Products in Development

We spend a long time at work, and longer still if we include the time we spend thinking about work and our role in it, including what role or job we might seek next.  But the amount of time we spend considering what skills or know-how we need to acquire or develop in order to enhance our current job, or enable us to attain that other role, and developing those skills, is for most of us, a very modest proportion of our total work time.  The UK Solicitors’ Regulation Authority requirement for annual training is 16 hours or two days (currently – the SRA is consulting on whether to remove the requirement for a set mandatory amount of training per annum), so that less than one per cent of a solicitor’s time in a typical year is required to be spent on formal accredited training, either acquiring new knowledge or skills, or ensuring that existing knowledge and skills are maintained up to date.

Spending one per cent of our working year on preparing ourselves to work as effectively as we can represents a disappointing ratio.  Sports professionals and amateurs alike spend most of their sport time in practice and coaching so as to maximise the outcome of the game.  Acting without proper preparation puts one in mind of the position of Flanders and Swann’s amateur English sportsman faced with foreign nations’ success, founded on a caddish insistence on “practice beforehand which ruins the fun” (A Song of Patriotic Prejudice).

I am not suggesting that in business life the proportion of time spent on training or practice should emulate that which governs in sport.  I am however suggesting that not nearly enough time or thought is put into training and skills / knowledge practice as would seem likely to give the best overall result.  Even doubling the amount of time spent training would still leave 98% of the working year left for doing the things for which we are, after training, better prepared and more effective.

Given we are working with limited time on training and development, what steps can we take to make sure that the limited resources we have are deployed as effectively as possible?  It’s a very broad topic, the full extent of which is outside the scope of a short article, but I’d like to offer a couple of general thoughts about training.

Firstly – what sort of training and development decisions should we take about individuals? 

At one level the choice lies between technical training or personal development training.  Lawyers typically undergo training of one or other of two key types; technical training on particular areas of law (so for example, a high-level symposium discussing the legal aspects of virtual currencies, or that well-known format, the competition / property law / contract law update), or more personal development-orientated skills training (dealing with difficult people, managing teams and so on).  

If a lawyer is going to undertake technical training then some decisions are easy – train in an area which is relevant to the lawyer’s current area of activity or one the lawyer wants to get involved with, rather than in an unrelated area.  (I’ve seen, as the deadline for attainment of the 16 hours’ requirement looms, lawyers go on all sorts of esoteric and irrelevant courses.)  But whether to go for technical training or personal development is a more nuanced decision.  Lawyers must of course have command of the areas on which they advise, and take steps to ensure that they remain in command in the face of changes in the law or decaying memory.  But more often than not, once a lawyer has reached a certain level of experience and competence in an area of law, further training in it will have a modest incremental effect.  Personal development has the capacity to improve the lawyer’s effectiveness across all of the areas where he or she is active.  So general counsel should always consider whether the investment in having a member of their team undergo more technical training is going to produce as appreciable a return as more widely applicable skills-based training.  I liken the interaction between technical capability and personal skills to that between a car engine and its transmission.  The most powerful engine (technical capability) is no good if the car’s transmission (personal skills) is deficient.

If the decision is to invest in a lawyer’s personal development, there are still choices to be made.  It’s not the case that all lawyers need to be equally competent at the full range of inter-personal, influencing, leadership and other personal skills.  The general counsel of a betting company once told me that he had a number of lawyers who were specialists in gambling law in his team, and who only ever spoke to other lawyers.  He didn’t regard their “client-handling” skills as importantly as he did those of his team who did work closely with the business when hiring them.  Instead, he purely wanted the best technical lawyers in the gambling area – so for this technical group, time spent training in business partnering (for example) would be wasted.  It is somewhat like the (perhaps apocryphal) tale of the top salesmen who underwent extensive training in administration, an area identified as a weakness in their annual reviews.  It would have been so much more effective to have invested in developing the salesmen’s sales techniques and ensuring that they had good administration support, so that they could concentrate their time an energies doing the things that made them uniquely valuable to their employers.  Decision-making about training at an individual level has to be undertaken in the light of what individuals may personally desire, to support their current and potential future roles, but also in the light of their role in the team.

Sometimes it is the role – or more accurately, the status – of an individual in the team which settles decisions around training.  Some teams have a budget per individual which shapes a level of equality around the amount spent on each team member (and potentially the amount – assessed in value as well as quantitative terms – of training received).  Others however have an overall amount to be spent on the team as the team’s leader sees fit.  Individual circumstances will often have a significant bearing on the decision that a general counsel or head of legal may make on allocating training resources, but they should also think of their team and its development needs in a systemic way.

Which member of the legal team has the most significant effect on the overall performance (and the perceived performance) of the team?  Some reflection on this question may produce some surprising results.  It may well be that the legal team’s success stems from the contribution of the star performer of the team, be it an individual or a group; their ability to get to the nub of a business issue, to balance the competing tensions and to provide clear, compelling advice to the business might be the factor which characterises the legal team to the rest of the organisation.  They might operate in the area where the skill of the legal team most directly translates into the operational success of the organisation as a whole, through supporting an effective sales channel, or successful, cost-effective dispute resolution (or in the case of my betting company general counsel, perhaps it was the back-room experts for their ability to get their company the successful first entry into lucrative, highly-regulated waters).  In these cases, the best bang for the general counsel’s buck may not be realised in trying to bring the rest of the team up to this level, but in making this star individual or group the best they can possibly be across all fronts.

In other teams, however, it is the performance of the weakest individual which will make or break the team’s success.  Back to sport again – a fascinating study of top-class football (The Numbers Game – Anderson and Sally, Penguin, 2013) found that the biggest impact on a team’s success or failure was not the quality of their star player, but rather in most cases, the contribution of their weakest player.  This was because the vulnerability became the focus of the other team’s tactics - if the first team’s weakest player played on the left side of defence, then their opponents would attack down their right in order to involve this weakest player as much as possible.  The general counsel whose business colleagues would try to exploit the legal team’s weaknesses by deliberately finding things to do for the weakest member of the legal team perhaps needs to find a new job, but the effect is the same even without the calculation of a determined opponent, if the weakest member (or again, group) ends up characterising the legal team’s profile and achievement.  The general counsel in this situation will place the majority of the training effort not with the stars of the first case, but this trailing group, at least as a preliminary endeavour to see if they can be brought up to scratch as an alternative to taking more drastic action.

Training and development can often be left to an organisation’s human resources, or to the individuals themselves.  It can however unlock the success of the whole team if it is given thought at a systemic level as well as the individual level.  Well worth that one per cent.

Profit and Loss

Avid readers of the English legal press may recently have seen a lot of agitation about an international law firm, Dentons, and one of the commonly seen measures of law firm financial performance, PEP (profit per equity partner - in the USA, PPP).

The agitation concerned Dentons' refusal to provide an American legal magazine, American Lawyer, with their PPP figures for all jurisdictions where they operate (this information is public only in some jurisdictions,).  American Lawyer (Am Law) drew some adverse inferences about this refusal, Dentons responded to the effect that Am Law’s articles suggested they could not be trusted with a calculator, and there followed another round of back and forth.  More Am Dram than Am Law, some might say. 

PEP is very interesting and relevant if you are, for the year in question, the statistically average partner, because it represents what you earn that year – even in the same firm, however, other partners’ returns may be greater or lower.  It's also very interesting for the managing partners in the firms concerned because it gives something with which to compare themselves against their rivals, and it provides prurient sources for copy for the legal press. 

What PEP doesn't reveal, in any meaningful way, is how the law firm has really performed in that year, or what its financial health is really like.

It doesn't give a really accurate index of performance for the year because it is so easily distorted by the number of equity partners in the firm – the same overall profit figure produces a much bigger PEP for a firm with tighter equity than one with more equity partners, even if other figures more indicative of the firm’s performance as a unit – such as expressing profit as a percentage of its overall revenue – favour the second firm.  In the wider business world, there may be many more lines on the financial position of a company than its profit to revenue ratio, but a company with a higher percentage of profit to revenue, all else being equal, is regarded as healthier.

The wider business world - there's a thought.   Acres of space is devoted to the analysis of the financial performance of companies, some of it on this year’s profit for sure, but also to their balance sheet.  This leads to my second point about PEP’s limitations as a measure of financial performance – it gives no insight into the firm’s long term financial stability, only how it performed in the given year (and with the weaknesses noted above).

In that wider business world, balance sheets speak loudly.  Providers of long term contracts find their potential clients checking their balance sheets, to satisfy themselves that they will be around long enough to perform.  The law firm world has operated in a different medium for decades.  Historically law firms have not had many long term commitments – few long-term contracts and other than property rental, most other commitments were of the sort that turn up on a Monday and can be fired if the work dries up.  There have been exceptions of course - Dewey Leboeuf being the most startling by stacking up long-term commitments to laterally hired partners.  It's worth noting that in March 2012, they reported their PEP figure for 2011 in excess of £1 million.  By May 2012 they had filed for bankruptcy.  So much for PEP as a measure of their financial health – with the vast majority of each year’s profits paid out to the equity partners, past profit has a limited impact on current financial resilience.

But as the practice of law evolves, the investment needs of law firms are evolving too, and as law firm margins are subjected to pressure from new entrants, different retainer structures, harder-nosed GCs and other factors, firms may find that, like other service providers in other businesses, they have to flex their business models and retain more profit to support their investment and other financial needs for future years. 

There's a role for in-house lawyers in this.  As technology drives increasing intimacy between law firms and key clients, the consequences of law firm failure become more acute.  It will become less simple than paying the work in progress on a file to get it released to a new firm.  So when striking relationships with firms which they see as long term advisers to their employers (as opposed to one-off instructions for short-term deals), they should think about the desired longevity of the relationship and the ability of the law firm to fulfil it. They should look at (or ask for) the law firm's accounts and scrutinise the balance sheet just as much as this year’s profit. 

I started by referring to the UK legal press, and I am going to end by quoting from Legal Week (20 June 2014 – “Dentons vs the legal press: partners react to PEP row”).  The article quotes various leading partners in leading law firms on the use and abuse of PEP.  I was impressed by the reaction of K&L Gates' Peter Kalis - "... We'll know that our industry has matured when the leading industry publications begin asking for balance sheet information and other financial indicia...  Such information gets to the heart of a law firm's financial health, and its public scrutiny can prevent law firm failures." 

Hurrah.  That's a forward thinking statement.  I think the market will also have matured when the provision of financial information by law firms to prospective clients is seen as a normal process of winning work.  That maturity lies in our hands as clients – we should look at our advisers’ financial statements – if we don’t like what you see or, worse still, don’t see anything, then it may be time to change advisers.  Reading about a law firm’s failure is bad enough, without being involved as a client.

There but for the grace of God...

Over the last few weeks we have been able to read the judicial and regulatory consequences of lawyers behaving badly.  Not badly in the sense of running off with client funds, nor badly in the sense of giving negligent advice badly, but losing their sense of professional obligation to the courts in the pursuit of their clients’ (employers’) interests.

The cases I refer to include those of Alastair Brett and Andrew Shaw.  While both acted wrongly, they both had very good reputations before their respective falls from grace.  Just like you and me.  Since they were just like you and me, is it safe to characterise them as bad hats or (as I think) should we look more carefully at their cases to draw our own warning lessons?

The Brett case is perhaps the better known.  The experienced, highly respected Times lawyer was not the only witness in the Leveson Inquiry to have been filleted by Robert Jay QC, but his cross-examination was one of the more painful for on-looking lawyers.  No need to go into the minutiae – we can note that Brett made two mistakes which did for him.  One was in blurring the distinction between his client (the corporation) and the employee of that corporation with whom he was dealing; the other was in failing to take the opportunity to gain, when available to him, some external expert advice – as a consequence of which Brett’s advice to his employer took it, and him, down some unfortunate channels.

For we in-house lawyers, our client will be our employer, but in most cases the employer will be a lifeless corporation, unable to breathe or speak other than through the medium of its employees.  So we have to deal with a natural person whose interests and position may consequently differ from the legal person to whom our client duties lie.  And that is where in-house lawyers must always be careful to ask themselves whether there is a difference and if so what consequences attach. 

In Brett’s case, the unflinching torch beam of hindsight makes it plain that the interests and position of the employee and the corporation were not consistent and a line was crossed – in his case, with the result that the court was misled.  At the time and in the circumstances, I am not so sure the position would have been that clear.  In-house lawyers are forever being told to get close to their clients – not least by the likes of me – to form part of the team, even to avoid using the word “client” (see my last blog - http://jdsofislip.blogspot.co.uk/2013/12/walks-like-duck-quacks-like-duck.html)[1].  Deciding that, in a particular instance, the advice given to an employee is one side, or the other, of this line could be hard enough in a laboratory environment; in the political, busy, nuanced world of a typical in-house lawyer, it is very hard.

In respect of Brett’s other error, that of mistaking the legal position, the nature of the in-house role means that many of us find ourselves having to advise on areas of law that are outside our immediate knowledge.  In many cases the consequences of making an intelligent, but incorrect, assessment of the legal position in such a foreign field will be limited.  But occasionally there is greater danger afoot – in Brett’s case, misunderstanding the law contributed to his misleading the court.  There but for the grace of God…

Andrew Shaw’s case involved not an in-house lawyer, but a private practice lawyer, getting into a tangle over the exercise of the duty of full and frank disclosure required for without notice court hearings (ones of which the other party is unaware). 

My own full and frank disclosure is that I worked with, and for, Andrew Shaw when I was a very junior lawyer.  I knew him to be a bright and innovative lawyer, a tenacious and determined litigator, and highly principled.  I suppose it is possible that this last attribute may have changed in the more than 20 years which have passed since we worked together, but based on what I had seen, he would have been rather low on my list of lawyers most likely to end up in disciplinary trouble. 

The case is a little complex, but the essence of it is that is in representing one client at a without notice hearing, Shaw did not disclose that this first client was being funded by another client, something which ought to have been disclosed.  There was also some unhappily expressed evidence concerning the opponent’s likely whereabouts.  These non-disclosures and some other issues subsequently came to light.  Shaw decided to argue that the facts were consistent with the non-disclosure and that he should not apologise to the court for (inadvertently) misleading it.  The opponent, one Geoffrey Logue, subsequently decided to refer Shaw and his assistant to the Solicitors’ Disciplinary Tribunal.  The SDT found Shaw to have been dishonest on a number of grounds.  After a partly successful appeal[2], the case is still open in certain respects.

Again, the torchbeam of hindsight makes it clear that the non-disclosure at the first hearing was a mistake and that, once this mistake had been identified, the only safe course of action was to confess rather than, as Shaw did, making it worse by trying to argue otherwise.  Lawyers, in-house or private practice, need of course to put forward the interests of their clients (colleagues) with as much vigour as the circumstances require.  But those circumstances always include their status relative to the regulatory position.  And lawyers, when they make mistakes (as we all do), need to be very honest with themselves as these mistakes are identified and weigh up the balance of owning up or carrying on.  Had Shaw been able to analyse his own situation with the detachment he undoubtedly brings to his cases, he would have concluded that owning up would attract a modest sanction for his client.  Carrying on as he did, in a tightening vortex of misplaced hope that somehow the facts did support his tenuous argument, only opened up a far greater potential, career-ending, sanction.  For in-house lawyers, in some cases the choice is between owning up and getting fired, or not owning up and later getting disbarred.  This will be a hard choice where it arises.   But, if you get fired, there are other jobs in your chosen career.  If you get disbarred, there are only other careers. 

While not all lawyers have the same exposure to their duties to the court as litigators, we are all subject to this duty and our other regulatory requirements.  Rightly, these requirements set a high standard of behaviour – one which in complex, fast-moving situations such as those overwhelming Brett and Shaw can sometimes seem hard to achieve.  There but for the grace of God…

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[1] (At least, in that blog, I had the foresight to write, “And there are times when the in-house lawyer must be very conscious of the relationship held with colleagues as a client (in the context of the professional conduct obligations that lawyers have towards those they advise)” – phew!).

[2] http://www.bailii.org/ew/cases/EWHC/Admin/2014/5.html.