How to present that damning internal report to your board 

Once upon a time, a client director commissioned a report by an external consultant on company operations which she then presented to board colleagues.

The report was excellently researched, mainly via extensive internal interviews. While the report contained some good news, it was mainly damning in respect of internal processes and conduct, especially institutionalised bullying.

Moreover, the perpetrators of the bullying were amongst the senior ranks and the process weaknesses exposed some of the directors. How should my client best present the report?

I advised that she opens with a restatement of the shared purpose of the business: before I present the outcome of the report I want to remind colleagues that we have agreed already that our shared overarching objective or purpose is X and our overarching strategy for achieving that purpose is Y.

Of course, it helps enormously if the board has taken the time to come to a shared view on X and Y.

Frequently this is not the case. And if you find yourself in this position I advise that you never present a damning report, or indeed any report, without first agreeing a shared PSB – Purpose (P) and Strategy (S) so that you can safely explore what Behaviour (B) is required to implement the strategy to achieve the shared purpose.

PSB, therefore, is the presentational tactic that will prevent your damning report from rupturing your board and will protect you from the anger of the listeners which invariably masks their shame and fear of being shamed.

And shaming is the mortal enemy of effective boards or indeed any team. One client, a racing yacht captain, has a zero-tolerance policy on his boat for shaming behaviour in respect of crew errors especially amongst male crew members whose internal self-loathing is fuelled by the tut-tuts of others with a disastrous impact on the race.

So your presentation is about fixing not pointing. It’s about behaviour, not people. Start with finding positive points in the report and genuinely celebrate their link to objectives. Do this slowly and not as a warm-up for a flogging. Tokenism will make things worse.

Don’t end the positive report with a “but”; end it with “and we should discuss how we can replicate this behaviour and celebrate those who model it”.

“However, given that we are trying to achieve X by implementing Y with behaviour Z, I feel alarmed that the report highlights significant weaknesses with processes A, B and C and I’m sure colleagues will agree that we cannot create an environment in which people will do their best work if we collude with bullying of any sort”.

The use of the words “I feel…” is part of the triad Feel, Need, Do which you can use effectively to protect yourself during the presentation from the accusation of pointing and not fixing.

In addition, the technique is very useful when dealing with the negative reaction of those who feel that the report appears to be fingering them. As the messenger, you can avoid being killed by using the following approach to the anger your message will generate.

Anger is a shallow emotion. Your job is to reveal, gently, the deeper feeling hidden by fury. Hurt and humiliation will not be far away. Try this:

“It sounds like the report has made you feel very angry. Tell me more”. Listen. Don’t interrupt, save to ask clarifying questions.

When you feel you have finished with your questions, dig deep and ask another. Often this last question is the one which will surface the need that goes with the feeling and what they want to do to meet their need, besides dismembering you.

Isn’t it time that in-house lawyers re-launched the legal function?

This blog was published recently by The Law Society here:

http://communities.lawsociety.org.uk/in-house/insideout-magazine/january-2018/isnt-it-time-that-in-house-lawyers-re-launched-the-legal-function/5064024.article

Ciarán Fenton says it’s time to redefine the role and purpose of the legal function to reflect the relationship between in-house lawyers and their business leaders.

 

Would it be reasonable for a curious Martian to ask in-house lawyers where they were when their business leaders took the decisions that led to their corporate scandals?

The stock answer is: ‘We were not in the room.’ Very often, they were not. But that does not explain, fully, why so many major brands with top class in-house legal teams still got into serious trouble, and continue to do so.

The relationship between legal functions and their boards is brittle, at best. In a 2016 survey of 400 in-house lawyers by the UCL Centre for Law and Ethics:

  • 10-15 per cent experienced ‘elevated ethical pressure’
  • 30-40 per cent ‘sometimes experienced ethical pressure’
  • close to 50 per cent agreed that ‘actions were sometimes taken against their advice on legally important matters’.

Furthermore, for 65 per cent, ‘achieving what the organisation wants has to be their main priority’.

Surely, the priority of an in-house lawyer must be to provide, in their professional opinion, the best legal counsel and process appropriate to the objectives of the business? Surely, the lawyer must tell the business what legal services it needs? Surely, lawyers should not experience ethical pressure of any description whatsoever?

The authors of the survey found that there were four categories of in-house lawyer: the capitulators; the coasters; the comfortably numb and the champions. While the category names speak for themselves, the Martian might reasonably wonder why there are four, and not one.

But had the Martian attended in-house legal conferences and workshops over the last ten years, they would understand the cause of the problem. These conferences are, usually, dominated by three questions, which are never fully answered.

1. How can the legal function reduce costs?

The favoured phrase is ‘how can we do more for less’, as if their default position is to do less for more.

2. How can we demonstrate value to the business and ensure a seat at the table?

If lawyers have to work so hard to demonstrate their value, is it a surprise that they were not ‘at the table … in the room’ when the fatal decisions were made?

3. How can in-house lawyers become more commercial – business people first, lawyers second?

Some years ago, one in-house counsel who spoke on this topic to hearty applause from peers was later forced to reverse that order when the business he worked for was embroiled in a major scandal. It was ‘lawyer first’ then, no question.

Meanwhile, business leaders feel frustrated. After all, they say, the legal profession created this class of lawyer who happily takes their salary, annual holidays and pensions, but is often ‘not commercial enough … lack leadership skills … and don’t understand the business’.

They struggle to understand why the legal function should not behave exactly like like the other main functions – finance, marketing, sales, operations, IT and HR. Why, they might reasonably ask, don’t the accountants call themselves ‘in-house accountants’? What’s so special about lawyers?

As one CEO said, in exasperation: ‘All I want the legal function to do is to anticipate risk.’ Another reportedly quipped, somewhat tongue in cheek (though not entirely): ‘Your job is to make what we do legal.’

A new understanding

This dysfunctional, conflicted relationship serves no one. It’s time to reframe the role and purpose of the legal function to reflect the relationship between in-house lawyers and their business leaders in a new memorandum of understanding. This MOU would be based on three principles.

First, all parties would acknowledge that in-house lawyers are officers of the court working within the business for its protection, at all times. They are special. They are different.

Second, the legal function should tell, not ask, the business what legal counsel and services it needs, and seek to find the best price it can to deliver those services.

Third, since businesses will inevitably wish to spend less on legal services than the legal function needs, they must accept the risks in doing so. In-house lawyers must stop doing work they are not paid to do.

This last step would be the greatest hurdle because, despite their public perception, lawyers are trained to ‘get it done, no matter what’. High stress levels are common.

I set out the ideas above at a speech to the GC Futures Summit 2017, and was surprised by the strength of response. The video of my speech on LinkedIn has received over 15,000 views and extensive comments. Clearly, there is interest in this issue.

But will anything change? Not unless and until the legal profession starts the painful process of re-launching the legal function, which emerged, incrementally, from a private practice model.

One way to accelerate this is to increase the number of conferences at which there are an equal number of business and lawyer delegates. I have launched The GC-CXO Forum as my contribution to this process.

Sooner or later, the legal function will have to confront the nature of its contractual relationship with the business. It may have already compromised itself: for example, by participating in some performance incentive schemes. Surely, lawyers cannot be said to be acting independently if they are giving advice on contracts that could impact on their bonuses?

These are inconvenient truths, but they must be faced, and in a manner that a curious Martian might understand.

 

Ciarán Fenton

 

Why law firms should burn their clocks before they must

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Why law firms should burn their clocks before they must

The managing partners of law firms should burn publicly, and with photographers present, a full-colour printout of a screenshot, appropriately redacted, of their most recently billed hour.

Then they should issue a press release, complete with the clock-burning pictures, stating that they have billed their final billable hour and that from thenceforward they will negotiate with customers on a case by case basis a fixed fee for providing specific legal counsel and processes which help their clients achieve their objectives. Statement ends.

When I suggest this to managing partners, their CFOs and sales and marketing directors the reaction I receive, from all but the most innovative amongst them, must be similar to the look received by that hapless person of old who suggested the world was round: a mixture of disbelief, horror and borderline disgust.

Those who do not turn away but engage with me on this matter bring all the force and power of their litigation training to bear in defence of their clocks.

Their skeleton argument consists of three parts. First, they are keen to come across as “disrupters” and acknowledge “that something must be done…yes, the billable hour probably has had its day…fixed fees are the future…in fact, we do blended pricing already…”

When I ask if they’re going to go the whole hog, they then roll out the second part of their argument with gusto: “…we will, absolutely…we are after all a leading edge firm…but we’re not bleeding edge, and we need to find a solution which ensures that we know the cost of work delivered or else how can we drive margin?…this is a journey, not a destination…”

So, I ask, if the only thing stopping them, therefore, is internal cost control and not the fact that the billable hour is linked to remuneration, PEP, and law firm rankings? At which they wince, briefly, and then they wheel out their final, and to them, their killer argument:

“…no, no, it’s the market that keeps that system in place, not us. The best lawyers cost the most and clients want the best because they’ll get into trouble with their bosses if they don’t and in any event, it’s about individual relationships with the brightest lawyers…and brightness costs, a lot…”

I see. It’s the customer’s fault. Those annoying customers keep on insisting on paying massive fees. Consequently, the lawyers must keep track of billable hours since that’s what’s measured. And people will deliver what’s measured. It’s the way it is, or so the argument goes.

My counter-arguments are as follows. First, since they agree that the number of disenchanted customers is growing, then the “Big Mo” cannot be far off. That is, the irreversible momentum achieved when the number of disgruntled customers is more than the number willing to stay quiet about a system that is agreed by all to be dysfunctional.

What, I ask, will your firm do if it finds itself on the wrong side of the Big Mo?

Second, many professional services firms who manage perfectly well to track, sensibly, all the direct and indirect costs of delivery are not obsessed by it because it’s not linked to their remuneration. Instead, they are obsessed with helping customers achieve their objectives. They’re selling pain relief, not time.

Moreover, an increasing number of senior executives in professional services firms are not “on the clock”. They are nevertheless part of the cost of delivery.

No one asks the CEO or the CFO to account, precisely, for their time about each contract because the best PSFs have fixed overheads which are recovered in multiples.

They drive deep value from their fixed overheads by investing over the long term in relationships. Their people are trusted to use their instincts to ensure that customers feel that “delivery” is not underresourced. If anything, the current cheese pairing system leads to inconsistent quality of delivery.

Even if billable hours were not linked to remuneration the tracking of internal cost of delivery on a contract by contract basis, to manage margin, would still be of limited value, if the firm is maximising profit over the life of each relationship, which every modern professional services firm should be doing. The customers want relationships over time, not piecemeal deals that support PEP.

Finally, what if in due course the market comes to believe that a significant proportion of billable hours are overpriced while acknowledging that some lawyers on some matters should, rightly, be paid top dollar?

This is what happened in the airline sector. Once upon a time, British Airways was “the world’s favourite airline”, with eye-watering seat prices, until one day a few disrupters decided that it was possible, enabled by new online booking technology, to deliver the same value – transporting someone safely from a to b – at a fraction of the price charged by BA.

British Airways almost collapsed, and the low-cost carriers even managed, in time, to compete with each other with premium offerings.

Their strategic challenge was “to train” the market not to expect anything other than a safe flight. This they achieved by taking a no-nonsense if, at times, a downright offensive attitude to the travelling public. The strategy paid off.

I’m not suggesting that no-frills flying and legal services are comparable. Heaven forbid. But the context is identical: an unhappy market, sustained by entrenched behaviour until one day someone says: “We can deliver the same value at a significantly lower price for non-premium activity by training the market what to expect in a manner – unlike low-frills airlines – they will tolerate, and that we can also provide premium services at premium prices which are still less than the current “rip-off” prices”

The “market training” required in legal services lies in the gap between the needs of General Counsel and the needs of the businesses they serve.

If a law firm can insert themselves into that conversation and add value by helping the GC manage their relationships with the CEO and the board better, then they can find out how to reduce costs substantially on non-premium services and noticeably on premium services in that particular organisation which will have its unique target operating model.

The problem is that many lawyers don’t understand what a TOM is and why they should care. The winners in this game will have the humility to acknowledge what they don’t know about business and listen to those who do. It’s isn’t rocket science, but equally, it’s not law. And lawyers mainly know about the law. Not business.

This does not mean that law firms should do, as many have done, which is to collude with the commoditisation of services by demeaning them using terms like “BAU matters”, “low-value activity” and the “crap we don’t want to deal with”. This sort of language has been a huge own goal.

“Risk-sharing” arrangements which sound pleasingly disruptive, are also unwise, except where a law firm wants to experiment with new services with the support of the customer as an R&D project. You can only share risk if you are allowed to share control of all the inputs and, especially, behaviour and few if any law firms would be allowed or able to do that.

The low-frills airlines never demeaned their offering: they continued to honour the challenge of getting tons of metal up into the air and down, safely.

So, don’t say “we can automate your NDAs”. You don’t need fancy technology to do that. Just duplicate them in a photocopier, if they are boilerplate. But as soon as an NDA needs marking-up, you are adding value. Don’t demean that value. But don’t overprice it either.

The question now is: which few law firms will muster the courage to confront their internal demons, break ranks and give the market what it craves: problems solved, not billable hours?

Ciarán Fenton

www.ciaranfenton.com