The Law Firm as a Business: A Dangerous Oximoron

In my years of law student in Argentina back in the seventies we had just one subject (Political Economics) related to the functioning of the economy. That remarkable obliviouness of the business world vastly applicable for decades in most law schools in Latin America has produced, among other factors, the great difficulty of lawyers to understand how business works. One of its effects is that lawyers seldom understand the business of its clients, producing one of the main limitations of business lawyers in their practice.

The other limitation works inside the firm: it is very hard for lawyers to understand the law firm as a business. For many, it is almost like an oxímoron –two things that are essentially incompatible-. To consider the law firm as a business is to give the economic and commercial objectives priority over the professional nature of law practice. But that is really a lot of nonsense since most of the successful lawyers I know are always very interested in making money.

The real nature of this limitation lies in other issues of lawyers that I have mentioned in previous articles I wrote. Those basically relate to the combination of a highly individualistic and autonomous activity, where some level of success can be achieved by capable individuals, and the “distrustful DNA” of lawyers that David Maister so well described (“Strategy and Fat Smoker”). Under this perception, the lawyer is always better off by keeping control of his resources (clients, knowledge, information, power) rather than sharing them with others for a common purpose, whatever higher goals he might acheive by doing that.

But why is that incompatible with organizing a law firm as a business? Getting back to my law student years, I remember that a business or enterprice was defined as the organization of resourses for a common purpose or goal, with the objetive of obtaining a profit. A business requires a clear vision of what you want to do and where you are going. Once you have that clear, you should define what resources are needed to accomplish that vision. Execution should assure that all actions are aligned with the objective and goals established.

An adequate business structure normally has two components that are hard for lawyers to deal with: (1) a common purpose or goal that supersides any individual wishes or interests that are incompatible with the former, and (2) some balance between short term and long term goals, assuming that in order to achieve the common goals some investments need to be made that would delay inmediate gratification of short term goals.

Because of these chacarteristis, few law firms in Latin America are actually managed like businesses. Management is a fairly chaotic and inconsistent series of decisions that reflect more the internal balance of power than a clear vision and strategy where everybody is aligned. Partners give higher priority to have influence and being able to fullfil their personal agendas, than the general performance of the firm. Although this sounds like we are talking about wicked and selfish individuals, the truth is that many well-intended partners –and very good lawyers- simply do noy understand these organizational dynamics and easily fall into these type of behaviors.

But, is this really important? If it so difficult for lawyers to adapt to a business framework, why try to change that? Well, I think the answer comes from the leading firms, both in Latin America and in other regions. The partners in great firms have been able to undertand this dilemma and reach a common vision and strategy, where individual partners have to relinquish personal interests that were not aligned with the firm´s strategy. In those firms, there is a clear understanding of the unstable balance between individual egos and the firm´s strategy. Although individuals always stand below the spotlight and are the visible stars of the game, somehow the great firms create talent machines that exceed just the brilliant individuals and excel in the quality of their service and the effectiveness of their management. Those firms are runned like businesses.

The new century has only stressed the need for a business-oriented approach. Clients are more sophisticated and demanding. Efficiency, speed, coordination, communication, expertize, sinergies, etc., are all objectives that can only be achieved in a collective effort and pursuing a common goal with a clear vision. Only 20 or 30 years ago you could get away with being inefficient and putting up with brilliant but problematic egos. More and more, this will pay a cost too high to remain competitive in the new market.

This essential matter will the center of the conference organized by the Law Firm Management Committee of the IBA next August 19-21 in Sao Paulo, Brasil, titled “Law Firms as Businesses: Option or Necessity?”. With a combination of top speakers –including Heidi Gardner from Harvard Law School- and senior partners from leading regional and international firms, this conference promises to be a significant contribution to the analysis of this central topic. If you want more information about the conference, please visit the following link: conference brochure.

It is clear that law firms should be lead, organized and managed as a business. This will not affect negatively the professional purpose of the firm, but will actually help to achieve it. The traditional way of managing firms is outdated and perilous in the current market conditions. Partners need to come to terms with this reality and leave behind their hope for autonomy and individual control, if they want to own a healthy and efficient firm.