Profit, delusion and the BigLaw obsession

His K&L Gates provenance and the way our guest contributor began his article in Legal Business caught my eye. Tony Griffiths’ piece was titled “…on profit, delusion and how Big Law became obsessed with the wrong things”. With his permission, we quote Tony and reinvigorate the debate on the dangerous obsession with law firm league tables.

“Many centuries ago while studying law as an undergraduate, a particularly inspiring corporate law lecturer suggested that I might want to read a book on management theory, as well as immersing myself in case law and precedent. The book was by Peter Drucker (who) has been hailed as the godfather of modern business theory.

“Fast forwarding 20 years…when I took over as (a) managing partner…I decided to reread Drucker’s book (and was reminded) there is no such thing as profit. Profit is an artifice created by accountants to make the books balance. What we call profit is actually the cost of staying in business tomorrow. Drucker’s basic assertion is still pretty shocking: there are no such things as profit. Profit is an artifice created by accountants to make the books balance.

BigLaw obsession

“In today’s BigLaw (Beaton’s ellision to emphasise the business model aspect of large law firms, styled BigLaw by us) environment with its obsession with PEP, RPL, productivity enhancement and metric-based comparison, this sort of language comes close to heresy. However, if you strip away the startling rhetoric, the message is not so controversial. It simply means that a business’s long-term viability depends upon constant reinvention through investment in innovative and differentiated client offerings. What is startling when you think about it, is how far BigLaw has moved away from what I would argue is this basic truth in its focus on short-term consumption, particularly for and by its partners (emphasis added). 

“Drucker is not saying that businesses should live in sackcloth and ashes for the sake of the next generation, but he is saying that an industry that focuses in on itself and measures itself solely by its consumption is missing the fundamental reason for its existence, which is meeting client demand. To quote Drucker again ‘there is only one valid definition of a business purpose: to create a customer’. I would say this, wouldn’t I?

“However, Drucker’s approach can lead to increased competitiveness, market penetration and, ironically, also increase profitability. In the case of my own office, influenced by Drucker’s approach in removing P&L barriers between groups and departments and developing a multi-disciplinary approach which involves every lawyer in the office in all of our focus areas, we have increased revenues by 60% in the last five years on a largely static headcount with an RPL increase of 62% over that period (One might add, ‘Amen‘, Editor).

“The last five years have seen the toughest business environment that any of us have experienced. My feeling is that the next few years will be equally tough. Perhaps it is time to challenge the orthodoxy of how we define and portray ourselves as an industry, and collectively present the message, to an increasingly sceptical client market, that BigLaw is less obsessed with itself and more focused on its future through investment.”

Author

Tony Griffiths is the head of London at K&L Gates.

The whole of Tony’s article was first published on 6 October 2015 in Legal Business and is reproduced here with the permission of the author.

Post script 1

For nearly 40 years those working in market research firms, business schools and executives who base their decisions on evidence have understood and quoted Steven Kerr’s famous 1975 article ‘On the folly of rewarding A,  while hoping for B’. I was reminded of the many truths in Kerr’s paper when reading Tony’s article.

The troubles of ‘A’ come from the fascination law firms, their leaders, and partners have with size–aided and abetted by the media.

Size matters in some ways, but not they are never jugular. Well said – and thank you – Tony Griffiths and K&L Gates.

Post script 2

In Mark Rigotti’s post asking ‘How much time does BigLaw have?‘ Julian Summerhayes observes “Perhaps I’m misguided but one thing that never gets addressed with ‘how to run the most successful law firm in the world’ is purpose, i.e. the Why. As Simon Sinek says, making money (PEP) is a result.” This rang true for me. We welcome readers’ views on this crucial question which goes to the heart of all enterprises – and professionalism.

More on this topic

+ Bigger, better or both. Dilemmas for mid-size professional services firms by Warren Riddell

+ League table love affairs lead to trouble by George Beaton

+ Danger in being part of the BigLaw establishment by George Beaton