Law firms across the country have adopted increasingly complex management structures. But, writes Chris Kirk-Blythe, this trend is not necessarily good for their clients and employees. Have things gone too far?




In the 1980s and 1990s there was a culture of amateurism throughout the legal profession. Partners with no managerial expertise or training ran their firms in whimsical, ineffective and haphazard ways. In management terms, the legal profession was light years behind the rest of the corporate world.



The pendulum has been swinging away from this for some time now. Law firms of all sizes now take pride in their sophisticated and corporate management infrastructures and hierarchies.



In the modern firm, international, national, regional and office managing partners share power with chairmen, chief executives, managing directors and consultants, who in turn are ‘cross-matrixed’ with various practice, product and sector group heads. They in turn sit above a substrata of heads of client relationship management, human resources, IT, business development, continuing professional development, who in turn report vertically to directors of costs, quality, compliance, claims management, and so forth.



As firms grow larger, management infrastructures and hierarchies are growing more and more complex. These hierarchies can be difficult for employees, let alone clients, to understand and navigate their way through.



Despite these large managerial infrastructures, there is also an increased tendency to hire the services of a broad range of legal-sector-specialist business and management consultants. Providing consultancy services to firms is now a multi-million pound industry.



While the move away from the amateurism of the 1980s was undoubtedly necessary, perhaps it is time that we ask whether the pendulum has swung too far towards ‘managerialism’.



Is there an excess of managerial personnel and techniques, and if so, what impact is this excess having on productivity and profitability, existing and potential clients, and fee-earning and support staff?



The case against managerialism

There is an increasing body of opinion in the corporate world that large, multi-layered, and heavily centralised hierarchies are not a good way of getting things done.



The argument, broadly speaking, is that when the decision-making process is heavily centralised, the inevitable outcome is that bad decisions become more frequent.



There are four arguments against having a large management infrastructure and an overly centralised decision-making process.



Knowledge dispersal

In every law firm there is a large bank of knowledge – knowledge about clients and potential clients, substantive law and procedure, local markets and economic trends, effective ways of marketing and business development, and a host of other practical and business matters.



The good thing about knowledge is that it makes good decisions possible, but the unfortunate thing about knowledge is that by its very nature, it is widely dispersed.



Whether we like it or not, none of us can retain very much information. No single partner, or manager, can know that much. By extension, there are serious limitations to the knowledge base of management boards.



Management boards cannot access and utilise the full knowledge bank of your firm; therefore it is logical to limit their decision-making powers as much as possible.



Decentralisation – delegating decision-making authority away from management – will:

l Enable a firm’s knowledge bank to be accessed and utilised more fully;

l Help a firm’s employees to feel liberated and empowered;

l Cause a shift away from policy-led decisions towards those that are client-led;

l Increase the ‘bottom-to-top’ flow of information; and

l Create a better informed, more streamlined and highly effective executive.



Flawed experts

Modern economic theory tells us that even highly intelligent and highly incentivised ‘experts’ systematically make irrational decisions and errors of judgement.



It is therefore in the interests of every firm to ensure that too much decision-making power is not placed into the hands of a small number of experts.



Even if experts could collate all of the knowledge to enable them to make the right decisions – which they cannot – they would still make the wrong decisions with alarming regularity.



If these theories are correct, or even partly correct, it is tantamount to commercial malpractice for a firm to significantly empower one individual, or a small clique of individuals, to make any more decisions than is absolutely necessary.



The other problem with experts is that of decision-creep. Decision-creep is not so much about making wrong decisions as it is about making unnecessary decisions. Put simply, managers have a tendency to make decisions that do not need to be made at all.



These decisions tend to be firm-wide, or ‘global’, and therefore place limitations on individuals lower down the hierarchy and limit their freedom to make ‘local’ decisions. One bad global decision can prevent lots of good local decisions from ever being made.



Each time management boards and managers make a decision, they should subject it to a subsidiarity test. A subsidiarity test asks the question ‘Could this decision be made more effectively at a more local level and by individuals who are closer to our clients?’



Managers v the market

There are many services which a law firm can either buy from market suppliers or obtain from hired managers.



There are a number of reasons why firms should seek to buy services from market suppliers wherever possible. These include:

l The market is efficient: those who are best equipped to provide good services to law firms cheaply are already doing so. They are called market suppliers and they really want your business.

l The market has no hidden costs: many overheads associated with hiring a manager are not initially visible. Hired managers have a tendency to push for the expansion of their empires in a way that is difficult to foresee and budget for.



For example, one HR director can soon become an entire HR team with office space, support staff, a costly database, new initiatives and strategies, an expenses and advertising budget, and a host of associated overheads.

l The market invites you to negotiate: partners tend to negotiate purchase terms with market suppliers in a more aggressive and effective way than they do with hired managers. Consequently, firms routinely over-pay hired managers to perform relatively menial and straightforward tasks.

l Market suppliers make fewer critical errors: overwhelmed and isolated hired managers are simply far more likely to make critical errors than market suppliers.

l The market allocates resources proficiently: no system of resource allocation is more efficient than pure market competition. Market suppliers will invariably allocate resources to your firm far more efficiently than hired managers are able to.

l The market is innovative and flexible: competition ensures that market suppliers are constantly innovating and developing their service offering. Hired managers are not incentivised to do this. Using market suppliers wherever possible will therefore enable your firm to remain competitive and to benefit from innovation.

l Market suppliers never live in ivory towers: hired managers can be superior in their manner and can become very remote from the end users of their service. They can be authoritarian and autocratic in a way that market suppliers cannot afford to be.



Consequently, employees often communicate more effectively with market suppliers than they do with hired managers. Subordinates have lots of reasons not to tell their bosses the truth. They do not want to burden busy people with detail, or rock the boat, or develop a reputation as a troublemaker.



This lack of communication can stifle the bottom-to-top flow of information and ideas and the upward reporting of service delivery problems or complaints.



If nobody communicates with hired managers, they can end up operating in an entirely imaginary world. Usually a world in which the service they provide to the firm is the best thing since mother nature settled the means of human procreation. Market suppliers cannot afford to function in such a fantasy world.



The myth of leadership

Hierarchy is increasingly being viewed as something that stifles originality and creates an organisation with egomaniacs at the top and slovenly, dehumanised automatons at the bottom.



While the legal profession is busy adding layer upon layer to its management hierarchies, the rest of the corporate world is actively setting about the task of ‘delayering’.



Excessive hierarchy is bad for your clients and it is bad for your employees. It is bad for your clients because it leads to an unsatisfying purchasing experience. Sophisticated buyers of legal services are starting to latch onto this. They do not like a one-hour meeting with a high-flying partner, followed by a long and painful period of unsatisfactory service from a disenfranchised and unmotivated assistant solicitor.



Buyers of legal services are beginning to realise that less hierarchical law firms are often able to deliver a better all-round purchasing experience.



It is bad for your employees because it makes them feel restricted. Time after time in surveys and questionnaires, young lawyers are telling management that what they want is serious responsibility and real autonomy.



They want to make decisions, build relationships with clients, and exercise judgement. They want to develop into fuller and more rounded lawyers and human beings and they feel that excessive micro-management is preventing them from doing so.



Yes, your fee-earners want and appreciate meaningful developmental supervision, but what they really want is for you to let them get on with the job.



Conclusion

The shift away from amateurism is a positive development, but it will be bad for business if the pendulum is allowed to swing too far.



A preponderance or excess of managerial techniques, solutions and personnel could be one of the biggest barriers to profitability over the next decade or so.



Firms should therefore have a healthy degree of scepticism towards professional managers, complex hierarchies, and management consultants. Firms should also have confidence in the market and its ability to deliver services economically, and a high degree of trust in employees and their ability to make good decisions.



To exchange amateurism for managerialism would simply put the legal profession back into a position where, once again, it is light years behind enlightened commercial thinking.



Chris Kirk-Blythe is the managing director of Manchester Law Society Recruitment & Consultancy