Measuring Success in the Corporate and Legal Worlds

Measuring Success in the Corporate and Legal Worlds

Bruce MacEwan (Adam Smith, Esq.) asked a good question the other day: What is the one line item that appears on virtually every corporation's balance sheet but not a single law firm's?

The answer: retained earnings.

An upset - and I think inaccurate - post in Above the Law this morning made me think of another such item. What does every public corporation (in the US) do that almost no law firms do, once or twice every year?

The answer: evaluate the performance of professional-level employees without resorting to hours worked.

I find the ATL article inaccurate in that most every corporation I've worked with has successfully implemented the very review processes Elie Mystal is unhappy about. Employees are reviewed usually on two types of axes:

  1. Contributions to the business (e.g., sales numbers if you're in sales, to cite an obvious example)
  2. Progress through a series of "competencies," whether formal or informal.

These are often combined in employee "objectives," as promulgated by management expert Peter Drucker and others, in an approach that has been successful and widespread for 50+ years.

An annual bonus is usually backward looking: what did you do for us last year? Did you increase sales the way you committed? Did you get Project X done? Did you design your product, recruit your successor, keep the bad guys out of the network, or whatever else you committed to doing?

However, promotions and long-term incentives such as stock options are usually current-and-forward-looking: How did you grow last year? This is where the competencies about which Mystal worries come in. As you get better at these competencies, you theoretically become capable of taking on more responsibility, bigger jobs, and higher salary. There is a certain amount of subjectivity around these to be sure, but Mystal would be surprised the extent to which good manager/employee conversations can narrow the zone of subjectivity. Taken across a dozen or more competencies, much of the subjective variation washes out.

(If a manager has it in for an employee, of course, competencies alone won't protect her. But this situation is rarer than some may think. Let's stick with the general case today and not the exceptions, valid though they occasionally may be.)

In a law firm, the same two axes are in play:

  1. Contribution to the business, whether utilization/realization if you're measuring billable hours or contribution to profitability if you're measuring other items relevant to, say, alternative fee arrangements (AFAs)
  2. Progress through a series of unwritten, unspoken competencies that determine which associates move the fastest above "lockstep" and who makes partner.

#2 certainly exists in firms today, and from what I've seen is often both subjective and invisible to the employee being considered. Writing it down, so to speak, is a step forward, not a step back. Do you know why you didn't make partner and Robin did? How did Clifton get to be on the fast track... and is he really on the fast track, or are you paranoid? (One can, of course, be both paranoid and correct.)

Corporations have had a long time to work out the bugs, and most of the successful ones have gotten fairly good at it. With firms increasingly needing to measure something other than or in addition to billed hours, they're going to turn more and more to what the rest of corporate America is doing... except, perhaps, for retained earnings.

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