Oops, I Think IDEO Needs To Rethink This One

Transforming most firms from lead to gold is impossible alchemy

IDEO is a fascinating organization and it generates paradigm-shifting ideas. Sometimes those ideas rise to the level of changing organizations. But, attempts to change organizations seldom work. For decades, the results have been consistent and stark: 70% of culture change efforts have failed.

This combination — IDEO the paradigm-shifter and organization’s with their resistance to change — led me to read with great interest Sean Hewens’ post, “Why Do You Exist Beyond Making Money?” It promised to answer one of the greatest riddle’s of our time and show how to turn law firm lead into gold.

Alas, as much as I had hoped it would show the way, it steered me to a conclusion that I have known and feared for a long time. Changing law firms is more difficult than changing corporations. While I, like many others I suspect, desperately wanted Sean’s idea to work, I think IDEO needs to re-think this one.

Law Firm’s Don’t Exist To Make Money

Sean’s attempt at organizational transformation hits a bump right at the start. He asks whether there is something beyond making money for a law firm. This is a tough question for lawyers and law firms. The quick and easy answer is that law firms and their lawyers don’t exist to make money nor do they exist for some other greater purpose. They exist to generate cash flow. This is not a semantic nuance.

Making money involves putting capital at risk. The entrepreneur wants to make money, though the successful entrepreneur usually wants to solve a problem and making money is a (very nice) byproduct. The corporation wants to make money and those work work in its senior ranks, where corporate lawyers live, want to make money. Law firms are lightweights when it comes to capital. They have some furniture and computer equipment. A law firm consists of lease obligations and labor costs.

Making money also involves a combination of curiosity, drive, risk-taking, optimism, resilience, and process focus — the list is long. Yet, if we look at the lawyer personality type, we find these are the characteristics and skills where lawyers score below the average population.

Lawyers and their law firms have a specific reason for existing — generating cash flow. They want to risk nothing. Look no farther than the end of a fiscal year for a firm. There is a mad scramble as partners try to get cash in the door before the fiscal year ends. When the clock strikes midnight on the last day of the fiscal year, the game starts all over again.

A cash flow-centric organization lacks a cushion. It is exposed to and feels an immediate impact from whatever happens in its business and the market. Take your foot off the accelerator for a moment and you immediately slow down. Other businesses, even other services businesses, have buffers. This is important when talking about having a focus other than cash. It is a factor that, I think, explains why law firms engage in seemingly aberrant behavior, such as acting against their best interests when it comes to long-term survival.

The Law Firm Game Has Changed

Putting aside the understandable confusion between making money and generating income, Sean starts from the right point and his goal is righteous. This is his problem statement:

Talented young people aren’t joining law firms like they once did. And many of those who do join are increasingly dissatisfied, leaving after a few years and long before firms are able to earn a profit from the high salaries they pay associates. At the top of the firm, partner compensation demands continue to rise, threatening traditional loyalties and creating the real possibility that rainmakers might skip to another firm willing to meet their increased salary demands.

Lawyers who join law firms have options. They can choose careers other than practicing law. For the talented among those just graduating from college, that is what they are doing. LSAT statistics show a significant drop in test-takers who score at the top of the scale.

Put yourself in the shoes of those graduates. Under the old paradigm, they went to law school then went to a firm which paid them enough to pay down their debt and live comfortably. After the loans were paid off, they lived well. Work hard enough and they became partners, generating sufficient income for an above average life style.

Today, they go to law school and then fight for a job at a firm that will pay them enough to pay down much higher debt. They won’t live as comfortably, because there is less left over after paying the debt. It takes 10 years to pay off loans, and it is unlikely they will still be at the firm. They may be at their second, third, or fourth firm, or have left to go in-house.

The work they face is a mix of routine and interesting, but much of it can be done by someone else at lower cost, higher efficiency and higher quality. They could help build that future, but their elders actively resist change (law firms, of course, but also law departments).

Now, a brief history moment. The law firm economic model worked for many decades. The economics of law firms were superior to other organization models. Lawyers at large firms experienced the highest profit levels of any services organization. It is only recently in the arc of law firm evolution that the economic engine has started to sputter not for a law firm, but for most law firms.

Law Firms Are Not Comparable To Companies

At this point, Sean leaves the world of law firms and jumps to the world of corporations. His goal is to show that organizations exist that have purposes in addition to making money. Once those organizations develop other purposes, their employees can grab onto those other purposes and find a more satisfying work life. Nice idea, but the comparison fails at the start.

Law firms are not organizations, and this is where the idea of transforming old law firms to purpose-led law firm fails. Law firms are federations of individuals. Each year loosely align their practices for the purpose of generating income. Each lawyer in the firm exists independent of the other lawyers and of the firm. They share back office functions for convenience, but beyond that convenience, each has his or her own business.

Corporations, by their nature, act as institutions. The marketing department does not generate income independent of production. Finance does not have its own revenue stream, nor do logistics or HR. It is this fundamental difference between corporations and law firms that has and will defeat culture change, or the addition of purpose-led to economic.

There are some law firms that, because of historic anomalies, started with and still have a purpose. These firms, few and scattered around the globe, had something beyond income as the sole, original goal. As the firm grew and evolved, partners kept those other goals alive along with the drive for income. They are modern law firms, but have the culture of law firms 80 years ago. Put bluntly, they already are purpose-led. They do not need to paradigm shift.

Change Your World

If you are looking for a silver lining in this story, there is one. First, you can seek out and join one of the purpose-led law firms that still exist. They are very selective, because each person who joins must buy into the purpose-led vision. Upon joining, you will work hard — harder than at most other firms. The vision will carry you through, because you share a higher purpose with others in the firm. The business model of the firm already has a balance between cash flow generation and the greater purpose.

Second, you can hope for regulatory reform. The primary thing standing in the way of Sean’s alchemy is the regulatory structure for law firms in the United States. It forces the idea of federations of economic actors rather than organizations with more purposes. The regulations insult those in the profession, protecting them over the client. Changing the regulations would open the door for those who see a purpose in helping clients.

Third, you could start your own, purpose-led law firm. This is the path many have chosen in the current regulatory climate. Partners leave large law firms and start boutiques. Rather than attempting culture change, they create a new culture.

We should go back to that harsh reality. Seventy percent of culture change efforts fail. Out of the AmLaw 100, perhaps 30 firms could succeed with culture changes. That assumes all the firms go full-steam ahead on culture change. With two-thirds of firm partners actively opposing change, we are not likely to see that scenario. And, as I noted, some are already purpose-led.

Fear not. There are many purpose-led organizations springing up in the legal industry. Some are law firms, but many are alternate service providers who need lawyers. They are in busy to make money, not just generate income. But, being purpose-led, they share other visions. If it is purpose-led you want, then you may be better off going to a place where the individuals who work there share that value. And, you may have more fun.

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About: Ken is a speaker and author on innovation, leadership, and on the future of people, process, and technology. On Medium, he is a “Top 50” author on innovation and leadership. You can follow him on Twitter, connect with him on LinkedIn, and follow him on Facebook.