The 2021 Client Advisory Report from Citi and Hildebrandt Consulting has some important observations about how the legal sector successfully met the challenges of2020, and what awaits in 2021.
In this article we consider four observations from the report that relate to our focus: partner and employee contribution, performance and compensation.
1. IN A CRISIS, TOP PERFORMERS WILL RISE TO THE OCCASION. On the other hand, lesser performers need more direction. In good times, law firms are often slow in dealing with performance issues. This crisis has shone a light on differing performance levels. This has caused a number of firms to accelerate performance reviews, as they recognise that it is bad for economics and the firm’s culture to not act on performance issues as they occur. – from page 10 of the report.
Our take: top performers do rise in difficult times, because they’re positive, solution-focussed and agile. And, of course, some have benefitted just from being in the right place at the right time. It’s important for firms to get a handle on what high performance looks like in a post-Covid world. While some things will stay the same, others will change. For example, those who work in firms will need to become stronger in competencies that underpin the success of dispersed workforces: leadership, coaching, delegation, knowledge management and learning, to name a few. Furthermore, the urgent strategy work that many firms are performing right now needs to be translated into performance expectations, goals and KPIs. Without closing this gap, performance will be based on the wrong measures, and the new strategy will flounder.
On performance reviews we’ve seen firms take different approaches during 2020. Some firms have kept to their usual timing and structure, wanting to keep some things consistent amidst the tumult. This is especially true for the partnership group. Other firms have delayed or taken a light-touch approach, not wanting to add stress for employees, and create excessive expectations around salary increases.
Implicit in the report’s commentary is a sad reality for many law firms: they still rely on annual reviews to address performance issues. This simply isn’t good enough. First, we know that most formal review processes struggle to address poor performance because specific examples and happenings are too far in the past. Second, we know that most lawyers value harmony over honesty. Conversations about poor performance need to be contemporaneous. Firms have to deploy simple approaches for making performance feedback a constant activity. Embracing matter-based feedback is the blindingly obvious place to start. Tools like Performance Leader can help.
2. STRONG FIRM CULTURE AND SENSE OF COMMUNITY ARE ESSENTIAL TO WEATHERING A STORM. We saw a strong emphasis on strengthening firm culture and recreating a sense of community in a virtual world. Aside from regular meetings described above, firms employed a wide range of innovative and inspiring ways to build a sense of community—both to keep the business running and to ensure a healthy and positive mindset in these isolating and anxious times. – from page 10 of the report.
Our take: strong culture needs definition, so everyone, including new hires can understand it, look out for it and model it. While well-being is the number one cultural priority for firms right now, the people and client experience are following close behind. Culture remains largely undefined in professional firms. Learning by osmosis is harder for dispersed teams. Water cooler moments are less frequent. The best way to socialise what you do and how you do it is by debriefing projects and matters. This allows everyone to understand how partners and employees reacted to situations, managed the client experience and achieved results. It also allows firms to reflect on how they worked as a team:leadership, communication and engagement. Debriefs (or autopsies or after action reviews) are a missed learning opportunity in professional firms today.
2. RETHINKING PROFESSIONAL AND SUPPORT STAFF LEVERAGE For the past several years, we have seen law firms actively reduce their professional and support staff ratios. The fully remote work environment has shone a light on the opportunities to further rationalise the operation of a law firm, including the size and composition of support services. And RE EXAMINING LAWYER HEADCOUNT AND LEVERAGE We have sensed a reluctance on the part of most firms to make headcount adjustments. However, the longer this pandemic continues, the higher the likelihood that some firms who are experiencing a challenging environment might face hard decisions around headcount. – from pages 18 and 19 of the report.
Our take: these two observations can be treated as one big challenge: firms have to rethink their size and shape. This is the time to re-examine the right resource model through the lens of solving complex client problems. The examination needs to look both internally and externally. Internally there are questions around practice area viability, what roles contribute the most value (both outcomes and experience), what new roles are needed, what clients will pay for, what roles or aspects of roles might he automated, the need for the firms to build a robust talent pipeline and the importance of redefining contribution at each level. Externally firms need to consider what people or technology resources are available that might help improve its service offering.
3. ADDRESSING COMPETITION FOR EQUITY. PARTNERS THROUGH COMPENSATION In what is likely to be another year of active lateral hiring, we would expect firms to focus on key talent retention. This will include examining ways to competitively reward their top performers. In recent years, we have seen a greater allocation of net income to top performers, including the increased use of bonus pools. And FOCUSSING ON TOP TALENT IS CRUCIAL TO MITIGATE THE RISK OF POACHING. One of the characteristics. of industry performance in 2020 was the widening gap between the largest and most profitable firms and the rest. This will no doubt create further opportunities for strong performers to capitalise on their outperformance by pursuing lateral talent. – from pages 11 and 20 of the report.
Our take: these comments are largely aligned with our findings from our 2002 Equity Partner Contribution & Compensation Survey. In that research we found that the most common top-to-bottom ratio spread (highest paid equity partner to lowest) was 5:1. Three years ago it was 3:1. Firms are clearly seeking to protect their high performers from being poached. But stretching the top-to-bottom-spread has its own risks. If the spread is not carefully managed with good fundamentals around strategy, design, governance and structure, cohesion can be undermined. In turn collaboration and work-sharing suffers and key-partner loss might follow. Firms also need to recognise that money is not a primary motivator for most people. That’s great news for avoiding a talent bidding war, but it does put the onus back on leadership to develop a compelling vision and culture, amongst other things.
Thanks for taking the time to read this article. Click here to access the Citi Hildebrandt Report. If you have any comments or questions, please feel free to get in contact with me at email@example.com.
Ray D’Cruz is the CEO of Performance Leader. Ray advises clients on partner and employee contribution frameworks, contribution management practices and the design and implementation of technology. He has worked with over 100 PSFs internationally. Ray is a former lawyer and senior HR practitioner. He is co-authoring the second edition of Partner Remuneration in Law Firms (Globe Publishing) with Michael Roch.