by Patrick Johansen of Brinks Hofer Gilson & Lione

LAW FIRM, MEET CEO:A NEW LEADER IN LEGAL

Patrick Johansen, CLM, CPP is the Director of Business

Development at Brinks Hofer Gilson & Lione. He has spent

a decade in law firm marketing and business development.

Patrick previously served on the ALA Greater Chicago

Chapter Board of Directors and the LMA Chicago Chapter

Board of Directors. He blogs at www.patrickonpricing.com.

©iStockphoto.com/Viorika

LAW FIRM, MEET CEO: A New Leader in Legal

The legal community took notice in February 2012 when Scott Green, a Harvard MBA with administrative stints at Weil, Gotshal & Manges and WilmerHale, was named Chief Executive Officer of Pepper Hamilton. For the first time, a member of the “big law” club had ceded full business responsibility to a non-lawyer; a CEO had been put in charge of a law firm.

The move was deliberate, according to Pepper Hamilton’s former Executive Committee Chair Nina Gussack: “We concluded a management model that more closely resembles those of our clients would enable the lawyers at Pepper Hamilton to focus on providing legal services in the most effective way for our clients.”

Lawyers and administrative staff — indeed, the entire legal profession — should prepare for a remarkable transition of power. Lawyers, for economic and educational reasons, will begin to recognize their value as revenue generators

and will step away from hands-on management. As this transition advances, administrative staff will have new career opportunities with a focus on making law firms more like corporations and more profitable.

TWO DRIVERS OF CHANGESince the Great Recession, the legal profession has been enduring a surprising and unwelcome market adjustment. For the first time in a generation, key performance indicators all dropped: billable hours, annual rate increases and even collections. As the industry was hit by the nation’s economic crisis, it is not surprising economic conditions forced law firms to re-evaluate their business models. As a part of that self-evaluation process, firms began to recognize another significant factor in the “new normal:” education. Lawyers are not trained economists or businesspeople, yet they are asked to lead sizeable organizations in a hypercompetitive market. These two factors — economic and educational — will drive future change.

Economic FactorsClients have challenged firms’ hourly rates and now expect advanced matter management. Both play a central role in the industry’s economic evolution.

By 2020, lawyers will understand law firms are businesses and

that business-minded people must be at the healm. However,

firms will be challenged to find qualified candidates ready

to lead law firms, unless our industry supports educational

programming to prepare CEOs. Fortunately, there are a few

models that can lead the way. Several industry stakeholders

have been building educational programs for more than a

decade, both at a certificate level and a graduate level.

ASSOCIATION OF LEGAL ADMINISTRATORS (ALA): Among

its many educational offerings, ALA developed the Certified

Legal Manager (CLM)SM program, which allows a qualified

legal administrator to demonstrate, through an examination

process, a mastery of the core areas of knowledge identified

as essential to the effective performance of a principal

administrator. Today, around 400 law firm professionals carry

the CLM designation. Any law firm serious about hiring a well-

rounded, well-qualified professional to lead the business of the

firm should consider someone with a CLM designation.

UNIVERSITY OF DENVER: The nation’s oldest program

is found at the University of Denver. The university’s Sturm

College of Law began a court administration program 40

years ago, adding law firm administration in 1981. For more

than 30 years, the Master of Science in Legal Administration

has prepared students for the business side of law

firms: accounting, statistics, human resources, financial

management, marketing, recruitment, etc.

THE GEORGE WASHINGTON UNIVERSITY: The university

offers both a certificate program (12 credits) and a graduate

degree (30 credits) in law firm management. Both curricula

include courses on leadership, economics and profitability,

strategic planning and management, talent management, and

market assessments. The master’s degree adds knowledge

management, legal technology and process improvement.

While not designed to educate law firm CEOs, these

programs provide the industry with several options for

obtaining the executive-type education a law firm CEO will

need to be successful.

THE EDUCATION OF A LAW FIRM CEO

LAW FIRM, MEET CEO: A New Leader in Legal

• Fee Challenges: Firms understand a new reality: Thelegal industry has become a buyer’s market. Clients arein the driver’s seat, and they have their sights set onoutside counsel’s fees: hourly discounts, alternative feearrangements and, most recently, procurement. Accordingto BCG Attorney Search:

“The downward pressure on fees has resulted in those firms unable to meet the service and pricing expectations of the market losing out on certain types of work, while other firms have only managed to maintain some presence…at substantially reduced margins.”

Law firms are losing control of their fees. A new world of pricing and procurement is emerging within the industry, and a law firm leader will need to understand these principles.

• Matter Management: When Michael Lewis’“Moneyball” hit the market in 2003, baseball — and theworld — opened their eyes to the potential of data. Theidea a major league sports team could be successfulusing analytics was revolutionary. Progressive law firmstook notice, and, as big data continued to grow, the ideaof analytics gained credibility in matter management.With the proliferation of software to capture and reportan abundance of metrics (also known as businessintelligence), law firm leaders have a new world ofanalytics at their fingertips. In fact, an ILTA presentationin 2010 highlighted more than 30 performance metricslarge firms were tracking. For many firms, businessintelligence has come of age; a successful law firm leaderwill need analytical skills.

Educational FactorsFeeling the effects of economic factors, firms are realizing lawyers are not educated to manage businesses, nor do they have the time.

• Lawyer Education: More than 20 years ago, theAmerican Bar Association (ABA) issued its “LegalEducation and Professional Development” report, whichhighlighted lawyers’ limited business acumen:“Lawyers, simply by being lawyers, do not innately cometo law practice with any minimum level of sound businesspreparation, knowledge or abilities.”

Without a change in law school curricula, lawyers will not advance their business education, as firms’ professional staffs continue to improve theirs. More important, when lawyers spend time on administrative issues, billable hours are lost. The logical conclusion: Lawyers need to provide legal services and businesspeople need to run the business.

SIX QUALITIES OF A LAW FIRM CEOFINDING THE FIRM’S FIRST CEO REQUIRES AN UNDERSTANDING OF SIX QUALITIES.

1. LEADERSHIP: The CEO must understand her role as the

firm’s leader, to both staff and attorneys. She must operate at a macro

level, using her knowledge of the entire firm to understand what

needs to be done, what the priorities are and who can execute them.

2. MANAGEMENT: Unlike leadership, management requires that

a CEO understand — at a micro level — the work product, the work

processes and the workers across the entire firm. Armed with that

knowledge, she must ensure the firm’s major departments work

together toward a common vision.

“Management is about coping with complexity.”

— John Kotter, leadership expert

3. VISION: The CEO is the single person within the firm with the

power to execute, so she needs a vision for the firm. She must listen

to staff and attorneys, then define and promote a vision

that articulates the firm’s core values and guiding purpose.

“The only way to predict the future is to have the power to shape it.”

— Eric Hoffer, philosopher

4. STRATEGY: Only when the CEO focuses her leadership and

management skills on an articulated vision can she and her team

create a competitive strategy. That strategy — one firmwide strategic

plan and many practice group plans — needs to focus

on building the firm’s competitive advantage.

“The essence of strategy is choosing what not to do.”

— Michael Porter, strategist

5. FINANCIAL IQ: To ensure the firm’s financial success, a CEO must

understand the characteristics of a healthy balance sheet: growing

revenue, ensuring collections, controlling costs, managing assets,

monitoring liabilities and maximizing profit. In addition, a hot topic

for law firms is pricing, which means the CEO needs to be even more

aware of her firm’s financial numbers.

6. EMOTIONAL IQ: Successful CEOs need to connect with their

staff and their attorneys. As Gallup’s 2000 report noted, it’s all about

the people. As such, Daniel Goleman’s five principles of emotional

intelligence — self-awareness, self-regulation, motivation, empathy

and social skill — are critical. Many of Goleman’s best-selling

leadership books are ideal for a law firm CEO’s leadership training.

LAW FIRM, MEET CEO: A New Leader in Legal

• Administrator Education: Perhaps the biggest change inthe last generation has been the rise of professional staff.Today, it is commonplace for even small law firms to employat least one non-secretarial professional. As the operationsof a law firm become more sophisticated, lawyers recognizethe need for more specialized personnel. This has raisedboth the quantity and quality of firms’ professional staffsand has added major departments to firms, includingaccounting, human resources, marketing, operations andtechnology, to name a few. Increasingly, these business-minded professionals are finding a home within law firmsand gaining first-hand experience with law firm operations.This education and experience are allowing firms to shift agrowing percentage of their business matters into the handsof non-lawyers.

THREE HURDLES TO PROGRESSOnce a law firm’s leadership recognizes its lawyers are not best-suited to run their business, they might be ready to think about hiring a CEO and embark on a new future. A law firm and potential CEO must confront three hurdles:

1. Who will have power?2. Who will lead?3. Who is qualified?

In their “Five Bases of Power,” social psychologists John R. P. French and Bertram Raven identified three types of power that will have a direct bearing on law firm leadership. These give insight into answering the questions above.

• Legitimate Power (Who will have power?): A leader hassome basic power, based solely on her position. A law firmCEO certainly would possess legitimate power in the eyes ofstaff. However, no greater obstacle exists for a non-lawyerCEO’s legitimacy than the lawyers. Will they accept her?Carl Leonard, Assistant Professor of Law Firm Managementat The George Washington University, says lawyers areoften reluctant to accept decisions made by professionalmanagers. As a new leader takes the reins of the firm, herchances of success will be signaled by how much deferencethe lawyers show.

• Referent Power (Who will lead?): For a law firm, whichsucceeds largely on the collegiality of its lawyers, the socialaspect of the firm is critical. That is where referent powercomes in. Can the new CEO build strong relationships withboth lawyers and staff to earn their respect and trust? Theperceptions of those at the firm will color her leadership— good or bad — and her power will flow from thoseperceptions. This is a key ingredient of effective leadership.Firms need to hope for a leader like WilmerHale’s formerco-managing partner William Lee, who believes:

“Leaders must build a great team, delegate to them, trust them and always support them.”

• Expert Power (Who is qualified?): If lawyers are to handover “their” firm to a non-lawyer and respect her leadership,she must be the right candidate — what French and Bertramcall an “expert.” BCG Attorney Search suggests law firmCEOs need “to be exposed to the latest managementtheories developed out of business schools. They need tobe challenged and stretched in their thinking about how aprofessional services firm is organized and operated.” Manyof today’s large firms have chief operating officer (COO)administrators that fit the mold. For other firms, expertpower can be a perception of expertise.

Any one of these powers is enough to solidify (or jeopardize) the success of a law firm CEO. A successful leader, however, must be able to balance all three.

AN EVOLUTION BLUEPRINTThe law firm CEO will not take hold overnight. In fact, since Green’s introduction last year, not one Am Law 200 firm has announced the hiring of a CEO. A slow-and-steady approach is commonplace in law firms, and this concept — lawyers ceding power to non-lawyers — faces a lengthy adoption process.

According to David Williams, Managing Partner of Harrison Pensa, a midsize law firm in Ontario, Canada that hired its first CEO in 1999, several factors must align:

“If your firm is in the right place at the right time with the right mindset, and if your lawyers are focused on top-line growth and believe a changing legal industry requires a plan for the future, your firm may be ready to hire a CEO.”

Will we be ready by 2020? Two recent trends suggest a tipping point is near.

Law firms are creating more business roles. As the business of law becomes more sophisticated, the staffing model grows more complex. The last decade might well be known for the proliferation of professional staff. Recent examples include knowledge management (KM) professionals, pricing professionals and practice group administrators (PGAs). KM professionals and PGAs have established their relevance to firms by improving efficiencies, cutting costs and leveraging institutional knowledge. Pricing professionals — now numbering more than 30 in two dozen law firms — are finding a niche in alternative fee arrangements, procurement scorecards, value pricing and, in some cases, legal project management. Shortly before becoming the CEO of Brownstein Hyatt, Blane Prescott observed in Hildebrandt Baker Robbins’ “Top 10 Most Important Long-Term Changes Impacting the Legal Profession:”

“Pricing in the profession is evolving. Fixed fees, project

LAW FIRM, MEET CEO: A New Leader in Legal

pricing and portfolio pricing are the long-term future of alternative pricing.”

As more professionals join law firms, lawyers will understand better the value business professionals contribute and will trust the firm’s operations are in capable hands.

The second trend might be the most significant.

Law firms have begun to hire chief strategy officers (CSOs). Although the first CSO appeared more than a decade ago, more than a dozen firms currently employ a CSO. The CSO spans organizational divides and integrates knowledge, innovation and best practices from different areas of the organization. In the corporate world, CSOs often partner with — then succeed — their companies’ CEOs. A law firm would benefit from a CEO with that kind of perspective and experience. In fact, Pepper Hamilton’s Green emphasizes the role of strategy in today’s successful law firms. He told the Philadelphia Business Journal he expected to “develop and execute the strategy that will provide both outstanding value and service to our clients and achieve significant growth for the firm.”

ETHICAL CONSIDERATIONSNo matter the progress any law firm is able to make on economics, education, power or staffing, there is one significant piece of the non-lawyer leadership puzzle that must be addressed: ethics.

The American Bar Association’s “Model Rules of Professional Conduct” clearly states a law firm cannot have a non-lawyer in certain leadership roles. Rule 5.4 states, “A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if … (2) a non-lawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation; or (3) a non-lawyer has the right to direct or control the professional judgment of a lawyer.”

For business-focused law firms ready for a CEO, Rule 5.4, Professional Independence of a Lawyer, creates a potential roadblock: the CEO cannot direct the professional conduct of any attorney. In fact, the ABA is quite strict about the professional’s autonomy, as evidenced by its concern over fee-sharing and a lawyer’s professional judgment. However, COOs and administrators have been advising attorneys for years on several client-related issues (e.g., suspending work on delinquent clients). Both Pepper Hamilton and Brownstein Hyatt have been operating with CEOs, so the Model Rules are not necessarily prohibitive. As pricing and legal project management professionals grow their influence in client service matters, lawyers (and the ABA) should see the value in non-lawyer leadership. Until more firms hire a CEO, it is unlikely the ABA will clarify and, if necessary, amend Rule 5.4.

LOOKING AHEADLawyers are beginning to trust administrators, and the legal industry is slowly embracing a power shift. With economic and educational pressures on the rise, we should not be surprised if 2020 is the tipping point for administrators as CEOs of law firms. Until then, we should be watching for the early adopters like Pepper Hamilton — progressive, revenue-focused law firms that jump out ahead of the curve.

JUNE | 13ISSUE 2

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THE QUARTERLY MAGAZINE OF ILTA

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This article was first published in ILTA’s June 2013 issue of Peer to Peer titled “Emerging Careers” and is reprinted here with permission. For more information about ILTA, visit their website at www.iltanet.org.