THE MARCUS PERSPECTIVE

SURVIVING IN THE CURRENT CASCADE OF ECONOMIC DISASTER

How Obama’s New World Is Likely To Change Professional Practice

         The point is that no company, not even a profitable one, should assume that it will come out of this period looking as it did when it went in. The marketplace of the “revitalized” future, whether it emerges in 2009, 2010, or beyond, will have a new set of realities. Customers, competitors, and suppliers will have different expectations and behaviors. Companies must be ready for them by being different, too.

                                Jack and Suzy Welch, Business Week, 2/9/2009

            It should be fairly obvious by now that the current economic situation, the plans for recovery by the new administration and congress, and the thrust of President Obama’s governance, are going to alter the texture of the modern economic and social fabric. It will certainly alter the nature of professional practice. More so law firms than accounting firms, perhaps, but no business or industry in America will go unchanged. Look at the auto industry and as well at Home Depot, Macy’s, and myriad other companies. Look also at companies small and large, where, these days, more employees pass through their doors on the way out than on the way in. Or through which customers don’t enter at all.

            Prognostication is, as the British say, a mug’s game. Too many random or unforeseeable factors surface to alter the course of events. Some of these changes, as we’ve seen, come swiftly and unpredictably, and others creep in slowly and at a pace not noticed until it’s too late. Some give warning signs – some do not. Most changes occur as a result of somebody else’s actions.

I don’t know any better than anyone else exactly how the successful professional firm of the future will look. I do know, though, that President Obama and the contemporary congress will bring forth a new regulatory structure, an enhanced communication system, and a new economic environment -- all of which will produce a new kind of economic and social structure, a new kind of law firm, and possibly a new kind of accounting firm as well. The changes will emerge more by evolution than by revolution. Most of it will probably happen at an imperceptible pace -- maybe one firm at a time. It will, I think, be driven by changing client needs, which will themselves be driven by a new economic and social environment, and an accelerating competition.

            Nevertheless, there are some likely scenarios that, in one form or another will contribute to reshaping the nature of professional services practice. For example...

·         Many people, including me, have long suggested that the traditional partnership structure was an antiquated and cumbersome form of professional firm governance that no longer best serves today’s economic, legal and social conditions. Few partnerships are really partnerships, in collegial as well as practical terms. They bestride the two worlds of corporate structure and limited proprietorships. There are already a number of law firms that have moved or are moving in one direction or another. The ultimate success of new firms in today’s economic environment is not quite ready to be judged – it’s one of those things I was thinking of when I talked about evolutionary change – but who knows? The considerations that define a profession are sacrosanct, and probably necessary to sustain any professional practice. These include the prestige and integrity of professionalism, the independence of professionals, the ethical considerations, and tradition. But is the partnership still the best form of governance in today’s economy? What would be a system that still respects these factors? I don’t know. But I do know that lawyers and accountants are pretty smart. When it becomes obvious that there are better ways to serve the professions and the clients, they’ll figure out how to do it. And that’s pretty much what’s beginning to happen.

·         It seems likely that the growing trend away from the billable hour will accelerate. People like Ron Baker have led the charge against the practice for decades, and must surely now begin to feel vindicated. I wrote an article called “The Curse of the Billable Hour” about 20 years ago. This practice too, is likely to have further unforeseeable ramifications, if only because not every lawyer or accountant will fully understand how to charge for value – a concept that itself will rarely be defined simply and in the same way by every law or accounting firm. This will affect the nature of competition. The billable hour ultimately evolved into a system in which everybody’s rates all fell into the same configuration, causing one very wise man to note the similarity to a cartel. But if everybody switches to value billing, and everybody has a different concept of value, it should be like loose cargo on an airplane in turbulent weather. If that happens, it could take years for the new system to shake out.

·         Currently, unemployment in law and accounting firms, as well as among their clientele, is exploding. Law firms of all sizes are cutting both staff and professionals at an alarming rate. But when the economy begins to turn around, as it will most certainly, will there still be enough trained and experienced specialists available to help serve the legal problems of a recovering economic environment? What, then, will be the shape of the law and accounting firm at emerges from the recession as it recedes?

·         I suspect that the kind of law and accounting firm that will have the greatest trouble in the coming months will be those that are small or midsized, particularly those that are not what David Maister calls the one-firm firm. The one-firm firm is one in which the partners see themselves as part of a strong central firm, as opposed to the firm that’s a collection of independent entrepreneurs, competing with one another within the firm. In the competition for a diminishing client base, even the most successful specialist will need a substantial firm behind the individual. The entrepreneurial lawyer or accountant who does not serve the entire firm, and the firm that tolerates that behavior, will, I think, be marginalized.

·         Is size alone a survival factor? Not necessarily. While we see reports that the clients of the larger firms are retrenching and diminishing the giants, note as well that the clients of the smaller firms, many of whom are smaller entrepreneurial operations, are also suffering from the same recession. President John F. Kennedy once noted that a rising tide lifts all boats. And what, then, happens in an ebb tide?

·         Disintermediation, a common term in the financial world, in which consumers of services bypass intermediaries, such as brokers, is now beginning to pervade the professions. Users of tax preparation and other accounting software now increasingly bypass professional tax preparers and accountants. An increasing number of legal services – wills, business forms, legal advice, and so forth — are now available online or in consumer software. While there are of course limits to what can or can’t be done by consumers who bypass professionals, it is nevertheless a trend that can, and probably will, accelerate, particularly under current economic conditions. And if disintermediation becomes a habit during difficult times, it is likely to sustain through better times.

At the same time, consumers and clients using the internet to second guess professionals is increasing. Consumers are learning to go online to check opinions given by professionals (including, by the way, doctors). These activities don’t do much to enhance the prestige – or the practices – of the professions.

·         The Obama administration seems to be rewriting the book on regulation, as well as on the financial and social landscape of the United States. Certainly, this will cause a shift on the emphasis in many practices, both legal and accounting. Ultimately, it will create a new prosperity, as do all new regulatory structures. But unlike many such shifts in the past – the effects of an ERISA or new tax law, for example – the new regulatory environment may result in structures that streamline the way law and accounting firms operate and relate to clients. How this will evolve is anybody’s guess, but evolve it will.

·         The rash of mergers we’re seeing today will also ultimately affect the shape of the professions. When firms merge, it’s not just the same old firm with new or different people. It’s a merger of cultures as well. Three things can happen. The acquired firm can adapt to the culture of the acquiring firm. Or the acquired firm culture may prevail. Or what’s most likely, a new culture may develop. But it’s likely to do so slowly, and most importantly, reflect the radically changed conditions in the economic and social world.

·         Many bar and accounting associations change slowly, but quickly become anachronisms. Those associations that adapt to the demands of changing economic and social conditions will thrive. The others will become irrelevant, will probably be superseded by new kinds of organizations that are more in keeping with contemporary conditions.

·         I continue to be appalled at the disconnect between lawyers and accountants, and marketers. It seems that neither group truly understands the other. Lawyers and accountants are not particularly comfortable with non-professionals in their midst, and each group has different expectations of the other. The problem is that where there is professionalism in marketing, and where competition is most keen, there may be nobody more important to a firm than a knowledgeable and experienced marketer. At some point, in this dismal economy, with cost-cutting the new religion, it will dawn on the lawyers and accountants, and on the marketers as well, that they had better understand this.

·         At the same time, changes will affect the professionalism of marketers. Lawyers and accountants spend many years in school learning their craft, have serious apprenticeships, and are certified by boards and agencies with stringent standards. The range of education of a marketer, particularly in his or her craft, with a few notable exceptions, goes from zero to mostly haphazard. Marketers learn from other marketers, and unfortunately, accountants and lawyers learn about marketing from marketers who have little training or experience. No wonder there’s a disconnect. There are, indeed, talented, skilled, and professional marketers who excel at the craft, but unfortunately, most lawyers can’t tell the difference. It is an unfortunately difficult situation for both sides.

I suspect that in the next few years, this situation will change. With the consolidation of firms due to the recession, the remaining corps of marketers will be those who are more professional, more imaginative, more skilled than the larger body of marketers. At the same time, the surviving firms that retain them will themselves be better educated in marketing practices, more understanding of the nature of marketing, and more realistic about expectations.

           There will be, I think, many more changes. In many aspects, the world is a closed hydraulic system, in which pressure at one point effects changes at another. We have seen thus far this effect in our economy, wherein the financial services world is substantially altered, almost beyond recognition, followed by vast economic and social destruction. This will most certainly happen in the professional world. In some respects, we’ve already seen the dynamics for this change. As in the sequels to a war, new institutions, new economic forms, new commercial and social structures will emerge. The professions are not likely to be immune to this kind of change.

            One thing that seems to be happening is not just change, but irrational change. Reading the news, and particularly the trade press, we see attempts at cost cutting by throwing people to the wolves, without any apparent regard for the fact that the world and the economy change – without too much thought being given, it would appear, about the future. Not in all cases, of course, but in more than a few. Long range planning, even under the current circumstances, is not a luxury.

            Our economy today will clearly get worse before it gets better. It would be folly to expect that the old Dickensian model of the law firm, and the traditional nature of the accounting firm, will be unaffected. The firms that will survive are those that are prepared to accept the changes wrought by the cascade of current events.

As for the marketers, their effectiveness will be judged on their ability to produce clients. Not branding, not prestige or reputation, but clients. The art of practice development will trump the vagaries of many of the mechanics and false promises of marketing. But those who understand how to use the tools and mechanics of marketing to produce clients, and to shape a practice to meet the needs of an emerging clientele, will be the marketers who survive and thrive.

I suspect that in the next four to eight years, the successful law firm will be one that...

·         Recognizes changes in the economic and social environment, and how they can change a practice

·         Is more focused on client needs rather than on traditional firm practices

·         Understands modern communication techniques

·         Is not bound by traditional law firm structures, nor tightly defined by obsolescent rules of traditional bar associations

·         Is a one-firm firm

·         Takes calculated risks

·         Values talent above tradition

·         Understands marketing and competitive research

·         Understands that professional practice is competitive

·         Is more cognizant of future needs than of the firm’s history

·         Understands the role of marketing as an integral part of practice

·         Understands and accepts the professionalism of marketers

·         Is willing to push the envelope in the service of clients, without breaking the bounds of ethics

·         Understand the role of ethics as an integral part of contemporary society and commerce, and not just as rules cut in stone

·         Is in touch with the dynamics of the new Obama administration, the new economy, and the new society being forged by contemporary circumstances, new forms of information, and new economic and social structures.

            Assuming the accuracy of the foregoing, or even an approximation, what can lawyers and accountants do now to gain a foothold into the future?

            Pay attention. Listen. Read the trade press, and particularly legal and accounting blogs. Competitive intelligence is increasingly important in the new emerging world. Learn long-term planning, which has, in the past, not been particularly common.

            This is an era in which listening carefully to clients is more important than ever before. The lawyer or accountant who sees clients as merely a stage upon which to perform legalistic magic is most likely to be marginalized.

These ponderings, I believe, are worth considering, because among those caught up in the nation’s kaleidoscope of sound, color, and texture will be the law firm. And perhaps the accounting firm as well. And those caught in the maelstrom of the brave new world will either survive and thrive, or be cast off to a premature and unexpected decline and demise. We’ve seen that already in the financial industry, as names we have heard since childhood fall off the horizon. The legal and accounting professions, it is clear, are not immune to the turbulent tides of our times. There may no longer be a usual, as in business as usual.

This article also appears in The Marcus Letter (www.marcusletter.com)

WHAT VALEDICTORIANS AND MARKETERS HAVE IN COMMON

 

Challenges of a Brave New World

 

A young friend of mine, who is about to graduate from high school and go on to Princeton, is his class valedictorian, and is starting to work on his speech. It got me to thinking about graduation speeches in general, and what I would say, were I asked to give one. It’s not easy to find something to say that’s not trite, a rehash of everything that’s been said before, and that gets the graduates to really listen.

 

            Then I realized that there is something to say to graduates that’s not only appropriate to our times, but that has strong implications for marketing as well. Ultimately, what today’s graduates must face  is precisely what every marketer must deal with as well. Bear with me a moment, and you’ll see why.

 

            The dynamics of the times, in which things constantly change, bring us to the end of each day in a world that’s slightly different, in all aspects, from the world of the day before. The changes, each day, are barely perceptible, until seen in the perspective of, perhaps a generation. And each generation invents itself anew.

 

 The new technology, to which we attribute so much change, knows no borders and communicates at unprecedented speed. It has created a new kind of individual  -- and a new kind of society. The new technology and globalization have brought into the foreground a new equity among disparate groups, and a new need for respect of others not like ourselves. It’s meant new media and the accelerated decline of old media, accelerated internationalization of commerce, and of new ideas and concepts. It’s meant faster  and broader flows of ideas, and a greater perception by one another of  races, cultures, and economic classes other than our own. It has created a commonality of needs, wants and interests that’s broader and more universal than ever before in world history. Divisions by race and color and cultures have begun to erode. Instant communications and new internet independent and unembellished news have reduced the impact of traditional media, which can’t compete with new sources of news. There are even new outlets for advertising – a significant challenge for marketers. 

 

It has created a new science and practice of knowledge management, which, in its earlier days meant the mechanics of storage and retrieval of data but now means better use of that data.

 

The challenge, then, is how to reconcile and adjust to the new community that’s emerging from these seminal events.  As ever, events alter the course of mankind slowly, sometimes imperceptibly. But this time, due to technology, these changes have been accelerated.

 

            For this generation of graduates, it’s meant the heightened challenge of competition.  The colleges are filled to overflowing, and are turning away vast numbers of highly qualified applicants. They are graduating an exploded number of very bright, highly trained individuals. For both graduates and marketers, the competition in the market is going to be keener than ever before. I believe, too, that all the talk of dumbing down America ignores the larger core of very bright people – not only from America but from all nations of the world – of whom more is demanded and more whom will respond  with greater, intelligence, productivity, innovation, and work ethic.

 

For marketers, it has meant new dimensions in competition. Consider, for example, the growth in the number of  law and accounting firm marketers, which has itself led to a growing core of lawyer and accountants who recognize the need for professional quality marketing.

 

If it has generated a new kind of society, it’s created, as well, a new kind of consumer – smarter, better informed, more questioning. A new kind of international individual and business person. And for professionals, it’s bred a new kind of client. It’s broken color  and culture barriers, and it’s generated a new emerging economic, cultural, and educated middle class, with a new font of ideas.

 

            The crux of what both marketers and new graduates are facing, then,  is not merely a matter of technical advance – but rather of content, and how technology and its content has changed the world we both face. What is the effect of this vast array of changes and change agents on our world, and how must we cope with it? What are the challenges and how must we deal with them?.

 

            The message to both recent graduates and marketers, then, is to speak not of technical advances – but to speak rather of content, and its more widely and rapid dissemination. Speak, too, of the effects these new communication structures have on civilization and culture. What word is carried by the new technology and the nature of the society it creates? And speak too of the new challenges the fruits of this technology generate for both bright young graduates and savvy marketers as well.

 

            And again, this is a dynamic – not static – phenomenon. Both socially and economically, all of us must deal with not only change itself, but with the dynamic of change, which will keep happening. Fast.

 

This, in sum, is the lesson of the day.

 

NO PAIN, NO GAIN

Is The Marketing Return Worth The Risk?

            The great 1930s New York City Mayor LaGuardia used to say, "I don't make many mistakes, but when I make one, it's a beaut."

            Marketing is one of those peculiar art forms in which you don't know you've made a mistake until well after the deed is done. What seemed like a good idea at the time may turn out to be a fiasco. What worked magnificently yesterday may bomb tomorrow. That's the exciting and interesting thing about marketing -- it's loaded with risk. When it works, its rewards are abundant. Unfortunately, marketing is expensive, and when you fail, it's usually an expensive failure.

            Risk is inherent in every marketing decision, and most often, the ability to be successfully original is a function of the degree to which you're willing to take risks. Not taking risk means doing the same thing over and over again, regardless of changing circumstances or of the elements involved. It may seem safe, and may even suggest that you're knowledgeable because you can summon up the past. But it doesn't always accomplish what you'd like it to, and it certainly doesn't do much to advance the state of the art.

            Of course, if you don't take risks you don't make mistakes. But it means as well, in the competitive arena, that you don’t accomplish much, either. Sometimes you've got to assess the potential danger in risking a new marketing idea, against the potential value if the idea succeeds.

            There are some things that we know probably do or don't work. But one thing we've learned, in the three decades during which we've been able to market, is that there are very few absolutes. What didn't work yesterday may well work today, just as what did work yesterday may not work today.

            For example, there was a time when nobody believed that telemarketing would work to sell professional services. Now we know very differently, assuming that the telemarketing is done right. There was a time when the notion of direct mail to sell professional services horrified many conservative professionals. Today, even when it's done badly, it's taken for granted as an acceptable professional firm marketing tool. Consider, too, the courage of the first professionals to use the Internet as a marketing tool. Today the Internet is integral to the marketing process.

            The trick, then, is to understand what risks to take in trying new ideas, and when to take them. That won't avoid all the mistakes, but it will serve to diminish the number and degree.

The More Flagrant Mistakes

            There are three kinds of mistakes that tend to arise most often, and that tend to substantially increase risk -- those that come from not understanding the marketing process; those that come from not understanding the skills and techniques of marketing; and those that arise from just poor or misguided judgment.

            Perhaps the most expensive mistake that can be made in marketing is to not understand the process. You will make mistakes consistently if you don't know what marketing is, or why marketing a professional service is different from other kinds of marketing, or what you can and can't expect each aspect of the marketing process to accomplish, or how long the process takes to work, or what the variables are that can affect the process.

            Those mistakes that come from not understanding the techniques are just as wasteful, simply because it takes as much and more energy and money and time to do something wrong as to do it right. The techniques are the tools and devices and the way they’re used. They require training, skill, and experience.

            Mistakes of judgment are those that arise out of inexperience or ignorance or misconception. On the other hand, there are mistakes in judgment that are made in the context of even calculated risk, in which you try to guess the unknowable, and guess wrong. But if the calculated risk works, the results are terrific, which means the risk was worth taking.

            Not understanding the process can result in at least the following fatal or near-fatal mistakes:

·        Choosing the wrong marketing people

·        Misusing, and ultimately losing, truly competent or thoughtful marketing people

·        Choosing the wrong marketing program

·        Aborting or misjudging a good program before it's had time to work

·        Not understanding when and how to fine-tune a good program that's been adversely affected by changing circumstances

·        Not understanding how to use feed-back and new information to advantage

            Not understanding the techniques almost invariably produces:

·        Failure in the technique, and then blaming the failure on the technique or the program. Or expecting unrealistic results from good techniques, and then abandoning those techniques for the wrong reasons.

·        Residing in mythology rather than reality. It leads to the distortion syndrome -- publicity is free advertising and I can write a letter -- who needs a direct mail pro?

            Mistakes in judgment result in all of the above and more. But the mistake in not taking risks can frequently cause more damage than all the others put together. This kind of mistake takes the form of…

·        Not listening to the marketplace. Never mind what you want -- this is what I sell.

·        Reverting to the standard; the old way; the way you or others did it yesterday. Looking backward, rather than forward. Doing only what's been done before. Never being original.

·        Doing something only because it's worked before, for other people or in other contexts, rather than because it relates to the new objective and the new circumstance.

·        Not exploring new techniques, particularly when the reason is inconsistent with what others – particularly your competitors -- are doing. We've never cold-called or written to a prospect. Telemarketing is not dignified. We don’t understand e-commerce.

·        Losing track of the relationship of an idea to the aims of the program.

            In a highly competitive arena, which is what the professions have become, the competitive difference lies in the new, the risky, in the original. Trying something new always has inherent risk. The danger is greater, though, in not trying new ideas and new techniques. In other words, the willingness to risk.

            There's a paradox. Any program, marketing or otherwise, depends first upon its basics. There are certain basic processes that must be undertaken. Certain forms of planning. Certain tools that must be considered. There's no credit for doing the basics, but there's great penalty in not doing them, and doing them well.

            The competitive difference, then, between two firms that perform the marketing basics well is in the thoughtful and original ideas beyond the basics. The new approach to a market. The originality of the language or layout in a brochure. The message in a direct mail letter. The willingness to try a new skill or technique.

            Part of risk, too, is taste. Taste is too mercurial to define, but it's sometimes helpful to learn to project consequences, and to learn to view ideas not in your own context, but through the eyes of the beholder. The result is often to see things, not as if I think it's in good taste, others will, but quite the other way around. I don't necessarily like it for myself, but will it be accepted by, and work for, my target audience?

            If we accept the reality that mistakes are going to be made by even the best marketers, and that mistakes are not always fatal or irrevocable, how do we avoid or minimize them?

·        Learn the basics of marketing and its tools. You don't have to be proficient in every tool, or even in every aspect of marketing. But you should understand the process -- how it works, what you can and can't expect, how long it takes, and so forth.

·        Consider the knowledge and experience of marketing professionals. Learn who they are, and how to tell a good one from a bad one -- a marketer whose skills are limited to selling his or her own services versus a marketer who knows how to market your services.

·        Learn to accept the professionalism of the marketer, and to consider his or her ideas in terms of that professionalism. If you can't trust your marketer's own professionalism, then get a new marketer -- or get out of marketing altogether and abandon the field to your competitors

·        Learn to take normal business risks in marketing. Trust new ideas and new tools and new concepts, if they're formulated in the context of experience and marketing professionalism. Don't say no -- or yes, for that matter -- for the wrong reasons

            Thoughtfulness should be an element of every profession, including marketing. But at the root of success in every profession is professionalism. Just as your clients are asked to trust your professionalism, so should you learn to trust that of the marketing professional.

LOWERING THE BAR – LITERALLY – ON ADVERTISNG

Dirty Tricks Advertising Seeps Into The Legal Profession

            There was an ad in today’s Wall Street Journal that really disturbed me. So much so that, despite the fact that I’m in the middle of doing a comprehensive study of professional services advertising, I have to write about this now, because I think the premise of the ad is so egregious.

            It’s a quarter page ad with a thoughtful looking man – purportedly a prospective client -- looking pensive. (How do I know ? Because he’s stroking his chin..) The headline reads, “I need lawyers who are more concerned about managing my risks than their own.”

            The body of text reads, “If your lawyers seem more concerned about enumerating your options than helping you choose among them, you might wonder whose interests are really being served.”

            Now, as I mean to demonstrate in my forthcoming paper on advertising, most of it is pretty bad, and seems to have been written (with exceptions, of course) by agencies who haven’t the slightest idea about how the profession of law works.

            But this one looks like it was written by someone trained in political dirty tricks advertising.  Does the advertising law firm really thinks it has to insult the profession to make its point?  Does it really need to put down other lawyers, as if they were opposing candidates in an election campaign?

            I suppose the question of ethics may arise, but even before that is a question of professionalism and taste. I would be surprised if half the profession doesn’t feel sullied by this ad. I can’t wait to hear from the bar associations, who are quick to pick up on this kind of attack. I wonder, too, if prospective clients of this law firm might not be offended by thinking that all the firm has to offer is a put down of competitors.

            I think this ad – and I refuse to name the firm – sets law firm advertising, as fragile as it is  today – back considerably.

TAKE ONE SURVEY…

And Salt Lightly Before Believing

            There’s nothing like an election year to immerse ourselves in surveys. This, despite the fact that more often than not, they tell us less than we want to know, and even less than we should believe.

Everybody, it seems, wants to know the future, and it appears that the closest you can get to knowing the future is to accumulate a bunch of guesses. Great for a parlor game, but not much use for making important decisions. Everybody wants to know what other people are doing about important matters, which is a more valid reason for business surveys. Sometimes the survey informs business decision, and keeps a business from operating in the dark. Sometimes the results offer emotional salvation (According to the survey, I make more than the average of my profession)

            Surveys come in different forms, of course. There’s the big political survey that seeks to tell us where the voters stand on each candidate. There’s the advertising survey that seeks to tell us the efficacy of a new ad campaign, and there’s the brand name survey (“Have You ever heard of this product? What do you think of it?”). These are the kind of surveys mostly done by professional survey and market research companies.

            These companies are generally pretty good. They use sophisticated modeling techniques and computerized formulae to tell us (with a margin of error of 4 or 5 points either way) who’s going to win the next election and how high skirts are going to be next year. Highly scientific stuff – but, unfortunately not always right. When they’re wrong, they claim, often quite rightly, that the world moves faster, and opinions change faster, then they can survey. The problem is that they don’t usually claim it until after they’re proven wrong. Which is why  you have to take those surveys with a grain of salt.

            Then there are the attitude surveys (Why do customers (and clients) buy? What do you think of my service?). These are a problem, because too many people don’t really know what they think about a lot of things. (“I hired this firm because I needed a lawyer. But I chose this firm over that firm because …). Here’s where you get into trouble. The intellectual factors (I like their litigation track record) is only part of the answer. The other part is emotional (the managing partner reminded me of my father) is usually too Freudian to tell you much you can use in a business context. That survey requires a box of salt. 

            Then there are the localized, one firm, internally done surveys of client satisfaction. These must be taken with a box car of salt. Or as one respondent said, “If I didn’t think I was getting my money’s worth I’d have fired you.” These are too often done by marketing people with little sense of the science of surveys. The results are mostly useless.  Surveys like these are popular marketing devices, and not just the push-pulls, which load the questions to favor the sponsors’ products or services. Some surveys are reasonably accurate, but too often they’re the lazy marketer’s way to avoid original thinking. If you really want to know what your clients think of you, hire a professional who will sit down with clients for an intensive one on one discussion. Then you’re most likely to get substantive information.

            Probably the most difficult aspects of surveys are that too many people are not always objective in the answers they give. Many reasons for that – they don’t really know how they feel, they don’t want to appear unqualified to answer, they have their own agenda, they don’t always know the real reasons they do things and so forth. Many surveys delve into areas in which the answers are so rooted in the subconscious that the spoken response bears no resemblance to the hidden response.  Look back on your own choices in buying services. Are your reasons always the right ones? Do you really believe your brand of tomato juice is better than the other brands, or is it just that it’s the brand your mother bought? Clearly, the most suspect surveys are those that try to fathom the depth of motivations. We don’t always know why we do things, but we’ll answer those questions anyway.

Now, I grant you that surveys, even the home grown ones, are not universally bad. Some surveys are thoughtful and useful, with answers you can reasonably rely on. But most of them should be taken with a grain of salt, and using that grain of salt can be an art in itself.

            If you read the results of a survey just for a general idea of how people think about a subject, the inaccuracy of the results doesn’t really matter. But if you make decisions based on the results, then the survey had better be an accurate reflection of what the surveyed really think or did.   Those are the times when your intuition or experience supersedes even the most professional surveys.   

            Still, many surveys serve a purpose, if they’re taken with that famous grain of salt. Never, never, in judging a survey, abdicate your own intelligence, experience and intuition.

A survey may be useful if…

·        You understand the methodology. How was the survey done? Never trust a survey in which the methodology isn’t made clear. Written surveys are the most suspect, because too many valid respondents don’t bother, or don’t take it seriously. In-person responses that arise from intensive personal interviews by a trained professional interviewers are at the other end of the validity spectrum – the responses you can most trust.

·        If it’s a survey by a reputable publication or web site in which participants are invited to submit answers to a specific question.

·        If the respondents’ qualifications are strong. The best way to judge advertising, for example, is whether respondents are willing to make buying decisions based on it, or by name recognition. The worst way is on aesthetics, which only experienced professionals can judge with any reasonable validity.

·        If the sample is valid. It should be broad and based on the nature of respondents. For example managing partners know about partner compensation (but don’t always tell the truth, which is why you need a very broad sample).  They know about plans for the future, but sometimes hedge their responses for competitive reasons.

·        If the responses give you a valid sense of trend. A sample that’s too small is useless, regardless of responses. 

·        If you can trust the objectivity of the survey’s sponsor.

·        If you can trust the survey result sufficiently to use it in your own planning. 

·        And ultimately, if the survey has only a toe in the past  and two feet into the future.

In any endeavor, it’s invaluable to know what others think and what others are doing. But two things to keep in mind…

·        A survey, no matter how good or how well founded, isn’t gospel. It’s greatest value is as a guide to your own thinking and decision making. But it should never be more than one factor of many in your decision.

·        Your own experience, intelligence and intuition may be informed by a survey’s results, but the final decision should be yours.

Then the survey might be really useful.

IT’S THE GENES THAT DID IT

How Personality Differences On Wall Street May Have Contributed To The Current Economic Problems

            In a recent New York Times column, economist Paul Krugman suggested that bailing out the investment banking firms was one thing, but bailing out the individuals responsible for the current situation was yet another. He’s absolutely right. With all that’s been said in recent weeks about causes for the mortgage and other fiascos, very little has been said about the bankers themselves, beyond noting that it was bankers what done it. And oh yes, by the way -- a lot of them still got massive severance payments.

            Aha! In the several books I’ve written on investor relations, I noted that people not actually involved in Wall Street tend to lump all financial people in one category. They all deal with money and make more than most people, goes the popular opinion, ergo they must be smart. Not only is it not true – as someone once told me, money is dumb, it doesn’t care who it goes to. There are vast differences in levels of intelligence and personality types for those holding each of the broad variety of financial positions. It’s an old story, of course, that most clients of service industries don’t much understand what the bankers and the professionals really do to work their magic. They’re just interested in results.

            For example, differences may be found between, say, most stock brokers and most investment bankers. Each requires different skills and different personalities. And remember, there are dozens of different jobs in the financial field.

            But I’ve always found that there is a profound difference between the investment banker and the commercial banker. Over the years, I’ve done a great deal with both. And that difference, in both obvious and subtle ways, contributed and continues to contribute to the current economic problems.

            I observed, many years ago, that commercial bankers were apparently born with a risk-averse gene. So controlled were they by that risk averse gene that long after their world had changed, they were still insisting that they were dealing mostly with the depositors’ money. In fact, most of the money they had came from investment and lending income. When I wrote The Prudent Man, the first book on investing under ERISA, I learned that bankers had difficulty grasping the fact that ERISA was the first federal trust law (all other trust law was from the state), and certainly that ERISA was the first trust law that didn’t prescribe the specific instruments in which they were allowed to invest. It took a book, written with the help of about a dozen people, including several who had helped write the law, to explain the difference. In subsequent reporting on ERISA, I learned that for years afterwards, most commercial bankers still didn’t get it.

            In fact, in an article I wrote at the time for a pension fund magazine on preference between commercial banks and investment banks to manage pension funds, I quoted one pension fund manager as noting that, “Banks can’t turn around in the Atlantic ocean.”

            In 1933, in response to banks’ excesses, the SEC promulgated the Glass-Steagall Act, which prohibited commercial banks from functioning in the securities markets. But in the last quarter of the 20^th century, banks, envious of the kind of money that investment bankers were making, pushed hard against Glass-Steagall, and eventually overturned it. That’s when troubles began – and still persist. Commercial bankers thought differently about investment risk than did the investment bankers. Investment departments were established by the banks, only to find them failing. And not only because of the risk factor. The investment bankers were making more money than the bank managers were making. It was a fascinating exercise in envy.

            There were also the differences in the personalities of each group. Bankers are willing to make money more slowly than investment bankers. The investment bankers are more impatient, and their sense of urgency to seize what they perceive to be opportunity readily supersedes a sounder judgment of risk. I wrote back in the 1970s that the perspective of Wall Street ranged all the way from the opening bell of the Stock Exchange to the closing bell the same day. It took the commercial bankers a long time to catch on to how investment bankers work.

            Well, gradually the two groups have learned to accommodate to each other – but only to a limited degree. The lack of perspective allowed both groups to be blinded by greed and to ignore basic business principles. Thus, they didn’t see the danger and potential consequences of turning mortgages into investment instruments, and then granting low interest adjustable rate mortgages to people who could barely afford them. Naturally, they were so short sighted as to be unprepared for a potential rise in interest rates in the future on these promotional, adjustable rate below prime mortgages that were sold to high risk borrowers.

            Surely there’s a personality problem that allows supposedly savvy financial people to be so short sighted. If the commercial bankers contributed to this current crisis, it’s because they understand risk through some fantasy screen – they can see the future only in terms of the past, and still not understand it. The investment bankers, on the other hand, are so comfortable with risk that they’re blinded by the potential gain, and ignore the potential for loss. How else can we understand a Bear-Stearns decline into two bucks a share bankruptcy?

            There’s yet another consideration – or at least a question. In this era in which computers and other technology can quantify risk, how did Bear-Stearns, and possibly several other major investment firms, not see the risk in the mortgage business. If they couldn’t do the arithmetic on paper, they certainly had computers to do it for them. And particularly in the sub-prime business, which was in large degree a gamble on the future of interest rates?

            It’s scary, isn’t it, to know that we trust our money to these geniuses. Krugman is right. Get rid of these shortsighted, risk averse or risk inured financial wizards, and get some really smart people in there.

            Or as the famous philosopher, Yogi Berra, put it, “Ain’t nobody here knows how to play this game?

ARE THE GIANT FIRMS GOOD FOR US OR BAD FOR US?

            My friend (I’m proud to say) Bruce MacEwen (known as Adam Smith Esq.) (http://www.bmacewen.com/blog/archives/2007/08/deweyleboeuf_welcome_to_t.html), has a marvelous and insightful discussion on the meaning of the LeBoeuf-Dewey merger, now in advanced stages of discussion. A lawyer himself, and an economist, Bruce fully understands the rationale behind the merger, and explains it beautifully.

            His article, and the merger itself, focused my thinking on several questions that have nagged me for a long time. How are they going to run these mammoth law firms? What new management and governance structures will emerge? Will the cumbersome partnership structure evolve into a new form of governance for the big firms, and then filter down to the smaller firms? Where do the management skills come from? What do the mega-mergers portend for the smaller firms, and the solo practitioners? And of course, what’s the role of marketing, for both the giants and the smaller firms?

            I have never believed in prognostication – too many random variables – and it has long been shown that the media talking heads who make such confidence-laden predictions have a lousy track record. But I do believe that asking the right questions, based on history, can tell us a lot about possibilities and likelihoods.

            For example, we know that the best corporate leaders acquire their leadership skills by touching a lot of bases – and learning something at each one – on their way up from intern to CEO. Lawyers and accountants, even those with MBAs, learn a lot about lawyering and accounting on their way up, but very little about management. Where, then, comes the skill to manage the giant, thousand-plus lawyer firm? True, some managing partners are born leaders, and have great instincts for management, but what about the managing partner who got the job because he or she is a great rainmaker? It could be argued that the major international accounting firms have long been mammoths, but accounting is very different from law, and even there, few of the giant accounting firms have been well managed.

In the past, poor management and inadequate internal controls allowed rogue lawyers (and accountants as well, such as Arthur Andersen) to run amok and even wreck firms. Do the giants need new structures to sustain quality and integrity?

Is the traditional partnership structure a hindrance or an aid to managing the larger firm? If so, what will replace it? Many years ago, in one of my earliest books, I suggested that the growth of professional firms was ultimately going to require more capital than could be raised by a partnership, and that a way would have to be found to take law and accounting firms public. And isn’t that exactly what’s happening now? First one firm, then two, then three – and so on.

            What happens to the firm with, say, 40 or 50 lawyers? Can they compete against the giants? Yes, if they understand what’s changing the legal profession and respond accordingly. No, if they feel that what was good enough for the founder 50 years ago is still going to work for them in the future. Why? Because, historically in America, the WalMarts and the Home Depots ultimately drive out the mom and pop stores. There will always be, it may be argued, room for the smaller firm and the boutique. But I was there when the then-big Eight firms realized that there were only two ways to grow -- capture a Fortune 500 client from another Big Eight firm – or learn to service the smaller clients effectively and profitably. Thus began the small business practice, for which I wrote and ran many a marketing program They took a lot of business away from smaller firms. Can that history repeat itself? .

            Obviously, these mega-firms are not only changing the nature of the profession, but what forces are propelling the change? And how are those forces affecting the smaller firms? We are dealing with a dynamic – an urgent drive for motion, and the constantly changing relationship between professional firms and the clients they serve. It’s this dynamic that must be understood if a firm is to succeed in today’s market. It’s this dynamic that precludes prognostication, which is why I don’t make predictions.

            What’s more significant, and what goes to the big vs. small question, is the role of marketing. The giant firms, for the most part, now have large and powerful marketing operations, which is one way they got big in the first place, and which they need to compete against other giants. Many years ago, in the early days of marketing, I was asked what now seems to be a naïve question. “Is it necessary for us to start marketing?” Yes, I replied, because your competitors are now doing it. That’s even more true today. And in the big-firm little firm competition,l smart marketing is more important than ever before for the smaller firm.

            I suggest (not a prediction) that for the smaller firm to compete, it must ask some questions of its own…

• What skills do we need to protect our territory?
• Does our firm need to redefine itself to better address the needs of our market?
• What are the big firms doing to streamline their services, and therefore their ability to get and keep clients? (For example, professional marketing, client service teams, practice groups that are marketing oriented, value billing, etc.) Which of those practices can we adapt to our size?
• How sustainable is the traditional partnership structure in a new competitive environment?
• Where do we get the capital to grow?
• How well trained in management skills are our leaders?
• Are our marketing professionals really professional, or are they just party planners?
• And then, the question asked by such leaders as Peter Drucker, “What business are we really in, anyway.”

And the question for all – large or small – what do we understand of this new environment, in which change is dictated, as never before, by clients -- and how do we best structure to better serve the new clientele?

Who knows where this is going? Is the growth of the mega-firms aproduct of such client-related situations as globalization? Obviously, yes, at least to some degree. But is globalization fostered by the mega-firm, or the other way around?

If the mega-mergers tell us anything, they tell us that the legal – and accounting – professions are no longer just professions. They are businesses, and businesses that must be managed, and that must compete. The professions, like it or not, are in the throes of change. To ignore that reality is to risk being swallowed by those who do understand this new world.

BLAWGWORLD 2007

The Marcus Perspective, is included in a marvelous compendium of the 77 best blawgs – blogs for and by lawyers – now available online at http://www.technolawyer.com/r.asp?L11502&M1. Each blawg is represented by one posting. Check it out. Published by TechnoLawyer, it includes the TechnoLawyer Problem/Solution Guide. It’s a cross section of the blogs of some of the brightest minds – and best bloggers – in the blawgworld.

THEY LABORED LIKE LIONS AND PRODUCED A MOUSE

            At the recent ABA meeting, the wise heads that strive to preserve the virtue of the legal profession came up with a recommendation that law firms reject mandatory retirement programs, which are illegal in other industries.

What struck me was that they came up with the lesser solution to the greater problem, which, is, I think, the question of judging a lawyer’s capabilities by his or her age, rather than by capability. .

As a former young guy who is now one of those older guys, I can remember what I knew and could do as a younger man, and know now that I can still stay ahead of the curve, mentally as well as physically, as an older one. A stupid lawyer at 30 will be a stupid lawyer at 80. A smart lawyer at 30 will be a smarter one at 80 (which, I’ve been told, is the new 39).

Hey, ABA – you want to serve the profession?  Reexamine this whole age thing. In no trade, profession, or occupation can you reside in old paradigms. Maybe before the time of enlightened health concerns and exercise regimes,  under which a person over 65 was thought to have diminished physical and mental capacities, but not now.  I’ve been a fencer all my life, and won my share of medals – and I still do it. I even sometimes beat the guys I fence with every week, two of whom are former national champions and one of whom was an Olympic medal winner. And if you read this  blog and The Marcus Letter, as well as the myriad articles I still write, you can judge for yourself  whether or not I’ can still stay ahead of the curve. And I know a lot of lawyers, doctors, accountants, and others who are my age and older, and are still smarter and sharper than most people, including me.

If you want to talk about the old saw about making room for the younger folk as they come up the ranks, I suggest that it’s a specious argument. If your firm is growing, there’s lots of room. If it’s not growing, does it really matter about who stays and who goes?

Are law and accounting firms farmers, putting the old livestock out to pasture? Not likely. But using old views of people in today’s environment is not too bright either. Maybe the ABA (and probably the AICPA as well) need to reexamine the profession in light of today’s realities – current and future.  And then, at least, the mouse can roar.

THE BLACKLIST – IT CAN HAPPEN HERE

In the early 1950s, this country went through a crisis that seriously threatened the constitutional rights of American citizens as nothing had since our founding in 1776. It was the era of McCarthyism – a period of anti-Communist  fervor that did more damage to our Democracy than the Communists ever did. Subsequent investigations, and even the recent release of the files and records of the Communist Party of the USA, showed that while American Communists had ambitious dreams of conquering America from within, they completely overestimated their visions, and underestimated the strength and power of American Democracy. American Communists did virtually no damage other than sound and fury. This, however, was not true of the anti-communist zealotry that produced McCarthyism and that ultimate disgrace of our democracy – the blacklist of radio, motion picture and television writers and performers.

I write of this  for two reasons – the parallel we now face in fear-mongering as a political tool, which drove the anti-Communist hysteria, and the fact that I was there. As a young radio and television writer, and a member of the boards of directors of both the Radio Writers’ Guild and Television Writers of America, I was deeply immersed in the activities of the time. While I was personally appalled by what was happening, I was never seriously attacked because I had never been a Communist, nor, in fact, a communist sympathizer. I was, though – and still am – a proud supporter of fairness, Democracy, and the U.S. Constitution.

The story of the blacklist is beautifully – and objectively – chronicled in Shadow of Red: Communism and the Blacklist in Radio and Television, a new book by David Everitt, reviewed in full on The Marcus Letter. A fascinating story, meticulously told by Everitt, a noted author and journalist.

And why is this of significance to this blog and The Marcus Letter?  Because it concerns all Americans, and lawyers – the guardians of our constitution. Because it’s a lesson in mass communication and mass hysteria.  And most of all, it’s a warning about the use of fear-mongering as a political device. As Ed Murrow put it – see it now.