Letterman White Consulting The Business of Law. The Psychology of Business

White Papers

SYSTEM DYNAMICS

What Can We Learn From the Implosion of Wolf Block?

Page printed from: http://www.thelegalintelligencer.com

The implosion of Wolf Block has led many, including this author, to wonder what went wrong. How can law firm leaders enhance chances for firm survival and growth in the face of a poor economy and limitations on lines of credit? By looking at the organizational elements, which dynamically interact to create a law firm that flourishes or one that heads toward dissolution, I will offer an answer to that question.

There are six broad organizational elements, any one of which might serve to sink a law firm in a rough sea. When they combine and interact with each other in a complex and chaotic way, they become a singular force that creates a flourishing or floundering law firm. The elements are external environment and resources, identity, business strategy, structures for running the business and getting the work done, processes for running the business and getting the work done and people (groups and individuals).

The public information on Wolf Block paints a picture of a typical general practice law firm with weaknesses in its identity, business strategy and communication processes.

External Environment and Resources

Law firms import resources from their environments. Resources are necessary to produce services for clients and take actions to make the firm successful. Survival depends upon quickly adjusting to changes in the environment. At its end, Wolf Block lacked sufficient access to sufficient resources. Their line of credit with Wachovia was threatened with a demand for individual partner guarantees, according to reports in The Legal . Real estate work, which had slowed down considerably, accounted for 40 percent of their revenue, Chairman Mark Alderman had said.

Wolf Block's connections with its external environment would have determined the information it collected and when it obtained that information. What were its connections? When should Wolf Block have been able to predict these events and plan accordingly? How was this information gathered and interpreted? Were any decisions made based upon these data? Information takes on importance only because of its collection and availability. Did Wolf Block collect key information in

importance only because of its collection and availability. Did Wolf Block collect key information in a timely fashion?

It seems plausible that not adapting quickly enough to an environmental change was a factor. The firm, as most do in the beginning of a fiscal year when collections are slow, looked to extend its line of credit. But for Wolf Block the terms weren't favorable, according to media reports. However, these factors arose at the very end of a story about implosion that might have begun as early as 15 years ago with the departure of a group of partners in the early to mid-1990s. Indeed, The Legal reported that the story may have even begun in 1985 with the leadership transition that took place when Howard Gittis left the firm. These and other factors implicate other organizational elements.

Identity

Wolf Block's identity appeared to be as a general practice law firm. On its Web site, the firm is described as a "multi-practice firm of attorneys and government relations professionals who offer the full complement of legal services to corporate, government, nonprofit and individual clients locally, nationally and internationally." One wonders how congruent that articulated identity was with its actual identity if 40 percent of its revenues came from its real estate practice and if, as The Legal reported, its "political capital, which got it many local bond financing deals and other municipal and real estate matters, started to dry up."

Identity drives the business strategy. This fact demands that a law firm have repeated internal conversations that ask questions like: Who are we? What do we want? What do we do? How do we do it?

The differentiators must be turned into firm assets used in marketing to attract the right clients, especially in a competitive environment. Most importantly, incongruence between what a firm espouses as its identity and what it is according to its actions is dangerous. It inhibits sensible decisions about strategic direction and implementation steps to effectuate strategic business development goals.

Business Strategy

What was Wolf Block's growth strategy? Which clients in which industries for which type of legal work in which geographic locations did it target for more or new business? What was its plan of action for accomplishing its business goals? Did it know what its best clients wanted in terms of legal services? Did leadership know what its target clients wanted? Did it have the buy-in of its key people to any detailed business strategy? Did it continually tweak its strategy as its environment changed?

Conversations around these types of questions are mandatory for leaders, partners and attorneys at all levels of a law firm. Strategy design and implementation is an ongoing process that the most successful law firms understand and exploit for their benefit.

There were groups of partner defections to firms like Ballard Spahr Andrews & Ingersoll and Cozen O'Connor. During the course of two failed merger attempts, practice group leaders and others left. Departures happen when there is too much ambiguity in a law firm about the near- and long-term plans. Ambiguity arises when a clear strategic direction and implementation plans are absent or plans. Ambiguity arises when a clear strategic direction and implementation plans are absent or when there is a lack of communication.

Alderman indicated in The Legal in September, after the failure of the last merger attempt, that the firm's strategy remained focused on substantial growth. This is an example of an ambiguous strategy. What does it mean and toward what goals is it aimed? Since the two attempted mergers were intended to grow the firm, one has to wonder whether it was growth in attorney numbers alone that was the focus of the Wolf Block strategy. Size alone does not reinforce an identity, attract the desired work or build competitive strength.

Structures

Wolf Block was an LLP and there was a suggestion that merging with Akerman Senterfitt presented tax difficulties. There was a suggestion that merging with Cozen O'Connor was problematic because Wolf Block was unwilling to give up its fiscal year. Structures always present obstacles because they are boundaries. The real issue is how these obstacles are addressed, which always links with communication and decision-making processes used by the people who compose the law firm.

The right management and business structures correctly linked together impose a degree of order on the business of a law firm. The right linking creates a communication flow across boundaries that enhances the ability to get the work and firm management accomplished. In a business where autonomous thinking and behaving partners predominate, the right structures help to define responsibility and lines of authority for decision-making and action.

Processes

Good communication processes create a sense of cohesion, deliver prompt warnings about risks (such as larger groups of partners leaving for other firms), and are the foundation for planning and implementing the right business strategy. Once partners lose confidence in their law firm's strategic direction, feel excluded from the strategy process or are unsure about what the strategy means for them, they become unsure about the future of the firm and their place within it. The next step is that those partners who can leave start to plan their departure for a law firm with a clear strategic plan and place for them.

Once a firm starts bleeding key partners and groups, it starts to think of ways to staunch the bleeding by replacing these people in an attempt to return to a former state. The leadership is not thinking about positive development and their future; they are thinking about their past. That's exactly what is reflected in Alderman's quote in The Legal , "We spent 15 years trying to put Humpty Dumpty back together again." We all know the impossibility of such a task. It's a futile attempt. Leaders must act proactively.

How do people in your firm know the strategic direction? Are they part of the decision-making processes for strategy planning and implementation? Are they part of the talent acquisition, development and retention processes? What are the formal and informal communication processes and networks that infuse the system with critical information so that it can be used proactively?

People

Did Wolf Block's leadership and followership have the necessary skills and mindsets to thrive? Too often the models of leadership have a dependency built-in. Such a model is counter-productive in a law firm environment where there are multiple equal owners of the business. It's too easy for politics and the power of a small group to overshadow a leader's efforts. Collaborative behaviors are necessary for the success of the entire law firm. Collaborative models of leadership expect leaders to be responsible for developing strategic goals and plans for implementation and then influencing the partners to buy into them. Collaborative models also expect the partners to accept a role in the processes for developing those goals and the plans for implementing them, and taking the actual action steps to reach those goals.

Were the individual Wolf Block attorneys and key practice groups sufficiently connected with the entire firm? Cross-selling is usually a good indicator of connectedness. Other indicators of connectedness are the informal social networks within an organization. Who speaks to whom, for what reasons, and how often? Were people and groups motivated sufficiently to behave in ways to help the law firm effectively implement its strategic goals? Did the firm have the right people with the right technical skills and management competencies to further the firm's goals? Were the tasks of these roles clearly defined? What were the individual lawyers and practice groups contributing to the firm in terms of dollars and supportive actions such as attorney development, client relationship-building and strengthening the firm's identity and strategic goals?

Summary

The implosion of Wolf Block teaches us to plan for success with a constant awareness of and planning for changes in the environment, clarity of firm identity and business strategy, and communication processes and skills that will build a cohesive firm. These proactive steps build thriving law firms rather than organizations on the brink of dissolution. •

SusanLettermanWhite@gmail.com 610.331.2539