Biglaw, Gambling, Gambling / Gaming, Partner Issues, Partner Profits

Law Firm Managing Partners Expect A Bad Year — For Everyone Else

At a roulette wheel in Vegas, you know the odds. The folks with all their money on red have a less than 50 percent chance of winning (47.37 percent, to get technical). There will be highs and there will be lows, but over the long haul, those poor saps swizzling their comped drinks will come out on the losing end.

On the other hand, you put all your money on black because the guy on your flight told you to. Intellectually, you recognize you have the same odds of pulling out a victory as the overmatched retirees from Kansas City betting on red, but you’re absolutely positive you’re going to win.[1]

Welcome to the positive expectation bias. Rational thought flies out the window as you ignore facts you know (or at least strongly believe) to be true, instead placing blind faith in the proposition that everything’s going to turn out well for you.

Law firm managing partners are expected to be a little more risk-averse compared to other chief executives, but it turns out law firm managing partners are not immune to a little irrational gambling from time to time….

The American Lawyer released the results of its annual leaders survey reporting the outlook of various managing partners going into 2014. Basically, it’s slow growth all around. Demand is down, blah blah blah. We’ve heard it all before.

But Steven Harper, author of The Lawyer Bubble (affiliate link), noticed something else about the survey:

In the Am Law leaders survey, 70 percent of respondents said that the sluggish demand for legal services in 2013 would continue through 2014. That’s not surprising. In 2012, only a fourth quarter surge saved many firms from the abyss. The unusual circumstances producing that phenomenon aren’t present this year.

If 2014 will be more of the same as firms compete for business in a zero-sum game, how do individual managing partners size up their situations? Unrealistically. Two-thirds of the 105 leaders responding to the survey of Am Law 200 firms were “somewhat optimistic” about the prospects for their firms in 2014. Another ten percent were “very optimistic.”

So 70 percent of managing partners think the market will suck wind next year and around 75 percent are pretty sure they’re going to do well. That dog won’t hunt, monsignor! It’s one thing to be positive, but it’s another to affirmatively predict gloom for everyone except your firm. Some of these optimistic souls will be right, but many of them have sat down at the table knowing the odds and living in denial. As they say, if you sit down at the table and can’t identify the sucker, it’s you.

So what are today’s leaders doing to prepare their firms for more of the harsh reality that they’ve already experienced for the past several years? Not much.

A staggering 85 percent of managing partners said they were somewhat worried (61 percent) or very worried (24 percent) about partners who are not billing enough hours. Almost 70 percent are concerned that some partners are staying on too long before retirement.

An Altman Weil Survey found similar results last summer. Seventy percent of law firm leaders said that older partners were hanging on too long. In the process, they are hoarding clients, billings, and opportunities in ways that impede the transition of firm business to younger lawyers. Yet the drive to maximize short-term profits led 80 percent of firm leaders to admit that they planned to respond to current pressures by tightening equity partner admission standards. Pulling up the ladder on the next generation is not the way to motivate the young talent needed to solve the transition problem.

And if aging past masters isn’t enough, the managing partners also reported low morale among their fellow partners, hardly a quality you’d expect to portend a positive year in an admittedly sluggish market. Harper’s analysis finds law firm leadership seems to understand everything wrong with their firm outlook except the fact that something is actually wrong with their firm outlook. As he explains, part of the problem is a lemming outlook that “growth” through laterals or mergers will save them. Basically pretend the claw is a merger:

They exhibit this faith in growth even though they also understand that “a myopic growth strategy” is not always productive. But just like the other findings from the survey, many managing partners seem convinced that it’s a poor strategy for everyone else. Until and unless firms have a serious GA meeting to consider what specific steps are needed to move the firm forward in an environment where slow and steady and not “shoot the moon” holds sway, the hangover of the new normal will continue to plague firms.

[1] The croupier then calls, “Double-zero!”

Firm Leaders Survey: Slow Growth on Tap for 2014 [American Lawyer (sub. req.)]
Failure of Leadership [The Lawyer Bubble]

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