March 2, 2022
Preparing to Discuss Financial Results with American Lawyer? Culture is the New PEP.
2021 was a bountiful year for the legal industry. Surveys by Citi Private Bank / Hildebrandt and Thomson Reuters / Georgetown Law Center all predicted double-digit increases in revenue and profits. The stories about individual firm performance emerging on Law.com bear out the predictions – the revenue and profit-per-equity-partner gains in 20 stories published to date average 15 percent and 26 percent, respectively. Certain firms reported 50 percent-plus increases in PEP, truly astonishing advances. With demand for legal services at historic highs in 2021, the same rising tide is lifting all boats.
In this environment, strong financial performance is unlikely to distinguish a firm in the lateral market. So what will help your firm stand out? Frame your financial message around talent.
Missing in the Am Law financial performance coverage so far is meaningful emphasis on firm culture – as experienced by associates, professional employees and partners – and discussion of hybrid and remote work arrangements. These are the new key metrics, valued now more than ever within firms and by potential recruits.
To make an impression on lateral candidates and key audiences within your firm – two groups who keep a keen eye on Law.com at this time of year – prepare messages for your financial survey interview with the following points in mind:
- Focus on Talent and Culture – The pandemic-fueled Great Resignation is driving greater attention to the key components of a firm’s culture – i.e., the expectations regarding performance, norms that govern behavior, and actions that display your values. How this cultural grist drives a firm’s approach to such critical issues as diversity, wellness, and work environment is meaningful to potential lateral candidates, now more than ever. Nearly every managing partner featured in Law.com to date claims to preside over a great culture, and that the culture drives the firm’s success. But few have distinguished themselves by describing the specific actions they are taking to strengthen their culture.
One firm stood out for bringing its chief diversity officer, alongside the managing partner, to its Law.com interview. She described how the firm is supplementing its compensation strategy with increased and tangible nonmonetary means to attract and retain talent. Another firm stood out for describing an innovation to address lawyer turnover – something confronting all top firms that has otherwise gone unmentioned by the firm’s peers.
- Explain Return to Work Expectations – When are your lawyers and professional staff expected to be back at their desks? For how often and for how long? This has been a moving target for most firms. Current and potential employees accustomed to a new fluidity between work and life are closely following signals regarding a firm’s disposition towards remote and hybrid work arrangements. How a law firm responds to its workforce’s new expectations and preferences regarding work environments will impact the firm’s ability to attract and retain talent.
Further, how you plan to use space signals whether 2021’s historic profits will prove an outlier as the firm – and historic expenses – get back to “normal,” or whether a fresh reallocation of office space will permanently free up resources to sustain profits or fuel attractive investments in talent. Some firms have shared their evolved plans for space and hybrid work publicly; linking these plans to financial expectations would attract attention.
- Discuss Financial Results (With Context) – Revenue and profit remain critically important, of course. Share and celebrate strong results. But take care to contextualize these results as a function of exceptional circumstances. Several firms were quick to point out that strong 2021 numbers affirmed their strategy. But given the historic demand for legal services recorded within every segment of the Am Law 200, everyone can claim a smart strategy whether they have one or not. Offices have been empty, and travel is rare, so expenses are down. And strong profits per equity partner were supported at many firms by a decline in equity partner head count – some of it strategic, some not. So, will 2021 prove to be an outlier or has the firm evolved in ways that will keep expenses down, and profits higher, in perpetuity?
The historic war for talent is continuing in 2022, and that is ratcheting up the pressure firms are under to recruit and retain talent. As Hugh Verrier, Chair of White & Case, put it, “What no one wants in our profession is a world where people are being driven by numbers at the expense of people. That is what is commonly known as an absence of culture.”
Verrier is, of course, right. This is the year to make it known how you are investing in the firm’s culture and managing return-to-office expectations to create an environment where lawyers and staff can succeed and thrive.