The Real Wealth of Law Firms

“Its time we stop confusing the practice of moving money around with generating real wealth”
 (Florida, R, 1997, The Great Reset, 1st ed.,HarperCollins, NY)

By: Erika M. Negrin

What images come to mind when you think about wealth? Gold bars, paper currency, a big house?  Indeed, many modern authors, thinkers, pundits and other industry experts have written abundantly to challenge these common perceptions of wealth. Consider the following from an article that was posted in The Economist back in 2009:
“At the heart of the current crisis is a fundamental confusion about the nature of wealth. Think about it from the perspective of a Martian. Were an extraterrestrial to be shown a room full of gold ingots, a stack of twenty-dollar bills or a row of numbers on a computer screen, he might be puzzled as to their function. Our reverence for these objects might seem as bizarre to him as the behavior of the male bowerbird (which decorates its nest with shiny objects to attract a mate) seems to us.
Wealth consists of the goods and products we wish to consume or of things (factories, machinery, an educated workforce) that give us the ability to produce more such goods and services. Financial assets arise from the desire to postpone consumption so that money can be saved, either for precautionary reasons or to invest so that more goods and services can be consumed in the future. Looked at in that way, financial assets are not “wealth” but a claim on real wealth.”    (Buttonwood, 2009, The Nature of Wealth, The Economist Newspaper Limited)
There are many different paths we could pursue at this juncture to analyze the above statement. We can examine the illusion of fractional banking and the Federal Reserve. We can apply it to the Great Recession and the housing market. We can apply it to generational views on wealth and how the Baby Boomer’s perspective is so vastly different from that of Generations X and Y. However, let us frame it by considering what the real wealth of professional service firms is. There is only one answer to that-their people! In fact, Peter F. Drucker (writer, professor, management consultant) recognizes this and has been proposing for years that the future belongs to “knowledge workers”. (Drucker P.F., Management Challenges for the 21st Century, 1999, Butterworth-Heinemann, Oxford)
This plays right into competitive advantage. Competitive advantage will increasingly depend on intangibles such as knowledge and expertise rather than tangibles such as plants and equipment. So if that is the case, then firms need to take greater care of their people. That is, “the people you pay are more important over time than the people who pay you”. (Lorsch, JW, & Tierney, TJ, 2002, Aligning the Stars: How to Succeed When Professionals Drive Results Harvard Business Review Press, Boston). “Stars” are what give a firm its competitive advantage. Without these harbingers of knowledge and talent, a firm will not have any clients. No clients- no work- no firm; it is that simple.
What are professional service firms doing to attract and retain the very best talent available? This should be an ongoing priority and not something that is addressed during hiring peaks or visits to universities. The people who comprise a firm are ultimately responsible for perpetuating the very brand of the firm; its reputation and thus its ability to attract clients. Therefore, careful consideration should be given to mentoring within firms; the tendency to consider mentoring as a side-project and not the “real work” of the firm should be avoided at all costs. This is especially true now, as sources of talent are global; there are no borders within the Internet and there is nothing hindering talented people from all over the world from researching and seeking out opportunities at top level firms.
Perhaps some professional service firms may take the stance that talented individuals will simply come their way because of the firm’s long-standing reputation, thus they may tend to be reactive rather than proactive. However, not all of the individuals in the available pool of talent will be aligned with the firm’s strategy, ideals and culture. To select the best-suited professionals who match the firm’s normative environment, the firm will have to expend time, money and administrative resources to seek out those who are most likely to continue the firm’s success far into the future. Consider what Lorsch and Tierney say about talented professionals:
“The general marketability of professionals further skews the balance of power in their favor. These are highly educated and mobile individuals. They can switch firms or decide to hang out their own shingles. The nature of their work builds a strong network of personal contacts, including clients who may be interested in recruiting them. As any successful firm well knows, you can never take these people for granted.” (Lorsch, JW, & Tierney, TJ, 2002, Aligning the Stars: How to Succeed When Professionals Drive Results Harvard Business Review Press, Boston).
Of course, the flight risk of stars is an ongoing issue. A company can spend valuable time and money to train these individuals, only to have them leave after a short period of time. The high risk/high return on the investment of these coveted individuals is difficult to circumvent. However, there are proactive measures that a firm can take to increase the retention rate of stars. For example, rather than waiting for an exit interview to try and ascertain what motivated a key individual to leave, why not try periodic interviews throughout the course of their employment to find out what is working for them and what is not? This way, issues that arise can be addressed before they reach a level which results in losing a key individual. Also, consider ongoing education and professional development (both important to stars). Firms that sponsor seminars, webinars, and newsletters can remain attractive to their top talent while simultaneously marketing their brand to other businesses and networking with them.

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