Category Archives: Leadership

Flying start

 

 This article was first published in Managing for Success, the magazine of the Law Management Section of the Law Society. The Section’s website can be found here.

 

The appointment of non-executive directors is not common in law firms, but those that do take this step significantly outperform their competition. Nigel Haddon and Rob Lees explain how and why you should appoint a non-executive director for your firm

 

Nigel Haddon is a former chief executive of SAS Daniels, and now a management consultant who advises law firms on strategy and leadership issues. He is a member and past chair of the Law Management Section committee. He is an author of two Law Society publications and various articles. Rob Lees is an author of professional service firm strategy books and articles, including co-authoring the best-selling ‘WhenProfessionals Have to Lead’. He is a former global consultant advising professional services firms on improving individual, team, and firm capability

 

With so many law firm clients required to have independent, non-executive directors (NEDs) as part of their governance structure, it is surprising that so many law firms, with no regulatory barrier to the incorporation of NEDs into their own corporate governance, have opted not to do so.

Of course, this may be more down to lack of knowledge than anything else. Becase NEDs are relatively rare, firms may not know some of the basics: what a NED would do; what value they could bring; how to find the right NED for their firm; or how to incorporate the NED into their culture once they’d found one.

In this article, we address these questions, outline the business case for NEDs in law firms, and provide a beginner’s guide for recruiting a NED in your firm.

 Do law firms have to have a NED?

No. Listed companies must comply with the UK Corporate Governance Code, which requires at least half the board, excluding the chairman, to be NEDs. Smaller companies, perhaps more directly comparable with sub-top 50 law firms, are required to have at least two independent NEDs. AIM-listed and unquoted companies, which includes most professional service firms (PSFs), are not subject to the code.

However, there is much encouragement both in the code itself and from peers, funders and accountants for them to follow suit. This may be for a range of reasons, but one often cited is that NEDs can, when appointed appropriately and operating effectively, improve the management and operation of businesses of all types.

But appointing NEDs is no panacea. To be effective, a NED must be truly independent, and needs to be given time to really understand the business and to know when to challenge executive management. For a NED to succeed, the right person must be appointed, and an appropriate environment must be in place (or be created) for that NED to effectively operate.

 How can law firms benefit from a NED?

In a piece published in The Lawyer in August 2014 (tinyurl.com/Drummond-research), executive search firm Edward Drummond revealed that only one in four of the UK top-100 law firms had appointed one or more NEDs, but that those which had appointed them had grown about a third faster over the previous four years than those which hadn’t. They also identified a trend for law firms to ape corporate governance structures with a view to gaining competitive advantage.

And those which had appointed NEDs had generally done so not to gain sector knowledge, nor connections, but to add a ‘helicopter’ or external view of the business.

The benefits of appropriate NEDs being appointed to firms identified in the Drummond research and elsewhere include:

  • a fresh, external perspective
  • contribution to strategy development and performance improvement
  • strengthening leadership and management
  • helping instil a more stringent process for making strategic decisions
  • bulking up commercial expertise.

Would every type of firm benefit from a NED? With our 60 years in and with law firms, we would say that just about every firm in firm in the top-500 would benefit from at least one NED. There are exceptions – there are some firms where the cultural barriers may be insuperable, such as in a highly collegiate, regional ‘High St’ firm, and there are others at the lower turnover end of the top-500 which may not choose to prioritise investing in a NED, given a range of competing priorities. But in general, and given all the benefits, we would encourage every firm in the top-500 to at least investigate the options.

What will their remit be?

Recruiting people into any firm in any position starts from knowing precisely what you want the individual to do, and NEDs are no different. So you need to define the NED’s remit clearly before you begin recruitment. Of course, that remit may change over time, but their initial responsibilities must be clear to all parties.

Should a NED be someone who can open doors and introduce the partners to potential new business, or someone who can help the firm become even more effective across all aspects of its activities? The Edward Drummond research was quite specific on this point, and all of our experience supports their research: that lasting improvements to a firm’s operations and profitability only come from appointing NEDs with the ability to contribute across the piece.

Some firms hope to combine the two roles but, in reality, finding someone with both the right business networks and the expertise to help the firm substantially improve its performance is exceptionally rare. One requires knowledge of markets, the players within them, and how the firm’s services can be most effectively introduced. The other requires knowledge of how professional service firms ‘work’ and what the best firms do, and an acute understanding of how to translate that knowledge into actions that lead to the firm making substantive increases in all aspects of its performance.

A NED’s remit must be tailored to the challenges the firm is facing. For some firms, that may be how to be develop a more effective compensation plan for the partners; in others, it may be about succession planning; and in others, it may be about turning strategy into action (which is where a lot of law firms falter). In determining what you want the NED to do, it is imperative that their remit is tailored to a real understanding of the challenges facing the firm.

 What expertise does an effective NED need?

1. First-class diagnostic skills

A NED needs to be able to offer high-quality, objective advice, and this requires truly high-level diagnostic skills – with those skills having been applied successfully in PSFs and law firms. In our experience, law firms and PSFs are different from their corporate counterparts, and it is rare for people to be able to switch diagnostic expertise in, say, a production environment, to professional services.

 2. Strategy formulation and implementation experience

We have met a lot of managing partners whose instinctive understanding of their markets is first class. They know exactly what the firm should do to penetrate them successfully, but, sadly, they do not know how to align the firm’s people and processes to deliver the actions necessary for success. Consequently, any NED must be able to both craft strategy and assist the firm’s partners in turning strategy into successful actions. To us, this is a core skill, and it is one of the reasons why we believe truly effective NEDs must have worked in professional services at a senior level.

3. An objective, external voice

This is critical, of course – but not as critical as the voice being heard and acted upon. Again, we have seen too many instances when effective external advice floundered through managing partner inaction. So, while we firmly believe firms should appoint NEDs who can help them deliver lasting, substantive uplifts in performance, we also firmly believe doing so is an absolute waste of time in firms where the managing partner’s actions (on their own or with their team) have refused to countenance any challenge to the status quo.

4. A fresh perspective

This is the key element in the challenge to the status quo. All of the very best PSFs we know actively look for new markets and new ways of doing business. They refuse to accept the status quo and also refuse to be second best. Sometimes that presents a real challenge to a practice or a team, but that willingness to look at things differently is what singles the top firms out. As a result, looking for a NED who comes from exactly the same world as you do is usually a mistake: we recommend looking for NEDs whose experience in different firms and markets will challenge what your firm does.

5. Previous experience as a NED or at a high level in the legal sector

Law firms, in fact all PSFs, contain some of the most ego-driven people we know, and they can be intolerant of people they do not consider as their equals. Partners’ initial willingness to listen to what a NED has to say is typically positively influenced by the partners’ perception of the NED’s track record – so ideally, they should have experience as a NED or at a high level in the very best law firms, and evidence of that. Also, having faced or advised on similar situations speeds up the NED’s ability to consider potential responses and to come up with objective advice that will make a difference.

6. The ability to be a critical friend

Of course, this links closely to many of the other points above – having a different perspective, challenging the status quo and a voice that is listened to. Being a critical friend means having the expertise and skill to bring new ideas and perspectives to the table, and to act as a vital sounding board and external voice to challenge the firm’s current thinking and practices. It is an exceedingly tough role for anyone to play, just as it is exceedingly difficult for some firms to be the recipients of that advice.

7. A proven track record of delivery

One of the things often forgotten when recruiting is the need for the individual to fit into the firm’s culture. That fit takes you into the NED’s characteristics – such as sense of humour, interpersonal skills, friendliness, considerateness – and you need to choose which are the most appropriate for your firm’s culture. However, without exception, any and all characteristics are usually blown apart in most firms unless the individual delivers. Professional services is an execution game and sustained success is only achievable if the firm continually delivers the right products, delivered by the right people, into the right markets, at the right time. It sounds very easy, but in today’s highly competitive markets, it most certainly is not, and the more astute firms look for additional support from skilled NEDs to help them succeed.

How do we recruit for a NED?

It’s through people you know – definitely not through advertising. Most partners have good networks both within and beyond their community, and through these contacts, names often come to the surface. So too do names of good headhunters with a strong NED practice. Using the headhunter route obviously has costs associated with it, and our advice is to only use headhunters with a PSF arm, with experience in recruiting partners, as well as their more traditional senior corporate practice.

We’ve appointed someone. How do we make sure they add value?

You need to integrate the NED into your business. This is where having been clear from the start about the role’s remit will pay dividends – integration is so much easier when both parties are clear about the NED’s remit. In our experience, successful integration is always about time and timing.

Time is about allowing the NED to experience the firm’s culture in action. The best NEDs will always ask for time in the firm to understand how it works, how power is distributed, who carries sway, which practices are closest to their markets etc. If a NED isn’t able to answer these and all of the other questions related to getting things done, they will not be able to give informed strategic advice.

Timing is about knowing when to introduce the NED into the business: when they will get the best reception, and when the partners have time to help the NED understand the firm and how it works. We have heard people say there is never a good time, but an effective managing partner knows how to position events to ensure the NED gets the right introduction and welcome.

And before you bring the NED into the firm, communicate clearly with your people about who the NED is and what their remit is. Otherwise, rumour and exaggerated rumour will abound.

What next?

An effective NED will see part of their role as educating the board and the partners, helping to uplift their skills and expertise. You should therefore see a distinct improvement in the board’s and the firm’s performance – and this uplift in expertise may ultimately make the NED redundant, and see them replaced by a NED with slightly different expertise or a different perspective.

Why do some NED appointments fail?

 Unsurprisingly, the reasons are often obvious, and many stem from the recruitment process. There can be subsequent relationship failures too, some of which simply weren’t predictable and, sadly, some that were. Anyway, here’s our list of things to avoid:

  • a failure to integrate the role into the business (ie no one understood why the individual was appointed and what they were supposed to do)
  • accepting the word of someone you know well in appointing a NED, rather than having a rigorous selection process
  • the NED not being truly independent – they are known to one or two of the power brokers and tend to side with them, especially in any contentious debate
  • the NED not providing a sufficiently different perspective, but looking and acting like the people they are working with, so they’re seen as yet more of the same, harming and not helping board diversity
  • the NED having too many other commitments and demands on their time to commit the time necessary to get to know the firm properly, making their advice too general to be really helpful
  • the NED not really having the strategic knowledge to turn effective diagnosis into effective strategy and action
  • the NED not being sufficiently skilled to challenge the ‘groupthink’ that exists in a lot of firms.

 

We’re still not convinced…

If, despite our hopefully persuasive arguments, you are not sure that you should go down the NED route, ask someone you trust who has done so, or a consultant who has worked with firms who have. In our experience, which is supported by an ever-increasing amount of research and anecdotal evidence, using NEDs to improve board and firm performance is unequivocally the right thing to do.

 

© Rob Lees and Nigel Haddon, December 2017

 

Evaluating Managing Partners

This guest blog is by my friend Rob Lees, former global head of HR at Ernst & Young, later a director at their Global Leadership Center in Cambridge, Massachusetts, and more latterly a consultant to professional service firms. Rob is co-author (with Tom Delong and Jack Gabarro) of the ageless and invaluable book “When Professionals Have To Lead” (Harvard Business School Press, 2007). This piece was originally written for Managing Partner magazine. The words that follow are Rob’s own.rob-lees_height-165

 

Evaluating Managing Partners when you’re not sure what they’re supposed to do!!

 

When my colleagues and I were conducting our research into what truly effective managing partners do that differentiates them from their peers, we also asked the partners we spoke to how they evaluated their managing partners when there was often little or no clarity around what the managing partners were supposed to do.

Obviously, when there was a specific action or set of actions the managing partner was elected to deliver, that greatly aided the evaluation process, but nearly all of the partners we spoke to included the performance of the professional management group in their evaluation as they considered the managing partner was specifically responsible for the selection and performance of that group. Unfortunately, in too many instances, the perception of the performance of the professional management group had a negative impact on their view of the managing partner’s performance. The question is why? And, of course, what can managing partners do to ensure they avoid the negative impact?

Undoubtedly, the major issue facing the majority of managing partners in their dealings with the professional management group is their lack of knowledge about what ‘good’ is, although there is an understandable belief that, in the finance function, a fellow professional will know what to do.

Let’s use Human Resources as an example. If we asked most managing partners what the most important task is in Human resources, we would be likely to get a range of responses. But, in professional services, which is an execution game, there is only one answer and that’s to create a development process that enables the firm to develop its professionals faster and more effectively than its competitors – and, by doing so, to create both a competitive and economic advantage. It’s an answer that should be a ‘no brainer’, but sadly it usually isn’t.

Without an understanding of what ‘good’ is, when managing partners assess what their head of HR is doing they can get it badly wrong. And, if they do decide they want to change their head of HR, they usually sub-contract the selection process to a head hunter – assuming, often wrongly, they will know what good is. So, in the end, the selection process often ends up solely about fit (critical, of course, but only after capability) and without a robust discussion about how the individual will create a development process that will deliver what I call ‘speed to experience’ and give the firm three significant advantages over its competition. Not just the competitive and economic advantages I mentioned earlier as there is a clear third. The market for top talent is highly competitive whichever way you cut the market, and all of the research indicates that one of the critical factors in an individual’s choice of which firm to join is the quality of the development experience. The highly competitive people who live in professional firms like to constantly add to their knowledge and experience so they can continually improve and do more challenging work – and they like to do it as quickly as possible. So, if one firm has a reputation of having a discernibly better development process they will attract better people. As I said earlier, it really should be a ‘no brainer’!

So, managing partners must know what ‘good’ is. And, if they don’t know (and in my experience they always know whether they do or not, even if they can’t quantify it), they have to find out. One of the other things that differentiates great managing partners is an unwillingness to accept second best in any aspect of the firm’s operations. And, as the performance of professional management group influences the firm in multiple ways, including the partners’ opinion of their managing partner’s performance, knowing what ‘good’ is and making sure it is delivered is key for every firm – and every managing partner.

You can read more about Rob’s book, WPHTLand indeed buy a copy here

 

 

 

Winners and losers

W&LI’ve been enjoying my new life as a consultant in the legal sector for about 6 months now, and I thought now was a good time to pause and reflect on what I’ve seen out in the market. Fairly obviously, the economy is providing a far more benevolent backdrop to activity in the sector than was the case throughout the recession. There is more transactional work about, and many firms are processing as much residential conveyancing work as capacity will allow.

Firms are talking about improving processes, employing smarter pricing and going for growth. But I don’t see enough law firms thinking radically about what the market needs and how they are best going to satisfy that need. I’m not the first commentator to opine that the small to medium sized full service firm has had its day – though current increases in turnover and profitability for such firms rather obscure that message. It reminds me of David Maister’s observation that it’s quite difficult to walk in to a room full of million-dollar a year attorneys and tell them they’re doing it wrong!

All firms need a razor sharp focus on which clients, in which markets, they are aiming to serve. Once clear on that, the firm should then aim to achieve competitive advantage in that market or markets. That means, for the avoidance of doubt, being able to provide its services at a higher price than its competitors, or being able to produce its services at a lower cost. Few can achieve the position of premium priced market leader over a range of services – though see for example the Magic Circle firms – but it is possible to dominate a smaller market providing a smaller range of services or to produce comparable services at a lower cost than others. An example of the former could be a niche media law firm operating out of Manchester’s Media City, while an example of the latter could be a volume conveyancing firm that has invested heavily in its IT infrastructure and processes to enable it to operate profitably charging prices that would seem unfeasible on the high street.

Winners and losers are emerging. The winners are not always the firms that are now trumpeting their rude financial health, and the losers are not always the firms that aren’t currently enjoying newsworthy growth. The winners are those firms that ‘get it’. The winners are those that know which clients, in which markets, they need to focus on, and do so. Firms that genuinely understand their clients and their markets. Firms that invest in the optimisation of their processes. Firms that understand profitability on a granular level and price accordingly. Firms, in short, that understand they are in business in the 21st century, and understand what it is they need to do to compete as effectively as they possibly can.

I’ve enjoyed working with firms who perhaps didn’t ‘get it’, but hopefully now do. There’s no doubt that some firms, by reason of service lines or geography, had an easier recession than others. Some of those, not perhaps having had the ‘burning platform’ to prompt change which so many experienced, may be starting behind the pack. But if a firm is prepared to look afresh at why it is in business, possibly by means of a facilitated strategy review, and to re-examine its target clients and markets, it could yet become one of the winners.