How to Develop Law Firm Strategy in the “New Normal”iframe.dri.org/DRI/course-materials/2017-Diversity/pdfs/...How to Develop Law Firm Strategy in the “New Normal” Blanchard

How to Develop Law Firm Strategy in the “New Normal”

Michael Blanchard

Practice Advisory Group LLC GLC Law Firm Consulting Group LLC

28 Prince Street Rochester, NY 14607 (585) 662-8720

Michael Blanchard is the principal of Law Practice Advisory Group LLC and the practice group leader for GLC Law Firm Consulting Group LLC, a law firm management consulting alliance exclusively devoted to counseling lawyers and law firms on strategy, leadership development, compensation, and business operations. With over 30 years of experience advising law firms, his practice focuses on strategy, governance, growth, compensation and turnarounds. Before starting his own consulting practice in 2004, Mr. Blanchard held several senior level positions with many of the nation’s leading law firms. He began his career at Skadden, Arps, Slate, Meagher & Flom.

How to Develop Law Firm Strategy in the “New Normal” ■ Blanchard ■ 3


I. Introduction ...................................................................................................................................................5 II. Industry Rivalry .............................................................................................................................................8 III. Threat of New Entrants ..................................................................................................................................8 IV. Power of Talent and Service Providers .......................................................................................................10 V. Power of Clients ...........................................................................................................................................11 VI. Threat of Substitute Services .......................................................................................................................11 VII. Governmental Regulations ..........................................................................................................................12 VIII. Alignment of Compensation and Culture ..................................................................................................13 IX. Conclusion ....................................................................................................................................................14Endnotes .....................................................................................................................................................................14

Table of Contents



I. IntroductionIn the wake of the 2008 global financial crisis, and over the nine years since, much has been written

about the “new normal” in the legal profession. The legal industry structure is changing, and the competi-tive marketplace is becoming increasingly segmented (Fig. 1). Questions abound regarding the correspond-ing strategy and business model changes that law firms must make to grow or sustain market share and drive improved profitability. Lean Six Sigma, LPM (legal project management), LPI (legal process improvement), AFA’s (alternative fee arrangements), CSM (client service metrics), are just a few of the concepts and manage-ment disciplines being discussed and employed by law firm’s today that seemed irrelevant for the last forty years in the legal profession. Unfortunately, the ability to achieve organizational engagement for, and in, the implementation of these concepts as they relate to strategy development and execution continues to be a chal-lenge for most law firms.

Figure 1.

Underpinning this challenge is the unique culture associated with a business model that essentially is built on a loose confederation of individual lawyers and practices sharing overhead. Where, at the end of the day, real equity is determined by client relationships and control given the absence of enforceable non-com-pete covenants. Where profitability metrics are “looked at” but seldom applied in the compensation process. Where gross receipts and the number of lawyers managed are king, even if it is at a loss. Where for genera-tions the business model has been steeped in rewarding effort versus value, client receipts versus profits, autonomy versus efficiency, and client hindrance versus client service.

6 ■ Diversity for Success ■ June 2017

So how do lawyers and law firms create organizational engagement and a transformative culture required to develop and execute a successful strategy? By shifting the focus of strategic planning to the seven forces that affect a firm’s ability to serve its clients and make a profit.

Successful law firm leaders today are analyzing the legal industry structure, its extended competitive forces, and building strategies that go beyond direct rivalries. They understand they are a business in a mature marketplace. They study the economic and technical elements that shape the industry’s structure. They iden-tify the relevant competitive forces and the strength of those forces as they relate to the firm and its practice areas. They understand their internal and external strengths, weaknesses, opportunities and threats. They plot out a competitive position for their firm and its practice areas that will increase profitability and compensa-tion from top to bottom. They develop supporting strategies to serve as barriers to entry to mitigate or lessen the threat of attack on their market share. And finally, and most importantly, they know how to lead and drive organizational transformation required for shifting culture and behavior to successfully compete in the new normal.

This paper discusses the seven organizational and competitive forces that shape law firm strategy. Whether the firm is a large international or national firm, a regional firm, a boutique, a small firm, a practice group or solo practitioner, the application of theses seven forces is universal. While the forces analysis frame-work presented here (Fig.2) is an adaptation of distinguished Harvard Professor of Economics Michael Por-ter’s “The Five Competitive Forces that Shape Strategy”, published in the Harvard Business Review, January 20081, it identifies two additional and unique legal industry competitive forces that law firm leaders must cope with as part of the their approach to developing and executing competitive strategy – governmental regula-tions and the alignment of compensation and culture.

Figure 2.

Porter’s Five Forces Model Seven Forces “Legal” Model

Industry Rivalry (Intensity) Industry Rivalry (Intensity)

Threat of New Entrants Threat of New Entrants

Power of Suppliers Power of Talent/Service Providers

Power of Customers Power of Clients

Threat of Substitute Products/Services Threat of Substitute Service Providers

Governmental Regulations

Alignment of Compensation & Culture


After years of relatively predictable growth in profits and compensation, principally driven by con-sistent year over year growth in demand for legal services and relatively moderate pressure on price increases, the legal profession is grappling with the effects of a maturing marketplace and transformative industry struc-ture. Demand for legal services contracted sharply in late 2008 and 2009, experienced a corrective bounce in 2010 and 2011, but has moved sideways since 2012. The legal marketplace will continue to mature and experi-ence further segmentation. In today’s intensely competitive environment law firms must be decisive and have a clear and focused strategy. Equally important is the alignment of leadership and culture to ensure account-ability in execution of the strategy in an aggressive manner – to protect its turf.

Law firms historically view competition too narrowly. Managers of law firms tend to define competi-tion as today’s direct rivals geographically, by size or practice areas. In today’s “new normal”, a law firm strat-egy formulation process must include a “true” industry analysis, an understanding of its competitive position and ability to cope with its competition, as identified by the seven competitive forces that shape the legal industry structure (Fig. 3). By thinking more holistically when considering practice strategies, law firms can attempt to shape the forces in their favor. Firms that recognize that competition goes beyond direct rivals and includes other forces and competitive interaction, will be better equipped to develop more focused and effec-tive strategies to stake out and protect their competitive position. The goal of this analysis framework is to help change the way lawyers, practice groups and law firms think and approach the process of strategy formu-lation and execution.

Figure 3.

The seven forces legal strategy framework is based on Porter’s notion that competition for profits goes beyond known or established rivalries and related intensity, and includes other competitive forces. The extended rivalry that results from the other competitive forces, defines the industry structure, and shapes the nature of competitive interaction throughout the profession. Industry structure drives competition and prof-itability. Understanding the competitive forces, and their underpinnings, provides the basis for the industry’s


current profitability, and provides the foundation for anticipating and influencing competition and future profitability. A healthy legal market structure should be as much of a competitive concern to law firm leaders as their firm’s own competitive position. This level of industry analysis may have seemed irrelevant or unnec-essary in the past. Today, it’s a buyer’s market, replete with new entrants, service substitutes and commoditiza-tion pressures consistent with any maturing industry. Beyond direct rivalries and markets, lawyers and their firms need to understand the impacts of extended rivalry forces to position their practices to deliver profitable work that creates the highest value to their clients, and lessens vulnerability to attack.

II. Industry RivalryAt the center of any law firm’s competitive marketplace is the most powerful and influential force –

the rivalry amongst existing competitors. In every legal market there is fierce competition amongst dominant providers. As the growth in demand for legal services has leveled off, the supply of lawyers continues to grow. This surplus of supply over demand is, by all accounts, expected to continue for the foreseeable future. At the same time the growth of in-house legal departments has quietly emerged as a new threat to law firm market share, as well as, a new competitor in the talent market. Between 2009, when average legal spend of corporate counsel was at its lowest point in a decade, and 2014, the overall market showed some signs of recovery, but the dollars captured by outside law firms remained relatively flat.

According to BTI Consulting Group, Inc’s research on corporate counsel spending outside firms cap-tured 65% of the average total legal spend of the Fortune 1000 in 2009 ($28.1 million). By comparison, in 2014, outside law firms captured 57% of the average total spent of $34.6 million. While the average total dol-lars paid to outside law firms increased from $18.5 million in 2009 to $20 million in 2014 or 8%, the amount spent on internal legal departments increased by 51%, climbing from $9.6 million in 2009 to $14.6 million in 2014.2 So while the overall average legal spend in the marketplace has recovered to pre-2008 financial crisis levels, the market share captured by outside firms in shrinking and illustrates the intensity of industry rival-ries.

Today firms need to be vigilant in defining and delivering on their value proposition. Aggressive approaches to demonstrate value distinction and unique differentiation required to win business away from competition must now be at the center of any firm strategy. To compete effectively and win business profitably, clients and prospects need to see the real benefits of a firm’s services over those of the competition.

Everyone understands the benefits or value in paying 1000%+ markups for next day delivery of a package even though the service of picking up a package at your door and delivering it to a specific address is the same. But when it absolutely needs to be there the next day by 9:00 am – we pay for it because we under-stand the value of the premium service. Law firms need to build strategies to demonstrate value from the cli-ent’s perspective, not the law firm’s perspective, to compete in today’s mature legal marketplace.

III. Threat of New EntrantsThere is a growing realization that it is difficult to effectively compete in a segmenting market with

a traditional “full service” strategy. Segmentation within the industry is continuing and different strategies are evolving for different segments. Just as it is impossible to be all things to all people, firms that provide a wide array of services at varying degrees of value straddle many markets and fail to optimize their competitive position or economic structure.

Historically, U.S. legal market segmentation was best defined by size (number of lawyers), scope of services (variety), and geographic footprint (ability to represent clients in a particular market). Except in the


major capital markets, most regions in the US were dominated by a limited number of “full service” firms with the scale and scope of services required to win premium high value work. This meant pursuing a strategy that involved cross-serving clients with a range of services with varying degrees of value and profitability.

Clients tended to be locally based or required local legal counsel that a firm based in other regions was unlikely to provide. This allowed many firms to more easily stake out their competitive position as “go to” firms and defend against competition from new entrants to their geographic markets. It also meant that the larger, highly regarded “full service” firms were in greater control of geographic pricing structures and service innovation. The strength of the threat of new entrants was low to moderate in most markets as the investment required to successfully enter and win market share could prove to be a significant barrier to entry. The larger the client the bigger the firm, the bigger the firm the lower the risk or vulnerability to attack on market share and wallet share.

As the complexity and variety of services required grew, clients naturally progressed up the chain of law firms in their market(s) and unless a firm increased its number of lawyers (scale) and practice offer-ings (scope or variety) they would be vulnerable to attack from those that did. Occasionally, some groups might splinter off a larger market incumbent and create a new competitor in the middle and lower tier, but the strength of that type of new entrant was relatively low to incumbents in those tiers. Even if it did occur, the strength of that direct rivalry, at least initially, would be low. They would be in the fight for the control of cur-rent clients and related market share with their former firm or firms, thus, unlikely to pose a significant threat to incumbents’ existing market share. Overtime the strength of the new entrant could grow in terms of com-petition for the supply of new legal work to the tier. In some instances, this type of new entrant represented more of a threat to potential talent loss rather than client and market share. The strategy to protect the firm from being vulnerable to this type of attack would, of course, be a great compensation system, or at least one that is perceived to be fair and equitable in both its process and results.

Today’s legal market segmentation looks quite different. In response to client’s specific needs, the decline in the growth rate for services relative to the supply of legal talent, continued commoditization and efficiency pressures, the impacts of technological innovation, the complexity of a servicing clients in a global marketplace, and the era of free agency, law firms are defining new market positions and adopting more focused competitive strategies and corresponding cost structures to profitably gain market share and wallet share. Divestitures, often viewed in the legal profession as a sign of weakness, are now considered to be strate-gies that strengthen competitive position, shareholder value and client service.

Many smaller firms and boutiques are now successfully competing for, and capturing work from cor-porate clients previously reserved to the largest firms in a market. As the marketplace continues to experience further segmentation, the value proposition of smaller or specialty firms is emerging in importance to cor-porate counsel. The relative portion of legal work given to the largest full service firms has declined in recent years and will most likely continue as in-house legal departments invest in more cost effective and efficient management of outside counsel relationships and the procurement of services.

Littler Mendelson, the largest U.S. based law firm exclusively devoted to representing management in employment and labor matters, is an example of one firm that has used a boutique strategy to not only become a dominant player in labor and employment on a national level, but also, to successfully enter smaller local markets and win market share from larger incumbent full service firms. A key element of their strategy is providing employers with a unique mix of national and local knowledge. This strategy serves as a recruiting tool for attracting the local market’s best and brightest labor and employment lawyers while simultaneously gaining access to local clients and market share.


Today, the strength of the threat of new entrants is high and traditional strategies to bar entry are no longer effective. In fact, failure to align new strategy with evolving industry structure and segmentation could prove to be fatal for many firms. As competition intensifies, the ability of a firm to demonstrate and differ-entiate its value proposition will be determined more by its unique expertise and value creation in its service delivery model than size or scope of services.

IV. Power of Talent and Service ProvidersAccording to the Bureau of Labor Statistics and the American Bar Association, legal sector employ-

ment from 2010-2020 is projected to generate an annual surplus of 22,700 law graduates who won’t find full-time employment that a law degree requires. While 44,000 law students are projected to graduate every year, there will only be 21,300 new lawyer positions. Absent a significant uptick in the demand curve for legal serv-ices, this annual surplus of new lawyers will further exacerbate overcapacity and continue to drive down the bargaining power of lawyers relative to employment and compensation.

Adding to the oversupply of talent is the fact that more experienced and extremely capable lawyers with minimal or no books of business, or those, that through no fault of their own, find themselves in the unfortunate position of having a practice that, due to market conditions and firm economic structures, can no longer be strategically justified as a “loss leader”. Some are being let go as part of divestiture strategies, thereby increasing downward pressures on the bargaining power of talent (lawyers). Conversely, those with estab-lished, controllable, portable books of business or unique legal expertise in emerging markets like media & technology or cybersecurity & data privacy, will be in even greater demand and capable of higher bargaining power as firms seek to offset flat demand by increasing market share through laterals, mergers, acquisitions, and now “combinations”. Overall, the bargaining power for legal talent is beginning to give way to creative strategies for staffing and leverage to support profitable adoption of alternative fee arrangements.

In addition to legal talent, the structure of the industry is changing relative to business manage-ment and service providers in the law firm business model. “New normal” challenges and complexities are also driving change in the set of skills and abilities required for the traditional positions of Executive Direc-tor or COO. Historically, these positions tended to be more functional implementers, and now they are being relied upon to lead and drive strategy. The CIO or IT Director function, if you are large enough to have one, will need to have the skills to move the firm’s technology function from a support role to a value creation role in the delivery of client services. As the legal market continues to become further segmented, and with pricing pressures expected to continue, the CIO will play a greater role in service delivery innovation and the client engagement/business development process. Positions with the title Chief Strategy Officer, Director of Pric-ing, or Director of Legal Project Management are further examples of law firms recognizing the need to be run more like a business. To effectively compete, firms are increasingly turning to highly qualified non-legal professionals with higher levels of skill and expertise to lead new innovative roles. These are just a few exam-ples of how the business leadership, talent and skill requirements are changing in the industry and need to be addressed as part of a firm’s strategy. The bargaining power of this new class of non-lawyer business leaders will be strong moving forward.

The third talent element of this force resides with third party service providers. Many firms will con-tinue to turn to outside service providers as a strategy to ensure the most innovative, efficient process and value to the client. As the marketplace matures and technology disruption proliferates, the power of these value chain suppliers will grow. E-discovery is an example. In the new world of social media, email, mobility, BYOD and metadata, electronic discovery requirements and complexity will continue to evolve. While some of the largest firms have been able to mitigate the threat of e-discovery disruption on their business model by


developing propriety solutions in house, most firms will continue to look to outsource this process or establish some form of a relationship with a third-party vendor for these needs as required. Whether the firm’s strategy includes outsourcing this part of their service delivery model or is lucky enough to have the investment capi-tal to build this capability in-house, the cost of talent to develop and lead these transformative solutions will come at a price.

V. Power of ClientsThe shift in power and strength of clients as a competitive force in the shaping of the industry struc-

ture has been nothing short of titanic in the past five years. At the top of the pyramid, corporate counsel and in-house legal departments are exploiting the weak strength of the power of talent, the emerging influence of substitute service providers and the intensity of industry rivalries to drive up innovation, efficiency and value creation while driving downward pressure on pricing. While the seed for this structural shift in behavior and industry structure at the highest levels can be traced back to the ACC “Value Challenge”, its influence and effects now stretch across all markets and segments.

At the bottom of the hierarchical pyramid or value curve are the lawyers and firms that have built their practices by providing legal services of a personal nature to individual consumers. At this level, the disruptive influence of technological advances in access and efficiency related to low value repetitive legal services has been significant and a key driver of further commoditization. Like corporate counsel, individual consumers of per-sonal legal services are also demanding more value for their legal dollar. They are no longer satisfied with paying for effort either. The power of clients as a competitive force at this level of the market is extremely high. Lawyers and law firms competing at this level must be highly systematic and efficient in the delivery of their services. They will continue to be challenged in their attempts to devise appropriate and corresponding cost structures at the price point dictated by the marketplace. Creative strategies to leverage people, process, and technology will be critical to withstand intensely competitive pressures and ensure survival at this level.

At no time in industry history has the power of clients as a competitive force been higher. LPM, LPI, LPO’s, AFA’s, Lean Six Sigma, and client service metrics are all examples of how the power of clients is shaping industry structure and the related strategic imperatives for law firms. Suffice it to say, these fundamental shifts in client demands for better value, efficiency and client service are permanent. In fact, their intensity will strengthen as the market continues to mature and segment.

VI. Threat of Substitute ServicesThe threat of new service providers in the legal industry has traditionally and exclusively meant from

other lawyers and law firms. New or substitute providers could only mean more lawyers and/or more and larger firms and practices pursuing growth geographically, by industry or practice area. Whether they were start-up offices or the result of mergers, acquisitions, or laterals, their DNA was similar, they were lawyers offering legal services. The threat and meaning of substitute service providers now expands beyond legal com-petitors and lawyers. Technology, software, business process engineering firms, as well as, legal process out-sourcers (LPO’s), limited service providers and DIY websites are all examples of the strength of this emerging competitive force in the industry.

The growth of on-line limited service sites like LegalZoom, Nolo, and Rocket Lawyer are examples of DIY sites gaining market share for personal and small business services. LegalZoom’s filing for $120 million IPO in 2012, after growing the company revenue from $109 million in 2009 to $156 million in 20113, is evidence of the growing acceptance of this substitute service option, at least in the personal services and small business arena.


Microsoft, a perennial innovator in the software industry, was one of the first to recognize or validate the innovative force and opportunities afforded by legal process outsourcing when, in 2009, they turned to Integreon as its LPO partner to handle contract review of high volume, low risk contracts involving repeatable steps. The collaborative venture between LeClairRyan and UnitedLex in 20134, in the launch of the LeClair-Ryan Legal Solutions Center, demonstrates that firm’s knowledge of the changing industry structure and the strength of this competitive force. Their strategy to shape this force in its favor by turning over the responsibil-ity for the operations of its Discovery Solutions Practice to UnitedLex, a leading global provider of legal and business technology and consulting services, provided access to investment capital, best-in-class technology and quality control processes to assist clients with obtaining more comprehensive, value-based services at a lower and more predictable level. This is one example of the type of innovative thinking that will be necessary to be successful in the future.

The disruptive influence of technology in the legal industry cannot be overstated. While the barriers to “outside” entry in the legal market were high and insulated by the requirement of a license to practice law, the advancement of technology and the complexity of servicing clients in a global economy, has enabled new indus-try participants to identify opportunities to enter the market and change the legal industry’s structure by lever-aging technology software solutions and project management or business processing engineering expertise to unbundle the legal service delivery process. These new entrants will offer and drive greater efficiency solutions for delivering low value repetitive legal processes, as well as providing solutions for greater control and manage-ment of outside counsel relationships by in-house legal departments for strategically important and high value legal services. The strength of this competitive force is moderate to high but will continue to intensify.

A second strain of substitute service providers is also emerging. The Big Four accounting networks and consulting outfits PwC, KPMG, EY and Deloitte have all been developing their legal services lines of busi-ness, principally in countries like the United Kingdom and Australia where recent legislation has opened up access to their legal industry. The Legal Services Act of 2007 by the Parliament of the United Kingdom per-mitted MDPs or multidisciplinary practices allowing attorneys to share fees with other professionals, with-out restriction, to encourage competition – and the Big Four have seized the opportunity. And while their impact or strength as a competitive force in the US market is low today, the expectation should be that these substitute service providers will strengthen as a competitive force, especially for work from multi-national clients with global footprints. EY Legal’s announcement on May 13, 20155, of the launch of a financial regula-tory practice in London with 12 lawyers, including two partners from Baker & McKenzie and Weil, Gotshal & Manges, demonstrates the growing strength of this competitive force and the implications to U.S. law firms operating abroad.

VII. Governmental RegulationsGovernmental regulations is included as the sixth force in the seven forces legal model because of

the disruptive implications, both positively and negatively, they can have on the industry structure and in the determination by law firms for the scale and scope of services offered to their clients. Legislative actions and regulations help determine and shape emerging markets for legal services where unique expertise can create a value differentiator. The Affordable Care Act, cyber security & data privacy, media & technology, and compli-ance are a few examples of areas where legislative acts and regulations are evolving and creating competitive opportunities for new legal services. Governmental regulations also create the potential for pricing elevators to highly specialized, competitively positioned, premium work and profits.

Alternatively, governmental regulations can, and do, threaten firms competitively. When legislation is passed, it may render services irrelevant or imposes additional service requirements that disrupt a firm’s


underlying cost structure and ability to deliver such services profitability. An example of the potential strength that this competitive force can have in shaping the legal marketplace was the passing of legislation to increase the estate tax basic exclusion amount in New York. The exclusion had been set at $1,000,000 per person since 2002. The new law immediately bumped the exclusion to just over $2,000,000 for 2015 and will increase to $5,000,000 by 2017. Many trust and estate lawyers in New York will likely experience an evaporation of serv-ices and market potential. At $10,000,000 per couple the demand curve for legal services and strategies to limit estate taxes obligations begins to drop off precipitously while the number of highly qualified and tal-ented estates lawyers will not. Rivalries amongst direct competitors will intensify in pursuit of a larger share of a smaller market.

Legislative acts and changes in regulations are dynamic forces that can help firms remain relevant to their clients and identify strategies to take timely advantage of emerging opportunities.

VIII. Alignment of Compensation and CultureThe seventh force in the seven forces model is alignment of compensation and culture. While, on its

surface, alignment is the basic purpose of creating strategy and not a competitive force in Porter’s model, it does have unique relevance to law firms. Given the unenforceability of non-compete covenants and the cur-rent U.S. restrictions on non-lawyer investment (equity), the alignment of compensation takes on the charac-teristics of a separate force that can mitigate critical strategies used to create barriers for new threats – excess cash, borrowing power and funding of innovation (R&D). If the “real equity” stakeholders (those with control of significant clients and portable books of business) are to make investments in their firm and/or other part-ners’ practices that don’t yield immediate compensation returns, they must see the value of the investment. If they do not, they will not engage and implementation and accountability will collapse. Worse, they may undermine the efforts of others to engage by leveraging loyalty within their silos.

Given the lack of any other strategies or restrictions limiting the portability and ease with which law-yers and their clients can move to other firms, coupled with restrictions on equity and investment capital from outsiders, firms must fund innovation through operations and profits. If the wrong partner or practice group decides they are not onboard with the firm’s direction, then the bottom could fall out on the underlying eco-nomic structure and service capabilities, upon which, and for which, the strategy was developed. If law firms were able to place restrictions on competition from their former lawyers, and clients were not free to change counsel at a moment’s notice, without restriction or paying their bills, then this force would not need to be uniquely relevant to the legal industry as a key force in shaping strategy.

For law firms, alignment of compensation is critical to both cultural engagement in, and account-ability for, competitive strategy, especially given the “loose confederation” culture trait. Each member and employee of a firm or practice group must understand the firm’s vision and their expected role and responsi-bility for achieving the vision. They need to be recognized and rewarded for changes in behavior and accom-plishments that contribute to the vision.

The current compensation systems of most firms are steeped in rewarding individual versus organi-zational or team performance. Individual performance and compensation metrics like billable hours, working attorney receipts, and client originations drive the behavior and culture of law firms. Seldom are non-billable investment type contributions to improve efficiency, profitability, or promote and drive a “firm first” or team philosophy adequately recognized and rewarded in compensation. For law firms to change behavior and transform their culture to support their strategy, they must develop corresponding compensation approaches to create the alignment.


The structural conflicts of interest in a firm’s compensation system can, and do, directly affect a firm’s culture and ability to efficiently support improved client service and value creation, as well as, limit the effec-tiveness of its strategic planning efforts. Some, like Edward A. Bernstein, have gone as far as to suggest that the American Bar Association consider a rule requiring that law firms disclose their partner compensation systems to their clients. In his article, published in the Illinois Law Review, Bernstein examined the relation-ship between law firm compensation systems and partner incentives to serve firm clients. While he did not take a position regarding the better of the two typical approaches to law firm compensation, “eat-what-you-kill system” or “lockstep system”, he did suggest the following:

“….whatever the benefits of the “eat-what-you-kill system” and other motivational systems that shift risk to the partners, they come at a cost. The cost includes the creation of a potential conflict between the personal interest of the firm’s partners and clients that, among other effects, reduces the value of the firm’s services because acting in the best interest of a client exposes a partner to the risk of being second-guessed.”6

While I do not share Bernstein’s opinion or suggestion for a new rule to require law firms to disclose their compensation systems to their clients, I do believe his article is another example of the internal struggle or force faced by law firms in finding the right compensation system, and the right balance, to drive behaviors that best serve client’s needs, the partner’s needs and the firm’s needs.

In the final analysis, if a law firm’s strategy is not aligned with its compensation system, then its com-pensation system must be part of its strategy. Without it, organizational alignment and transformative collab-oration needed to drive strategy and innovative value creation will not occur.

IX. ConclusionSuccessful law firm leaders today must analyze the legal industry structure, its extended competi-

tive forces, and build strategies that go beyond direct rivalries. They must study the economic and technical elements that shape the industry’s structure, and identify the relevant competitive forces and the strength of those forces as they relate to the firm and its practice areas. It is now critical for law firms to fully understand their internal and external strengths, weaknesses, opportunities and threats. Without a disciplined approach to strategic planning, law firms will not be able to plot out a competitive position for their firm and its practice areas. Now more than ever, effective leadership skills are critical to lead and drive the organizational transfor-mation required for shifting culture and behavior to successfully compete in the new normal.

Endnotes1 Porter, Michael, “The Five Competitive Forces that Shape Strategy”, Harvard Business Review, January 2008.2 “The BTI Market Outlook and Client Service Review 2015”, www.youtube.com, January 2015.3 “LegalZoom Files for $120M IPO, Saw $156M Revenue Last Year”, Anthony Ha, TechCrunch.com, May 11, 2012.4 “LeClairRyan Partners with UnitedLex in Launch of Innovative Legal Solutions Center”, UnitedLex Press Release,

October 30, 2013.5 “Accounting Firm’s Legal Arm Expands in London, Plus Lateral Moves”, Brian Baxter, The AM Law Daily, May 13,

2015.6 Bernstein, Edward A., Of Counsel, Greenberg Traurig LLP, “Structural Conflicts of Interest: How a Law Firm’s Com-

pensation System Affects Its Ability to Serve Its Clients”, Illinois Bar Review, November 11, 2003.

http://www.youtube.com

Documents

How to Develop Law Firm Strategy in the “New Normal”iframe.dri.org/DRI/course-materials/2017-Diversity/pdfs/...How to Develop Law Firm Strategy in the “New Normal” Blanchard