The full text of my opinion piece first published in the Australian Financial Review on 22 September 2022.
Maintaining a law firm’s social license to operate is like playing an expensive game of snakes and ladders.
Climbing a ladder, such as being a carbon negative firm, might keep a firm a step ahead of competitors for a short while. But landing on a snake, like a public claim of bullying and harassment, can take a firm from the top of the board to near the bottom in a heartbeat.
Porous boundaries are making the game more complex. A disgruntled staff member will now more likely voice their complaint on Instagram rather than talk with HR.
There are also growing expectations on firms not just to be in social license ‘maintenance’ mode but be proactive advocates for social change. The current campaign towards the Indigenous Voice is a clear case in point.
Tickets to the game are also becoming more expensive. For example, government clients are insisting firms comply with a range of social procurement conditions in order to do business with them. Certification under the Information Security Registered Assessors Program, for example, is costing some law firms over $100,000 per annum in policy generation, compliance and audit fees.
Rather than dealing with each social license question or issue in isolation, it is useful to have an overall framework or game plan. This can help identify and pre-empt the questions that may arise. It can also help the firm’s leadership to clarify core motivations, for example, are we driven more by the fear of exposure or the moral imperative to do the right thing?
The Archie Carroll pyramid of corporate social responsibility provides a useful framework in exploring this social license construct and how it might apply to law firms. Developed in 1991, it has become an easy reference point because of its structure.
The pyramid has four levels.
Economic responsibilities
Society expects businesses to create value and to use scarce resources cost-effectively. Profits are necessary to incentivise owners and to fund innovation.
Legal responsibilities
Society has not only sanctioned businesses as economic entities, but it has also established the minimal ground rules or laws under which firms are expected to operate and function. Solicitors also need to meet the standards established by relevant professional regulatory bodies.
Ethical responsibilities
Taking on ethical responsibilities implies that firms are expected to do what’s just and fair and to avoid harm. Law firm support for same sex same-sex legislative change in 2017 is good example.
Philanthropic responsibilities
The general public expects businesses to be good corporate citizens and to ‘give back’ in some form to the communities that they operate in. Pro bono legal work is a case in point.
Economic responsibilities are at the bottom of the pyramid because they are a foundational requirement in business. Sustained profitability must be strong to support society’s other expectations of enterprises. As one moves up the pyramid, the responsibilities become more discretionary and move from being required to being desired.
Carroll states that while ethical responsibility is presented as a separate category, it “should also be seen as a factor which cuts through and saturates all elements of CSR”.
Business ethics will form a much larger element in business decision making in the years ahead. Law firms will need to extend their current commercial and legal conflict processes to include broader social license and ethical considerations.
The pyramid also highlights the tensions and trade-offs that arise in addressing all four areas of responsibility. For example, a firm’s expenditures on legal, ethical and philanthropic obligations come at a short-term cost to shareholders. However, this needs to be weighed against the long-term benefits of building brand equity, risk reduction and employee engagement.
The social license snakes and ladders game has no finishing line. Expectations keep shifting and growing. Having a clear framework to consider your choices will be better than just rolling a dice and hoping for the best.
Relationship Capital 
change management, culture, professional service firms, strategy management
Why law firms are rethinking how they pay partners
In Articles, Commentary on 20 March 2023 at 4:56 pmThe full text of my opinion piece first published in the Australian Financial Review on 9 March 2023.
How a law firm splits its profit pie is a topic very dear to partners’ hearts. Any change to the remuneration model usually entails winners and losers.
So, when Michael Roch and Ray D’Cruz, authors of the highly regarded Partner Remuneration Handbook, spoke at the 16th Managing Partners Forum on the Gold Coast, everyone leaned forward.
The audience heard there is a long-term trend away from equal share models such as those based on length of service and referred to as tenure-based locksteps.
These firms are doing more to reward top performers, while imposing financial sanctions on persistent strugglers.
At the other end of the spectrum, some “eat-what-you-kill” firms are trying to include qualitative performance elements in their remuneration decisions.
The key message is that while there is no one perfect system, there is a broad movement towards models with more flexibility.
There are three significant factors underpinning this flexibility trend.
1. Attracting and retaining top talent
Competing for top talent becomes increasingly difficult if you can’t “meet the market” on partner incomes.
In Britain, for example, many firms with traditional locksteps are being cherry-picked by new entrants from the United States by offering their top rainmakers double or triple their current earnings.
Across the premium end of the Australian market, the difference between the top- and bottom-earning partners appears to be widening.
A 2020 study by Roch and D’Cruz showed many firms were lowering the salary bar for new entrants and paying more for top performers.
The recent public stoush at Corrs Chambers Westgarth revealed that the circa $6 million salary of CEO Gavin MacLaren was pegged to the top-earner at the firm.
In this market, firms with inflexible remuneration models will find it harder to recruit laterals and fend off the advances of aggressive competitors with deeper pockets.
2. Diversity of practices and practitioners
Perceived fairness is one of the foundation principles of crafting a workable profit-sharing model.
Fairness is usually judged by partners assessing their reward relative to their contribution – and how that compares with the reward and contribution of other partners.
Cries of inequity are more likely in larger full-service firms that try to reward everyone roughly the same.
Firms with diverse practices and practitioners will feel the pressure to be more flexible.
To illustrate, the profit margins of a big-ticket M&A practice in Sydney will be substantially higher than an accident compensation insurance practice in Perth.
The KPIs of a new cybercrime class actions defence practice will look very different to a mature leasing practice.
The contribution of a partner integrating ChatGPT into the firm’s systems could be extremely valuable, but very different to one overseeing a long-running patent infringement case.
As practices vary, so do practitioners. Across a group of partners, there will be some with a range of mental health, wellbeing and work-life integration challenges. Partners’ interests and energy levels ebb and flow over their career cycle.
3. Data and enabling systems
Adopting a model that rewards more flexibility can be time-consuming, confrontational and based on imperfect information.
Recent advances in operational data have increased transparency around who is doing what. Sophisticated dashboards provide law firm leaders with fingertip access to financial and performance data.
Client feedback and metrics around staff stability and satisfaction are also improving. Almost all firms do a staff engagement survey, and some have added regular “pulse checks”. Exit interviews are analysed for trends and insights.
Many remuneration models were established when firms had part-time managing partners, a rudimentary HR function and basic governance arrangements. Now they have capability to handle the complexities of assessment and differential reward.
While changing a firm’s partner remuneration model is likely to be politically challenging, law firm leaders owe it to partners and the next generation to assess whether it has flexibility that lets you play to win.
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