Large law firms today are structurally complex organizations with management and partners overburdened by time-consuming and often conflicting roles. We frequently hear comments like this from members of management:

We are divided into departments and discipline-based practice groups. We also have industry groups, and a growing number of individual client teams aimed at coordinating the many services we provide to our best clients. All of these departments, practice groups, industry groups and client teams are organized across geographic locations. It’s not at all clear what should each of these groupings be responsible for, and how their activities should be coordinated and evaluated.

Then, individual partners will weigh in:

As a trial lawyer I’m first and foremost a member of the Litigation Department. Because most of my litigation experience is with employment matters, I am a member of the Labor and Employment Practice Group. And as I have a good amount of my work with WalMart and McDonalds I am active on those two Client Teams, and also on the firm’s Retail Industry team.

And finally, from the Managing Partner:

If you are a key player in this firm, you can spend an inordinate amount of time in meetings. I participate in no less than 10 meetings a month myself. There has got to be a better way to organize our firm for effective operations!

There is a better way, but the way firms organize and manage has not kept up with their increasing complexity as businesses. Eventually – we think sooner rather than later – this will significantly impede their continuing success.

We recently asked 100 managing partners to address their mind to one question: What forces, already at work within our profession, have the greatest potential to profoundly transform (positively or negatively) your firm’s future in the next three years? What follows are the views of 47 firm leaders, representing firms from 100 to over 3000 lawyers in size:

Patenting of Business Processes

One of the more intriguing forces brought to our attention was a managing partner who informed us, “A highly fragmented patent regime combined with differing interpretations across international boundaries and a relatively new initiative to patent business processes could introduce some potential threats in years to come.”

According to this individual, over 8000 applications for business methods are now filed each year. For example, tax strategies are now being patented through the U.S. Patent Office. Tax practitioners could face new liability dangers as a result of the actions of tax shelter promoters who patent their tax reduction strategies. Following from that, if tax professionals are aware that the tax planning methods that they are helping clients to implement are patented, attorneys and accountants may incur patent infringement liability.

For the time being, tax and estate planning is the most likely area that risks patent infringement litigation. However, we are being told that real estate, and corporate M&A could also become at risk. The firm leader who initially brought this burning issue to our attention asked rhetorically, “As attorneys, should we now begin applying for patents on strategies that we have discovered in solving particularly thorny problems for clients?”

Changes on the International Stage

We wonder how worried U.S. capital market lawyers are about one particular international trend. A couple of law firm leaders expressed their concern for “the recent drain of international public offerings flowing from New York to London”. We were told that where New York once had 59% of global IPO’s raising more than $1bn (in 2001), it now has a mere 6.5%

Behind the scenes, we suspect that there are a number of law firms quietly wondering if London could ever possibly displace New York as the world’s financial center – at least in the lucrative, high margin practices. While New York remains the center of the hedge fund and private equity worlds, London is increasingly the key center for innovation in important parts of the derivatives and structured finance world.

Most law firms are run by the numbers: This year’s numbers. Afterall, “At the end of the year, my PPP must be bigger than your PPP.” While this measure is fine for reporting to the legal press, current year profit per partner is a poor management tool. This is because PPP is no indication of whether the firm can sustain its profits long-term, just as current year earnings per share are no indication of future profitability for a publicly-held company. Future profits come from the management of invested resources, and the most significant invested resource in a law firm is its Intellectual Capital (IC).

Since intellectual capital does not appear on a balance sheet (and profits on it do not clearly appear as a part of PPP), IC is often managed poorly — if at all. Because IC is intangible, finance directors and managing partners view it with suspicion. We suggest that this suspicion is misplaced and outdated. Like it or not, law firms are managed more and more like businesses. In particular in Europe, a firm’s ability to manage its intellectual capital effectively will soon be at the top of every managing partner’s mind. When the Clementi reforms take effect in the United Kingdom (anticipated in 2008) and eventually across Europe, non-lawyers will be allowed to own or invest in law firms. Law firms will be able to attract venture capital and private equity investments. Invariably, financial investors will be keen to invest first in those firms that manage their resources best — and a firm’s primary resource is its intellectual capital. In the meantime, the wisest firms will seek to increase PPP by managing IC using financial and non-financial indicators. In this article, we explain how to do this.

In response to the reduction of corporate transactional work available to law firms during the early 2000s, a number of general practice firms became progressively dependent on other areas of practice, particularly litigation. But, the slow down in corporate practice reduced the spin-off of commercial litigation so lawyer plates were often filled with discounted work that firms might otherwise not have pursued. In many cases, these involved higher level insurance defense work. In some firms it included consumer practices like criminal defense and domestic relations. At the same time, new areas of insurance coverage, such as employment practices liability, caused traditionally full rate labor and employment litigation to become increasingly commoditized. The result is that firms that spent a decade pursuing strategies to raise their litigation practice to more sophisticated levels find themselves again doing substantial amounts of low rate work.

The question for both general practice firms and boutiques is whether they can strategically position themselves to provide needed revenue streams from commodity level work while viably competing for more sophisticated higher priced matters.

But, beyond the economic pressures, what makes commodity practices tough is that their characteristics become engrained in a firm’s culture and become a significant part of the firm’s self-image. While the precise impact may differ from firm to firm, most share several specific characteristics that may be difficult for them to admit to, never mind change.

Many partners are as uninterested in the day-to-day management of their firm as they are unwilling to be managed by others. While this in turn creates a gap between the managers and those being managed,it is generally true that the more successful a firm is, the narrower the gap has become.

It has been wisely said that the best way of managing people is one at a time; but, however focused, charismatic or financially literate the managing partner might be, he cannot be everywhere at once. In order to achieve performance and manage towards targets, therefore, the task of management must be spread throughout the firm so that all partners have some role and share of responsibility for the people in their teams, groups and departments.

To accomplish this, we suggest that well-managed firms, regardless of size, should follow six general steps..

Strategic industry and competitive analysis models rely on rational and objective behavior. They almost completely ignore the mental filters through which individuals process information. This often results in the decisions made being flawed, perhaps fatally, without the firm even knowing it.

First highlighted by Michael Porter, blind spots manifest themselves in three ways:

1. The firm may be completely unaware of strategically important developments, in their market or inside the firm itself.
2. The firm may interpret strategically important developments incorrectly.
3. The firm may interpret the strategically important developments correctly, but too slowly to allow for a timely response.

It follows that identifying and removing blind spots is a critical skill in effective strategic decision-making.

It’s hard to deny: clients today are particularly skeptical. So, one of the most difficult challenges that each of us as professionals face, is coming up with a convincing response to one critical question: “As a prospective client, tell me please, why should I choose you (your firm or your practice group); what makes you distinctive and what added-value do you bring to my business matters . . . that I cannot get anywhere else?”

Now, you might be able to answer that question with a bold assertion,and making a bold claim may be important to get your audience’s attention. However, supporting that claim is even more critical if you want to convert attention into action. To support any assertion,proof speaks the loudest.So,when you say something about yourself, it’s bragging.When other people say it about you,it’s providing proof.That is the essence of any testimonial. One of the ways to prove that you have something meaningful to offer and evidence that you are better than your competition is to produce a few forceful and persuasive testimonials.

A testimonial is usually a written communication from a client that talks about what is special about you and your firm. Preferably a testimonial should describe the work undertaken, highlighting the success achieved, and include a comment that the client is happy to recommend you. The power of a testimonial or of someone endorsing your service can be the key that unlocks the doors of the subconscious mind. It is tangible evidence that allows you to showcase the specific ways you are meaningfully differentiated from competitors.

A Presentation to a Firm

You are great lawyers. In order to be so, you must have a number of propensities: to be ferociously independent, critical and analytical and even tense sometimes. I will not ask you to give up those propensities in the context of your substantive practice.

Because we are now a firm of some size we need to capitalize upon the things we can achieve together that we cannot achieve alone. The rewards for doing so will be to gain a competitive advantage. The punishment for not doing so will be to fade into mediocrity, perhaps even oblivion.

Therefore, the behavioral propensities you bring to your substantive work should continue but I am asking that you change your interactions with the firm in relation to its management. We cannot afford to debate every paper clip any longer.

If John F. Kennedy were a Managing Partner, he might have said, “Ask not what your firm can do for you but what you can do for your firm.”