“How can we create a more humane culture that prioritizes well-being, elevates decency, and restores the service component to our workforce as well as our customers?”
I resonate with Cohen’s question as a human being. But I also wonder if we posed this question to the shareholders of top AmLaw firms today, would it be taken seriously, or would it be delegated to the corporate responsibility committee? After all, the legal partnership model is based on the general economic assumption that people act largely out of self-interest and the goal of maximizing their own financial returns.
There is an obvious cry from society to reform the law firm business model. Kill the billable hour. Give power to the consumer. Focus on diversity and inclusion. Create a more humane culture.
These are all good ideas, but they are not revolutionary – or easily measured. They will not bring about the kind of transformation we need now not only in the current emergency but also in the future for attorneys to not only compete, but to remain influential, beneficial members of our society.
Economics is the science of scarcity, and law firms are clinging to an outdated economic model designed to measure only financial capital. It’s an understandable model in that one can only manage what is measurable, and money is nothing if not easy to count.
However, as Dennis Nally, former global chairman of PwC, has stated, “Financial measures – historically the main focus of a businesses’ assessment and reporting of their performance – are no longer enough…Amid today’s pervasive connectivity and constant 24/7 scrutiny, trust is a critical asset. Yet it doesn’t appear on the balance sheet or figure in any financial reporting.”
Nally’s insight from his years with a Big Four powerhouse (and let’s not overlook the fact that the Big Four is now a direct competitor of law firms in the global legal market) holds true in law as well. Law firms today are suffering from a global trust deficit, largely based on their self-serving business model.
And as much as I want to discuss morality and ethics, my work in legal innovation is focused on this version of Cohen’s question:
“How can we create an economic model that increases the measurable value of the financial, human, and social capital components of the entire legal supply chain?”
Put another way, a revolutionary model, not technology, will be the determining factor for a law firm’s future success or failure. There is an immediate need to learn to play the long game and dismiss the myth of the zero-sum game. Stakeholders and shareholders must collaborate to share the risks and rewards in a market model that is profitable long-term.
The challenge – and priority – is to find actionable, measurable ways to expand the assets which are valued to include all forms of capital that are important to the sustainability of the legal industry.
This is not an ideological stance. It’s logic.
The Economics of Mutuality
In 1947, Forrest Mars Sr. wrote a letter to all of his staff, emphasizing that the organization’s sole purpose was to establish “a mutuality of services and benefits” across its entire supply chain – consumers, distributors, competitors, suppliers, employees, shareholders, and communities on which it depends.
This understanding of mutuality and how it improves productivity and thus, profitability, over the long term, has been Mars Inc.’s guiding principle since then. Privately held, the corporation had sales estimated at more than $37 billion last year. Performance is still based on measurable KPIs, including measuring all capital in its supply chain: financial, social, human, and environmental.
It’s one thing for Mars to demonstrate decades of anecdotal success, it’s quite another to know they have invested years and years of in-depth research and practical business application to prove that their mutuality model was indeed a breakthrough innovation. Working in partnership with the University of Oxford Saïd Business School, and more recently the China Europe International Business School, the Economics of Mutuality is now a proven methodology, with a more complete model of value creation.
With new performance metrics, new management practices, and new modes of profit construction, the Economics of Mutuality has not only helped businesses grow faster, more profitable, and responsibly, it has also demonstrated that organizations following this model rebuild society’s trust in them. And all of it is quantifiable.
It goes without saying that the Economics of Mutuality will only be successful in a law firm if the stakeholders and shareholders all buy in to the business model.
The first step is to recognize and agree that a law firm’s long-term success requires recognition of the value of multiple forms of capital: financial, human, social, and environmental.
The second step is to agree that this new way of thinking requires long-term strategy, commitment, and investment – and will require more capital outlay in the short term.
The third step is to start implementing the Economics of Mutuality methodology, a quantitative business model that uses proven measurable KPIs to help law firms create mutual value across their entire legal supply chain – while not sacrificing profit in the long term.
When I speak to others of my desire to see law firms adopt this model, and I get to the part about “while not sacrificing profit,” attorneys often hear, “This year’s distribution will be the same or better.”
It continually stuns me that law firms do not see the value in operating more like businesses with long-term strategies and initiatives. When we reinvest in each other, productivity and profit rise – over time. When we invest in a holistic business model that measures financial, social, human, and environmental capital, it’s a win for everyone.
As Loic Moutault, president of Royal Canin, states, “Mutuality is a business blueprint that places collective well-being on equal footing with next quarter’s profits, knowing that financial returns can be spread out across both time and space if we consider ‘business-customer’ as a healthy, long-term relationship.”
Protecting Profit in a Post-Covid Culture
It’s remarkable – before the crisis – only those who had something to gain were questioning the strengths of profit maximization model as a way to run a law firm. And to be fair, other parts of the legal supply chain were racing to wear private equity as a badge of success. The unintended consequence of both ways of thinking manifests itself with what we see in legal news every day – more people losing jobs, more salaries being cut, and young legal talent suddenly faced with bleak futures and terrible debt.
Another remarkable observation I have seen during this pandemic – and the one that led me to think deeply about how to ensure the Economics of Mutuality remains the driving force of all of our organization’s innovation and decision making – is this: The human impulse in times of crisis (and opportunity for that matter) is to act in solidarity with one another. We instinctively know that we protect ourselves when we protect others. This is a good thing.
When we finally get through this current crisis, each of us will enter the world with new perspectives to offer. For young attorneys coming out of law school, the why will now be as important as the what. For the mid-level associates who have been fired and who know their real value to their former employer, the how will be as important as the how much.
For all of us, we have the opportunity to expand the values we associate with profit to be as important as the value.
Law firms can either drive this change – or continue their march toward irrelevance.
Leigh Vickery is chief strategy and innovation officer at Level 2 Legal Solutions. A graduate of Baylor University in English and psychology, Leigh continued her English studies in graduate school at Rice University. She is also a graduate of Seth Godin’s altMBA program, earning the class’s highest honor for most outstanding body of work, the Frances Perkins Award.