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.
#principles, culture, ESG, ethics, professional service firms, strategy management
The legal world is about to enter a new era of standing up for principles
In Articles, Commentary on 11 June 2022 at 12:11 pmThe full text of my opinion piece first published in the Australian Financial Review on 9 June 2022. The article was #3 Most Viewed in the Companies Section on afr.com on day of publication.
The legal world is about to enter a new era.
Until the late 1990s, it was common for law firms to be identified by a strong affiliation to a particular religion, political party or ideology.
We had “Catholic firms”, “Labor firms” and “union-bashing firms”. These labels were reflected in the make-up of a firm’s partner group, the type of clients they served and the work they did.
Over the past two decades, many of these firms have tried to dial down these affiliations and present themselves as agnostic. This has meant changing the partnership cohort to include people from diverse backgrounds and taking on a wider range of clients and matters.
However, there are signs we are about to commence a new period where firms will be forced to take a position on a range of issues, especially in the ESG area.
They are already being asked by their staff and others where they stand, and will be judged by their willingness to uphold these principles.
To illustrate, a law firm that actively supports a shift to carbon zero may come under enormous pressure to “live” these principles and refuse briefs from fossil fuel clients. This might include not working for banks and financiers that provide capital to these same clients.
At the recent Australian Financial Review Banking Summit in Sydney, the CEOs of the Commonwealth Bank and NAB were greeted by protesters chanting about “bastard” banks funding coal and gas projects.
Christopher Black said in a letter to NAB chief executive Ross McEwan: “I am a 15-year-old climate disaster survivor. I’m in Year 9, and I live in Forestville, and I am very concerned about the climate crisis. For me, this is a very personal issue, which is literally a fight for my future.”
Law firms already have quite a few Chris Blacks working for them. If the recent election is anything to go by, they will become the majority over the next few years.
It should be noted that law firms and the profession have been grappling with ESG-related issues for some time.
Key presentative bodies like the Law Council of Australia have been strong advocates on a range of social issues, including refugee rights and access to justice. Almost all major law firms have comprehensive pro bono programs that focus on community work and addressing social ills.
Law firm leaders were active campaigners for same-sex legislative change in 2017 and will likely be so for the Indigenous Voice as it heads to the referendum promised by the Albanese government.
Hip-pocket consequences
What’s different about this new era is that the focus of change is not within the broader community or legislation passed in Canberra, but rather directly on how the firm itself operates.
In some instances, it could have serious hip-pocket consequences. Having to drop all its coal clients could be fatal for a resources-focused firm.
Another aspect of this new era is that firms may be forced to be more public on their specific policy on a particular issue. The pressure will come from external stakeholders such as clients, referrers and regulators, but more especially from staff. If the war for talent continues, employees will have more leverage and be a powerful catalyst for principles-led change.
The first step every firm should take is to identify ESG-related risks that may affect a firm’s social, and internal, licence to operate.
There will be a number of relatively simple and cheap things the firm can do to reduce some of these risks. For example, firms can work towards having a carbon zero, or carbon negative, footprint.
For other issues, firms should consider establishing new governance entities or roles that focus on ethics and principles-led decision-making.
Law firms need to be better prepared for these difficult ethical choices. The Chris Blacks in their ranks will be demanding it.
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