Lots of room for growth in Canadian law firm governance

Lots of room for growth in Canadian law firm governance
Who is running your law firm? Who is making the major decisions about where the firm is headed? Who is managing the effects of fast-paced change in the legal sector? Who is planning for success of the firm?

As law firms grow in size and complexity, traditional hands-on management and partner-dominated decision-making are no longer practical. Law firms are being redefined by technology and challenged by increasing competition for clients and talent. To succeed, firms must be efficient, effective and strategic in their leadership, decision-making, and business operations. Law firms must re-examine their systems of governance.

Governance is about the firm’s structure, roles, and responsibilities. Who is making and delegating which decisions, and how do these decisions impact the partners, the firm as a whole and the running of the business? Governance is about strategy, actively planning for long-term success. It is also about the firm’s culture — how the firm positions and treats its people and its clients.

While Canada’s corporations are actively evolving their governance systems, governance development among law firms appears to be lagging. The most significant change, largely as a result of larger law firms, has been a move away from exclusive partner decision-making in favour of partial delegation to a managing partner or executive committee.

The typical executive committee includes a small number of partner representatives, tasked with safeguarding partner interests and managing the business of the law firm. Responsibilities can include managing employees, marketing, orchestrating committees, deciding on technology, managing offices across provinces, and strategic planning, while simultaneously monitoring budgets and profitability.

These expansive responsibilities leave executive committees straddling the line between governing the firm on behalf of the shareholders and managing the firm’s business. This is a gargantuan mandate for any group; more so for busy practising lawyers.

While the typical corporate governance model offers some useful features, its top-down control structure is not an off-the-rack solution for law firms. Governance systems that accommodate the uniqueness of the profession, law firm configuration, and individual firms are required.

A law firm is not a simple vertical hierarchy. It is a matrix organization. Law firms consist of a number of internal cross-business and cross-functional units that all contribute to outcomes. These units include business departments such as finance, human resources, or IT; practice areas; and myriad committees such as practice groups, finance, compensation, marketing, and industry sector. Geographic committees are common in regional and national firms.

It is not always clear what each unit is responsible for, if and how they work across units, and to whom they are ultimately responsible.

Next, consider the many and varied decisions that need to be made within a law firm: succession planning; client relations standards; associate work allocation; hiring of and bonuses for executive assistants; firm strategy; marketing strategy; and selection of the executive committee chair, to name a few. Many of these decisions involve multiple stages, from development and approval to implementation and monitoring. Large discrepancies in the understanding of who makes or should make these decisions are commonplace.

Partners are inextricably linked throughout the firm due to their multiple roles and the general nature of the profession. Partners are owners, producers, and managers who have traditionally been active in several of these roles. A full-time, practising partner may be a member of the executive committee, the marketing or IT committee, and the head of a practice group.

The dedicated time and specific skills each of these roles demands make partner-multitasking increasingly time-consuming and impractical, yet there is resistance to relinquishing power and control.

Lawyers are trained to be leaders and decision-makers and they have an above-average need for autonomy. They want control over their professional careers and, by extension, the firm’s management.

Also notable skeptics, it is easy for lawyers to assume that others, especially non-lawyers, are unlikely to understand and do the job as well.

A well-tailored governance system, built around the firm’s structure, roles and responsibilities, strategy, and people, offers many good reasons for partners to relinquish some control and decision-making. The result can be a firm united in purpose, committed to a strategy of growth, and a culture that values quality work and quality people. A firm in which the partners have consciously defined where they add the greatest value as shareholders, major revenue producers, and mentors.

A firm where decision-making and oversight is willingly delegated to a board of directors made up of individuals with business savvy, good judgment, and people-skills is the ultimate result.

This governing body orchestrates the firm at a high level, ensuring the partners set direction and policy while the internal units are working in alignment with the firm’s overall strategy and goals. There is a framework of accountability. People understand their role and scope of responsibility and to whom they report.

The culture of the firm is a top-of-mind consideration. While culture is a nebulous concept and an interesting challenge to define and implement, it is often culture that will make the firm a force to be reckoned with.

People who are valued and respected, whether lawyers, associates, non-lawyer managers, or executive assistants, create a happy workplace. They will go the extra mile to ensure quality work. That extra mile is often what differentiates a firm in the highly competitive marketplace all law firms face today.

Change is hard, and especially so when proposing that law firms move away from their traditional management roots. The challenge is magnified by both the inherent complexity of a law firm and the absence of a wolf at the door. After all, why dedicate time and resources to change the governance system when the business is doing well?

The answer is that the environment and the practice of law is changing all around law firms.

The firms that will continue to be successful are those that acknowledge the change nudging at the edges of the firm, and who respond by garnering the full potential of their people, their business, and their governance structure.

The ultimate goal is satisfied people — clients, employees, lawyers, and partners — and a greater confidence in the long-term sustainability and ongoing success of the firm.

Irene Seiferling is the president of Board Dynamics and a corporate governance consultant and succession-planning adviser.

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