Law Practice

The Amazing Race

Internal Competition May Drive Achievement, But It Can Also Sink Morale. Where Should Firms Draw the Line?

Posted Aug 28, 2005 2:07 PM CDT
By Jill Schachner Chanen

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Around the offices of Horwood Marcus & Berk, it used to be pretty easy to tell when it was that time.

Slowly but surely, the Chicago firm’s associates would make their way down to the accounting office where, posted on the wall for all the firm to see, were tallies of their billable hours for the previous month.

Then, as if on cue, the whispering, the insults and the finger-pointing would begin. The firm had always prided itself on being a refuge for big-firm lawyers from the demands of relentless billing, yet its young lawyers viewed the postings as placing a premium on just that. And they reacted by blaming one another for hogging work and by justifying their own low billable hours through criticism of their practice groups or clients. The practice, partner Jordan Goodman concedes, “created a lot of ill will.”

So the firm put an end to the posting. What was supposed to be motivating associates to work harder and happier was instead sinking morale.

Internal competition is nothing new in law firms. In fact, lawyers and experts alike call internal competition a necessary management tool that fuels growth and profit­ability. Indeed, sophisticated accounting software now allows law firm management to keep score on everything from lawyers’ billable hours to practice group profitability.

And firms often find willing participants among their ranks. Lawyers are by nature smart, driven and entre­preneurial people, and competition can be an inevitable consequence when these types work together in a pro­fession where value boils down to cold, hard numbers. From the obvious, such as billing reports, to the more oblique--unofficial contests to stay the latest, arrive the earliest or pull the most all-nighters--competition on some level has always been business as usual.

But whether internal competition is a good or bad thing creates almost as much of a divide as the dissemination of partnership points at year-end. It’s clear that while a little competition can be a good thing, too much of it is not. Where one draws the line, however, is anyone’s guess.

“What a lot of people do not realize is that some [com­pe­tition] is a good thing because it can inspire people who are not performing to do better. But it can be carried to extremes where it becomes counterproductive and works against the whole,” says law firm consultant Ward Bower of Altman Weil Inc. in Newtown Square, Pa.

Law firms, because of the way they com­pensate and ad­vance lawyers, are in an especially tricky and precarious situation when it comes to internal competition. Firms that value nothing but hours and busi­ness origination create incen­tives for lawyers to think of themselves first and the client last. Firms that do not, by the same token, may find themselves losing their edge in the marketplace. or worse.

Striking the Right Balance

Although posting billing totals failed to appropriately motivate their associates, the Horwood Marcus partners haven’t abandoned the concept of inter­nal competition as a motivator.

In fact, the firm hasn’t tried to scale back its attempts at working the internal competition angle when it comes to encouraging partners to bring in new business.

The firm unabashedly--and understandably--values new business, and the currency used to express appreciation for rainmakers is the origination credit. But doling the credits out, Goodman admits, is not always easy.

That’s because the credits can be split when, for example, one lawyer is re­spon­sible for origination but another is assigned to the matter. When a split is possible, Good­man says, firm partners have upfront conversations to determine how credits will be worked out. Usually this approach solves the problem, but not always. “There are those who do not want to share but then find themselves having a hard time getting support,” he says. “But we allow it to exist.”

Goodman says the firm decided to let individual partners hash out origination credits up front to curtail the end of the year disputes that happened among partners previously. Even though some of the splits end up un­resolved, Goodman says the system has worked well enough for the lawyers that the partners are happy with the way it works out for all of them.

At Godwin Gruber in Dallas, internal competition is alive and well at both the associate and partner levels. Executive committee member Michael Hurst says the firm actively encourages competition among its lawyers.

The firm holds an annual intrafirm mock trial competition for associates where the winners are rewarded financially and with an engraved plaque bearing their names that’s added to the walls of the firm’s mock courtroom. When it comes to rewarding rainmaking, partners and associates alike get bonuses for bringing in new business. The firm also has a two tier partnership, and equity status is not sacred. Lawyers can go from tier to tier in any given year based on their performance, Hurst says.

Hurst, speaking for himself, says he believes that some level of competition inside the firm is healthy. “I do believe it makes attorneys work harder and bring in more business. If attorneys are not motivated by their peers, they are probably not the kind of attorneys that I want to work with.”

The firm even has taken the Horwood Marcus posting approach and kicked it up a notch: It distributes monthly statistical information on billing and business origination about every lawyer and paralegal in the firm to every lawyer and paralegal in the firm.

So why does one competition-provoking strategy work at one firm and flame out at another? The answer may lie in Godwin Gruber’s equally tenacious emphasis on fostering teamwork at every turn, especially when it comes to credit for new business and client service. For this firm, focusing on teamwork has become a check of sorts, promoting balance in the face of the competitive forces within the firm.

One example of the firm’s pro-collaboration approach is its handling of origination credits. While there may be some working out to do between lawyers regarding these chits, the firm strongly encourages one outcome in particular: sharing. “It is incumbent on those of us on the executive committee to make sure that the internal competition is productive and not destructive,” Hurst says.

Firms that don’t take measures to counter internal competition risk low morale and high levels of turnover, and they never fully achieve their potential market po­sition given their expertise and capabilities, says Blane Prescott, a San Francisco-based consultant with Hilde­brandt International. “They never seem to earn the income, gain the reputation with clients or build up a reputation in the community that fully takes advantage of their capabilities,” he says.

Worse yet, firms that are highly internally competitive tend to get lower grades from clients for the quality of work and the quality of their services, Prescott adds.

John Remsen, a marketing and strategic planning consultant in Atlanta, says the less obvious consequences of internal competition are just as harmful. They include infighting over seemingly innocuous forms of recogni­tion like the more desirable office or parking spaces, titular appointments and even getting the firm’s support--financial and otherwise--to buy a listing in the latest best lawyer book.

Changing the Reward System

It would seem, then, that a law firm must forever police its management practices if it wants to succeed in a business environment where the link between compensation and performance ensures internal competition will never go away.

Maybe. But workplace conflict resolution specialist Anna Maravelas says it doesn’t have to be that way. Com­petition, according to Maravelas of Arden Hills, Minn., is a learned behavior. She believes that organizations can shape behaviors by changing what they reward, what they promote and what they broadcast.

Remsen agrees. More and more firms have become enlightened to this concept, he says, and they now are rewarding lawyers who are good corporate citizens over those who simply bill and bring in business.

This “good corporate citizen” designation has become an additional compensation model, along with lockstep and eat-what-you-kill systems. More law firms are adopting this compensation system because, Remsen explains, it can provide the desired combination of motivated lawyers and less competitive workplaces.

Lockstep systems, once the standard for most large law firms, encouraged civility and neighborliness inside the firm but did little to motivate lawyers to work harder or bring in more business. Eat-what-you-kill systems, which evolved after law firms began paying associates high sal­aries in the late 1980s and early ’90s, motivated lawyers to bill more and bring in more business, but they also were responsible for promoting internally competitive environments, a lack of loyalty and a sense of individualism, legal experts say.

To successfully change a law firm’s culture to a good corporate citizen model, Remsen says management must reward the kind of behavior it wants to promote. That reward, ultimately, involves money.

Miami lawyer Howard Berlin says that his firm, Kluger, Peretz, Kaplan & Berlin, has made the change. About six years ago, it moved toward the good corporate citizen mod­el of compensation and, in the process, changed the firm culture.

Berlin says the now 17-year-old firm was both highly competitive and entrepreneurial when it first opened its doors. But as the firm grew past 25 lawyers, it became clear that what worked in a smaller firm was not going to work in a larger one. The firm began focusing more on efforts to institutionalize clients rather than individu­al business development efforts. That shift also fostered a change in the firm’s culture such that high-quality legal work, mentoring and community service were valued above business origination.

The shift created a much more family like culture, Berlin says, where emphasis is placed on collegiality and esprit de corps. As proof, Berlin points to the firm’s low turnover rate: No one has voluntarily departed from the firm in years, he claims, and they are all making good money.

Berlin says he believes that the focus on compensation is in some ways a red herring in the overall analysis of internal competition in law firms. “The broader issue is motivation. Internal competition is just one aspect of motivation, [but] there are lots of ways to motivate lawyers,” he says. “The question is: How do we channel that energy so it is positively focused in the office?”

For Berlin, the answer to that question came through creating a strategic compensation plan for the firm, which set forth the values that lawyers will be rewarded for prac­ticing.

Now, lawyers at Kluger Peretz are compensated based on how well their year end accomplishments meet the firm’s strategic plan, which includes contributing to the community, teamwork and mentoring.

The goal, Berlin explains, isn’t to eradicate competition. Rather, the plan allows lawyers to be rewarded--and therefore motivated--by com­petition that’s external, rather than internal. “We try to look at the whole lawyer and not just their origination numbers,” he says.

Compensating lawyers according to this plan means it’s not uncommon for a lawyer with more business origination and few other contributions to the firm’s strategic plan to receive less in compensation than a lawyer with little or no new business but significantly more billable hours and community involvement, Berlin says. But it’s a necessary result, he says: “Your compensation plan has to track your strategic plan because if it does not it becomes, by default, your strategic plan.”

One reason this system works in spite of such situations, he says, is because the firm keeps its compensation system closed. “Part­ner compensation is private. Other partners do not know what the others are making. They are under the threat of getting fired for disclosing it,” he explains.

Detroit-based law firm Dykema Gossett is another outfit that’s actively trying to change lawyer behavior through its com­pensation model.

The 400-lawyer group has been taking steps to reorient the competitiveness of its lawyers, helping them to focus less on themselves as individuals and more on them­selves as components of a team, says chairman Rex Schlaybaugh. But, he admits, “it’s a difficult task and we are not always successful in doing that.”

Schlaybaugh says that the firm now places more emphasis on rewarding collaborative efforts, such as helping to institutionalize firm clients by following firm policies on cross-selling, working with different practice areas and staffing matters appropriately.

Dykema Gossett also changed the way it collects and uses information on attorney billable hours, practice group profitability and office profitability. Instead of using them each month as motivational tools, Schlaybaugh says the firm instead uses the numbers to determine areas where the firm may be over- or understaffed and where practice areas or markets are softening.

Yet Schlaybaugh cautions that there’s no silver bullet. Every firm has lawyers with an uncanny ability to bring in new business, and if a firm decides to downgrade the premium it places on this effort, it must be prepared to face the loss of that rainmaker.

Countering Competition With Collegiality

At Duane Morris, firm chairman Sheldon Bonovitz says he believes that any attempt to lessen internal competition has to take the emphasis off the numbers and turn more attention to personal interaction. So the Philadelphia-based firm now requires each practice group to have monthly practice group meetings via teleconferencing and face-to-face meetings at least three times a year.

“I think lawyers get to know each other in a way that they would not know each other if they were just doing things in their offices,” Bonovitz says. “It’s the role of the practice group leader to make sure that they know everyone.”

Bonovitz says he is so serious about maintaining the firm’s collegial culture that he has a hard-and-fast “no jerks” rule. He claims that lawyers have been asked to leave the firm, irrespective of the business they may command, if they are rude and disrespectful of other lawyers and staff.

“We say culture trumps business. We will not sacrifice our culture because it will generate business for us. We have to maintain collegiality so people ideally look forward to coming to work and like working here,” he says.

Numbers have never had much significance at Gordon Arata McCollam Duplantis & Eagan. The New Orleans-based firm has no expectations for lawyer billable hours or for business origination, says managing partner Tim Eagan. It’s an approach that’s earned the firm a renegade reputation within the legal community, he says, and that suits its lawyers just fine.

He says that the firm would rather see a lawyer bill 1,600 quality hours than 2,600 bad ones, and that there are no consequences for having a bad year. “We just do not weep and wail if someone comes in with a 1,500-hour year because there is usually a pretty good reason for that,” he says.

Eagan suspects that a consequence of the firm’s noncompetitive culture is that the lawyers there may be making slightly less money than those at other firms. But only slightly less, he says. “If I am leaving 10 percent of income on the table because we are not so ruthless with quotas,” he says, “then that is OK with us.”

For Eagan and his partners, enjoying what they do and where they work takes precedence. “I say to people who are interviewing at our firm that we are all bright people and can do a lot of things,” he says. “It is not so important if you are at a big firm or a small firm, or if you are doing tax work or real estate. It’s key to like the person in the next office.”

Sidebar

Is Your Firm Tipping Toward Toxic?

Law firms are unique creatures because their structure allows for independent fiefdoms instead of interdependence, says workplace conflict resolution specialist Anna Maravelas of Arden Hills, Minn.

“If I were to draw a picture of a normal organization, it would go in a circle where Joe hands off to Betty, who hands off to Frank, who hands off to Sally before it goes to the customer,” says Maravelas, author of How to Reduce Workplace Conflict and Stress. This doesn’t always happen in law firms, she says. “A lawyer will get a call from a client and respond. There is very little interaction with one’s neighbor.”

Cohesiveness and the social interactions and trust levels that result, she says, are “absolutely essential in order for a group to go through periods of conflict without breaking into factions.” And when a dysfunctional work environment combines with a performance based evaluation system, the results can be toxic.

How to know if a workplace crosses the line? Maravelas has identified 10 negative practices that help indicate whether a workplace has become too competitive:

  1. An increase in self oriented behavior.

  2. A loss of the sense of cohesiveness between co workers.

  3. Hoarding of information.

  4. Distorting or fabricating of information.

  5. A growing sense of resentment toward the organization.

  6. Disappearance of good-citizen behavior.

  7. The lack of any opportunity for mentoring.

  8. A halt in cross-functional collaboration.

  9. People’s behavior narrowing to the criteria being measured.

  10. A drop in creativity and risk-taking.

Jill Schachner Chanen, a lawyer, is a legal affairs writer for the ABA Journal.

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