The full text of my opinion piece first published in the Australian Financial Review on 18 October 2019.

‘Culture eats strategy for breakfast’, is a frequently cited quote attributed to Peter Drucker.

My recent experience with three firms suggests that Drucker, whom some call the father of management thinking,  might just be right.  These firms have consistently outperformed their peers and recorded double-digit profit growth. This success has come without superstar rainmakers, with undistinguished brands and with no fancy-schmancy disruptive business models.

So, what is it that has made them so successful?

It appears to me that the secret lies in their organisational culture, that is, the set of shared assumptions, values and beliefs that underpin how people do their work and relate to each other.

It’s their implicit management system that creates order and provides inspiration without the need to codify each and every activity.

I posit that there are seven areas where culture really matters.

#1 Productive politics

In firms with highly politicised cultures, enormous energy is expended addressing internal matters like who takes credit, who earns what, who ‘owns’ which client and who can and can’t work for whom. Power struggles and infighting between divisions, office locations, practice team and individuals distract from time with clients and staff.

A managing partner of a leading law firm once revealed to me that he spent around 40% of his time making and justifying partner remuneration decisions. In other words, splitting the pie, not expanding it.

#2 Collaboration

Research by Harvard’s Heidi Gardner reveals there is a significant financial upside when partners work together to solve wicked client problems. She distinguishes this kind of integrative collaboration from cross-selling. The former is about drawing together a diversity of knowledge and experiences to add value to clients, the latter is merely an arms-length referral to a colleague.

#3 Consistent high standards

In a recent panel discussion, I asked three General Counsel what distinguished top firms from the rest? ‘Consistency’ was the universal response. Leading firms were characterised by extremely high technical and service standards delivered consistently by all staff at all levels.

Successful firms are those that have cultures that are intolerant of mediocrity and expect, and get, high standards from everyone.

#4 Discretionary effort

Organisation cultures that are perceived to be purpose-driven and genuinely caring, trusting and fair tend to get the best out of people. Staff are more likely to go the extra mile, to act above and beyond the call of duty, or just do that little bit more. Toxic cultures often result in lower productivity, higher absenteeism and substandard output.

#5 Continuity

Continuity builds deeper client understanding and fosters trusting relationships. In a study in a large bank, the researchers found that where a client had five different relationship managers over a two-year period only 40% of clients were satisfied. This jumped to over 80% where there had been only one relationship manager.

Positive firm cultures facilitate retention and ensure continuity. A stable workforce also reduces the direct costs associated with staff churn.

#6 Self-management

Each of the three firms mentioned in the introduction is characterised by a lean management structure. All senior people, but excluding the managing partner, still retain significant practices. Each team within the firm has an ethos of self-sufficiency. They don’t see themselves as paralysed subordinates waiting for orders.

Alignment around firm direction, trust in leadership and a strong culture provide the glue that binds the collective but at the same time encourages individual empowerment.

#7 Accountability for action

Strange as it seems but many firms struggle with simply doing what they say they will do. An accountability culture is one where there’s a bias towards keeping promises and there’s less denial and deflection in cases of inaction. Successful firms have the disciplines to implement strategy and the fortitude to overcome obstacles that might emerge.

In conclusion

It is common for law firms to describe their cultures as ‘collegiate’, ‘respectful’ and ‘friendly’. In these tough times, I don’t think just being nice is going to be enough.

It is incumbent of every professional service leader to strive towards a cohesive, productive, healthy and disciplined culture.

This type of culture will take care of breakfast, but it will also allow the firm to have strategy for lunch and glass of the finest champagne over dinner.