The full text of my opinion piece first published in the Australian Financial Review on 31 March 2022. It was #2 most viewed article on afr.com’s Companies section on that day.
For law firms, a leader stepping down can be a moment of vulnerability. Most partners know succession done badly can have significant cultural and financial consequences.
So, it’s no wonder the announcement at Gilbert + Tobin that managing partner Danny Gilbert is stepping down is being closely watched across the legal industry.
I suspect the interest is less about the welfare of Gilbert and more about watching a potential train wreck in slow motion. Or, perhaps learning from a best-practice study in leadership transition.
Succession management in law firms is different to major public companies or government agencies.
It’s usually partners at large, not the board, who vote for their preferred leadership candidate. They can also fire them at any time.
The candidate pool for managing partner is usually much smaller, with a strong preference for those in the existing partnership.
‘Home-grown’
Only two of the top 30 firms in the latest Australian Financial Review Law Partnership Survey don’t have “home-grown” leaders. The country’s largest law firm, Minter Ellison, are again in that boat after having two external CEOs from the large consulting firms.
In larger firms, the candidates may have to give up practising law and take on a new career with poor employment prospects after their tenure ends.
In my view, law firms run into succession issues when there is a major power imbalance across the partnership.
Power in a firm is about:
- Decision-making: who can make or significantly contribute to key decisions such as setting direction, allocating resources, recruiting new staff, resolving conflicts and setting reward and remuneration;
- Information: who has access to what information and when they receive it; and
- Relationships: who has sway with key clients and figures inside the firm.
It is usually concentrated in three areas: directed power from the office of the managing partner or executive leadership team; individual power held by specific partners and practice team leaders; and collective power which is held by the broader partnership operating as a whole.
Shared power
To work effectively over time, a firm needs to ensure a sense of shared power.
In other words, the partnership needs to be directed with an agreed strategy led from the top; individual partners need to feel empowered and have the autonomy to build their practices; and at the same time, the partnership feels part of one firm and involved collectively in making critical decisions.
Problems arise when there is a major power imbalance.
When a firm has too much directed power, it may succeed while the “dictator” is in control. However, their departure can result in a massive power vacuum characterised by infighting and wheel-spinning.
Firms with too much collective power become paralysed democracies. Endless meetings to resolve trivial issues mean less partner time on the things that really matter – clients and people. Most collectives also seem to do poorly in building a pipeline of future leaders.
Fly or fail
When partners have too much autonomy, sub-cultures or silos can emerge. If each partner is only looking after themselves, the firm merely becomes a shared office or a hotel for lawyers.
The construct of shared power can be a useful lens to analyse why some firms fly or fail.
From the outside looking in, Gilbert + Tobin appears to be addressing the potential succession risks with an extended process of selection and baton passing.
To avoid this issue repeating, Gilbert + Tobin would be well served by ensuring it has the right power and governance model rather than looking for Danny Gilbert mark II.
growth, legal industry, legal operations, planning, professional service firms, strategy management
Seven fresh insights from the 2022 AFR Partnership Survey
In Articles, Commentary, Legal Technology on 21 July 2022 at 6:33 amThe full (slightly edited) text of my opinion piece first published in the Australian Financial Review on 14 July 2022.
The list of top 20 firms in the latest Australian Financial Review Law Partnership Survey shows is strikingly similar to that of 2012. The quantum of new partner and senior associate promotions and graduate hires reflects a mood of confidence rather than existential threat.
The predictions of the demise of BigLaw at the hands of NewLaw or technology are either premature or plainly wrong.
There are seven other takeaways from the survey worth noting.
Slow growth at the top
The table-topping HWL Ebsworth added 112 new partners from July 2013 to July 2019. Since July 2019, the firm has added just 11.
HWLE may just be taking breath, or perhaps its need for growth has diminished given its IPO is off the table. Another explanation is there are fewer opportunities to hire lateral partners in a booming market.
Winning the talent war
Hamilton Locke must be doing something right to expand its partner cohort by 79.2 per cent over the past year. The next highest is just 17.1 per cent.
The firm’s public statements reveal two interesting insights – every employee holds equity and the firm plans to list on the ASX at some stage. It makes the employee value propositions at other firms seem a little mundane.
Gender rebalancing
The survey shows most firms are making huge strides in promoting females to senior ranks. No firm reported less than 45 per cent of their senior associates – the traditional stepping stone to partner – as female, but a number of firms risk overshooting in their gender-rebalancing efforts.
Ten firms have 75 per cent or more female senior associates. One firm reported 91.4 per cent.
Given the current velocity of partner promotions, it won’t be long before these firms have a big diversity problem, but of a different nature to the past.
It’s also worth noting that a growing number of people don’t identify as either male or female, which will hopefully be evident in future surveys.
Small big four
In February, PwC announced it had acquired the specialist tax practice Greenwoods & Herbert Smith Freehills.
The current PwC Legal website lists these 15 new Greenwoods partners as well as another 17 existing partners. These numbers imply the size of the non-tax PwC Legal team has reduced substantially in recent years. KPMG Legal and EY Law partner numbers have stayed in the mid-20s for the past few years, and Deloitte Legal does not make the top 50.
Even if the big four legal teams combined into one firm, this entity would only be 14th in the survey.
Legal companies
The Law Partnership Survey does not include law companies that operate with a different model. Brands such as LegalVision, Lawpath and Sprintlaw don’t have traditional partner roles, but they are important players in the Australian legal landscape.
These companies are mostly expanding the legal market by servicing start-ups and SMEs that previously would not have paid for professional legal advice. Lawpath, for example, reported last month that it had acquired its 300,000th small business client.
Not so rosy
The January 2019 Law Partnership Survey listed Norton Rose Fulbright as the sixth-largest firm in the country with 145 partners.
The current survey has it ranked 11th with 125 partners. This effectively means its partnership has reduced by 14 per cent in less than four years. This might be part of a deliberate realignment of strategy, but in the context of a growing market it represents a major loss of market share.
Bigger not always better
There are some excellent firms that sit outside the top 15, such as Gilbert + Tobin and Arnold Bloch Leibler, that are powerhouses in their chosen markets.
Many global firms with small local offices, such as Clyde & Co, Jones Day, White & Case, Squire Patton Boggs and Allen & Overy, seem to compete successfully despite higher rates and global overheads.
In conclusion
Strategy textbooks suggest that mature fragmented markets will experience consolidation and the evaporation of those supposedly stuck in the middle.
Given the range of firms and relative stability of the legal market, this conventional theory might require a rethink.
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