The topic for this blog almost literally fell in my lap. I met a friend for post-work drinks when, as is the way with these things, we soon turned to a kind of ‘how was it for you?’ conversation, about the last few months in general, and our respective businesses in particular. It didn’t take me to long to take him through the evolution of my consultancy practice over that period – I suspect both of us were more interested in how my friend’s medium sized law firm was faring.

I heard what I expected to hear given market conditions and my knowledge of my friend’s firm’s place in their chosen markets, that is, it had been a record year in terms of turnover and profitability. Some of what I heard had made the regional press, and why not? It may not be of huge interest to clients, but there’s nothing intrinsically wrong with celebrating success. Heck, I’m in favour of it, I’ve been there and done that! But what I was told next stopped me in my tracks, and left me pondering the meaning of ‘success’.

My friend told me that over 25% of the Partners and staff who had been at the firm a year ago were no longer there. Now, some level of attrition is normal, and I’ve always thought that churning 10 to 15% of your staff per annum is what you’d expect in most professional service firms (PSFs).  After all, people retire, move out of the area, leave for a lifestyle change and so on. There is data out there (it won’t take you long to find using your favourite search engine) to suggest that around 8-10% is what law firms should be aiming for, it’s ‘healthy’ at that level, and that 12-15% is towards the very top end (or poorest outcome) that a PSF should achieve. But 25% plus? Something about that didn’t sit right with my understanding of ‘success’, even allowing for record financial results.

For me, success in a PSF is about creating a ‘One-firm’ firm which is able to harness its resources in a way that enables it to compete most advantageously in its chosen markets. Those ‘resources’ are its structural, relational and human capital (together its’ ‘intellectual capital’). And to quote David Maister, a One-firm firm is characterised by “institutional loyalty and group effort” and such firms “rarely lose valued people to competitors”. Given the challenges of recruitment in the legal sector nowadays, you’d have thought that firms would be putting discretionary effort in to talent retention, wouldn’t you, in creating a “sense of cohesion and belonging among the firm’s people”[i]?

Now, I don’t know that my friend’s firm didn’t do everything in their power in 2014/15 to do just that, and were just plain unlucky with the outcome. But I do know that the “starting point in addressing any firm’s strategy for human capital is to place people at the centre of [the firm’s] efforts to gain sustained competitive advantage by developing a workforce that feels it is an integral part of the general needs and aspirations of the firm”[ii]. After all, law is a people business, right?

In short, a firm needs to provide all its Partners and staff with a clear line of sight as to what is required from each of them, each day to help the business achieve its strategic goals. It can be difficult to do this at the best of times, but if strategic objectives are centred on vague goals like being ‘bigger’ or ‘more profitable’ it can be too big an ask. But unless meaningful efforts are made to provide that clear line of sight, people may conclude that they don’t belong in an organization that isn’t clear about where it’s going, and what it wants from its people.

Nigel Haddon
Managing Director
Haddon Consult

9 April 2015