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

 

 

 

 

 

 

 

The Post: Why your board should watch it, altogether

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At the end of your next board meeting I recommend that you and your fellow board members should all go out to the cinema, watch The Post, and then have dinner together to discuss it.
 
I feel certain that when your CFO reads my justification for such wild extravagance they will be convinced of the ROI.
 
First, The Post contains all they need to know about sexism in the boardroom and what they can do to fix it.
 
Some people will wince when they watch this film. At one board meeting all the men talk over the woman who owns the business, The Washington Post.
 
At the climax of the film, Speilberg manages to convey sexism at its most bullying by arranging all the men around Meryl Streep’s character who is seated, with them hulking close and over her as she is trying to make a crucial business decision.
 
He then has a wide shot of her breaking free, physically, of her so called board “colleagues” and then she takes her decision, with great courage.
 
Second, for the price of a few cinema tickets, some popcorn and a Nando’s your board could learn the importance of having a shared purpose and how that is probably the best hedge against business, legal and reputation risk that money can buy.
 
The film appears to be about The First Amendment, but it’s deeper message is about wholesome shared objectives. If the word wholesome makes you feel queasy, then get used to it. Because wholesome is back in fashion, big time. Just clock the reaction to The
President’s Club shenanigans last week.
 
By wholesome I mean: an ethical focus, which goes beyond the bottom line, to address society as a whole.
 
By shared I mean just that: everyone around the board room table goes through the pain of figuring out what sentence they are all willing to sign up to that makes their endeavour worthwhile.
 
And there are no marks for saying it’s about making money. Making money in business goes without saying. It’s like saying people must breath. And any idiot can make loads of money if you screw enough people. T’was ever thus.
 
That’s why the kid running a protection racket in the playground was rich. But was he clever? No, just a little thug.
 
And there are lots of thugs in business. Are you one of them? If not, are there thugs on your board? If so get them off. And this film might help.
 
Because there’s one thing a thug can’t stand and that’s consensus on a matter of principle.
 
Their narcissism and cowardice are wholly exposed when faced with the light of a shared objective, which stacks.
 
Does your board have a shared objective beyond making money which stacks? If not you should put that fact at the top of your Risk Register.
 
Some say Carillion went under, not because it ran out of cash, but because it lost its sense of shared purpose which led to it running out of cash.
 
Finally, the film is a textbook study on how organisations should work with their in-house counsel: the latter should be fiercely independent and the former required to justify constantly their actions to the in-house counsel.
 
These reasons aside, your CFO should approve the jolly if only because this writer loves Streep. She can do no wrong. And if she’s in a film it must, by definition, be worth seeing.
Tom Hanks isn’t bad either. And Spielberg knows a thing or two about pointing a camera.
 
What’s not to like?

Progressive boards: why not use the Jacinda Arden story to revolutionise “mat leave” in your business?

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“Woman at work with a baby” should not be headline news. Work in the 21st Century must be about integrating home and work life in a manner that does not put work higher than the society it serves. The issue is: how will her employers best support her and her family because they should and not how Prime Minister Arden will cope being prime minister, as if having a baby is somehow an inconvenience.

I posted the paragraph above on LinkedIn last week along with a link to the news story and one person commented as follows: “Work does not ‘serve society’ other than (perhaps) under communism.”

That wasn’t the general view as many people “liked” the post, but I suspect that any talk of work serving society will elicit the communism/socialism challenge from some.

However, these challengers will become increasingly marginalised as the number of high profile “capitalists” write openly about the needs of society. Larry Fink, CEO of BlackRock, for example, has recently said that “society is demanding that companies, both public and private, serve a social purpose” (The Daily Telegraph, 17th Jan 2017). He is one of many.

It’s now possible to talk about society and business in the same sentence without being branded “a red under the bed”. However, all of this talk will remain just that – talk – until we address the tricky issue that in the current system capital takes priority over all other needs. There must be a mid-point between winner takes all capitalism and the perils of the proven disasters in far left models.

Now the Jacinda Ardern story may give progressive boards the excuse to confront this conundrum head-on. Why not abandon the concept of “leave” altogether? By that I mean, all leave: holiday, compassionate, sick, and that most horrible of all abbreviations “mat (and pat) leave”. The whole concept of being at work versus not at work, which is nonsense. People are people, whether at home or at work.

Why not give everyone a fixed price contract with a job specification that focuses on adding as much value as possible to the organisation? Why not make every effort to create an environment that maximises their chances of doing that? What better way to do that than to understand the personal issues of each employee and to do everything possible to make their lives fulfilling?

What better place to start than to abandon the “working day” to allow people to work with unlimited flexibility depending on their circumstances? Home life would not be a drag on work life – it would come first, with the blessing of the business. Does this sound utterly fanciful to you?

If it does, is that because a) you would like it to be, but believe it can’t be because no one would allow it or b) you believe it can’t be because capital is king and it would all cost too much or c) you believe that work and non-work should be completely separate?

If your board is progressive and wants to experiment with new ways of working because the old ways are no longer fit for purpose I would encourage you, as others have done successfully, to try out new models.

If you and your board feel that capital is king and profit will always trump society’s needs, I understand your view but your board should, if only for risk management reasons, reflect on why the likes of Larry Fink and others are using the “s word”? Do they see something on the horizon that you don’t?

If you and your board feel that the boundaries between work and home life should not be porous, then you must accept that you can’t have it both ways. If you want people to bring their “whole personalities” to work, then you must take their whole lives into account.

If you don’t, they will leave a large percentage of their value “at Reception”, and you will be losing out even before they start working for you. How can you justify that to your board?

Could a Devil’s Advocate process prevent a Carillion situation in your business?

Business cartoon showing people in a meeting, including the devil, and a new idea on the chart.  Devil says, 'I would like to play devil's advocate on this idea also'.It’s easy to throw rocks at Carillion. As some of the reasons for its collapse are emerging, so are the grim implications for those immediately affected. These problems will have been complex and only those involved know the truth.

But all of us, in business, are affected and implicated, are we not? Do we all not stand in the same corporate governance glasshouse that we have jointly constructed, rocks at the ready? Could this, or a similar catastrophe, not easily happen in your business, your department, or to your board? None of us should feel entitled to schadenfreude.

The situation reminds me of the film Sliding Doors, in which we are presented with two alternative outcomes: one in which the main character just makes it through the closing doors of a train and the other, they don’t. The movie proceeds to document the implications of these two alternate realities, popularising the expression: ‘a sliding doors moment’. It’s a powerful image.

I wonder how many sliding door moments occurred at the main and operating boards at Carillion and in the meeting rooms of the contracting government departments? What decisions were taken when and by whom? Decisions that, in aggregate, led to this nightmare.

Or, what decisions were not taken, or conversations not had, or horizons not scanned and by whom? But crucially, was it safe to speak up?

Many will say that’s the role of the non-executive directors: to ask the hard questions. But the power of NXDs is limited by the culture of the board, how much they’re told and their own courage.

Or you might say that this is market forces properly, if brutally, at work. Cash is king. You can lose money forever but run out of cash only once. And, dress it up any way you like, Carillion ran out of cash. This is capitalism working. The strong survive. The weak go to the wall. Another gladiator bites the dust in the coliseum that is the City of London.

And technically you would be right, except that this analysis ignores one factor: society gave Carillion a mandate to trade and without that mandate, it could not have traded, or run out of cash.

So I say again: are we all not responsible for this? For the creditors, who will be lucky if they get a penny in the pound? For the families whose lives will be wrecked? For the further erosion of trust in business?

So what to do? Well, you can do nothing and nothing will change; or you can decide at your next board meeting that you want to put in place processes that would reduce these risks for your business.

Is your reaction that it can’t happen to your business? That yours is too risk averse? That your corporate governance is perfect?

If that’s what you think, stop reading this now, although you might benefit from reading How The Mighty Fail by Jim Collins. Hubris is reason number one.

But if you choose to take a courageous step and suggest change then you will be forced to confront the reason why all businesses go bust or experience, as the lawyers euphemistically like to call it, ‘a major risk event’.

Businesses run out of cash because of the decisions taken that result in the owners of cash pulling the plug.

There is no mystery here. The cause of failure will be in the decision- making processes unless it’s a force majeure event. And even then, shouldn’t force majeure be on your risk register?

So how can you ‘de-risk’ the decision-making processes in your boardroom, particularly on your operating board or ExCo where you have access to more information and real decisions are made?

What if at every main and operating board meeting in your business one member, by rotation, were appointed as the Devil’s Advocate for that meeting with permission, nay the expectation, that they can say the unsayable, speak truth to power and challenge, for the sake of it, every key decision?

I suspect, if done properly, many key decisions would be either reversed or amended. But more importantly, many important matters – especially risky conduct, which is risky behaviour over time – would be called out.

But your Devil’s Advocate would require a mandate to represent all stakeholders – not just shareholders and the banks, but creditors, large and small, employees, their families and the environment.

No chance you may say.

It matters. Why is Larry Fink, CEO of BlackRock, of all people, saying that “society is demanding that companies, both public and private, serve a social purpose”? (The Daily Telegraph, 17th Jan 2017).

Why did Philip Augar write, regarding the governance at one FTSE company that’s in trouble, that “none of the right questions had been asked”, and that “The alternative, carrying on as before, has already led to a fractured society…”? (FT, January 4th, 2017).

Why did Merryn Somerset Webb, the editor in chief of Money Week, write only last month (also in the FT) that since “most adults in the UK have a stake in the listed UK sector, they should know that – be able to act upon it”?

The reason these three are saying what would be unsayable ten years ago is because the zeitgeist is changing. Women are standing up to predatory men at work. Electorates are defying age-old voting patterns. And investors are seeing the writing on the wall for old processes.

They see that the current model isn’t working. They also see that it’s not a binary solution – capitalism versus socialism, but a midpoint which gives all stakeholders a say in matters which affect them.

Perhaps the term should be Stakeholder Advocate and not Devil’s Advocate.

But if these arguments do not persuade you to implement a devil’s advocacy process at your board meetings you might ask yourself why?

Is it because you’re afraid? If you are, then the seeds of self-destruction are already sown in your organisation.

It’s only a matter of time.

 

Why your board’s business strategy should include personal lives

life balance diagramCan you think of a business strategy which does not include people? I wager you can’t because there isn’t one.

Your board’s business strategy is about how you and your colleagues intend to achieve your business objectives. No matter how hard you try you will not be able to exclude people.

Yet consider how the art and science of business has attempted to help you to airbrush real people from your business strategy.

People have been rebranded as human capital assets, human resources, hires, direct reports, and, silkily of all, leavers. Yet, doggedly, they refuse to act other than what they are: unique individuals with unique lives.

And, of course, you are one of these people too. Your board is merely a coalition of individuals, including you, for a relatively short time.

Do you and your colleagues refer to yourselves in the dehumanising terms above? Does your chairman ever turn to your CEO and say: “And now our most senior human resource, our CEO, will report on the quarter”?

Has your CFO ever reported to your board on the valuation or revaluation of “our human capital assets” which has its own line on the balance sheet somewhere between fixed and intangible assets? Of course not.

And has anyone ever asked anyone at your board meetings as to how their personal lives fared in the previous quarter? Did your minutes include under agenda item “personal lives” any of: birth, marriage, death, health scare, shoe lace tying, coming out, anniversary, or lotto win?

Work and personal lives should be kept strictly separate I hear you say. Not least because some unscrupulous director will take advantage of a personal weakness to advance their agenda.

And, you might say, capital is king and he – usually a he – waits for no personal life. And, you might add, lots of HR stuff is being done around “mat and pat leave” and other “people policies”.

You may be right but it’s not making a blind bit of difference to the overall catalogue of quiet human suffering that comes with work these days and especially, if like you, you sit on a main or operating board, ExCo or function team.

In a recent article in the Financial Times, Pilita Clark wrote about a CEO she met whose “underlings” did not know she had children. Apparently in some organisations it pays “to have kids if you are a man and costs if you are a woman”.

This isn’t sustainable. And while many organisations are implementing positive people policies, they don’t go far enough nor do they integrate personal lives – not just family life – into the core of their business strategy.

Your board might consider a business strategy which says “We will support at home and at work the network of people who work within and alongside our business to thrive so that we can be the best in the world at xyz product or service.”

Imagine if your board extended that strategy to you as one of its directors. Imagine if you felt wholly supported in your unique circumstances by your board. Imagine how much happier and more fulfilled you would feel.

Then imagine how much more effort – the famous 10% left at Reception – you would be willing to put into your business and into your personal life. And if you extended this approach to the people who report to you, would they not be willing to do the same.

T’will never happen, the naysayers respond. The providers of capital will see to that. Because capital is all powerful and power always wins.

But does it? Do you not see a shift, as I do, both in attitudes amongst progressive directors on boards and in the zeitgeist? Who would have thought that women would rebel in large numbers across the globe against institutionalised sexual harassment? Well they have.

And I believe this is only the start of the counter revolution to the extreme right and extreme left movements of recent times.

In Gestalt terms – opposing opposites – the Weinstein affair is the opposite of Trumpian sexism. I predict 2018 will present us with similar counter revolutions. A centre party figure will bring some balance to the polarised and coarse Brexit process.

And, I predict, there will be more movement in the workplace towards a balance between the needs of capital providers and the personal lives which suffer to deliver a return on it.

Watch this space.

Does Mrs May’s Cabinet decision-making processes reflect a wider malaise in UK corporate governance?

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“The cabinet has not discussed, let alone agreed, precisely what kind of relationship with the EU the UK should be seeking” writes James Forsyth in The Spectator (2 Dec) and he made the same point at a panel discussion on a review of 2017 and a preview of 2018 hosted by DLA Piper in London recently.
During the Q&A session at that event I asked him, from the floor, if he agreed that the decision-making reforms recommended in The Chilcot Report after the Iraq war have not been implemented in Cabinet.

Chilcot called out the negative role “sofa” decision-making processes played in Mr Blair’s approach.

Mrs May doesn’t use a sofa, we hear, but neither does she appear to make full use of the boardroom either. But to be fair to Mrs May, is she not doing what many Chairs and CEOs do “up and down” the country: that is to pay scant attention to the Noddy basics of good corporate governance?

These basics include a) meeting regularly b) a democratic agenda and open discussion including welcoming and hearing contrary opinions c) a decision which everyone backs, and if they can’t they must resign.

How many boards do you know that come anywhere near that standard? Few, I assume. And yet we expect our politicians to behave in a manner we eschew.

Whether in the Cabinet Room or The Board Room the cost of ignoring basic corporate governance is potentially catastrophic.
The Iraq example is well documented, and when historians come to write the story of Brexit – or if, as some believe, a public enquiry into the manner in which the Referendum was conducted – I suspect that the decision-making processes in Cabinet will become a subject of scrutiny.

For example, and whether you voted Leave or Remain, I’m sure you would have expected a) a meeting of the Cabinet to come to a shared view on the future relationship with the EU b) a decision on how to address the DUP and Dublin issues and an agreement with those parties c) and these steps would have been taken shortly after the Referendum because the equivalent of a corporate risk register would have flagged those issues then.

Please let me know if you can think of any part of those basic expectations that are unreasonable. If you can, I can’t.

When I put this to James Forsyth he made the reasonable point that the Cabinet is so large that folding chairs are required to supplement the basic set. No danger of a comfy sofa, then?

But surely this problem is resolved by doing what most businesses do which is to have a Main Board and an Operating Board or ExCo for day-to-day matters, where the bigger number can be represented by a COO.

But even if the Cabinet operated an OpsBoard or ExCo system it wouldn’t make any difference if they continue to ignore corporate governance basics?

And why don’t Prime Ministers, CEOs and Chairs follow the rules? Is it because they feel that such rules restrict their power? Or is it because they fear being voted down?

The answer isn’t as obvious as it may appear because, apart from the psychopathic leaders, most have high enough IQ if not EQ to value input from others. Big egos don’t do corporate governance is an answer, but a superficial one.

The deeper truth is that they fear confrontation, are unable to negotiate needs productively, and deeply distrust the world outside their own framing of it.

What if by some magic Mrs May woke up tomorrow and suddenly realised that what she desperately wants but is clearly not securing could be secured by holding proper meetings, would she hold them?

I believe she would. But such magic doesn’t exist in government. However, in the business world you don’t need sorcery to run good meetings, just a modicum of trust.