Why Law Firms Don’t Change Strategy Despite Client Dissatisfaction: A Management Explanation (Part 2 of 2)

My most recent post introduced an explanation for the question posed above:

The legal profession is an industry managed by committee. There are no outside boards of directors to step in with an “outside view” when things aren’t working. 

Law firms are run by — and answerable to — no one other than their own lawyers. The law firm alumni who populate in-house counsel departments have never known any other approach — so they’re usually OK with this.

Of course, a corporation’s senior officers can express displeasure with their attorneys inside and outside of the business. But — with good reason — they are wary of stepping in and second-guessing lawyers steeped in legal rules and institutions of which those senior officers have only a modest understanding.

Free of an “outside view” whose forceful application might bring about necessary changes — business attorneys persist in a status quo of mediocre service delivery — as noted in the most recent post:

“There is unambiguous evidence of a significant and persistent disconnect between law firms and their clients. Only 25% of corporate legal buyers said they would recommend their ‘go-to’ law firm.”

But this “outside view” is what empowers human institutions to make painful-but-necessary changes when their outside environment threatens their effectiveness.

Early this year I posted about Andy Grove of Intel:

“In the early 1980’s Intel dominated in random access memory chips – “memories” – with 60% global market share. But in 1978 Japanese competitors had targeted this segment with both high quality and low prices. In the next decade they’d take their global market share from 30% to 60% — catching up with Intel — and then passing it ….

“In Only the Paranoid Survive – Andrew Grove – then Intel’s president – listed the reasons why Intel did nothing for a full year …. Then, in mid-1985, Grove and Intel’s CEO – Gordon Moore – had a talk:

Our mood was downbeat … I turned back to Gordon and I asked: ‘If we got kicked out and the board brought in a new CEO, what do you think he’d do?’

Gordon answered without hesitation, ‘He would get us out of memories’. I stared at him, numb, then said, ‘Why shouldn’t you and I walk out the door, come back and do it ourselves?’

“That’s what Moore and Grove did.”

But that’s not what law firms and in-house departments do.

The best explanation I’ve found for this comes from former Harvard Business School Professor David Maister.

Arguably the leading scholar of, and then the leading practicing consultant to, professional services firms — including law firms.

In his “Strategy and the Fat Smoker” (book and article), Maister compared the incentives of strategy execution in a professional service firm — such as a law practice — to the incentives experienced by a “fat smoker”.

Unlike the Chicago Blackhawks’ coach or GE’s CEO — these “fat smokers” can insulate themselves from any pains they don’t want to face.

These “fat smokers” will avoid exercise, eat what they want, and smoke when they feel like it.

They’ll do those things unless and until a medical crisis makes them reconsider their ways.

As Maister writes:

“After all, I was a fat smoker for 37 years and felt I had the right to remain so. For me and for others, the single biggest barrier to making change is the feeling that “it’s OK so far.”

Like former fat smoker David Maister, for law firms and their in-house counterparts: “It’s OK so far”.

When the law practice consultancy Altman Weil did its most recent survey of law firm leadership they found that: “In 69% of law firms, partners resist most change efforts”.

When they asked “why?” — 59% gave this answer: “We are not feeling enough economic pain to motivate more significant change.”

So law firms — and in-house counsel with them — avoid painful adjustments that could improve client satisfaction. For the moment — billing by the hour, proliferation of inexperienced employee-lawyers (“associates”), and duplication of lawyer efforts — combine to make a business model that works very nicely for those in what Maister calls “top management” of the legal profession.

Meanwhile, business clients aren’t happy:

“Only 25% of corporate legal buyers said they would recommend their go-to law firm.”

When trying to understand why law firms and in-house departments are so resistant to improvement — despite such client dissatisfaction — David Maister’s “fat smoker” comparison is the best explanation I’ve found.

Part 1