THE MARCUS PERSPECTIVE

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.

ACADEMIA STRIKES AGAIN – AND MISSES

            Calm down. Don’t panic – which you would clearly be entitled to do if the report on the study that supposedly (according to Advertising Age) raps Chief Marketing officers for having zero impact on sales frightens you.

            First, it just isn’t true. At least, in the legal and accounting professions, and probably elsewhere as well.  Never mind the academic conclusions of an obviously flawed study, the pragmatic experience that so many of us in professional services marketing (including me) have had shows that what we do works. Our programs do produce clients. And produce many other benefits as well.

            Second, I’d sooner trust the three-card Monte dealer than the marketing academic. With obvious exceptions, they are astigmatic observers of processes they rarely understand, except on an abstract theoretical level). And again, with exceptions, they have rarely had bottom line responsibility.  I once taught a course in professional services marketing in a major graduate business school. If memory serves me well, I was the only marketing faculty member who had ever worked in marketing for a company, and who had had bottom line responsibility. I was appalled at the chasm between their theoretical knowledge of the realities of marketing, and the practical aspects of it..  I’ve subsequently been appalled at the ignorance of marketing reality of many of the most prominent of the marketing academics, who speak from theory, not experience.  Just as appalling is the fact that many of them are retained by law and accounting firms as consultants. The blind leading the naive.  With no long held traditions of marketing by professionals, marketing knowledge isn’t always ingrained in the minds of even the best lawyers and accountants. Some very famous names in academic marketing are still using tired old clichés like the four “p’s”. In a parallel situation in Silicon Valley, my son Jonathan, who works for a major Silicon Valley company, described it by asking me, “If you had to hire a nuclear physicist, and ten resumes came across your desk, how would you know who to choose?”

            Third, this study, according to the report in Advertising Age, is so full of holes, so flawed, as to be useless. On top of which it’s based on manufacturing companies,  many of which suffered from such factors as missing market trends, or making poor quality products, or competition.  Marketing has worked magic, but doesn’t always work. For thousands of years civilization has felt the need for a hangman, but nobody has yet found a way to make the hangman loveable. If General Motors makes a poor quality car, in a passé styling, you can’t blame marketing if we buy Toyotas instead.  (True, marketing’s role is to understand the market, but if the company leaders don’t listen, you can’t blame the marketers – and that’s true in the professions as well.) There are so many more complex factors that affect sales and profitability than marketing that a study that seems designed more for the professors’ publish-or-perish protection than for genuine enlightenment is trash.

            And, reports Ad Age, the professors “…admit the study is limited because it focuses on financial-performance metrics, such as sales growth and profitability, and not on brand equity, and both [authors] were quick to offer caveats to the conclusion.”   That, it seems to me, is pretty slim reason to cavalierly distort the sometimes fragile relationship between marketers and the professionals we serve.

            What does this study mean to law and accounting firm marketers? Not a heck of a lot. I haven’t seen the full report yet, but the Ad Age coverage is pretty comprehensive. My judgment is that the study was superficial, didn’t consider such factors as the role of marketing in not only direct sales, but in those factors that contribute to sales (such as product or service improvement),  or indicate any understanding of the significant difference between marketing a product and marketing a professional service. This last seems to elude the academic world (see my dialogue with Professor Philip Kotler in The Marcus Report).

            And so marketers, and so managing partners, don’t panic. In the immortal words of Candide, having listened for so long to Professor Pangloss, “Come, let us cultivate our garden.”