Why Must Law Firms Be Strategic?Insights from WilmerHale, Cravath, and McDermott.
Last week, at the PLI Law Firm Leadership and Management Institute, three prominent law firm leaders opined on this question: “Why must law firms be strategic?” Each leader described his own firm’s approach to issues of strategy.
The panel, moderated by Mark Shapiro of Blaqwell, Inc., featured an all-star cast:
- Evan Chesler, presiding partner, Cravath, Swaine & Moore;
- William Perlstein, co-managing partner, WilmerHale; and
- Peter John Sacripanti, co-chair, McDermott Will & Emery.
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What these gents had to say, after the jump.
Bill Perlstein of WilmerHale kicked off the discussion by asking the audience, consisting largely of partners at law firms, to ask themselves: What is your firm’s brand? In other words, what do you want your clients and your lawyers to think of when your firm name is mentioned?
He used his own firm as an example. WilmerHale focuses on five key practices that reflect its strengths and its clients:
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1. Intellectual property: The firm has deep expertise in this area, with one hundred lawyers with technical degrees.
2. Government and regulatory affairs: WH has 140 lawyers with government experience. The firm’s lawyers understand how regulators think because they once sat where the regulators sat.
3. Litigation: There’s a difference between trial lawyers and litigators. WilmerHale does trials. Last year the firm conducted 11 trials to verdict and 25 arbitrations.
4. Securities: This is a distinctive practice at WilmerHale, not just a subgroup within another practice, and it is about 160 lawyers strong. The firm has many lawyers with experience at the SEC, FINRA, and other government agencies, as well as lawyers who were in-house with financial services companies.
5. Corporate: The firm’s core competency is on the company side. It does a lot of IPO work and is especially strong in life sciences and technology.
Perlstein also mentioned the firm’s move away from lockstep, which the firm spent two years planning (dating back to 2007 — it was not a recession response). He also touted the firm’s prop bono program, which is especially important for attracting the kind of lawyers it wants for the D.C. office (full of government / public policy types — see our interview with WH partner Reginald Brown for more).
Communication is crucial to implementing strategy, according to Perlstein. He explained that firm management provides “state of the firm” briefings to partners, associates (who get 80-90% of what was in the presentation to partners), and staff (who get about 50% of what was in the presentation to partners). Interestingly enough, turnout for these briefings is highest among the staff, Perlstein said.
Perlstein was followed by Evan Chesler of Cravath, who began his remarks with some kind words for WilmerHale. He talked about how lawyers are terrible at predicting the future.
For example, after World War II, the leaders of Cravath thought the era of “big government” was over — so they let go of the D.C. lawyers who went on to start Wilmer Cutler & Pickering (now WilmerHale), a phenomenally successful firm.
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Chesler identified four principles that are key to Cravath’s success:
1. There’s a fundamental difference between long-term and short-term objectives.
Too often firms focus on the short term over the long term. Sometimes you have to invest now, and take a financial hit, to reap rewards later.
2. You have to identify your core values and your firm culture.
Cravath has completely lockstep compensation for the partners, and it rarely hires lateral partners (maybe two or three times in the past 60 years, due to some unexpected deaths in our small tax department and our desire to move into bankruptcy). This is central to the firm’s culture and has served it well over the years.
3. Identify and use your strengths.
Chesler cited three strengths of Cravath:
(a) An emphasis on training generalists. Cravath corporate associates rotate through M&A, banking, securities, real estate, etc. This approach gives the firm flexibility by allowing it to reallocate its workforce, without having to resort to layoffs. In 2008, for example, the firm moved lawyers from underwriting to corporate governance.
(b) A lockstep compensation system. This encourages partners to help other partners. There are no fights over “origination credit” because Cravath doesn’t have origination credit. Partners are willing to help out other partners because they know that will bring in more revenue, in which all partners will share.
(c) Small size. The firm fluctuates between 425 and 500 lawyers, and it has offices in just New York and London. This promotes cohesiveness and cooperation. (It is a feature of Cravath’s structure, but it’s not meant for all firms; other firms have the strength of offices all over the globe.)
4. Don’t develop a strategy that requires you to be somebody else.
Unless you conclude you need a complete makeover, stick to what your strengths are.
The final speaker, Peter John Sacripanti of McDermott Will & Emery, echoed several of the themes raised by Perlstein and Chesler.
For example, he noted that MWE focuses on its areas of strength (like WilmerHale and Cravath). A firm can’t be all things to all clients. It can be painful to turn away business, but sometimes it’s for the best.
Like Perlstein, Sacripanti stressed the importance of communication. McDermott is communicating constantly, both internally and with clients.
Unlike Cravath, McDermott does not have a lockstep compensation system. Rather, the firm has business plans that map out where it wants to go, and its compensation system is tied to the goals articulated in the business plans.
The presentations were followed by a question-and-answer session with the audience. The highlight of the Q-and-A session was Chesler’s reiteration of his attack on the billable hour.
Chesler’s basic argument: so long as we use the billable hour, clients will be in the business of running our businesses, as law firms. When they get legal bills that reflect billable hours, they can quibble about how a case was staffed, or why a particular project took as long as it did.
“I don’t tell IBM how to build software,” Chesler said. “Why should my clients tell me how to staff cases?”
For example, clients might object to paying for the services for a first-year associate. “Why should I pay that much for a 24-year-old who doesn’t know anything?”
The answer: someday that person with be a 34-year-old, or a 44-year-old, with skills that were developed over years of training. Ditching the billable hour will give law firms the freedom to run themselves as they see fit, to invest in their people, and to staff matters in the most appropriate ways.
PLI Law Firm Leadership and Management Institute 2010 [Practising Law Institute]
