Monday, October 16, 2006

Dilution By Consensus of the Clueless - The Partnership Dilemma

I was inspired to write this post by an email I got from an attorney overseas who was discussing the challenge of getting agreement on innovative ideas in their partnership. The email sparked a memory of numerous conversations I have had with BigLaw partners who talk about how difficult it is to reach a good decision in a partnership meeting. Everybody wants to have a say in everything, and often the best ideas become so diluted by the end of the discussion that they have lost the very quality that made them good ideas. Most attorneys feel competent to argue their position on just about any topic (even if they have little or no information on the subject matter discussed), and this causes discourse and bad feelings among the partners in the partnership. This begs the question: How can you have a group of happier partners and higher quality decision at the same time? I would like to propose a win-win that we have implemented at Exemplar.

At Exemplar, we recognize that there exists a difference between having an interest in a decision and being self-interested. Every partner in a firm has a self-interest in a decision so long as the decision can be said to affect the partnership in some way. We can rationalize that since all decisions impact us, we should be involved in every decision. You see this all the time, right? Well, if that were allowed to occur in corporate America then the US economy would come to a halt. Law firms should learn a lesson from the most successful corporations that you need to hire great people into positions that match their expertise, and then TRUST them to make competent decisions. Yes, that means you may not have a say in what copy machine gets bought next month, or whether your firm uses a cash or accrual method of accounting. Is that really why you became a lawyer anyways? Below I suggest a better way:

OLD MODEL: Decisions are all made by committee and by consensus. Because lawyers are risk-adverse by nature and a great at scaring the heck out of each other with their nuclear "what if" scenarios (on any idea proposed), law firms get the lowest common denominator of innovation and creativity. By the time consensus is achieved, what you get is a product that still looks and tastes like vanilla (just by a different name). This explains, in part, our industry's failure to innovate at the speed of business. Now, here is the worse part! When the decision goes wrong, who do you blame? Nobody and everyone! Everyone blames each other and nobody takes accountability because they claim they just voted based on their opinion and it is not their fault that most people agreed. It is like a ghost in running the ship. You can't change the direction of the ship if you can't talk to the captain (the captain being the popular vote of whatever contingency showed up for the meeting).

NEW MODEL: At Exemplar, we still have committees and attorneys who are interested in a functional area of the business are encouraged to attend the meetings where decisions are made on those topics. Each committee has a chairperson (the one with the most expertise or substantive knowledge in the area relevant to the committee). In exchange for having input in the decisions, everyone splits up the responsibility of doing "homework" on issues so that everyone is invested in the decision and not just there to pontificate. Everyone has a chance to weigh in, but the ultimate decision is made by a committee chair based in part on the combined input and also on the TRUSTED expertise of the committee chair. After all, why have someone THAT GOOD in your organization and not TRUST them to make quality decisions. Now, you do not face the issue of having decisions get diluted by popular vote of strong personalities. If things go wrong, you have someone who has agreed to take accountability for making good decisions in the organization. What's more, trusting your colleagues sets you free! You do not have to worry about every decision if you trust in the people you work with.

I am always amazed how the largest firms in the nation manage to hire the smartest minds in the industry and yet many attorneys still do not trust each others' competence. This blog, on its face, appears to be about adopting a more corporate-like decision making model for a law firm. What I am hoping that you will see is that a condition precedent to adopting a more efficient and higher quality decision making model is TRUST. Without trust in an organization it will be impossible to make the change I have recommended above. Am I right? If you have an opinion on this topic I would love to hear from you. (I will post the results)


Jim Belshaw said...

Chris, I am not sure of Exemplar's precise structure.

One of the problems that I have found in partnerships is lack of separation of role and return in terms of ownership and function/activity.Do you make this separation?

Christopher Marston said...

Hi Jim,

Thanks for the comment. I completely agree with you that the greatest problem is a Peter Principal problem -- one of a lack of separation of ownership and control. Fixing the problem is one of the things we are built on at Exemplar.

At Exemplar we have separated the bundle of rights that typically accompany partnership: 1) Profit Sharing, 2) Equity, and 3) Power. In our firm, having one does not guarantee that you have another. By making this separation, we are able to put the right people with the right skills in the right place to make the business as strong as it can be. This makes the organization more profitable for everyone. As far as separating equity and profit sharing, this was also a key decision. Think of traditional partnerships and how easily they dissolve. Most partners don't care about whether the organization lives on beyond their employment with the firm . . . they just want their money while they are there. Why? Because law firms do not have investor partners that have an interest in the continuing viability of the organization holding the partners accountable for making sound long-term financial decisions. So, if the partners who hold equity do not care about the long-term, they do not deserve to be shareholders. By separating equity and profit share, we are able to give partners the same profit sharing as they would if they were equity holders. Then, we can use the equity class to reward certain partners that demonstrate an interest and ability to care for the long-term interests of the firm. This way, we allow a partnership to function more like a corporation, with the appropriate checks, balances, and accountability.