It's the latest talk in law firm boardrooms and at executive retreats. Everyone agrees that a good culture is crucial to a successful firm, but no one can really identify it, describe it, or explain its relation to profitability. Until now.
Walk into any firm retreat or partnership meeting these days, and you're liable to hear someone talk about "law firm culture." Okay, so just what is culture?
A crutch?
Culture is usually defined as "the way things are around here" and "what differentiates us from everyone else." It's a crutch - something for firms to lean on to support decisions or to justify taking actions. "Cultural incompatibility" is the reason given for a firm's failure to hire certain people or the motivation for asking others to leave. Culture is something in which firms take pride. It is defended and it is nurtured.
A code word?
Culture can be a code word for good or bad things. Firms spend time talking to recruits about their "rich culture," and no firm would admit to not having a strong one. Yet the legal marketplace often views firms that do not have strong financial success as placing "cultural concerns" before profits. Issues such as unproductive partners, low billing rates, and lack of marketing efforts are often accepted by firms with a shrug and the acknowledgment, "That's part of our culture."
A deal-breaker?
Important decisions about a firm's future are often driven by cultural concerns. Last year, U.S., Canadian and Australian law firms of greater than 200 lawyers were surveyed about the likelihood of their being involved in a merger during the next three years with a firm of their size or larger. Of the respondents, 64 percent thought such a merger "unlikely" or "highly unlikely." The most often cited reason for the unlikelihood of a merger? A "fear of losing our culture." In essence, these lawyers are making major, "bet the firm" decisions based on an intangible that they don't understand and can't describe. Yet they intuitively understand that culture should be a major consideration in any business decision.
It's who you are?
A business organization's culture is, in many ways, similar to a human personality. Culture is not only the presence or absence of certain traits but how those traits interact with each other.
Four types
Organizational psychology tells us there are four fundamental traits that make up an organization's culture.
2. Adaptability.
The ability of a firm to understand the demands of the business environment and translate it into action. This trait reflects how client-focused the firm is, the degree to which it is willing to not only accept but also to initiate change, and how well it learns from its successes as well as its mistakes.
3. Mission.
The degree to which the firm defines a meaningful long-term direction for the organization and works to achieve understanding and support among both its professional and support staffs. This also recognizes whether there are clearly expressed expectations of performance, work ethic and capabilities.
4. Consistency.
The presence of core values that shape the firm's identity and expectations; the enforcement of those core values and the manner in which decisions are made and disagreements resolved.
There is no empirical test to measure the degree to which these traits are present in a firm's culture. Culture is made up of the beliefs and assumptions held by individual members of an organization. Firms in which common beliefs and assumptions are widely held with deep conviction are said to have a strong culture. A weaker culture exists where there is less uniformity of beliefs and assumptions.
No experience necessary
While actual experiences form the belief systems fundamental to culture, they are not necessary for a strong culture to be present. Other forms of cultural transference, such as indoctrination (e.g., hearing the same view expressed repeatedly by different people) can create an equally strong culture.
For example, one of the core elements of the U.S. Army Rangers' culture is the belief that Rangers always bring home their dead. Yet relatively few current members of the Rangers have had occasion to be in battle and to experience whether this dominant element of their culture exists. They have been told that this is an important belief with sufficient frequency that it becomes an element of the Rangers' strong culture.
Reality check
However, if members of an organization suddenly have experiences that are in conflict with widely held beliefs, the effect can be devastating to an organization's culture.
For example, during law firms' boom years of the 1980s, most firms took great pride in their paternalistic cultures. But when the "white collar recession" of the early 1990s resulted in massive associate layoffs, the impact on many firms' cultures was profound. In fact, it is arguable that the new motivational construct and high mobility among "generation next" associates is the ongoing result of the conflict between culture and experience that occurred almost a decade ago.
Neither good nor bad
An important point: There is no such thing as a good culture or a bad culture. There may be cultures that may appear more attractive to an outsider and there are clearly cultures that drive certain positive or negative outcomes. But judgments about cultures are in the eye of the beholder.
For example, top law school graduates interview with large New York law firms every year. The same law firm that attracts one candidate by its fast-moving, sink-or-swim, all-consuming culture repulses another, who views it as a sweatshop. Both students may have accurately identified the culture; they have simply reacted differently to what they have identified.
Negative beliefs and pessimistic assumptions can create as strong a culture as beliefs and experiences that are positive. A large midwestern U.S. insurance defence firm operates entirely on an "eat what you kill" compensation system, encourages little teamwork, experiences constant fights over access to associates and paralegals, and fails to censure partners who attempt to steal each other's clients. Yet the firm can be said to have an incredibly strong culture, to the extent that everyone holds those common beliefs and assumptions.
A cultural inventory
Simply identifying cultural traits is of little value to the day-to-day operation of a professional service firm, without the ability to specifically distinguish the degree to which those traits are present and the means of comparing cultures among firms or even within a firm.
This is possible through the use of a Cultural Inventory. Administered to an entire firm or just a sample group within, participants answer questions about issues that directly relate to the traits that identify their firm's culture. Participants take the survey through a dedicated Website in only about ten minutes.
The results of the responses are then compared to a database of responses received from over 40,000 participants in more than 1,000 different business organizations. A firm's results in each of 12 categories (three for each of the four cultural traits) are then compared to the database to establish a percentile score.
Using culture
The ability to identify and communicate a firm's culture with some degree of precision has a variety of management uses.
- Merger evaluation. The participation of both firms in a cultural inventory should be a part of normal due diligence. The areas of difference between the firms provide an agenda for important cultural discussions.
- Hiring. Firm lawyers can engage in meaningful cultural discussions with lateral candidates and law school recruits, illustrating the importance that the firm places on cultural issues.
- Management succession. Cultural awareness can help determine the needs and level of acceptance of partners on governance and leadership issues.
- Diversity. Understanding the cultural differences among offices, practice groups, races and genders can go a long way to a better workplace..
- Benchmarking. Comparing cultures with those in both higher- and lower-performing firms can be highly instructive.
- Prediction. With better understanding of a firm's culture comes advance recognition of the impact of the firm's strategic objectives on that culture.
Culture and profitability
There appears to be a very direct correlation between certain aspects of a firm's culture and its bottom-line performance. In fact, as a general rule, firms that have a strong positive culture tend to be more profitable than those that do not. This is logical, given that a strong culture implies a uniformity of beliefs and assumptions that would naturally lead to a coordinated effort.
How a scores in the four Cultural Traits can provide some direct insight into the attributes of profitability.
This means they tend to be more attuned to the marketplace, more aggressive marketers and more creative in developing revenue streams. Firms with high revenues per lawyer tend to have this external focus, as do many newer, more entrepreneurial firms.
2. Internal Focus
Conversely, firms with a high level of Involvement (empowerment, team-orientation and capability development) and Consistency (core values, agreement and cooperation and integration) tend to have an Internal Focus.
Internally focused firms tend to be more procedure-driven, place greater importance on quality, and have higher skill levels. They are often more cost-efficient organizations than externally focused firms. Firms with a high profit-per-partner in comparison to their revenues per lawyer tend to have a high internal focus.
3. Stability
Firms for which Mission and Consistency play a strong role in their culture tend to be highly Stable. They accept change more slowly and often will have a slower growth rate than less stable firms. Stable firms usually have smaller profitability swings from year to year and frequently have a larger capitalization than less stable firms.
4. Flexibility
Firms whose culture favours Adaptability and Involvement are more Flexible. Flexible firms take pride in being on the cutting edge of new areas. They volunteer to be the beta test site for new technology and often enjoy "first mover" advantage in new practice areas or industries.
We also know that firms where Involvement is an important part of the culture have less associate turnover than firms whose culture is less concerned with involvement. On the other hand, firms with a high level of Consistency tend to have a higher degree of partner satisfaction.
Integration
Firms with a balanced culture that includes strong elements of all four traits are almost uniformly more successful (based on whatever the culture defines as success) than firms with a less balanced culture. In fact, there appears to be virtually a direct correlation between the extent to which a strong balanced culture exists and the firm's profitability.
Managing culture
Given that culture is based upon beliefs and assumptions, it is possible for a firm to change its culture over time. For example, if a firm wants to decrease its associate turnover, we know that it needs to increase the importance of Involvement in its culture.
It comes as no surprise that the elements of Involvement are empowerment (the authority and responsibility given to an associate and the degree to which the associate is judged by his or her exercise of that authority), team orientation (the ability to work closely with partners on "start to finish" matters) and capability development (the emphasis on continuous learning and development).
Using the same approach, a firm could strategically use its culture to build client satisfaction, increase revenues, improve the quality of its legal work product and improve profitability by managing its culture.
But changing culture is not easy. First, the firm's leaders must quite specifically define the aspects of its culture it wants to change. Secondly, the firm must communicate the behaviour it intends to pursue and what the desired result will be. For example, the firm that wants to change its culture to decrease associate turnover needs to announce and implement programs that enhance the associates' involvement (empowerment, team orientation and continual development).
Maintaining culture
A person's beliefs are built by what they are told and reinforced by what they observe. The most carefully constructed firm culture can be utterly destroyed by unintentionally failing to "walk the talk."
For example, if the firm's culture involves a strong client orientation, the firm cannot tolerate a partner who fails to promptly return clients' phone calls. Or, if a firm takes great pains to make teamwork a n important part of its culture, and then compensates its partners based on their individual performance, it will be hard for members of the firm to maintain their beliefs about the importance of teamwork.
It 's also important to recognize that different levels of group members view a firm's culture differently. When the results of a cultural inventory are segmented by partners, associates, staff administrators and directors, and general staff (paralegals, secretaries, etc.), it's often found that the staff administrators and directors view the culture as being stronger than any other level of group member.
The next strongest is usually the senior level of partner management (managing partner, members of the executive committee, practice group chairs, etc.), followed by partners, associates, and staff, in that order. Therefore, a firm that attempts to understand and measure its culture only through the eyes of its most senior management risks observing a different culture than is seen by the overall firm.
Conclusion
The amount of attention being devoted to culture demonstrates its importance to professional service firms. And its seems that the more a firm talks about culture and considers cultural issues in its decision-making process, the stronger that firm's culture becomes.
The best evidence of this importance is to consider what a firm would look like that had a weak culture in each of the traits (failed to have an understood mission or clear expectations, isolated members of the group from decision making, was incapable of reaching agreement, actively fought against change and failed to ever consider their clients interests).
It is doubtful that such a firm could remain in existence, which is the best argument for firms making culture a primary component in their leadership and management.