems from the lawyers' training -- analytical, suspicious, testy, sceptical and cautious.

It follows therefore that law firm leaders and all partners should contribute towards "making the firm a better place," where people are valued and there is a true spirit of collegiality and shared identity. A firm with high mutual levels of trust can be both creative and effective, and good communications can help to build this.

Contact the author, Nick Jarrett-Kerr

Putting Sales in its Proper Place

Nothing skews both remuneration systems and the social order in law firms like compensation for sales

by Jordan Furlong

Broadly speaking, there are three categories of business functions in a law firm:

The generation of paid engagements
The delivery of products or services
The management of people and processes

We used to call these categories "finders," "grinders" and "minders." It was a cute bit of wordplay, but it was also damaging, because it misclassified a function as an individual. The implication was that each person in a firm had one exclusive and unchanging role: e.g., a "grinder" could not simultaneously be a "finder." While every lawyer has his or her areas of strength, sticking a label on them that limits the range of their contributions doesn't help anything.

But my larger point is that in virtually every law firm, the first category, business generation, is the most highly valued. This makes sense -- it's hard to manage and deliver non-existent work -- but historically, this role has been esteemed and compensated to a wildly disproportionate extent.

Perhaps this is no surprise: most firms were founded by great rainmakers, so of course they would ensure that outsized rewards accreted to business generation. But that still doesn't make it sensible, especially given the growing importance of process improvement, workflow management, client relations, and other factors in the success of modern firms.

Compensation has always been the third rail of law firm management, and there is no perfect system for fairly compensating contributions to a firm. But I think we can probably agree that nothing skews both remuneration systems and the social order in law firms like compensation for sales.

Because that's what it is, right? We can dance around and call it "rainmaking," or "business generation," or whatever: but it's still sales. Many lawyers resist the term, considering it too crass or lowbrow; but in every other market and industry in the world, bringing business into the enterprise is called "sales." And few markets or industries pay sales as highly as law does. If you're not sure about this, ask the next retail clerk or telemarketer you meet about their hourly wages.

So here's my modest proposal -- modest because I know not one firm in a hundred will adopt it. Reward law firm sales through a fixed, short-term, declining bonus structure. Here is an example: the rainmaker receives 50% of profits (not revenue) from the new client in the first year, 30% the second, 15% the third, and nothing thereafter: all future profits from the client belong 100% to the firm. Come up with whatever variations on that you like, so long as the formula is fixed, short-term, and declining.

And while you're at it, increase the compensation, through annual bonus structures, of other key functions in your firm: client relations (via client satisfaction ratings), project management (via timeline and budget targets met), marketing (via number of industry event speeches or blog posts), leadership (via executive committee service), community investment (via pro bono work), and so forth. Most firms really have only one effective instrument for influencing behaviour: the compensation system. But there's no rule that says it has to be a blunt instrument.

My claim here is not that sales are unimportant; it's that other things are important, too. And in any work environment, you get what you pay for. Compensate people according to hours billed, as most firms do, and you'll get mountains of hours and not much else. Pay people for rainmaking, and that's pretty much all you'll get.

I once worked with a law firm that gave permanent business origination credit: the rainmaker received a large share of revenue from that client for the life of the client and the lawyer. What do you think resulted? A firm full of salespeople, of course: everybody finding, nobody minding or grinding, and constant internal warfare over origination credit. Have you seen Glengarry Glen Ross? Do you know what happens when you place salespeople in direct competition with each other for huge amounts of money and social standing?

But when you create a compensation system (as a growing number of firms are trying to do) that recognizes the multi-dimensional nature of success in a law firm, and you use that system to motivate that array of helpful behaviours in due proportion, then you're starting to build something that looks like a modern enterprise -- rather than a medieval fiefdom, which is what many sales-driven law firms, let's face it, most closely resemble.

Sales has its place in law firms, and maybe that place is first among equals. But let's not continue to pretend that it merits the lion's share and more of credit (and compensation) for the success of the firm. Outsized sales compensation is the animal that's eating too many law firms alive; it's time we tamed it.

Contact the author, Jordan Furlong.

In This Issue

David Cruickshank discusses how collaboration can be compensated (Second of a two-part series)

Nick Jarrett-Kerr talks about the growing importance of good communication.

Jordan Furlong argues that the multi-dimensional nature of law-firm work needs to be recognized in lawyer compensation