Steering Law Firm Strategy

Strategy can seem like an amorphous concept. Goals are often easy enough to identify—maybe you want to maximize your firm’s revenue or be in as many cities as possible or attract the top talent—but the strategy (or strategies) needed to get there is the million-dollar question. There are countless ways to understand law firm strategy. The lead article in this issue of The Practice offers one approach by segmenting Am Law 100 law firms based on revenue per lawyer and lawyer head count. But, as the article “What Else Should We Do?” explored, there are other ways to define strategy within the legal services market. In this article, however, we look less at the substance—or even the merits—of any particular strategy and instead examine the history of how strategy as a concept developed within law firms and therein the major players driving its development and implementation.

Strategy evolves

Strategy as an explicit concept and worthwhile consideration is rather new to law firms. “For a long time, law firms didn’t need to have a strategy. Or to be very fair, the implicit strategy was: do excellent work,” says David B. Wilkins, a professor of law at Harvard Law School and the faculty director of the school’s Center on the Legal Profession. He continues, “The thinking was that if you do excellent work for your existing clients, not only will those clients continue to come to you, but you’ll get new clients, and if you have enough clients, good lawyers will want to come and join you.” This implicit strategy of doing good work was considered more or less enough to ensure overall firm health, prestige, and profitability. By implication, things such as marketing, business development, communications, professional development, and other operational departments now common at most modern law firms either were not relevant or, in many cases, didn’t exist.

Wilkins notes that this notion—that the only “strategy” a law firm needed was doing good work—persisted well into the 1980s and even the early 1990s. However, as the legal market grew more competitive, things began to change. In this more competitive legal landscape, defining the firm’s goals and establishing a plan to achieve them became increasingly important. At the same time, however, those devising and implementing these strategic processes remained highly circumspect. Moreover, it was largely informal, lacking the sophistication more common in companies and large industries. Wilkins notes, “Initially it was just lawyers working on strategy, but not all the firm’s lawyers. Early law-firm-strategy formation was typically just a small group of partners—the managing partner, maybe some members of the executive committee. It was a relatively informal process, and even then it was often reactive to the competition.”

However, as competition increased, so did the need for explicit and well-crafted strategies. For instance, as in-house counsel became more powerful and began demanding more from their external service providers, it created more competition among law firms and therein the need for differentiation—and this, of course, required strategy. Perhaps the clearest example of an external factor magnifying the need for law firm strategy was the global financial crisis (GFC). “In the years prior to the recession,” notes Laura Empson, professor in the management of professional service firms at Cass Business School, London, and director of its Centre for Professional Service Firms, “there was a massive expansion in a lot of leading law firms at a rate perhaps faster than their ability to properly manage themselves.” This was not so much of a problem when these firms were performing well. As Empson says, “People were not forced to ask the difficult questions around strategy so long as the money was rolling in. Choosing what you don’t do is a key component of strategy.”

Early strategy formation was typically just a small group of partners. It was a relatively informal process, and even then it was often reactive to the competition.

David B. Wilkins, faculty director, HLS Center on the Legal Profession

This changed with the GFC. “The recession hit, and suddenly tough decisions had to be made,” says Empson. “These kinds of decisions—being firmwide and time-sensitive—required collective action, which meant power moved away from the relatively autonomous individual partners and coalesced around the people who were ultimately responsible for leading the firm—in theory, the managing and senior partners.” This, Empson explains, led many firms to adopt more-systematic processes for partner performance management, which in turn led to changes in compensation systems and significant partner departures. “The GFC raised big questions around strategy, because if you can no longer make money by doing everything, you have to start making decisions about what to stop doing.” Empson, who is also a senior fellow at the Harvard Law School Center on the Legal Profession, continues:

If you were a senior or managing partner at a firm before the recession, you might have been thinking for years, “I really don’t understand why we’re doing any private client work at all. We’re a corporate law firm—why have we got this private client practice?” And perhaps at the time you thought, “Well, the private client people are actually quite profitable, and everyone likes them, so why not?” But when suddenly that particular practice is no longer looking as profitable, you now have the mandate to make the choices you’ve wanted to make for years. With the GFC, suddenly you are able to do that because, if you close down the private client business, the rest of the partners won’t be banging on your door saying, “Why is so-and-so gone?” They’re going to be sitting in their offices thinking, “I’m so glad it’s not me.”

In the immediate aftermath of the recession, law firms began to grapple with these tough decisions—they were forced to think long and hard about which areas were priorities and which areas were not worth the time and energy of their lawyers. In short, the need for strategy ran amok. In such a hypercompetitive climate, having a small group of senior lawyers pledging to do excellent work was no longer a viable strategy. Wilkins notes, “After the GFC and the failure of many prominent law firms, people got very scared. They saw that if you didn’t have a strategy—or worse yet, if you had a bad strategy of simply growing by leaps and bounds, extensively hiring laterals without any idea of how to integrate them, or trying to be in all markets at all times—then it could really be a disaster.”

Who’s in the room—and what’s their influence?

While the importance of strategy has been amplified over time, this does not answer the question of who is steering strategy—and how. Of course, managing partners and executive committees remain at the center, but the iceberg goes much deeper. Below we review some of the key influencers of law firm strategy formation and implementation—both the major players and their impact.

The partnership. The general partnership of any law firm is central to law firm strategy. While the old days of strategy—one of merely doing excellent work as outlined by Wilkins above—may be long gone, lawyers, and more specifically partners, and the work they do undeniably remain at the heart of any firm’s wealth and well-being. But a firm’s partners are not just individual lawyers producing work and revenue. They are each part owners, and collectively they are the owner. Motivations, whether for profit, prestige, or some other strategic aim, are important to the firm only insofar as they are important to the partners. As such, a strategy has little hope of taking effect without the support of the general partnership, rendering the partnership’s buy-in critical for any plan’s success. “This means that a law firm’s strategy needs to be responsive not only to clients and competitors but to the demands and actions of internal stakeholders as well,” says Empson. “Law firms have to simultaneously attract and retain clients and attract and retain professional staff—otherwise they have no product or no service to deliver to the client.”

But the story is not that simple, as there is an additional nuance to the relationship between the partnership and firm strategy. Unlike in a traditional public company, in a law firm, in addition to the overall firm strategy, individual partners are forming strategies of their own—for instance, about their clients and their practices. In the best-case scenario, a partner’s strategy is in harmony with the overall firm’s strategy. However, as this is not always the case, there is a potential for conflict between firms and their partners. This complication is amplified by the fact that clients are often tied to their lawyers and not their lawyers’ firms. As discussed in the previous issue of The Practice in “Why Law Firms Collapse,” the old mantra of “We hire lawyers, not firms” largely still holds true. Add to this a robust lateral market, and it is clear that the strategies of individual lawyers matter when it comes to the strategy of the firm as a whole.

Empson describes the tension between law firms and their partners as being between individualism and collectivism. On the one hand, there is the entrepreneurial drive of lawyers and the autonomous individual partners who form the partnership, and on the other hand, there are the liabilities and relationships that bind the partners together as well as the leaders chosen by the partners to manage their collective interests. The leaders require buy-in from the individual partners just as the individual partners require a steady ship steered by the leaders.

What does this have to do with law firm strategy? As Empson explains in the book she edited, Managing the Modern Law Firm: New Challenges, New Perspectives, law firms operate differently depending on where this balance is struck. In a firm weighted toward individualism, its lawyers are able to pursue their own strategies with minimal oversight, so a significant part of the law firm’s strategy is formed on a lawyer-by-lawyer basis. It is important to note that this may not represent a lack of a larger strategy but instead could reflect a strategy of allowing partners to operate with minimal constraints. On the other end of that scale, in a firm pulling closer to collectivism, we would see the managing partner and other firm leaders setting more defined strategy by which individual partners must align their efforts. Such a firm’s leadership would have a mandate to enforce its decisions and this would be reinforced by partner consensus.

The complex dynamic between partners and the collective means that enough of the general partnership needs to be onboard with any strategy for it to have any effect. This is not to say that law firm leaders are powerless to drive the agenda, but rather that the general partnership is a key—and complicated—piece of law firm strategy.

The leadership. The other main character in this story is the law firm’s leadership. Perhaps the easiest answer to who runs strategy at a law firm—that is, strategy for the firm as a whole—is to point to the top of the pyramid: the managing and/or senior partner, the executive committee, and the board (here, the exact titles may differ, but the relevant organizational positioning remains largely the same). But how does the top develop strategy on behalf of the collective interests of the partnership?

To begin, a law firm’s leadership is rarely defined by just one individual. While there are instances in which a firm’s strategic decision making is reduced to a single person commanding an exceptional level of influence—say, a charismatic founding partner—for most law firms, leadership is best described as what Empson calls a “leadership constellation,” and this constellation ultimately drives law firm strategy. Empson argues that most law firms are not just led by a central leader or leaders; several “orbiting” actors also influence that center. As with the center, the profiles of these circling outside influencers may look different from one firm to the next, but the group most likely includes some combination of practice heads, regional office leaders, non-fee-earning “management professionals” (more on this below), and other key influencers who may not serve a formal management function but whose support is nevertheless exceedingly valuable (e.g., rainmakers). These actors will orbit around the leadership center at various distances, influencing all manner of strategy.

And often, there is not just one person at the very center but two—what Empson calls a “senior leadership dyad.” The degree to which the two roles are distinct or overlapping—and the degree to which the two individuals work well together—will vary from one firm to the next, and there are different ways the dynamic can play out between them, both positive and negative. This could have numerous implications for strategy, whether the two tackle the same issues more or less together or split their focus—a common example would be one concentrating on the day-to-day with the other thinking about the bigger picture. Whichever way the center is structured, it is in many ways the epicenter of strategy, as its support is the sine qua non for any plan to have a chance of success. However, depending on where the balance is struck on the individualism-collectivism spectrum at any given law firm, the power available to the center to implement strategy is constantly in flux.

This alone does not provide a complete answer to who manages law firm strategy, but it offers a perspective on how influence over strategy can shift within a firm. Any number of factors can affect how that influence slides, some of which are internal to the firm—its culture, number of lawyers, number of offices, the spread of those offices around the globe—while others are entirely out of its control—opportunities and setbacks that arise from market forces. These factors will determine not only who is in the room to set strategy but also the ability of the people in that room to implement the strategy it produces.

The management professionals. Lawyers are no longer the only ones driving law firm strategy. One trend worth watching is the increased voice given to executives and professionals coming from outside the legal profession. Nowhere is this more apparent than with the introduction of C-suite executives with expertise outside of the law. Trained and experienced in fields such as accounting/finance, technology, and management consulting (Figure 1), these executives were often specifically brought in to shore up law firms’ strategic processes. Indeed, prominent players such as Baker McKenzie, Ropes & Gray, and Paul Weiss have all hired a chief strategy officer (CSO). CSO positions are relatively new (Paul Weiss created the position less than two years ago) and are typically tasked with overseeing business development functions and the firm’s positioning in the marketplace. Meanwhile, positions such as chief operating officer (COO), chief financial officer (CFO), and chief marketing officer (CMO), which have been around longer, are increasingly playing roles in firm strategy, having dramatically evolved from outsiders with purely operational focuses to valued members of the firm’s inner circle. “Another recent addition to the law firm strategy team is the chief talent officer (CTO), a position that has become increasingly important since the GFC,” says Bruce Boulware, managing director at Boulware Partners. “People strategy is just as important as practice and client strategy.”

Coming from a 25-year career as a law firm executive director and COO, Boulware has seen the evolution of these professional positions up close. “When I first started in the 1980s, the focus was heavily operational,” he says. “Few firms, if any, in those days were approaching strategy the way we are now. Looking purely at the executive director or COO role, it used to be that most people had predominantly financial backgrounds, but now you have MBAs and people looking at broader areas other than strictly finance who are able to influence both the development and execution of strategy.”

The GFC was a wake-up call for many firms that had not previously put a lot of thought and resources into these positions. After that, Boulware continues, “firms did not necessarily replace this older, more operations-focused position, but if that particular role didn’t expand, they might have added new talent around them instead. And so now some firms have five or six C-levels reporting to a managing partner or chair. It’s evolving, but it’s certainly not one-size-fits-all.” Boulware notes that the most important function of these roles may be in facilitating strategy implementation. “I think this is where the COO or CSO, or whoever it might be, has to play the role in leadership that not just develops the process but also manages it,” Boulware says. “It’s about execution, and that breaks down three ways: sustaining or growing the business strategically, connecting the people to the strategy effectively, and managing the profitability. That’s where these business leaders add real value—by influencing all the moving pieces.”

When it comes to influence within the firm, these executives are competing against a long-standing law firm culture in which nonpracticing colleagues are often viewed as “less than,” regardless of how well they perform their duties. For her forthcoming book, Leading Professionals: Power, Politics, and Prima Donnas, Empson interviewed a range of law firm leaders about their thoughts on those lacking legal training—whom she refers to as “management professionals”—about this issue. One partner she spoke with gave voice to this sentiment:

The last time I went to a Management Committee meeting I thought there were too many non-lawyers on it… This is a law firm. Everybody has a part to play but the most important people, unashamedly so, are the lawyers… The major challenges for us are our clients, and the people who know the clients best are the lawyers. Fees? The people who know best are, guess what, the lawyers. Recruitment; why are we losing our lawyers? Well, the people who should know are the lawyers. So, for every essential business decision, the people I believe who know best, or have the most information in this area, are the lawyers.

While this belief in lawyer exceptionalism clearly persists—according to a 2016 ALM survey, only 13 percent of law firm C-suite respondents are voting members of their executive committees—there are signs that that is changing, which gives those law firm strategy experts lacking a J.D. more latitude to do their jobs. In that same ALM survey, 89 percent of respondents agreed with the statement, “The partnership’s respect for my position is high.” Likewise, 86 percent agreed that lawyers treat senior administrative staff with respect. Perhaps most telling, when asked to rate their working relationship with partners on a scale of one to five (with one being “poor” and five being “excellent”), respondents gave an average rating well over four (Figure 2). In other words, the perception among managing professionals seems to be that they are able to do their jobs with the support of their partnerships.

Recent improvements aside, there remain obstacles to management professionals enacting change and influencing strategy. “I think there are two keys to overcoming those obstacles,” says Boulware, who, apart from being a former COO for a number of prominent law firms, currently advises on firm strategy and facilitates discussion groups among legal professionals. “The first key is you have to have a managing partner or a chair who is committed to making strategy work from beginning to end. The second key is developing relationships with the practice leaders and thought leaders who may not be in those practice leadership roles but can influence those folks and others to get onboard and provide leadership.”

Empson echoes these points in her book, outlining a process whereby management professionals transition from outsider to insider at law firms. That process hinges on the management professional’s relationship with the managing partner. Namely, in order to establish themselves within law firms, management professionals must first establish a solid relationship with the managing partner—strong enough to the point where it can withstand the management professional challenging the managing partner when necessary. Once the managing partner’s support has been thus proven, the management professional can leverage that relationship to effect change and, equally as important, expand their network within the firm.

This may well change in time, but for now it clarifies the management professional’s role in strategy: implementer rather than developer, perhaps not the brains that determine strategy so much as the muscle used to get things done according to the strategy already set. However, the progress here should not be overlooked. The growing presence of these management professionals demonstrates that law firms are getting serious—and staying serious—about strategy.

The consultants. In addition to management professionals, law firms are increasingly turning to outside consultants—both individuals with specific industry or subject-area expertise as well as more established full-service firms—to help define their overall strategy. “Consultants help firms get focused when it comes to strategy,” says Boulware. “Do they have a strategy? What is it? And is it right given the people and practices they have? If a firm doesn’t already have its strategy in place, there’s a whole lot of analytics that go into the front end of this.”

Take the example of the major Indian law firm Amarchand Mangaldas, consistently ranked as the top corporate firm in the country before it split into two separate firms. Around the time of the GFC, the family-owned firm was trying to bring more-diverse owners into the fold to establish a more professional reputation and improve prospects for growth. After a few unsuccessful attempts, Amarchand Mangaldas hired Boston Consulting Group (BCG) to help revamp its strategy to better align with its goals. BCG put together a report recommending specific milestones that the firm could work toward, such as reducing the family’s equity holding to a specific percentage over a five-year span. These goals were not strategies themselves, but starting points around which the firm could build comprehensive strategies. It was then up to Amarchand Mangaldas to act on the advice of BCG.

Firms often look to consultants in this way for help conceptualizing the right strategy. “So if you’ve never really done effective strategic planning, outside consultants might help get that organized and help you develop the process and figure out what it’s going to take,” Boulware continues. “But as almost anybody will say about consultants, you have to have a good idea of what you want to use them for, and you have to provide direction in order to get the most out of them.”

This was difficult in the early days of law firm strategy because often law firm leaders did not know what they wanted from consultants. To be fair, consultants often did not have a thorough understanding of the idiosyncrasies of law firms and the larger legal market. “Most law firms found that process disappointing because consulting firms like McKinsey or BCG didn’t really understand much about the legal market,” says Wilkins, “and frankly the law firms didn’t understand much about consulting firms and how strategy worked, so it was not a very good fit.” This, however, is no longer the case, as many law firms will now at some point reach out to a consultant to advise on strategy. And while the role they play and the advice they offer varies, law firm consultants are often the first gear for the drivers of strategy, presenting leadership with enough information and insight to put strategies in motion.

Strategy for the future

The important thing to remember is that no two law firms are alike—in their culture, structure, capacities, goals, leadership personalities, and so on. Some might rely on consultants throughout the entire arc of one or all of their strategies, while others lean on those experts they’ve brought into the firm from the business world. Still others might use shades of both or neither. At the same time, in any law firm partnership, there will be that individualism-collectivism tension Empson describes determining where this process falls on its partners’ list of priorities—and thus how much of a mandate the firm’s leadership has to act through it. Meanwhile, management professionals, while not all powerful, have clearly gained a seat at the strategy table within law firms.

What you are left with is a complex, constantly shifting picture of how law firm strategy is managed. In general terms, far from the smoke-filled rooms of old, we are moving toward a more business-minded approach to law firm strategy ushered in by experts who are not themselves products of the law firm. No longer just symptoms of competition among firms—“If the other guys have chief strategy officers, then we need one, too!”—these individuals are proving their worth in translating strategies from plans to results. Their influence, however, is given only as much weight as the partnership allows. The question going forward will be whether market forces and other trends persuade partnerships to allow these outsiders to take the wheel in steering law firm strategy.