The post below is the first blog post I ever wrote on May 2, 2016. Honestly, the idea for a law firm advisory board was the reason I started a blog: I had to bring attention to it. Last week, I read an interview of UK Legal Consultant Chris Bull by Prism Legal entitled “Will All Law Firms Eventually Corporatize?” In the article, Bull’s premise is that large law firms that “corporatize” will be more successful long term. He defines “corporatizing” as adopting corporate management and governance. He describes five practices that law firms are adopting to accomplish this. The fifth practice is “Independent Boards.” This is an excerpt:
More firms are appointing independent external Non-Executive Directors (NEDs). I have been examining the trend for UK law firms to appoint external NEDs to sit on their Boards and now estimate that over 1/3 of the top 200 firms have one, sometimes more, NEDs. In some cases the NEDs are replacing the Senior Partner in chairing the firm; some high-profile Chairs have been appointed from outside the firm’s ranks, including Tony Angel at DLA Piper… Pioneer firms brought independents into the Boardroom to advise the Partnership many years ago but the trend is now to formalize these as full-member voting roles. The increasingly large, ambitious law firm operating in a more competitive, global and technology enabled market is recognizing that a Boardroom composed of just lawyers (with maybe one accountant to report the numbers) is recognizing that it doesn’t possess the diversity of experience or expertise required.
Maybe my crazy idea wasn’t so crazy after all. Read on.
The business of law is changing. In many firms, revenues are growing through increased hourly rates rather than increased demand. Clients are reluctant to pay for associate time so the number of associates in firms is shrinking while the partner to associate ratios climb steeply. In addition, in law firms structured as PCs, the shareholders are employees so there cannot be a mandatory retirement age. As a result, the average age of attorneys in law firms is steadily growing so many firms are run by attorneys who have been doing business the same way for decades. According to AmLaw estimates, less than 2% of partners are millennials and almost none of those partners are represented on executive committees.
By law in all but two states, law firms must be run by attorneys or executive committees of attorneys – most of whom have never worked outside of the legal industry. So how do you steer a law firm into the future when the steering committee is composed primarily of people who have never known any way other than the traditional practice of law? How do you gain a fresh perspective on new services, new ways of delivering old services, and how to differentiate and grow in a hyper-competitive legal market? Maybe a corporate advisory board is an opportunity worth exploring.
An advisory board provides non-binding strategic advice to the management of an entity. It is in an informal group with no active management role or liability. In my suggested law firm model, it would not involve itself in client-specific matters. Rather, it would be convened to help provide guidance from outside the legal industry.
The advisory board I am suggesting would consist of senior executives from a broad range of industries. Per former Freshfields Senior Partner Konstantin Mettenheimer, law firms should “do all we can to learn about the complete toolkit of management from successful organizations in other industries”.
An advisory board could consist of a marketing executive, a technology executive, a CFO or controller, an entrepreneur and a business school professor, for example. The board members would be paid a meaningful honorarium for their services and the term would be limited in scope and length so as to be manageable for the participants.
The board members would bring different experiences and educational backgrounds to the table. This would provide the law firm with unbiased insight and third party perspective and perhaps even more valuable, an entirely new and objective outlook on the business. This could help a law firm intent on embracing the future to transform rather than just adapt.
Economist Tim Harford, in his TEDTalk “How frustration can make us more creative” observes that in a study of problem solving where teams were made up either of four friends or of three friends and one stranger, the teams that included a stranger solved the problem more effectively than the teams made up of only friends. He believes this is a result of the disruption and struggle that was generated and the creative solutions that stem from the disruption and struggle. It is worth noting that the groups that included a stranger did NOT have a good time solving the problem, but they solved it more effectively none the less. Could this apply to law firms?
The advisory board’s charter could be broad, such as “how should our law firm differentiate itself going forward?” or narrow, such as “what service lines could be added to our offerings to grow our revenue?” or “should we hire a Chief Marketing Officer?”
As an example, financial services company Northwestern Mutual convened an Internet Advisory Board from the e-commerce industry. In the law firm scenario, maybe an advisory board would see value in a service currently being provided incidental to the practice of law where such service’s value could be exploited for the law firm’s gain or maybe the advisory board would suggest expanding the c suite to bring a necessary new skill to the firm. Tony Hsieh, the founder of Zappos.com, says that his company will try any idea if it passes this test: Is it safe to try? Will it do irreparable harm to the business if it fails? An advisory board may be worth a try.