key performance indicators

Like horse’s hooves, partnerships have to deal with different conditions throughout a year. There is a well-known equestrian saying: ‘no foot, no horse‘ which means keep the hooves in order or you don’t have a fit, usable mount.

No foot, no horse – like horses’ hooves, partnerships need maintenance and the fundamental building blocks for success need to be carefully thought through and put in place. One of these is clear performance and contribution criteria.

Similarly, successful law firm partnerships need to get the basics in order and thereafter ensure that they are functioning well. It still surprises me how many firms adopt a fairly laissez faire approach to these things and don’t address some of the basics around key partnership functions. In some cases I suspect it is simply that leadership do not wish to ruffle partner feathers and so allow some of them to slip into the ‘too hard for now’ basket. In other cases the firm is doing well so some of these essentials fall off the radar.

One of these is setting partnership performance criteria. When asked to advise firms on performance and growth one of the first things I ask to see is the criteria or key performance indicators (‘KPIs’) that the partnership uses to guide, encourage and measure partner behaviour, thinking, contributions and performance.

Frequently there isn’t one or it is a hotch-potch of half finished lists which have never been fully debated, agreed and not implemented or communicated in any meaningful way. In other cases, there is a list, but that is all there is. Partners do not react to lists of things to do – it takes a lot more. Sometimes new partners come into a partnership blissfully unaware of their existence. As a result performance and contributions can be variable and overall, not delivering what the firm is after.

What then are some considerations to bear in mind when putting together performance criteria or KPIs?

  • ideally these criteria should not be determined in isolation, but in the context of the firm’s core purpose (vision, values, cultural attributes), strategy and guiding principles. This stands to reason as the criteria should be one of the key ways in which the vision and strategy is achieved;
  • you need to get all partners involved in the debate. Communicate and explain. Ask them for input. Encourage their involvement and thinking. Make a genuine effort to do this. Get to the bottom of what truly makes the partnership tick. Done well, you will find a number of the criteria and other strategic key objectives for the partnership drop out of this process. It will also be owned by the partners which will make implementation that much more effective;
  • you are going to come across some opposition, some of it very subtle, but if you don’t anticipate it and are not prepared it can undo all your good efforts;
  • you usually only get one good shot at this – make it count by getting it right first time – if necessary get experienced external counsel, especially to deal with any ‘curved ball’ queries you may encounter in meetings;
  • be patient. Introducing such processes means a lot of change for a lot of partners and thus can cause fear and demotivation;
  • don’t however be patient at the price of inaction or unnecessary vacillation and delay. It is important to commence the process and maintain momentum. Partners need to know leadership is determined to see this through to a successful conclusion for the long term benefit of the partnership. This is everything;
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Some partners are downright difficult. This makes them awkward cogs to fit into the firm set-up,  particularly where they are top producers, run important clients or contribute in other meaningful ways. And let’s face it, all too often they are and do.

Difficult partners are tough cogs to fit into the system. Sometimes exit is not an option, particularly where they are highly respected for their work, client management or contributions in other ways. This calls for thoughtful leadership and management. ((c) Sean Larkan image)

It is important therefore to work out an approach you can use for such partners.  Simply leaving it to chance, or the passage of time and hoping it will go away, or that you won’t have to deal with it, is not an option. They won’t go away and are bound to come back and haunt you and the partnership from time to time. Far better to be prepared with a sensible framework, and a willingness to take action.

Too often there is something of the bully in difficult partners, and you need to be clear to yourself and such partners that you will not be intimidated into non-action. Otherwise you are sure to lose credibility in the eyes of your partners and of course will not make any inroads in dealing with the challenging partner. You also won’t feel very pleased with yourself and your overall confidence may begin to suffer. Unfortunately, the way law firm leaders and senior managers deal with these situations offer very painful and sometimes very visible tests of leadership.

In my last post I covered a few things you should not do in such situations. Let’s now consider what you should do. In the first instance, there are what I would call fundamentals:

  • make sure your values (or cultural attributes or guiding principles as the case may be) cover things like un-partnerlike or ‘difficult’ behaviour.
  • ensure your partner performance criteria measure adherence to such values and/or behaviours.
  • be consistent in all your dealings. This means treating the difficult partner no differently to others – they still need to be shown the same respect, given a fair hearing and such like. Equally, don’t treat them with kid gloves because they are difficult; other partners who may have slipped up in some or other way and been managed rigorously will be watching whether you are even-handed in your dealings.
  • be clear that the solution is going to come from the difficult partner, not from you, from the firm or some written document. Somehow you are going to have to get him or her in the right frame of mind, and suitably motivated, to solve the problem.
What else should you do?
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The profitability index is an important metric in the 2011 Am Law 200 performance reports when comparing top US law firm performance.

However, as the authors state: “Some of this year’s Am Law 200 metrics, such as gross revenue, PPP, and revenue per lawyer, are straightforward. And because they are easy to comprehend in a list, they get a lion’s share of the attention. Other metrics are equally powerful but less-often cited; they lend themselves to a different sort of presentation. Here are four of them: profitability index, leverage, profit margin, and value per lawyer.”

I have always found the profitability index (which we simply called the Am Law Index) very useful (particularly when I ran multi-office firms and wanted to compare performance between them

and against other competitor firms).

The Profitability Index measures a firm’s performance based on the relationship between leverage (lawyers per partner) and the firm’s profit margin (relationship between income and expenses).

Here is a snapshot of a smart interactive bubble graphic reflecting the Profitability Index results for the Am Law 200:

Some of the benefits of the profitability index ratio:

  • the profitability index enables you to validly compare performance between different offices of a firm or different firms in different regions and countries. This in itself makes it enormously powerful and I think unique. It can go some way to reducing defensive arguments from some regional offices or country offices based on ‘special factors’ justifying why they should not be expected to meet certain key performance indicators.
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