Time to equitise your HR director
15 March 2012
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20 May 2013
At a time when most law firms are looking at how they can reduce the size of their equity partnerships, restrict entry to the equity and make sure that as few equity partners as possible are in a position where they are doing no fee-earning work, what I am about to do may seem odd, if not borderline insane.
Because I think that big law firms should be creating more equity partner positions; specifically, a few more non-fee-earning equity partner positions.
Let me explain.
It is my belief that senior support directors, in particular those focused on HR, finance and business development (although I would scrap business development and call it ‘sales’), should be equity partners in large law firms.
I think the case for making finance directors equity partners is blindingly obvious even to the untutored. Business development is a matter of debate; if one is referring to the neutered, superannuated communications person, or the lofty strategist who most partners could pass in the corridor without even recognising , no. But let’s park BD for another blog.
My real beef is with HR.
It is practically inconceivable that the HR director – or whatever they are called these days, ‘People and Talent’ manager seems to be one of the latest modish monikers – in a multi-million pound corporate would not have a seat on the main board and be intimately involved in all manner of strategy, but such is the case in many law firms.
The irony of this is that, boiled down to the basics, all law firms really consist of is human resources. There is no brand, beyond the aggregate of the minds and reputations employed in the practice, and no product beyond what those minds conceive on a daily basis (leaving aside the kind of commoditised product that is only a keystroke away from production at any given moment).
Law firms are incredibly short-term businesses, run for the benefit of the current partnership in large part, and so their health and vitality depends almost entirely on two key issues: who they are able to attract and who they are able to retain. Fail to recruit and you cannot expand. Fail to retain and your cherished product dissolves before your eyes, taking its client base with it.
So from the point of view of anyone outside the business, having your director of HR on the management board would seem to be a no-brainer. But as an owner?
The truth of the matter, as we all know perfectly well, is that if you are not an equity partner in a law firm it doesn’t matter how much you bring in you are always simply an employee. It used to be the case that equity partners were relatively safe, but while that is no longer the case, the tag of ‘equity’ brings with it a respect and internal clout that HR still lacks in many firms.
Establishing the principle that an HR director is an equity partner would have a number of key benefits. One, it would cement the importance of good HR – still a discipline many lawyers think they could ‘do’ themselves if they weren’t off doing far more important things – within the organisation. Two, it would centre the organisation on HR at a time of immense change in the profession, of which more later. Three, it would cement the right individual into the partnership at a level where they could properly influence the key driver of all law firm behaviour: partner compensation.
All too often, HR directors are cut out of the partnership remuneration picture. Nothing is more likely to send a law firm off-track than a poorly designed compensation system. Nothing causes more boardroom angst or is more likely to provoke schisms. What partners often fail to realise is the effect that their compensation system has on the rest of the firm. Law firms are delicate systems (or organisms, if you prefer an organic systems-dynamics metaphor) and what is done in one part of the organisation will have an effect on what happens elsewhere. Very little work has been done on this; most law firms simply muddle through on a daily basis, but as organisations become larger, more international and more complex, they become more difficult to manage. This was all very well when times were good, but as many firms are finding, when fee levels drop, cracks start to appear.
My own view is that with some very tightly run operations, there is a risk, albeit a small one, of total, catastrophic collapse. This will most likely take the form of what I call a ‘cascade failure’, where loss of confidence in one part of the organisation has a domino effect on other parts of the firm. Before you know it, all the good partners are on the market and heading for the door, and within a short period of time, the whole edifice can come crashing down. It would only take one of these to happen to a soi-distant global player to entirely change the way the market views itself (a la Arthur Andersen).
Embedding an HR professional into the organisation is no sure-fire way of preventing this kind of thing, but it stands to reason – to me anyway – than an HR professional is much more likely to be in tune with the human dynamics of the organisation than the partners, which may allow them to spot and fix problems earlier. The only way for such an individual to have the clout necessary to change things, to design strategy and shape policy for the organisation as a whole, is to have a seat at the top table.
HR will have a vital role in the future. Taking Richard Susskind’s persuasive vision of lawyers becoming ‘information engineers’ as a pattern for the future of law firms, where is this cultural and skills-change going to come from? The current partners? Hardly. The education and training system is also ill-suited to provide what is needed, as currently constituted (another blog there…). HR will provide the vital skills, foresight and energy needed to transform the profession and counter the threats to the legal profession looming with any number of potentially disruptive new entrants and changes in client buying patterns.
Of course, there is a chicken-and-egg issue here; many partners will look at their current HR director and think “not on my watch!”, and they would be right. While there are some great, far-sighted and strategically minded HR directors around - good people-people (if you’ll excuse the ghastly expression) with a skill for empathy and diplomacy - there are some poor performers as well. HR will also need to step up to the plate.
Most law firms are not early adopters, so I would not expect many to jump at the chance to equitise their HR directors, but a few are there or nearly there. With good management in place, I would expect those firms to be at the cutting edge of the necessary transformation.
A partner I met the other day, who is a surfer, reckons his firm needs to be “at the crest of the wave” for the coming changes to the profession. Too far ahead and they risk being crushed when the wave breaks; too far behind and they’ll never catch it, and be cast into the doldrums.
The wave is coming. Question is, what part of it will you be catching?
Mark Brandon is managing director of Motive Legal Consulting