The Vortex Just Over the Horizon: Strategy, Succession, and Governance
Odysseus Navigates Between Scylla and Charybdis
My Walker Clark colleagues and I have noticed, especially over the past seven or eight years, partners in an increasing number of law firms feel very uneasy when they consider the next five to ten years of their firms’ futures.
Most of these firms are midsize firms (for their respective markets) that have enjoyed fast growth and financial success over the past 15 to 20 years. Their partners feel, with considerable justification, that they "are at the top of their games."
But, as a managing partner from one of these firms recent told me, “As we look ahead to the next ten to twenty years, it’s like what Odysseus must have felt when he had to bring his ship and crew through the stormy waters between the two monsters, Scylla and Charybdis.”
As these same partners look into the middle distance of 2020 to 2025, the most perceptive of them see serious problems ahead. Another of our clients recently referred to this as "our vortex — a place just over the horizon were several forces could come together in a way that could put in jeopardy everything that we have achieved and maybe even sink us."
What are these dangerous forces?
We most frequently observe three risk indicators, especially in small and midsize law firms. Note that some of these risk indicators are actually the result, at least in part, of the firm's success to date.
Risk Indicator 1: There are multiple — more or less equally probable and attractive — strategic scenarios for the next five to ten years.
However, the firm has little experience in making well-informed strategic choices and setting clear, realistic priorities.
Not being agree to focus on the opportunities that offer the best return on investment, the firm will try to do too many things but accomplish none of them. Even worse, some partners may individually pursue strategies and tactics that appeal to them, which could hurt whatever sense of collaboration and common commitment exists in the partnership. This frequently results in the departure of one or two of these partners who believe, often with good reasons, that they can be more successful elsewhere, even on their own, than if they remain in the firm.
In other words, they jump ship while they still can.
What about strategic planning?
Some law firm partners also say that these uncertainties make strategic planning a useless exercise, because there are "too many possibilities" for effective planning.
I sympathize with the frustration embedded in this view, even though I do not agree with it. Traditional strategic planning concepts and methods, such as negotiating overly wordsmithed vision statements and conjuring up SWOT analyses, are, indeed, a waste of time for most law firms in most legal markets today.
Traditional strategic planning in law firms usually overlooks the most important condition for success: the ability to manage change.
Law firm partners might spend hundreds of hours developing elegant strategic plans. However, they will almost certainly fail to implement any of it if they — both individually and as a group — do not know how to lead and manage change in their organization. Traditional strategic planning, as it still is practiced by many law firms and some law firm management consultants, often ignores this issue entirely. Because they are intellectually imprisoned in the mission-vision-goals-tactics lockstep, the change issues usually are never even perceived, much less considered.
At Walker Clark, by contrast, we offer an approach that is better suited for today's law firms and tomorrow's challenges, the Strategic Priorities Review, which we custom-design for the unique needs of each law firm.
Risk Indicator 2: The firm is a first-generation law firm within ten years of the transition to the “next generation” of partners.
In most small and midsize law firms, the partners have been too busy building the firm to spend much time on succession planning. A well thought-out succession plan requires a minimum of five years to implement effectively, and ten years is even better.
The good news is that we are seeing an increasing number of first-generation firms getting serious about succession planning. Law firm partners, now in their 50s and early 60s, are beginning to consider their individual and collective exit strategies.
The not-so-good news is that many of these firms are unable to convert concern into concerted action. If a midsize law firm attempts to manage a generational transition on a "case-by-case" basis (or, to be more honest about it, by making it up as they go along), the chances for the "next generation" of the firm to survive at the same level of performance for more than four years after their departure drop dramatically.
Risk Indicator 3: The firm's executive decision making processes and governance are inadequately documented…
…or, as is the case in many firms, not documented at all.
My Walker Clark colleagues and I advise our clients to conduct a thorough review of their governance system — and especially their partnership agreement, bylaws, or other "constitutional" corporate documents — if any of their equity partners are more than 55 years old. Don't wait until a founding partner announces that he or she is going to retire at the end of this year.
By acknowledging the presence of these three risk indicators, and by investing a modest amount of partner time, management attention, and resources to engage outside help if needed, a law firm can enter the next ten years confident not only that the firm will survive the transition, but will thrive during and after it. No law firm is predestined to be sucked into the strategic vortex just over their horizon, not if its partners are willing to manage the risks and make the necessary changes that a changing legal profession demands.