Thoughts on ways to improve the management of professional services firms

Thursday, May 31, 2007

Managing the Professional Services Firm - end month review May 07

It's not quite the end of the month, but I thought that I might take the time at this stage to look back.

This was my depression month in that my major focus for the month was on the evolution of personal depression as a major illness within professional services. You will find my first post in the series here. Do follow the other posts through from this point.

I put a fair bit of time into writing this series because I thought that it was important. I am pleased to report that I did get extra traffic from the series, so someone out there was interested.

Depression is not an easy topic. I try to write from a practical perspective, so I included case studies. Here the real message was that firms are their own worst enemies, complicating problems through bad management. Fixing management won't solve the problem, but it will make it easier to manage.

Then at the end of the months we had the float of Slater and Gordon, the first law firm in the world to list. I did a short post, then lost a major post, so did a different replacement looking at the advantages of corporate firms over partnerships.

From a personal perspective this was probably a very good thing because it set me on a new course after the depression series.

A Little Later

I kind of got interrupted in writing. I will continue the end month review in another post.

Tuesday, May 29, 2007

Corporatisation and Professional Ethics

In my last post, Corporatisation, Corporate Structures and the Law, I outlined some of the reasons why corporate structures including listed entities might make sense for law firms as compared to the traditional partnership model.

In this post I want to look briefly at some of the professional ethics issues raised since this is the area that many commentators have focused on. The critical issue to my mind is the extent to which adoption of corporate forms per se creates new ethical challenges.

At one level, a simple move from a partnership to an incorporated body changes nothing. Partnerships already face a variety of challenges, including the need to make sufficient profit to pay partners and fund development in a competitive marketplace. Wrapping a corporate envelope around the partnership does not change this.

The position changes, however, if the firm actually lists in the way Slater and Gordon did because two new factors come into play.

The first is the need to formally consider the needs of shareholders as owners. In theory at least, a partnership may decide to sacrifice profits in the interests of its clients. Again in theory, this is more difficult in a listed corporation because of the direct pressures to provide shareholder returns.

I say in theory in both cases because I am not sure how much difference there is in practice. Indeed, in partnerships the need to maximise partner cash flow creates pressures that may be just as, if not more, detrimental to clients than the shareholder return requirement. Here a feature of the ethical discussion has been a comparison between corporate operations and the independent professional model, whereas the comparison should be with the partnership model.

The second linked factor is more complicated, the temptation to play corporate games in an attempt to maximise the the share price and to please the market . In my view this is a real danger that can, as we have seen in other areas, threaten the very existence of the firm itself.

None of this to my mind detracts from the advantages that can be offered by corporatisation, but it does point to risks that need to be managed.

Thursday, May 24, 2007

Corporatisation, Corporate Structures and the Law - The Case For

I mentioned in my short previous post on the Slater and Gordon float that I had lost a much longer post looking at the issues raised by this post.

Since then, the float itself has been much discussed, and I see little point in replicating that discussion. Instead, I though that I should focus on one issue, some of the commercial reasons why corporate forms and indeed public listings can make sense in law. I do so because there seems to be a degree of confusion on the matter.

The core of the confusion can be simply stated: what is there about a corporate structure that makes commercial sense? How can this change add value to an already well managed practice?

The answer can also be simply stated. There are structural inefficiencies built into the current partnership system, inefficiencies that can be resolved by adoption of a corporate form.

A list of key inefficiencies follows. In writing, I am not trying to be absolutely rigorous, simply pointing to issues to be considered.

Professionals vs Managers

In many practices, the senior partners are also the key managers. As exemplified in the two case studies I used in my depression series (Free at Last, Jan's Story) many of them are very bad managers. I looked at some of the reasons for this in a post last July, People management in professional services - professionals vs managers.

Firms can address this one by introducing professional management as many have done, but the story does not end there.

Role Confusion within Partnerships

In many partnerships, the different roles played by partners (managers, owners, professionals) are all mixed together.

In my post On role clarification within partnerships I argued strongly that role clarification was essential if the partnership form was to survive.

My key point was the need to separate equity returns from payment for work. Once this was done, the definition of roles and the remuneration to be attached to those roles could then be dealt with using conventional job analysis and remuneration principles.

My experience has been that partnerships are often unwilling to address the issue of role clarification because the current role confusion benefits individual partners. This builds another weakness into the partnership approach.

Abolition of Goodwill

"It is something of a misrepresentation to suggest that there is goodwill at all", said one senior Perth barrister. "Who in the legal profession recognises goodwill? The big firms do not recognise goodwill." Quoted in the Australian Financial Review, 27 October 2006, in a response to the proposed float of Integrated Legal Holdings

To suggest, as this Perth barrister did, that goodwill has no value is absurd. Worse, it is one of the key factors sounding the death knell for partnership structures.

I discussed this issue last July in Professional services: mergers, acquisition and goodwill. Partly because of the difficulty of attracting partners, many firms abolished the goodwill component in valuing partnerships.

This action has had a number of adverse impacts.

It treats the true value of the firm - the client base, accumulated intellectual property and business systems - as though it has no value. The reality is that it does, thus opening the firm up to acquisition offers that allow equity partners to realise at least some value from an asset otherwise counted as zero value.

The approach also has often unrecognised behavioural impacts.

In Self-employed professionals vs business builders, I looked at the behavioural differences between self-employed professionals and those trying to build a business. I suggested that the first group, the majority by number, focused on return from cash flow. By contrast, the second focus on building a business looking for a return from the combination of cash flow and business sale.

This is not just a semantic difference. There is a very real difference in business decisions focused on short to medium term cash flow maximisation as compared to decisions concerned with building longer term business value. There is no point in the second if you cannot realise value from the investment.

In abolishing goodwill, partnerships moved themselves from the longer term business building category to the cash flow maximisation class to the detriment of firm and client.

Economies of Scale and Scope

Economies of scale arise where the unit costs of delivering a particular good or service fall as volume increases. Economies of scope are similar except that volume relates to increases in volume spread across a number of goods or services.

Economies of both scope and scale have become more important across professional services over the last fifty years. Reasons include greater investment in IT systems and knowledge management, as well as increasing insurance and compliance costs. This will continue.

All this drives firms in the direction of growth. This is another area where corporatised law firms have advantages, especially when it comes to acquisitions.

Take, as an example, the approach of the WKK Group to tuck-in acquisitions, acquisition of smaller firms whose business can be tucked in to compliment the broader business. I know of law practices that follow this approach. However, it is just much easier to make this work in a corporate structure.

A particular advantage for listed firms is that they can offer shares that have a clear value without all the problems that can be involved in slotting new partners into a partnership structure. This links to a broader issue, the way in which staff shareholding schemes can be used to reward staff for growth in ways not possible in partnerships.

Risk Management, Multidisciplinary Working and New Business Activities

I have grouped these three together because while they are very different, they also share some common issues.

As we saw in the case of Courdert, if something goes wrong in a partnership, the results can be disastrous for all. Corporate structures can help quarantine risk.

This is especially important if firms want to enter into new, linked, business activities.

The question of whether law firms should enter into activities outside legal services or stick to the knitting raises different issues. The reality is that many firms have diversified, often turning related activities into new revenue sources. Again, corporate structures facilitate this, while also quarantining any risks that might be involved.

This also links to the question of multidisciplinary working, the grouping of different, normally related professionals, so that they combine their different skills in an integrated approach.

I discussed this area some time ago in a preliminary way (here and here). Depending on local regulatory structures, these forms of working can be accommodated within partnerships. However, corporate structures can make the process easier.

Conclusion

As I said at the outset, the analysis in this post is not intended to be rigorous. My objective has been to point to some of the reasons why corporate forms can make sense compared to traditional partnership structures.

Tuesday, May 22, 2007

Slater and Gordon Lists - the world's first listed law firm?

In an earlier post, Corporatisation - Law follows Accountancy in Australia, I reported on plans to list the Melbourne headquartered law firm Slater & Gordon on the Australian Stock Exchange.

The firm has now listed, opening at a 32 per cent premium to the issue price. Those interested can find more details here. For reasons outlined earlier, it is unlikely to be the last.

Later - 23 May

I had a complete update done on this story, but the lost it all in a program crash. Woe is me. I had not saved it as I went along because either that would have taken the post of screen (draft) or have put up a part amended post (publish).

I am now out of time. I will redo it as a new post.

Sunday, May 20, 2007

End of the Depression Series - now for a new direction

I left the Wednesday forum post on depression stand for a number of days to allow people to comment.

While I did not get a lot of comments, I am pleased to report that site traffic almost doubled. Visitor 8,000 also arrived during this period. So I am happy that the effort in preparing the series - and it was an effort - was not wasted. All my professional colleagues who blog will know that it is not easy to maintain a constant output.

Where to next? I think that it is time to revisit some of my favourite blogs - this fell away - to see what my colleagues are saying.

Wednesday, May 16, 2007

Wednesday Forum - Depression and the Professional

I still have two part completed posts to complete the depression series. They will be behind this post in time order. But I did not want to hold up discussion.

The purpose of this forum is to provide an opportunity for you to talk about your own experiences with depression. Or about your experiences with firms and their responses to depressions. Or about your experiences in managing depression.

I do not care about the approach. It is up to you. My aim remains to stimulate discussion.

Postscript:

I have finally completed all the posts in the depression series. I am now going to update all the previous posts by adding a full list of the posts at the bottom. Now done.

Given this, you may care to read the whole series in order starting with the first post in the common management problems series on dealing with poor performers.

Posts in this Series

Precursor posts:

The Depression series:

Professional Services - Values, Culture and Depression 6: Wrap Up

This post wraps up my arguments about the problem of depression within professional services.

The initial building blocks for the series were two posts (one, two) in my common management problems series discussing the best way of dealing with poor performers. I have treated these as building block posts because my experience suggests that at firm level depression is often dealt with as a performance problem and then mismanaged at that level.

In those posts I suggested, among other things, that it was best to deal with performance problems early before they had time to build. I also emphasised the need to clearly identify the real problem needing to be addressed. The two case studies included in the depression series show breaches of both principles.

I began the depression series on 25 April with a post reporting on the results of an Australian survey suggesting that depression was worst among professionals and students. That is, these groups had higher incidences of depressions than other groups in Australian societies.

I also noted that depression problems appeared to be worst among patent attorneys and lawyers. I suggested that depression was a problem for both individuals and firms.

In the following post I compared law and IT.

In this post I began using the subtitle "Values, Culture and Depression." I did so because firm values and culture affect the treatment of depression in a management environment and in so doing affect the depressed individual.

The reason I chose to compare law and IT is that the individual performance environment in law as compared to the more collectivist managed environment in IT does, in my view, contribute to the higher incidence of depression in law. Somewhat similar arguments can be applied across the professions.

In my next post I took Free at Last as a depression case study. I find that examples help me understand issues. I hope that this is true for you too.

Free at Last's story is in part a story of management failures. But it is also a story with a positive personal ending.

I then diverted slightly with a brief note on the story of John Brogden, a leading NSW politician. Politics is another profession marked by depression problems. As with Free at Last, John's story shows that there is hope at the end of the depression tunnel.

In the next post I extended John's story. Here I spoke of my own brush with depression. I also tried to lay down a few simple management guidelines for dealing with the problem.

I then turned in Jan's case to another case study. Here we can see again how poor management practice contributed to individual problems to the ultimate cost of the firm itself.

In this series I have tried to write from both an individual and personal viewpoint as well as from a management perspective. I hope that readers gain some value.

Posts in this Series

Precursor posts:

The Depression series:

Professional Services - Value, Culture and Depression 5: Jan's case

This post in my series on depression and professional services firm takes a second case study drawn from the Junior Lawyers Union blog. For the sake of discussion, let's call her Jan.

Again, I am not in a position to talk about the facts. My focus is on the firm management issues taking the story as a given.

Jan's story starts well:

I spent two years in legal practice, after being 'head hunted' from my previous job. The first 18 months or so were fine - I exceeded my budget, enjoyed the work, and got along well with everyone. One of the partners told my husband I was the best graduate they had recruited in years.

Then things started to go wrong:

I suffered a sporting injury and had to have some time off work. This was right at the start of the financial year, so I started behind the eight-ball. At first, the partners seemed understanding. After a while, however, it became clear that I was expected to make up the billable hours I had missed. I worked my backside off, and started to catch up.

This short quote raises a number of interesting management issues.

Many firms set their billable hours targets without making any allowance for sick days. This may be fair enough. However, problems can arise where the time targets are sufficiently aggressive that the individual in question cannot easily make up the lost time, leading to stress. The firm is better off in these cases adjusting the time target.

The quote also suggests that that there may be a communication and management problem within the firm in that the billable hours expectation only became clear "after a while."

Jan, already under stress, now experiences a personality conflict.

Then my supervising partner began to have some personal problems, and she took out her anger on everyone who worked for her. I became increasingly stressed and felt like I couldn't do anything right. I became very depressed and began to lose interest in my work. My billable hours dropped even further

Regardless of the actual facts of the case, both Jan and the firm clearly have major problems. All firms face difficulties in handling partner level management problems. However, it is the responsibility of the managing partner to sort them. At staff level, the fact that Jan was in trouble must have been clearly evident, but was still not being dealt with.

Jan goes on:

I confided in another partner. He seemed to be sympathetic, and told me 'everyone knows' Partner X is a bully. He said if he had his way, he would sack her. Behind my back, however, he (later) told a Workcover investigator that he didn't want anyone who was depressed working at his firm, and that everyone likes Partner X, and that I must have misunderstood him.

I am sure that Jan's confidence made the other partner uncomfortable. That partner may also, giving him/her the benefit of the doubt, have been trying to be sympathetic. But the partner's response and subsequent failure to act would cost the firm.

Things continued to deteriorate.

Eventually, I was 'counselled' a couple of times about my steadily decreasing billable hours. The managing partner told me he didn't think the targets were that hard to meet, and that they had made a lot of allowances for me. I started to envy people with 'simple' jobs like the checkout operators at the supermarket. A few weeks later, I made a mistake while nearly at breaking point, and they had the excuse they needed to sack me.

Again we can see continuing management problems within the firm and in particular a continuing failure to properly identify and address Jan's problems. The costs to both Jan and the firm were high:

12 months later, and I am still on 3 different anti-depressants. I see a psychiatrist regularly and I have survived a suicide attempt. I still think about killing myself almost daily. I feel like a complete failure. On the bright side, however, I stood up for myself and put in a Workcover claim, which has recently settled in my favour. I have recently obtained another job which I really enjoy. The pay is crap, but there are no billable units, and I can go home at 4:30 every afternoon.

I said at the outset of this post that I could not comment on the facts. We only have Jan's side of the story. But the evidence does suggest a comprehensive management failure in that the application of standard people management practices would have sorted the problem long before the mutually disastrous end point finally reached.

Posts in this Series

Precursor posts:

The Depression series:

A Note on Progress

I hope to complete the posts in the depression series today, then launch the Wednesday Forum discussion tonight.

Thursday, May 10, 2007

Wednesday Forum Resumes

A little while ago I started a Wednesday Forum to allow for discussion on particular topics. It did not work, primarily because so much of the traffic on this site has come from search engines. Hence no comments.

I am now going to try again. Each week I will select a topic relevant to individual professionals and then let them comment. Next week the topic will link to the depression series that I have been writing.

Monday, May 07, 2007

Professional Services - Value, Culture and Depression 4: Guidelines



In my last brief post in his series I referred to the case of John Brogden, the former opposition leader in the NSW State Parliament. It was a very brief and somewhat cryptic post because I was on my way to Queensland. I said that I would amplify it later.

At least in Australia, politics like law appears to be a depression prone profession.

In the Brogden case, John said something stupid, the media came down on him like hounds in a feeding frenzy, he resigned as leader then attempted to kill himself. I commented in passing at the time in a post on my personal blog, Why are we so hard on our politicians - and ourselves. My focus then was on what the whole thing was doing to our political process. However, there are some broader issues.

In this post I have repeated the painting I carried in the first Brogden post. I drew this from Neil's blog, but do not know the painter. I have repeated it because it so accurately captures a point that I want to make. Before going on, those who would like to find out more about John's views on depression can find the interview transcript here.

As we saw in the case study on Free at Last, people's first reaction to someone suffering from depression is to tell them to pull their socks up, to buck up, to do better. Now look at the painting.

The subject sits alone. The tones are sepia, sombre, washed of colour. He sits next to what appear to be disembodied ears - people do not listen.

To suffer from depression is to be alone, lost in a sombre world. John Bunyan's novel Pilgrim's Progress speaks of the Slough of Despond. Bunyan meant it a little differently, but slough of despond has come to capture the position of those suffering from the black dog.

We know that people can come through depression.

The former Victorian Premier Geoff Kennett went through depression to become leader of Beyond Blue, Australia's leading anti-depression initiative. He spends much of his time helping people, something that would have seemed inconceivable to those opposed to his very rough and tumble style of politics.

Now John Brogden, too, seems to be coming through with the announcement that he has become patron of the telephone counselling service Lifeline NSW.

Lifeline was founded in 1963 by the late Reverend Dr Sir Alan Walker after he received a call from a distressed man who three days later took his own life. Determined not to let loneliness, isolation or anxiety be the cause of other deaths, Sir Alan launched a crisis line, which operated out of the Methodist Central Mission in Sydney.

Today, somewhere in Australia, there is a new call to Lifeline every minute and an average of over 450,000 calls are answered each year.

While we know that there can be an end to the slough of despond, this can seem inconceivable to the person suffering from depression.

Last year my own wheels came off.

At the worst point, I found it impossible to handle other than the most routine things. Making anything other than the most minor decisions was impossible. I felt completely alone, liable to break into tears. I was the person sitting on the shore.

Much of this I was able to conceal in a day to day sense. My experience has been that people suffering from depression often do not want to talk about it, are unable even to handle the conversation.

This makes them hard to help. It also means that things can get so bad that dire consequences can result, consequences that can come as a surprise to others because the problem has been concealed.

In my own case, and perhaps oddly, blogging itself proved to be the way out because at the time of greatest self doubt it showed me that I could still measure up in professional terms, made me feel that I could still contribute, gave me a sense of progress at a time when so many other things seemed to have gone wrong. Writing became its own catharsis.

I do not pretend that things are yet perfect. I am again fully functional in a professional sense, but still find it very hard to act, to make decisions, on strictly personal matters. But I can again think of a future.

If we link all this back to ways to handle depression in a work context, the core focus of this series, there are I think a couple of guidelines that can help guide management responses.

Guideline one is to reduce the pressure on the person, recognising that one symptom of depression is a reduced ability to cope.

Guideline two is to find ways of building self-esteem, something that is much harder to do.

Depression strikes at the heart of self-worth. That is why it is so destructive.

If we look at suicide among young rural males in Australia, a group with above average suicide rates, we can see a complex brought about by stress, drought, reduced opportunities, even the absence of potential mates because of the limited number of young women in some country areas. All this translates into lower self-esteem.

I do not have an answer as to the best way of increasing self-esteem. This has to be judged in the context of the individual case. However, my experience has been that even the act of caring in a sensitive way can help because it shows the person that they are valued.

Guideline three is to recognise that depression is a health problem, one that may require specialist help. You cannot address the performance problems that may be created by depression without addressing the underlying cause.

All this is not easy, I know. No firm can be expected to carry a sick worker indefinitely. However, this brings me to my final guideline.

Whatever action you take as a manager needs to be done in a fair, equitable, open and caring way.

Posts in this Series

Precursor posts:

The Depression series:

Friday, May 04, 2007

Professional Services - Value, Culture and Depression 3: John Brogden



Very briefly because I am about to leave for Queensland.

JOHN BROGDEN: I understand what it’s like to be in such a dark place that taking your own life is the only way out and I understand how hard it is to come back from that. How, people saying to you, ‘Don’t worry it’ll all get better,’ actually sounds like an insult. It actually sounds as if your intelligence and emotions are being insulted because from where you are at that time it is impossible to imagine how you might come back…

For the benefit of my international readers, John Brogden was the leader of the opposition in the NSW Parliament.

I met him in Armidale at the Drummond College Drummond oration and dinner soon after he became leader. Later he resigned as leader and then attempted to commit suicide. We then learned that he had been suffering from depression.

My thanks to Neil (Ninglun) for his plus for this series and for the material on which this post is based.

A little later

Having posted, I realised that this post was going to be far too cryptic for someone seeing it for the first time without the background of previous posts. I will add a little more on my return from Queensland.

Posts in this Series

Precursor posts:

The Depression series:

Thursday, May 03, 2007

A Short Break

I intend to take a short break from posting because I am going to be away and will not have real time.

When I return next week, I will take another case study because I think that they are a helpful way of drawing out key management issues.

Tuesday, May 01, 2007

Professional Services - Values, Culture and Depression 2: case study - Free at Last

In Professional Services - Values, Culture and Depression 1 I compared IT and law to draw out some of the reasons why the incidence of depression in law is the highest among professional groups. This post extends the argument using as a case study one of several examples on the Junior Lawyers Union blog.

And, I don't regret it (leaving) one bit. When I made the decision to leave the firm, I was taking 100mg of Zoloft a day and spent much of my office time wondering whether my desk chair was heavy enough to smash the window of my 18th floor office. Free at Last

Free at Last has obviously had a depression problem for some time. Free at Last goes on:

Prior to my departure, I disclosed my depression to the firm, thinking that since things had spiralled so far, perhaps, somewhere, there might be someone with a glimmer of humanity lurking around the firm who could help me out.

Instead, the firm demanded a medical certificate to confirm my depression. Once that was produced, two of the partners sat me down and advised me that I was being formally 'performance managed'. They told me that they expected me to get in earlier and leave later, be more 'enthusiastic' about the work I was being given and to increase my output. They then demanded that I say the words 'I want to be a commercial lawyer'.

What can I say?

I suppose the first point is that I find it very hard to believe that Free at Last's problems were not visible to others. Indeed, the response from the two partners indicates that they were aware of performance problems.

Now here the firm is already in beach of one of the key principles I laid down in my two posts on Common Management Problems - dealing with poor performers (post one here, post two here), the need to catch problems early before they grow into major issues. Nothing was done until Free at Last raised the issue.

The second principle I laid down was the need to define the problem, to get the facts. This needed to be done in advance of any corrective action. Then, I suggested, you should take a deep breath, take time to think the problem through. Too often, people go into see problem, fix problem mode. I noted that this could be disastrous.

In this case the firm demanded a medical certificate, an action that may have been necessary, but one that also clearly indicates that Free at Last's problems had in some way been put in the malingerer class. From this point, things go badly awry.

In supplying the certificate, Free at Last established a prima facie case that she (I think that Free at Last is a she) had a medical problem, an illness. So the problem to be addressed changed from poor performance to an illness resulting in poor performance. A very different set of issues.

There is no evidence that the firm gathered any information on depression to guide thinking about responses, nor do they appear to have made any attempt to find out from Free at Last what she had done to seek help. Instead of treating the problem as a medical one that was affecting work, the partners attempted to address the work related results of the problem independent of the cause.

This was bound to fail. Anybody who has suffered from depression or who has seen people suffering from depression will know that a reduced ability to cope is one of the key features of the illness.

Needless to say, a couple of days I tendered my resignation. The sad thing is that one of them seemed genuinely surprised by my decision.

This outcome may in fact have been the best result for Free at Last. In her words: When I finally walked out the door of the top tier firm that I worked for, I had no job to go. It was a leap into the great unknown - terrifying but ultimately liberating.

The outcome may even have been the best result for the firm in that it removed the need to deal with the problem. However, it is likely that the way in the matter was handled had at least some adverse effects within the firm on the attitudes of other staff to the firm.

But to the degree that it was the best result for either party, it was so by accident. The outcome could have been very different.

I am not surprised at the suggestion that one partner seemed genuinely surprised at the resignation decision.

My experience has been that many partners are actually concerned about their people, but lack the time, sensitivity and management skills required to handle people management issues properly. Sadly, some seem doomed to repeat the same mistakes with the same surprise each time that things did not work out.

Posts in this Series

Precursor posts:

The Depression series: