As the year draws to an end, a familiar discussion emerges. Whenever law firms are inching closer to completing their fiscal year, discussions on partner remuneration flare up. 2020 no exception. If one would look at it from a distance, it seems as if in law firms the discussion on what would be the best and fairest way to divide the profit among the partners never ends. Like ‘Groundhog Day’ it keeps repeating itself. There is no one way of doing it right With a global practice like ours, we have probably seen more partner remuneration systems than we could count. As every lawyer knows, the two main categories are: Merit-based and Seniority-based. Partner income is either closely tied to their individual performance, or to the performance of the firm as a whole, of which each partner receives a cut based on seniority. The former is commonly referred to as ‘Eat What You Kill’ and the latter as ‘Lockstep’. Basically it boils down to remuneration being either ‘Me-based’ or ‘We-based’. Looking at global market data, the law firms that operate a pure lockstep profit distribution system are a minority. In the Legal Industry, sometimes it seems like ‘lockstep’ is considered some sort of ‘Holy Grail’. When on 10 September Davis Polk announced that they were moving towards a ‘Modified Lockstep’, this immediately made headline news, on which I was asked to comment. Moving from Lockstep to Modified Lockstep is presented as another ‘defeat’ for the lockstep. Reality is, that all this attention for Partner Compensation is overrated. After years of experience we found that there is little or no relation between a firms compensations system and its commercial success or profitability. We see market leaders with a lockstep and we see ‘losers’ with a lockstep. The same goes for Eat What You Kill. The reason that firms like Davis Polk shift to a Modified Lockstep has mainly to do with boosting their ability to attract expensive lateral talent. Attracting Star Partners requires a lot of money and this typically does not fit well in a rigid Lockstep. We need to talk about the Spread One of the main advantages of a Merit-based compensations system is that it allows for a much larger spread between the top performer and the one at the bottom. The average spread in partner compensation in law firms is about 10 : 1. This means that the highest earning partner earns ten times as much as the lowest earning partner in that firm. Although this is the market average, we have come across firms that have a 33 : 1 ratio (highest earning partner gets 33x what the lowest paid gets). In a pure lockstep the compensation spread would typically be between 5 : 1 and 3 : 1, so much lower than market average. As it comes to Merit-based compensation, the spread in remuneration reflects to a certain extent also the spread in quality between the partners. I must say ‘to a certain extend’ since there are also other factors in play because most firms have highly complicated formulas for calculating the remuneration of each partner, which take different aspects into account such as ‘Origination Credits’. However as a rule of thumb: the bigger the spread, the bigger the difference in quality in the partner group. What is the single most important predictor of success? So if your Partner Compensation System is not a predictor of success, what is? This is where data analysis comes in. We applied a tailor-made algorithm to a data-set that we pulled from different data sources and supplemented with some of our own data. The data clearly shows that a narrow quality spread between the partners combined with a high average quality is the single most important determining factor as it comes to success and profitability of a law firm. Even tough this may seem obvious, we see only very, very few law firms act accordingly. If the average quality and the spread in quality of the partner group are so important, one would expect law firms to be extremely critical as it comes to partner promotions: every new partner should preferably help raise the average quality of the partner group. We know from experience and from looking at data, that this is rarely the case. Partner appointments remain at large opportunity driven political events. We even know of firms that introduce weaker partners on purpose in order not to have too many ‘Prima Donnas’. Actively managing and continually improving the quality of the partner group is going to make you more money as a partner, than any Merit-based system can do. Partners that are on the same level, perform better as a team, as all will have similar quality of mandates and clients. A comparison could be made with football (soccer): the Champions League teams have better players over all and a very narrow spread as it comes to the quality of the individual players. Any team where a few players would be top-level and earn accordingly, while the others are mid-level, but with a lower salary, would not perform well. In order to be successful as a team the players must have a comparable quality. Yes there will always be a Lionel Messi or a Cristiano Ronaldo in a team, but the 10 other team members are still damn good. For law firms that want to be successful, this is no different. Become a Talent Breeding Machine Now that we know for a fact that in the end the only thing that matters is the average quality and the spread of the partner group, we also know that scouting and developing talent is the best investment a law firm could make. Like the Champions League teams all have extensive professional talent training programs with the sole purpose to breed better talent than their competitors, law firms should do the same. Rather than discussing Partner Remuneration again and again, firms should focus on raising the quality with every new partner appointment. The higher the average level, the more money a partner will make. Even if the system is an undiluted Eat What You Kill. The law firm that becomes the best Talent Breeding Machine, will be the one that wins in the end.

The other day I was interviewed by the economist of a large international bank. The economist is writing a report on the economy in 2021 and wanted the hear my thoughts on the legal industry. Based on an analysis that was underpinned by trends in global trade and the development of GDP, their model had projected that employment for lawyers in the legal industry would shrink notably in the coming year, an outcome with which I said I tend to disagree. After the 2008 financial crisis, law firms were shedding jobs and significantly reduced their headcount. When from 2010 onwards the economy picked up, the legal industry struggled to rehire lawyers with the right level of experience. Firing lawyers in a panic turned out to be a costly mistake. Looking at 2020 it is clear that law firms have learned their lesson back then. So far there has been no sign of mass redundancy of lawyers. On the contrary: law firms are not just keeping their lawyers, but some are even handing out massive bonuses. At the same time some 64.000 legal secretaries, support staff and paralegal jobs quietly disappeared since March 2020 in the US legal market alone. Other jurisdictions are showing a similar picture. Also partner promotions seem to remain on-track. There is not a single law firm we know of, that has postponed of cancelled partner promotions. This being said, we see two major questions arising: 1. How are the new partners going to build their practice? The present year 2020 has been very good for law firms. There have been no signs of an overall decline in demand and clients have hardly been asking for discounts. According to our outlook, 2021 will be different. Building your own practice as a young partner is difficult enough as it is in normal times. It could prove to be very hard in 2021. At many law firms, partner promotions tend to be based on personal relationships and internal politics, more than they are on the argument of a strong business case. Lawyers get promoted partner because they have served their partner loyally for many years and partner promotion is their reward. In law firms that have a merit based compensations system and reward ‘origination credits’, the more senior partners could even have a financial incentive, as they will profit from the origination credits in providing the new partners with work. Not scrutinizing the business case before making the appointment is ill advised in normal times, it could become a serious issue in times of a massively shrinking economy like we are seeing now. Law firms should double up the effort to help newly appointed partners build their practice in 2021. Even if this could mean that the sitting partners need to handover part of their business and will see their income reduced as a consequence. This is the question you need to ask yourself before voting-in the new partners next month: “am I confident that there is a good business case, and am I prepared to invest some of my own income to make this a success?” If you hesitate or if the answer is no, perhaps don’t do it… 2. Looking forward: will there be partner promotions at the end of 2021? This year has been in many aspects an extraordinary year. For one, the legal industry has been working remotely for most of the year. Even though Pfizer and others have shared promising data regarding their vaccines currently under development, it remains unlikely that the world will return to normality before the end of 2021. It would be realistic to assume that working from home will remain the norm for the foreseeable future. Partner promotion decisions are a marathon, not a sprint. Being promoted to partner requires a level of sponsorship and connection to the firm. These are things that will be very hard to create remotely on-line. Not being physically together will become an obstacle when it comes to evaluating and developing the next generation of partners. It is hard to imagine how this could be done without sufficient in-person interaction. We see the lack of personal interaction as one of the major obstacles as it comes to talent development in the year to come. On top of that we also expect that in 2021 the financial effects of the economic crisis will kick-in and we foresee overall demand for legal services will shrink by 6%. Obviously some legal areas will be more affected than others, but is seems reasonable to expect that 2021 will not be nearly as good as 2020 for most law firms. A decline in revenue and PEP will also not be encouraging for new partner nominations at the end of 2021. What to do? As the legal industry is changing and emerging technology is gradually augmenting lawyers to be more efficient, human talent becomes more important than ever. Law firms will have to step-up their efforts to educate and train their young lawyers in a more structural and broader manner. Just putting a trainee behind a screen and let that person make the ‘flying hours’ starting with stupid simple work and gradually becoming more complex over time, will no longer be adequate. At TGO Consulting we are working with clients to set-up professional structural permanent education and training programs for their lawyers of all categories. These training programs not only prepare for future partnership, but they also create much more points of evaluation and interaction, even when working from home. The young lawyers who have been participating so far, show an increase in sense of belonging and a much better understanding of what their potential career path might look like and what it takes to become a partner at the end. If you are considering implementing a structural education and training program at your firm, please do not hesitate to get in touch. We would be most happy to share our insights and our experience.

Tuesday 3 November, I read a slightly bewildering article on Bloomberg. In Europe banks are lobbying regulators to restart dividends and bonusses while we are still in the worst economic recession in living memory. The tone struck by Europe’s lenders is in stark contrast with a deteriorating backdrop of new infections and restrictions that threatens to bring more economic pain. Coming at a time when taxpayer money is being used to soften the impact of lockdowns that could bankrupt companies and throw millions out of jobs, the dissonance risks putting bankers on a collision course with regulators. The banks look extremely good at the moment because governments take the biggest burden of the crisis. Thanks to governments, the biggest banks in Europe in Q3 set aside the least amount of money for doubtful loans since the onset of the coronavirus -- at a combined $7.2 billion, it’s a fifth of the $36.7 billion provisioned in the first half. Reading this, it seems that the banks are completely out-of-sync with reality. It is a question of when, not if, banks’ asset quality will deteriorate in this crisis. This is interesting as there are some striking similarities with what we see happening in the legal industry right now. For many law firms 2020 will be a bumper year. When the crisis first hit back in March, generally law firms feared for the worst and immediately started taking measures to brace for the impact. Cashflow was for most the first concern. All available credit lines were drawn to the max. Some firms put staff and lawyers on government furlough schemes. Some firms – temporary – reduced salaries of lawyers and staff. Payments to creditors were deferred and partner payments were halted or reduced. Anything to save cash and secure liquidity if revenue would drop. There was huge concern that clients would pull back on collections or would defer work. Some law firms anticipated no less than a 30% drop in revenue. Today it is November and we are seven months into the crisis and we have seen that the legal industry so far has steered clear of the worst case scenario. Very few clients pulled back work or adopted substantially longer payment terms. Looking at the tier-1 segment of the legal market, there have been surprisingly few discount requests from clients. Like the banking sector, the legal industry has taken all precautions and braced for an impact that did not come. Production so far has been on par with 2019 Year-on-Year or sometimes even better. Law firms have taken large provisions for client fees that they would not be able to collect, but clients are paying and paying on-time. Things are looking particularly bright right now. At the same time costs are down YoY compared to 2019. There is almost no travel and expenses, no events and lower cost of marketing. Many firms have asked part of the furloughed assistants and staff to leave and have been lowering their salary costs. Some partners have been ushered into early retirement or asked to leave the firm. With a healthy revenue, normal collection rates and lower cost, profits are expected to be higher than in 2019. Despite the pandemic and the economic crisis, many law firms are in for a bumper year. The impact is yet to come! [ source OECD data by 31-10-2020 ] With the rapid rising number of Covid-19 cases in Europe and the United States and many economies back in lockdown, all hopes for a rapid V-shaped economic recovery have evaporated. On top of that we have the US-elections which took place on 3 November which adds further to the uncertainty, then there is Brexit and in 2021 Angela Merkel will step down. As the graph shows, the European economy is projected to contract by 11.5% over 2020 and the US economy by 8,5% and this does not yet take into account the outcome of the elections. With such numbers, it is unavoidable that many companies will be affected. Many SME are going out of business as a consequence of the forced closures and mandatory lockdowns. The hospitality, travel- and airline industry, the retail sector, the car industry, just to name a few and all their suppliers are facing hard times. Millions of jobs will disappear and the damage does not stop here. Also large multinationals that still make a more than decent profit are shedding jobs. On 29 October Royal Dutch Shell Plc reported $955 million of net profit over Q3. This beat even the highest analyst estimate. The company reported lower net debt and strong cash flow. Still 9000 jobs at Shell are to disappear and Shell is not exception, they are just an example. In an article that I published on 9 April 2020, I predicted that the 2020 legal market in a worst case scenario would shrink by 10%. At that time the article was meant to dampen the ‘panic’ at law firms and the fear that the market would collapse. My prediction back then was that this was unlikely to happen and with today’s knowledge I was right. My forecast today, seven months down the line, is less optimistic than back then. I fear that things will get much worse before they will be getting better. It is unlikely that revenue and profitability for law firms in 2021 will be as good as they will be in 2020. I would advise to err on the side of caution. For those law firms where the fiscal year ends on 31 December, I would advise not to distribute all the profit as usual, but make provisions for the year to come. If this is not possible for tax reasons or just because the partners do not trust the firm with their money, then at least manage expectations and prepare the partners for weaker results. It would also be advisable to take an extremely conservative approach as it comes to advance payments to the partners. You do not want to end up in a situation where partners have to refund payments received. I think law firms could learn from the banks. Just as the banks right now are pushing to pay dividend and bonusses to keep shareholders and traders satisfied, law firms are under pressure to distribute all profit in full to keep their partners satisfied. Just like the banks seem out-of-sync in their demands, law firms will be out-of-sync if now they do not save for a rainy day. For the banks there is no doubt that their asset quality will deteriorate in 2021, just as for the law firms it is hard to imagine that they will once again be spared from the effects of the economic crisis. Just like the 2008 financial crisis led to a 5% contraction of the legal market in 2009, the current economic crisis will again lead to a drop in demand and revenue. Only this time the economic crisis is much deeper and more wide spread and not limited to the financial sector, so the impact will likely be more severe. Get ready for a long dark winter!

[Guest post by Lodewijk van der Peet - Leadership Coach] In 2004, there were several scouts in the stands of the Amsterdam Arena, all watching Raphael van der Vaart, one of the most creative players of the highly successful Ajax football team. The team’s technical director, Arie van Eijden, was excited and nervous. His trainer, Ronald Koeman, insisted on keeping “Raffie,” his star player. So after consultation, Arie decided to raise the price considerably. Ronald was instructed to make Raphael captain and to always keep him in the starting team. In confidence, he told a journalist from De Telegraaf, the country’s most widely read newspaper, that the Ajax planned to offer Raphael a new contract. Don't tell anyone! It was international news within hours. Bad atmosphere Raphael’s teammates rebelled against him. The guy might play great football, they said, but he shouldn't tell anyone what to do. Who does he think he is? The bad atmosphere affected the team’s performance to such an extent that Raphael lost his position as a top transfer. He opted for the huge salary at Hamburg SV, a mediocre team where he was the top player. Then to Real Madrid. Not a success. Actually, Raphael has never had the success predicted for him. Even a top player needs a coach Quite a few managing partners have gained their positions by being the best players on their team. Because of their exceptional intelligence they usually manage to make it work (unless they’re too vain). They listen to their predecessor and probably know a CEO of some other large company to whom they turn to for advice over drinks. But at the Champions League level, no one can make it with intelligence and commitment alone. Like the very best football players in the world, a managing partner needs a good coach. Serving players Sometimes managing partners are appointed who are not the best players. They have to ensure that the best players can continue to excel and are not bothered with trivial corporate matters, like automation or HRM. Those are the serving players. The disadvantage of this position is that they have little authority within the group and less mandate to represent it. Get to work Mistakes are inevitable in both cases. The managing partner is paid well and continues pushing on, trying to figure out how make it work. They are offered no support. Don’t complain. Keep working. Loser! In the legal world, it’s seen as a weakness to admit you don't know something. It’s even a loss of face to admit that some things make you nervous. But addressing a group of employees is quite different from convincing a judge. Dismissing an employee is quite different from reaching a settlement agreement. Motivating, exciting, persuading, orating, and looking someone in the eye while delivering bad news is new territory for a new managing partner. Burnout I spoke with several managing partners who from their first day on the job started their one-way trip to a serious burnout. They had completely underestimated the job and hadn't counted on being given so little time, credit and goodwill. They spoke of being mercilessly and frequently criticized by their colleagues, who were once their peers, but soon saw them as targets. A burnout is the ultimate loss of face in the world of elite lawyers. And a unnecessary waste of talent. Coaching It’s high time for law firms to provide sufficient guidance during the onboarding process. Give the new managing partner a dedicated coach. A mentor. Give her a few months to learn the required skills—skills that no one is born with. A coach doesn’t even need to know anything about the legal profession. Perhaps it’s best if they don’t, actually. The coach must have knowledge of people and communication. Because a managing partner must suddenly deal with a completely new set of challenges and processes, entirely distinct from those pertaining to law for which she was trained. And the fees charged by a good coach are miniscule compared to the enormous risks they will reduce. Reappraisal of experience Is it a bridge too far for your firm to hire a professional coach? If so, I have another suggestion: ask a for help and tips from people on the floor. They will admire you for being vulnerable at the start of your new mission. You might be surprised how helpful they will be. This article is written by Lodewijk van der Peet - certified leadership coach

Remember when you started out as a young lawyer straight out of university? Well, I certainly do. Most of us have been incredibly lucky. We graduated at a time when the legal industry was experiencing unprecedented growth. Basically, when we started, everyone with a ‘decent background’ and a law degree, could make it as a lawyer. The demands back then were way lower than they are today. Law firms have professionalized and grown over the past 25 years. Partner incomes today are much higher than anyone would have thought possible back then. Anyone who is a partner at a law firm today has in a way had a tremendous tailwind when making a career. These days the reality could not be more different. Many more young people acquire a college degree in Law. October 24 The Economist published an article stating that each year America produces some 25.000 “surplus” lawyers. Please let that number sink in for a moment. Universities are churning out more graduates than the market can absorb. Over 30% of British graduates are “overeducated” relative to their jobs, according to that same article. Having a ‘decent background’ and not being a ‘total idiot’ is no longer enough to make it. The tailwind all of us experienced, has turned into a headwind. Many of us probably would not succeed if we had to do it all over again today. I hope this insight will make us somewhat humble. On Friday 23 October I hosted a Virtual Roundtable with a number of international experts on education. This is a topic which is close to my heart and I am deeply worried by how we (the haves) are robbing a generation of their future. With large parts of the world now deep into the second wave, education of the future generation is severely hampered. While this time governments are trying to keep schools open, schools themselves are struggling because of teachers falling ill or having to self-quarantine. Large numbers of schools have switched to blended-learning, a combination of in-class and on-line. For those students who are in vocational education, the situation is particularly bad since on-line education is not an option and also traineeships at companies are extremely hard to find right now. We are not only robbing the young from their right to get a decent education, but we are also depriving them of their social and emotional development. The journey from childhood to adulthood is not only about acquiring knowledge, but also about social interaction and learning to stand on your own two feet. It is impossible to learn how to function in a job if you have had your education largely alone at home behind a computer screen. Perhaps you are familiar with the film ‘Being There’ (1979) directed by Hal Ashby and with Peter Sellers playing the lead character, a gardener who only learned about the real world by watching television. Having acquired virtual knowledge and wisdom, he turns out to be socially and emotionally inept. The problems do not stop here. Also the opportunities to find a good job after graduation are fading fast. Thanks to governments’ response to Covid, we got caught in the worst global economic crisis in living memory. Many SME are going out of business as a consequence of the forced closures and mandatory lockdowns. Millions of jobs will disappear and the damage does not stop here. Also large multinationals that still make a more than decent profit are shedding jobs. On 29 October Royal Dutch Shell Plc reported $955 million of net profit over Q3. This beat even the highest analyst estimate. The company reported lower net debt and strong cash flow. Still 9000 jobs at Shell are to disappear and Shell is not exception, they are just an example. Please remember that it will be the future generation that has to repay all of today’s government debt created to support the economy. We are spending their money, we are depriving them of a good education, we are denying them a normal social life and are blaming them for being young and careless. It goes without saying that this is all not black and white. But the contrast between the ‘baby boomers’ who are now in power and who’s career path has essentially been a-walk-in-the-park, and the future generation who will have far less opportunities and is facing an uphill battle, is pretty stark. What you could do to help I am aware that all this is not your fault and that law firms have little or no influence on government measures, education and the economy. Still there are a couple of things that you could do to help: Do not stop recruiting, but hire more trainees than you would need. Sounds stupid? Look at it from this way: most tier-1 law firms will likely have a bumper year. Revenue over 2020 is typically on-par or up from 2019, while the costs are down at the same time. This would allow for being generous while hiring. Even if you already know today that you do not want to keep all recruits after three years or so, you can still give them now a valuable education that will enhance their job opportunities further down the line. So take your social responsibility and become a mini-training center helping young people on their way. Develop a purpose made training program for your young lawyers. Due to work-from-home guidelines, there is limited or no opportunity for lawyers to work from the office. This is especially bad for those who are fresh from university now starting their professional career. Remember how your own start as a lawyer was back in the days? Remember how much you had to ask and how much you learned by simply observing how the partners operated and behaved. We at TGO Consulting are right now helping our clients to develop tailor made training programs for their trainees (and associates) to teach them important skills and the firm culture along the way. Team-up with the universities. This is something we are doing ourselves: we reached out to universities and are offering free guest lectures to help bridge the gap between the theoretical education and the real-world needs in (tier-1) law firms. We would encourage law firms to do the same. Try to pull some of the training you would normally do within the firm forward and offer it to students. This should not be about the law, as universities have this already covered, but it could be about drafting, negotiating, how to divide risks and how to communicate with clients. I mentioned the roundtable with international experts on education that I hosted on 23 October. It goes without saying that the experts are deeply worried and raised a lot of concerns. At the same time, all of them had confidence in the ability to adapt and the resilience of the young generation. Having two daughters myself, I think this is true. At the same time I feel that it is our (the haves) duty not to be selfish and to do whatever we can to help. Only by actively reaching out we can avoid that the future generation will become those who ‘have not’

Last week I published an article on Partner Retirement. This seems to have struck a nerve and triggered a lot of response. Since I had already planned to write an article on the emotional aspects of partner retirement, due to popular demand, I have decided to pull that forward. So here you have it, a glossary of emotional considerations for partners who are facing retirement from their law firm. 1. I am too young to retire Depending on the law firm, partners may have to retire as early as their late fifties. Partners at that age bracket are still relatively young and will likely have some forty years or so ahead of them. Being asked to retire feels like a disqualification and is a harsh confrontation with one’s own mortality. Up till the moment of retirement life seems endless. Retirement signals that one has entered the last stretch of the education-working-retirement divide. For most partners retirement just does not feel right. They feel way too young to retire. 2. I don’t know what to do next Most partners who are close to retirement have been with their firm for over 30 years. Many have even never worked anywhere else. Being a partner is typically an all absorbing high stress occupation. Once retirement comes in sight, partners often have no idea of what to do next. Most certainly do not what to sit at home staring out the window for the rest of their lives. They want to remain relevant and contribute to society. Many partners dream of being appointed to the boards of companies. Reality is that this is not going to happen for 95% of them. So if not board member, then what else can they do? Many partners do not have hobbies or interests. Lack of perceived alternative options make that they will try to hang on to their practice for as long as possible. 3. I need the money Partners at law firms make a lot of money and many have the lifestyle to reflect. Despite the high income, you might be surprised by the percentage of partners that is not financially independent by the date of their scheduled retirement. One does not need to be an actuary to calculate that it takes a lot of money to maintain a wealthy lifestyle for forty years or more without a steady flow of income. A surprisingly high number of lawyers still burns through too much money during their active career, while saving too little for later on. On top of this there are those who went through a costly divorce, taking a huge chunk out of their savings. Whatever the reason, part of the partners who are facing retirement just need the money. 4. My wife does not want me home I am taking the male partner perspective here, as the overwhelming majority of partners retiring today are male, reflecting the lack of gender diversity back in the days. The partners who are in their late fifties/early sixties today have basically spent most of their time at the firm working on client matters. I literally know a partner who, when his wife visited the office to show their first born son to his colleagues and his team, accompanied her home after the visit with the pram filled with dossiers and she having to carry the baby. The practice came first, family often came second. With their husbands spending so much time away from home, no wonder these wives have developed a life of their own. A life with lots of freedom and things to do, can be brutally disrupted if the husband is suddenly at home 24/7 and starts to interfere. Matrimonial tensions do arise after decades of stable marriage if the status quo gets disrupted. 5. I do not have any friends Having spent 30 years or so practicing at the same firm, most of the people you know will be business related. They are either colleagues or clients. This whole network will fall away overnight after the moment of retirement. This can be hard on partners, all their cherished relations turn out to be just business related. People valued you, not per se because of who you are, but because of what you represented. Believe it or not, but I do personally know lawyers who get sort of emotional when they pass a building belonging to a former client where they have been in board meetings on a frequent basis, and have now, after retirement, no ‘ticket’ to enter anymore. Once an insider, now an outsider. There could hardly be a stronger signifier that life has gone on and you are not needed anymore. Partners can be lonely after retirement. Lonely and feeling ‘useless’. 6. I fear losing my edge Of all the emotional considerations regarding retirement, for me this is the most serious. While working in their practice partners need to be top-performers. Working permanently on the top of your abilities puts the brain in a ‘state of excellence’. Turbo performance if you may. This supercharged intellect is what makes the top-partners so special. They have unparalleled analytical skills, they are razor sharp. They are inspiring to hang around with. You have seen what happens to Olympic athletes, world champions and professional sports players. After their career has ended they often grow old and fat, much faster than anyone would expect. The same is – mentally – true for lawyers. I have seen it happen, more than once. When a partner does not use his brainpower in supercharged mode anymore, part of that brainpower just disappears. The brilliance fades away, and the person is not special or inspiring anymore. This is what I would personally fear the most. There is a limit to the length of these articles. The six emotional considerations regarding retirement are absolutely not exhaustive. There are many others that are also relevant to consider. Not all partners are subject to all these fears. And, yes, there are partners who happily go into retirement without any fear or any regret. This article is not for them. It is for those who resent retiring from the firm. As outlined in last week’s article, retirement of a partner is merely a contractual event. It has nothing to do with judging the partner as a person. For law firms we advise to set up a formalized ‘Partner Retirement Program’ to coach the partner in overcoming the fears and develop a positive perspective on a meaningful future. Such program should also deal with a smooth transfer of matters, clients and contacts. If managed well, both the partner and the firm will benefit. TGO Consulting has all the required knowledge and expertise to help you set up such a program. Please inquire how we could help you as a partner, as a firm, or preferably both.

When stars in our galaxy reach the end of their life cycle, they turn into ‘White Dwarfs’ and fade away. Occasionally there is a star that does not obey to these rules. These stars become ‘Supernovas’ and go out with a bang. A Supernova is the biggest explosion known in the universe. An unimaginable force of destruction. This article is not about astrophysics, it is about partners reaching the age on which they are to retire. Ideally law firm partners beyond a certain age should gracefully ‘fade away’, leaving their practice and address book to the generation below. Every once in a while there invariably is a partner that refuses to facilitate that transition. These partners then become ‘Supernovas’ that go out with a bang, causing lots of collateral damage. We need to address the Baby Boomers Partners who are today hovering around the age of 60, started their career as a lawyer more than 30 years ago. The legal world in 1990 is in many aspects incomparable with the legal industry today. During that timeframe the legal industry has seen exponential growth. The Business of Law has been professionalized beyond recognition, in part thanks to pioneers such as Harvard professor David H. Meister who published his book Managing the Professional Services Firm in 1993. Partner incomes have quadrupled and many partners are earning more today than they ever imagined when they became partner some decades ago. Baby Boomers have built their career with an incredibly strong tailwind. Not only their professional career, but also in their private lives. For example the value of their property has risen tremendously. Not only thanks to their extraordinary talent, but also thanks to the favorable circumstances, the Baby Boomers have built impressive practices with big revenue, high profitability and a strong reputation in the market. Now that they are around the age of sixty, they start to think about their future. Most law firms have set an age limitation to equity partnership. This age limitation now has come in sight. This is often causing sleepless nights for the partners concerned. Baby Boomers don’t want to retire because they are still too young Certainly today, no one around the age of 60 would consider himself/herself ready for retirement. Thanks to a better lifestyle and medical advancement, people are getting older and stay in great shape much longer. Any lawyer approaching in his early sixties will still consider himself/herself fit for practice for many years to come. And rightly so. Partners in law firms have to retire, not because they are old and tired, but because they have to make way for the next generation. Being a partner is different from being an employee. Partners have entered into a contractual relation and in this contract is stipulated when it ends. It is a business arrangement, not a personal or emotional one. Whether or not the partner is still fit to maintain a high level practice at the age of retirement is not part of the equation. The contract ends, and that’s all there is to is. Nothing personal. Reality is however that most ‘senior’ partners do not see it that way. They have developed a kind of amnesia as to why the partnership agreement is formulated as it is. When they were still young partners, it seemed like a great idea to set a fixed age limit to equity partnership an make room for younger partners to grow their business and their profit share. When reaching the age limit themselves the perspective has completely shifted. Now it feels as if they are being cut-off at the height of their career. TGO Power Curve© When we work with our clients, we often use a TGO Power Curve© analysis. This analysis uses a smart calculation for each of the partners based on the size of the practice and the reputation in the market. The result is plotted on a base line, representing the age distribution of the partner group. The graph below represents two different situations. Figure-A reflects a partnership where revenue and market reputation are concentrated with partners who are now in their late fifties and early sixties (the Baby Boomers). Figure-B represents a law firm where the strongest and most successful partners are in their early fifties. As you can see, in Figure B, partners are transferring their practice towards the end of their professional career. Why smooth, well managed succession is in everyone’s interest. “Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light. Though wise men at their end know dark is right, Because their words had forked no lightning they Do not go gentle into that good night.” These words of Dylan Thomas come to mind when we see the internal struggle some partners – especially Rainmakers – have as the contractual end of their partnership comes near. Part of that struggle is emotional and has to do with uncertainty and fear. I will address this in a separate article in the weeks to come. From a pure business perspective it is in the interest of the firm that partners start transferring some of their practice and clients early on. Ideally this starts as soon as the partner makes a new partner. New partners should get part of the practice as a form of ‘starting capital’ the day they become partner. Splitting a successful practice in two, is the most efficient way to grow revenue and profitability for a law firm. Around the age of sixty a partner should once again actively start to transfer mandates, clients and reputation to the younger generation. The problem is that this requires a great amount of trust. Obviously the partner should have complete trust in the quality of the next generation (I can tell you that this is not always the case). The partner must also get the comfort and the guarantee that transferring part of his/her practice and revenue, will not lead to loss of respect, status or income. Rainmakers have special status in any law firm. No partner will want to risk losing that special status. Sometimes rainmakers do want to continue practicing until they are 70 or beyond. They then rather take their practice and move to another firm towards the end of their career. For them, not transferring their practice is part of an ‘insurance policy’ that they still have market value. Again, as understandable as this might be, this is not in the interest of the firm and of the remaining partners. Succession is an important and complex topic. Now that the Baby Boomer generation is about to retire, succession has more than ever become a strategic issue for law firms. We at TGO Consulting have a wealth of experience. We would be more than happy to advise and help put together a process that perfectly fits your firm.

In the garden of Huttenstrasse 9 in Zürich (Switzerland), you will find a life-size sheet-metal cat. The cat is movable, so one can never know beforehand where it will be. Between 1921 and 1926 the famous Austrian theoretical physicist Erwin Schrödinger lived in the house while he sojourned in Zürich. In 1933 Schrödinger received the Nobel prize for his contribution to the wave theory of matter and to other fundamentals of quantum mechanics. Most of us lawyers may not be familiar with Erwin Schrödinger, but you might have heard of ‘Schrödinger’s Cat’. Schrödinger’s Cat is the product of a thought experiment in 1935 explaining one of the fundamentals of quantum mechanics in which a quantum system such as an atom or photon can exist as a combination of multiple states corresponding to different possible outcomes. I know this is way too complex for simple lawyers like you and me, and therefor you only have to remember the cat. Schrödinger’s hypothetical cat is locked in a sealed box with a poison that could kill it. As long as the box remains closed there is no way to know if the cat is already dead or still alive. Only after opening the box it becomes certain if the cat is still alive or not. As long as the box remains closed the cat is dead and alive at the same time (both assumptions are equally valid). Schrödinger’s Cat and the Hourly Rate Thinking about the hourly-rate, I cannot escape thinking of Schrödinger’s Cat. Some say that the hourly rate should be dead and that there is no longer a case for time based billing. As I will explain further on, I myself pivot towards that point of view. At the same time, as we all know, time-based billing is still the norm and the hourly rate seems very much alive indeed. So how can the hourly rate be both dead and alive at the same time? Why is the time-based billing like Schrödinger’s Cat? It may seem like billing by the hour has always been the standard, but it became only widely used after 1975. Throughout the 20th century, legal fees in the U.S. were largely capped by state law and lawyers were using fixed-fee schedules, published by the courts and the ABA, to establish prices. Although Sherman and Sterling started tracking time as early as 1945, the minimum fee structure stuck until it was challenged and struck in 1975 when the U.S. Supreme Court agreed, ruling in Goldfarb v. Virginia State Bar, that the minimum-fee schedules violated federal antitrust law. This paved the way for the adoption of the billable hour. Ever since 1975, the billable hour has been the de-facto worldwide industry standard. The use of timesheets in combination with billing by the hour has brought great riches to the lawyers. By the 1950s lawyers had fallen well behind the pay scales of fellow professionals such as doctors and dentists. After 1975 lawyers not only caught up but outpaced their fellow professionals. Though today the billable hour is often criticized, it remains the standard for both lawyers and clients. Even today’s Alternative Fee Arrangements are ultimately based on the expected number of hours multiplied by the applicable rates. The end of the hourly-rate? When I was still a very young lawyer, some of the senior partners used to weigh a file on their hand after completion, to establish the fees for services rendered. Despite this being an outdated and disappearing practice at the time, it had an element of fairness because it took not only into account the efforts of the lawyers, but also the value to the client. One of the assumptions on which time-based billing is based, is that there is a linear relation between time and value. If time is used as a measurement, spending twice the time will double the costs. Assuming that double the cost equals double the value is clearly not right. There is no linear relation between time and value. Actually there is no relation whatsoever between time and value. As I have explained in an earlier article, something that takes little or no time could be invaluable to the client (Picasso Principe), as where something that has been time consuming could only have little value. If there is no linear relation between time and value, then from a client’s perspective this renders the hourly rate unfit for purpose. Not only from a client’s perspective is the hourly-rate a poor choice, also from the perspective of the lawyer it is. The Creation-Production-Divide-Concept© as established by TGO Consulting, clearly demonstrates that in the whole process of handling a matter, the unique human skills that distinguish a great lawyer from a mediocre one, are not time consuming. It is the processing hereof by junior lawyers that consumes most time. It is exactly here where law firms and lawyers are hard to distinguish and add little value to the client. One could say that lawyers undercharge for their unique skills and overcharge for processing of documents. In a way the processing is ‘subsidizing’ the ‘Creation’ (unique skills of the partner). Artificial Intelligence and Legal Process Outsourcing will reduce the amount of time spent on Production, thus undermining the ‘subsidy’ needed to deliver Creation. In the end the hourly-rate will turn against lawyers once efficiency on Production will be increased. Why does time-based billing remain the de facto industry standard? As demonstrated, there is a strong business case to be made that the hourly-rate is dead. It is flawed as a measurement and will fundamentally undermine the business model of law firms. Yet at the same time, looking around, the hourly-rate seems very much alive. One can only speculate as to why this is the case. Perhaps clients find it difficult to put a value to the work of a lawyer, perhaps they do not like to haggle, or perhaps in the bigger scheme of things the legal budget is simply not significant enough to be bothered. Right now I do not have the final answer to that question, but I will further discuss this with GC’s and business leaders in the months to come. Time based billing is very much like Schrödinger’s Cat: alive and dead at the same time as long as the box remains closed. Upon opening however, I am prepared to bet that we will find that it is dead after all. To be continued.

Last Tuesday, 22 September, at 13:30 GMT the Northern hemisphere had Autumn Equinox as the sun was directly above the equator and day and night had precisely equal length. From then onwards the days are getting shorter and there will be increasingly longer periods of darkness. Also since the last couple of days, politicians started talking of a ‘second wave’ and are openly discussing the possibility of a second lockdown. Meanwhile businesses are suffering and support among the population is diminishing. It seems as if from several perspectives we are entering into the night. After the lockdowns ended, politicians and business leaders were sort of hopeful that there would be a reasonably fast V-shaped recovery. The graph - based on data compiled by Goldman Sachs - seems to justify that optimism. Until summer the global economy recovered pretty quick and as people went on holiday the trend somewhat slowed down. Now that we are facing the serious prospect of a second wave and people are urged to work from home again and lockdowns cannot be ruled out, the mood quickly starts to deteriorate. The graph below is illustrative for the grim new reality. In April, after most restrictions had been lifted, the aviation industry projected to be back at 80% of pre-pandemic levels by the end of the year (red line). Until end of August they seemed to be reasonably on track (black line). Now, faced with the new reality the expectation is the industry will be at just 40% of pre-pandemic levels (blue line) by the end of the year. Many other industries are making similar downward adjustments to their outlook. How this will affect legal spend Corporate clients represent over 80% of all legal spend, the remainder being government related and private individuals. So if businesses are facing strong headwind, how will this influence their legal budget? I have had several one-to-one conversations with General Counsel over the past three weeks and the pattern seems to be fairly consistent: companies are in full cost-saving mode. On average companies spend 0.5% of total revenue on legal (looking at it from the cost perspective: large companies spend typically <2% of their total cost on legal). Even though legal does not count for much of the cost (and potential savings), GC’s tell me that they have to contribute like all other departments and potentially even a bit more. None of the GC’s I spoke was happy about this at the time. It is fair to assume that legal budgets will go down. Certain things will be postponed or not done at all (the nice to have) for other mandates there will be an increased pressure on price and a tendency to ‘push work down’ to less expensive law firms in a lower tier or to an Alternative Legal Service Provider. What impact does this have on law firm revenue? There is no escaping, law firm clients will start scrutinizing their budgets. Most law firms that operate in the upper segment of the legal market sailed pretty smooth through the first few months of the crisis, reporting equal or better numbers compared to 2019 (which for most has been one of the best years in recent history). This may, after an initial shock, have created some misguided sense of optimism. Most law firms who initially cut partner payments had reinstalled them by start of summer. There seems to be cautious optimism in the business of law. In the weeks and months to come, darkness will descend upon us. The economic outlook is grim and legal budgets are under pressure. The impact will be felt differently across different legal markets. In western-Europe national legal markets are small as compared to the US or China. Needing a minimum of 3-5 high-end law firms in a smaller market, the tier-1 law firms have to rely for a large part of their revenue on bread-and-butter type of work. There simply is not that much strategic work around. This is exactly where the problems will soon arise. As illustrated in the TGO Value Matrix© strategic matters and bread-and-butter matters each have completely different pricing dynamics. Even through times of severe economic crisis corporate clients are prepared to spend on lawyers that can have a significant positive impact on their bottom-line. Lawyers that contribute to the business opportunity will not face pressure on price. On the contrary, in bet-the-farm situations money will be no consideration. It is results that count. How different it is, as it comes to the bread-and-butter matters that count for about 60% of western-European tier-1 law firm revenue. These are the matters for which high-end law firms are overqualified. This type of matters could equally well be dealt with by mid-tier firms that are far less expensive. Which is great news for mid-tier firms but not so great for the tier-1. If a tier-1 law firm would lose 10% of the bread-and-butter work (either in volume or in revenue after discounts), this would cause revenue to drop by about 5% and, everything else equal, reduce profit by 12,5%. That’s something to think about when drafting the 2021 budget and strategy. Fortunately there are a number of strategies to mitigate these effects. We are happy to discuss.

On 10 September, Thursday last week, at 8:15pm (CET) my inbox bleeped with breaking news: “Elite Wall Street Firm Davis Polk Moves to Modified Lockstep Pay”. Within hours I got a request from a Law360 reporter to comment on Davis Polk’s announcement. (you can find the subsequent article here). It is quite surprising how much media frenzy emerged from such a simple message. Some commentators even went as far as declaring the ‘Lockstep model’ dead. For me, I certainly am not one of them. Basically there are two main systems for profit distribution among law firms. One is merit based and thus a partner’s profit share is closely tied to that partner’s individual commercial performance. The other system is based on seniority. The best known example of the latter is the so called ‘Lockstep’ system where partners progress over several years on a ladder with the profit share increasing by a fixed percentage at each step. Both principal profit distribution models have their own distinct advantages and disadvantages. The merit based model allows for much more spread between the best performing partner an the one at the bottom. Commercial success is immediately rewarded and star partners remain happy. One of the principal disadvantages of a merit based system is that cooperation between partners does not come naturally. That is why most ‘eat what you kill’ law firms have adopted complex ‘origination credits’ systems that create a direct financial incentive for partners to cooperate. Since a merit based systems allows for a much wider bandwidth, it also allows for much greater variation in quality and reputation between partners and practices. So if ‘eat what you kill’ is not the holy grail, perhaps the ‘lockstep’ is? One clear advantage of the seniority based model is that there is no need to introduce complex financial incentives to have partners cooperate on matters and clients. Since personal performance is not determining an individual partner’s profit share, there is no hurdle to work on another partner’s matter. Typically in a ‘lockstep’ model there is more pressure on all partners meeting the same quality standards both legally and commercially. That is one of the reasons that traditionally the elite firms have (had) a lockstep model. So why did Davis Polk break rank? Money, money, money (Abba) The business of law is first and foremost peoples’ business. Being an outstanding lawyer is less about technical academic skills, than it is about human skills. This is different from other academic professions such as in mathematics, physics and chemistry, where technical skills are far more important than personal skills. Being a lawyer is not so much about excellent knowledge of the law, but about strategy, negotiation skills, empathy, creativity and more. For many areas of specialization a lawyer's knowledge of ‘best market practice’ is more valuable than detailed knowledge of the law. Not every lawyer, regardless how smart, has the talent to become a legal superstar. The qualities needed are quite rare. The legal world is not unlike the world of professional sports, where the team that manages to sign-on the best talent will likely become the winning team. Just look at how much some professional athletes make to understand the monetary value of extraordinary talent. Law firms have since long recognized this and there is a lively transfer market for lawyers. Just among the 200 largest law firms in the US, more than 3000 partners swap firm every year. Like in sports, talent is lured with vast sums of money to join another firm. Changing the compensations system to allow for disproportional rewards for the legal ‘superstars’ is often seen as a remedy against partners leaving or a prerequisite for persuading stars to join. These days there is a lively market and professional brokers are making a lot of money. Guess what: it is not about the money We have done detailed research and found that ‘making more money’ is rarely the prime driver for a partner to decide to join a new firm. Data shows that partners only start to be open to exploring a potential switch once they have started to lose faith in the strategy of their present firm or when they are experiencing personal issues with other partners. Lateral movers typically ‘move away from’ rather than ‘being attracted to’ (except in those rare instances when someone is offered the opportunity to move several tiers up and become partner at a firm that has much more prestige in the market). If this is the case, where does the profit distribution system come into play? Before we dive into this, it is worth highlighting that two-thirds of all lateral partner moves ends in disappointment within two years. Disappointment either for the firm if the new partner fails to live up to the promise and/or for the partner who feels lonely and frustrated. In the premier league of law, partners make a lot of money. Enough to own a second home with a heated pool. Earning more money on such levels does not have much added value. Looking at the table below*, you can see that there are only five firms that reportedly have a higher PEP than Davis Polk. Three of those are more or less in the same bracket and only Wachtell and Kirkland make over 10% more and my guess would be that this is exactly where the pain originated. Typically Davis Polk partners would consider Kirkland partners to be their peers and equal. PEP is seen as a yard-stick to measure against (a ‘pissing contest’). The thought of someone just as good as yourself to earn ‘considerably’ more can become unbearable and will invoke criticism on the management of the firm. This in turn can lead to dissatisfaction with the management and the strategy, leading to top-performers opening up to opportunities outside the firm (out of the top-6 Davis Polk also has the lower profit margin, which could corroborate any internal criticism; if Davis Polk would have had a 56% profit margin, their PEP would have been $5,054,000 and thus almost the same as Kirkland's) Parting shot As it comes to vulnerability against predators, do not solely focus on your partners. Take a close look at the most talented of the generation below. You might not want to lose today’s partner, you most certainly do not want to lose tomorrow's partner either. Cherish the talent, keep your talented associates happy. Both financially, development wise and future career path. More on this in a future article. Update 16-09-2020: since publishing this article, Davis Polk and Milbank have announced their associates will receive a “special one-time bonus” ranging from $7.500 to $40.000, to be paid out by next month. Milbank is also giving top performers an additional bonus that is equal to 50% of their respective class bonus. *source AML-all rights reserved

When back in March the pandemic hit and governments across the world imposed lockdowns or work from home orders, many law firms quickly announced austerity measures, and braced for the impact to come. To everyone’s surprise that impact did not come and many law firms booked similar or better results compared to the same period the year before. The reasons behind this are mixed. Associates working from home made on average more billable hours. This was in part caused by having fewer distractions and in part by the fear of being made redundant. Secondly the share of partner hours increased, which drove up the average rate. Thirdly in March there was still an existing portfolio of ongoing matters and new matters in the pipeline. On top of that came a flurry of Covid-19 related questions and matters. In short: without too much business development effort, law firms managed to perform well during the past 6 months. Menacing clouds ahead There once was a time when lawyers were not allowed to solicit for work and just had to wait until a client came with a new matter. These days are well behind us, but still developing new business feels weird and uncomfortable to many lawyers. Today many law firm partners have ‘inherited’ at least part of their practice from a partner that retired. This especially true for the baby boomer generation. As is comes to practice development there is a distinction to be made between the older established partners and the young and coming partners. The established partners have built their practice on the partners before them, have a large network and a recognized reputation in the market. An ALM analysis in 2018 found that about half of all partners in the 200 largest law firms in the US came from this category. So what about the other half? Building a book of business is much harder these days as every young partner can confirm. The baby boomers tend to hold on to power and are far less generous in sharing and/or transferring their clients and introducing young partners into the relationship. Having to start from scratch is hard in normal times, it becomes even harder in times of recession. As the pipeline of work is slowly drying up, and clients get more cautious in hiring lawyers, the younger partners are starting to feel the pressure. What we normally did In order to build a practice, potential clients at a basic level need to know that you are there. Being a partner in a reputable law firm helps, as there will be an existing network and quality reputation, but it is not enough. Young partners must build a network of their own. This involves attending networking events, business lunches and personal introductions. None of which are realistic options right now. Worldwide all but a few in-person networking events have been cancelled. There will be no conferences and no client entertainment. During the past six months we have tried to replace these by webinars, but despite the initial enthusiasm the general conclusion is that clients are now tired of webinars and do not want more. So how to build a book of business if there are no in-person events and virtual substitutes are not the answer? This is the million dollar question for lawyers. In the first few weeks after the summer holidays many law firms have held internal meetings on how to organize their business development and marketing over the months/year to come. No need explaining that these will be tough meetings as partners do not like business development in normal times, let alone that they will have a myriad of innovative ideas to adapt to the extraordinary times. Opportunities, opportunities! There is comfort in knowing that also your competitors are struggling to come up with innovative and effective methods of business development in times of pandemic. It reminds me of the classic joke from Billy Connolly about the two camera men filming a lion. The lion sees the two camera men and proceeds to chase after them. One camera man stops and puts on a pair of running shoes. His colleague tells him “You will never outrun the lion in those”. He replied, “I don’t need to outrun the lion, I just need to outrun you!!”. In a situation where everyone is on the brink of panic and clients are pushing the reset button, you just need to be a tiny bit smarter than your competitor to be much more successful. The current crisis creates great opportunities for those lawyers and law firms that succeed best in engaging with clients and attracting new business. It does not matter so much who was stronger in the past, as it is about who will be smarter in the future. At TGO Consulting, innovation is our hallmark. If anything, we have the ability to come up with new, effective and innovative solutions. We understand the business of law, like few others. If you are looking for inspiration and new business development ideas, contact us right now. On this aspect we can only accept one client in a certain market, so be quick.

The previous post got published just before the start of the summer holiday season. At that point in time across Europe the most stringent limitations on movement and freedom had been lifted. Most of us were feeling fatigued and in need of an opportunity to unwind. Perhaps things would return to normal during summer. Now September has arrived, we know these hopes are dashed. The virus did not take a brake and flared up in most countries. For the foreseeable future we will have to adjust to a new normal, which differs from the normal that used to be. By now the insight has grown that we cannot infinitely hide from the virus. There cannot be zero risk, unless we all stay at home and avoid all in-person contact with other individuals. That would destroy our mental health and destroy our economy. We are social creatures. In order to function and to flourish, humans need to interact. Throughout the centuries hermits have contributed little or nothing to any form of progress. In prisons, solitary confinement is used as a punishment for convicts that misbehave. Ideas and inspiration are born out of interactions. A sense of belonging, relationship, trust and corporate culture can also only be created through human-to-human encounters and interaction. This cannot be replaced by Zoom or Teams. The other day I had a conversation with the CG of a large multi-national. Even though the legal team has always been spread over different locations and time zones, he told me that everyone working from home over the past 5 months has hampered the performance and effectiveness of Legal. Files and assignment could perfectly be handled while working from home. It was the lack of random encounters and watercooler/coffee machine moments that did the harm. “You know Jaap, we used to get much of our business out of accidental encounters: “now that I see you, could you help me with this or that”. Now we don’t have those anymore and we don’t get involved so much, or only when it is too late”. Also in law firms people need face-to-face interaction. Young and inexperienced lawyers are increasingly struggling. They need guidance and mentorship to grow and develop. The barriers to ask for advice or discuss a matter are very low in an office environment. One can instantly gauge if someone is behind his/her desk and approachable or engaged. This becomes less spontaneous when remote. In order to thrive we must get back to the office. In order to grow our practice we need in-person meetings with clients and prospects. Safety first, but not zero risk In the 1980-ties Aids emerged as an incurable deadly disease that spread like wildfire among gay communities across the world. At first the general public was terrified and did not want to shake hands or be in the same room with and Aids patient. When it became clear that Aids was not limited to homosexuals, for a moment it looked like no-one would ever have sex again. Today, there still is no vaccine to protect from the HIV virus and since the start of the epidemic, an estimated 74.9 million people have become infected with HIV and 32 million people have died of AIDS-related illnesses. As recent as 2018, 770,000 people still died of AIDS. Despite these grueling numbers, we have managed to establish a new normal and continue -cautiously- with our (sex)lives. Now with the Covid-19 we will have to do the same. We have to establish a new normal and find a way to continue with our lives while mitigating most of the risk. By now it has been established that the SARS-CoV-2 virus spreads through droplets and aerosols expelled predominantly through the respiratory system (and to some extend through stool) of an infected person. Social distancing is effective and very good ventilation indoors will further reduce the risks. Under the right conditions the risk of bringing people back to the office will be outweighed by damage done by everyone working from home. We at TGO Consulting have by now gathered a lot of best practices and creative solutions on how law firms can safely return to the office. Please do not hesitate to inquire. A new normal requires a new strategy As said before. We simply cannot hide inside forever to avoid any potential danger. We have to ask ourselves the question what sort of life that we want to live and what risks we are willing to accept for ourselves and for others in order to do so. With Covid-19 we have to find a new normal and have to accept that this will be different from the normal we were used to before. As we managed to get to grips with HIV, we have to get to grips with Sars-CoV-2 (and its successors) Even as we find a way for life to continue, things will not be the same. Unprecedented harm has been inflicted on every economy around the world. For some sectors it will be very hard, if not impossible, to adapt and in those sectors many companies will go out of business, while in other areas new opportunities will be created. For law firms this is the time to adapt and redefine the strategy. The past few months have taught us a number of things about the way we work, our support staff, office space, technology, internal organization and communication, our finances and profit distribution, just to name a few. We need to incorporate what we have learned. The new normal will also change the way in which we interact with clients, prospects and talent recruitment. Webinars have worked remarkably well, but everyone is tired of them now. Law firms will need to invent new ways to engage with clients and students. For many companies that are the clients of law firms, because of the economic situation, the priorities have changed. This will create pressure on price in certain areas. Law firms need to be aware which areas these will be and how this will spread through their client portfolio in order to effectively mitigate the negative impact on revenue and future profitability. It might also be wise to prepare for a flood of pitches and panel reviews. These are just some selected highlights of topics that need to be re-addressed by law firms right now. You might want to incorporate most of the new strategy when drafting the budget for 2021. We at TGO Consulting have all the expertise you need to successfully navigate these challenging times. Please inquire how we could help your firm to make the best of it. Did you know our latest book 'A New Dawn' is now available on Amazon. You can order it through amazon.de or your own national Amazon site.

Remember six months ago, when all of us celebrated the start of a new decade? Traditional media and social media were sprawling with articles and posts highlighting all the nice and inspiring things that lay ahead. The economy was in great shape and things were looking rosy. As late as 24 January 2020 (a day after Wuhan went into lockdown) the International Monetary Fund predicted in 2020 the world economy would strengthen and global growth would accelerate to 3.3%, up from 2.9% in the year before. Today, six months down the line, January seems like ages ago and earlier this week the IMF has again published their forecast. This time the global economy will contract by 3% this year. That is an unprecedented change in the outlook by minus 6,3% from January. A lot has happened since we cheerfully and full of optimism celebrated the new decade. Whereas January may seem like another era, we all distinctly remember March, as this was for most of us the month in which collectively our dreams got shattered. None of us could have ever imagined that we would be deprived of some of our most fundamental civil rights. We were placed under ‘house arrest’, were not allowed to meet with friends and relatives, shops and restaurants and businesses were closed, as where borders. The world suddenly did not look rosy, but dark and grim. Despite the traumatic life changing nature of the events, most of us have coped really well. I have been impressed by the speed and effectiveness how many businesses shifted from office work to home work in just one-week time. The legal world no exception. For some weeks within law firms the mood has remained good and action oriented. Uncountable webinars and news letters have been produced to inform clients. Virtual Friday afternoon drinks were organized to keep the mood. Now people are fatigued Tomorrow is solstice, the day on which we have the longest day of the year. In some countries this event kicks-off the Summer holiday season. Seems like a good moment to take stock and establish where we are today. As of this week most borders in Europe have reopened and in many countries the lockdowns have ended. After three months many seem desperate to return to normal. Unfortunately the Coronavirus does not take a Summer break and it’s still out there as it was before. People are fatigued. Three months of being on high alert are taking their toll. Working from home lawyers have been very productive. The line between work and private life has gradually blurred and many have put in more work hours than before. Fewer people have reported sick. Normally if you didn’t feel well, you stayed at home until you felt better. Now that we are at home anyway, why not do a bit of work? As there was no place to go, also fewer holidays have been taken over the past three months as compared to any other year. As a result for most law firms production went up and many have not experienced the feared drop in billable hours. Whether all these hours will actually result in fees-collected remains to be seen. Will we have a V-shaped recovery? The past three months have been pretty rough on the economy. Placing two-thirds of the world population in some sort of lockdown has been an unprecedented and dangerous economic experiment. Governments have pledged trillions to help businesses survive. No-one knows for sure if this is going to work. Much will depend on how the virus continues to spread and the government measures to contain it. From a rational point of view there seems no reason to be cheerful. Hence the pessimistic outlook from the IMF this week. Various governments and financial institutions have similar projections: economies are going to shrink more than they have ever done since WW2. There is no agreement on whether there will be a V-shaped recovery, U-shaped, W-shaped (in case of a second wave of the virus) or even L-shaped. As said, closing down the global economy, is a dangerous experiment. There is no past data that we can use to help predict how things are going to develop. One thing we have already seen is that it is highly unlikely that developments will follow a rational pattern. Most short term forecast have turned out to be wrong. Employment in the US is recovering much faster than anyone had anticipated. Travel organizations are reporting an unexpected surge in demand for Summer holiday destinations and accommodations. The coronavirus hasn’t gone away; so why are people acting as if it has? We should not underestimate how much people have been worn-out by the stress and the restrictions of the past three months. People want to return to normal; they want their lives back. Niels Bohr once famously said: “Prediction is very difficult, especially if it's about the future.” The truth is that nobody knows what to expect. We are now in some sort of interbellum: the state of active alert has ended. Businesses have started to reopen as have parliaments. Lawyers have -in part- returned to the office. We are all looking forward to the Summer Holiday. All Corona and crisis response related topics have become sort of irrelevant, but it is still not business as usual. To be honest, we do not know what to expect. Most of our clients have done well during the past three months. More or less on par with same period 2019. Now that we are in the quiet of the storm, law firms are bracing for what might or might not lay ahead. Will there be an increase or decrease in demand for legal services? Your guess is as good as mine. One thing is however clear: we are not out of the woods yet. There might be a vaccine and/or cure for Covid-19 in a year’s time. It is highly questionable if there will equally be a quick cure for the economy. This will mean that law firms will have to adapt their business model to a new reality. This is our last weekly article before the summer. Right now you do not need corona-crisis related information anymore, but you are also not quite ready for ‘business as usual’. Let’s use the Summer to gauge how things are developing and to establish a new baseline. We will be back with fresh articles Friday 4 September latest, but earlier if needed.

Because of the pandemic most universities had to close their campus and move to online education. In countries where getting an education is expensive, this has already led to numerous court cases of students demanding a refund. Even the most prestigious universities such as Harvard and Yale have serious challenges to meet students’ quality expectations. All this may be bad enough as it is for existing students, for those who were to graduate the situation is even more disheartening. Some final exams have been cancelled or postponed. Schools around the world have postponed their graduation ceremonies, moved them online, or canceled them outright. You may have seen pictures or video footage of ‘virtual graduations’ where robots acted as stand-ins for teachers and students. It is not a happy time to graduate right now. It is also not a happy time to enter the job market. The legal market no exception. Uncertain how the future will develop many law firms have installed a hiring freeze. Also many summer intern programs got cancelled, leaving graduates and students wondering about their future. I can only hope that you see this is a great waste of talent. The legal profession is people business first Not recruiting during the pandemic could be wasting a great opportunity. In any other year law firms have to spend sizable budgets to attract the most talented law students. Today, with most firms having a hiring freeze, there are great opportunities for those who are bold enough to hire. At TGO Consulting we have developed an innovative recruitment tool for law firms that can be employed remotely and that have proven to be highly successful. Students love it. Employed in practice our recruitment tool has also showed to open a door to more cognitive diversity as they seem to attract a wider spectrum of students than the usual recruitment methods do. This not only creates interesting group dynamics, bust also further widens the potential talent pool. Despite all the excitement about the future of Legal Tech, being a great lawyer remains very much a human thing. Law firms are only as good as the lawyers they employ. The business of law is peoples business. That is also one of the reasons why some clients prefer to follow a lawyer when that lawyer moves to another firm. Law firms very much need human talent more than anything else. The Creation-Production Divide Concept© Pre-pandemic, most law firms have used legal cases as part of their recruitment process. The tier-1 law firms focus on straight-A students as they are looking for the most brilliant legal minds. The evidence however strongly points towards the opposite: Academic excellence is not a strong predictor. Across industries, research shows that the correlation between grades and job performance is modest in the first year after college and trivial after year-one. If we ask companies for the reason why they select a more expensive tier-1 law firm over a mid-market firm, legal excellence does not make it into the top-3. Invariably knowledge of best market practice and people skills come out on top. For your clients legal knowledge is not a differentiator. Also mid-market law firms will have sufficient legal knowledge to get the job done. Clients just do not consider their strategic insights, negotiations skills, creativity and so on the be on par with the best. Back in 2018 we at TGO Consulting were first in describing the Creation-Production Divide Concept©. Studying tons of data and interviewing real-world companies, we concluded that the actions of a lawyer can be split up in two distinct parts: creation and production. Creation is the part that is completely connected with the human skills that make a great lawyer. It encompasses defining a smart strategy, the ability to find workable solutions, creativity, pragmatism, negotiation skills, and so on. Typically ‘creation skills’ are strongly reflected in positive quotes from clients in legal directories such as Chambers and Legal500. For your clients the value is in creation. As creation is about the brilliant mind and personal skills, production is about a process. Production encompasses everything that needs to be done to materialize the fruits of creation. Production is execution. It is typically labor-intensive work such as drafting and reviewing documents. This is legal technical and operational execution. On this level there is very little distinction between a first-tier law firm and a second tier or mid tear law firm. All lawyers with decent qualifications can get the execution right once the strategy is set. For your clients there is very little value in production. You should be looking for a new breed of lawyers For law firms operating in the upper segment of the market, the justification of the higher price is in the extraordinary human skills, which are part of creation. Production -execution- is not significantly better to justify the mark-up in price. Clients do not turn to premier law firms because of their great knowledge of the law. Clients are looking for the best possible ‘creation’. So if the value is in human skills, why are you still looking for straight-A students? We have already established that top grades are not a predictor of success and now we also know that it is not knowledge of the law that brings you the best clients. We strongly believe that law firms in our segment of the market (high-end) should prioritize human skills over technical legal knowledge. This will require a revamp of the recruitment process. Less focus on students that have the highest grades, more focus on students that are smart, creative, curious and emotionally intelligent. It will also mean that there needs to be less emphasis on solving legal cases and more on teamwork, curiosity and legal creativity. As mentioned, we at TGO Consulting have developed a unique tool that can be used with students in times of social distancing. The tool focuses on the aspects mentioned above. The feedback we got so far has been tremendous: students love it! It opens their eyes to what working as a lawyer could be. If you are interested to learn how this tool could be used in your firm, please drop us an email. There is so much talent out there, that it would be an enormous waist of opportunity not to act right now. Be bold, be courageous and start hiring talent again.

Having a global client base, for us at TGO Consulting it is important to constantly read-up on the situation in different markets and industries across the world. We absorb massive amounts of economic news on a daily basis. It will be no surprise that across the different economies and business sectors, the outlook is not particularly rosy. Many companies, big and small, face unprecedented challenges to survive. We at TGO Consulting, are working with law firms in the upper segment of the legal market. So far, the vast majority of our clients has been doing quite well. Despite the covid-19 situation over the past three months, revenue and profitability are mostly still in good shape. But it will hardly come as a surprise that the outlook on the months to come is still very cautious. The million-dollar question is: how to navigate the future? In last week’s article, we explained why we expect huge pressure on price in certain segments of the legal market and substantial less in others. For those of you who haven’t read that article, I suggest do so now, as it will help you better understand the context of today’s article. Understanding how partners are incentivized Law firms are like an archipelago: referred to as a group, but consisting of multiple individual islands of which some are interconnected by bridges, others by ferry and some only by boat. From the outside law firms may appear to be strong impenetrable institutions, but behind the scenes they are made of individual practices, some of which cooperate better than others. Many law firms are a 'firm' in name mostly. Behind the walls partners are competing with each other over issues as mundane as ‘who owns the client’. Clients are often not aware of this and go through great lengths to appoint the best firm in the panel. Pricing arrangements are typically made with the firm and also engagement letters are typically signed on behalf of the firm. The reality is however that almost invariably there is only one partner who acts as a liaison between the client and the firm. Law firms are composed of a fabric of individual practices. Some fabrics are very tight, others are loosely knitted. Much will depend on the way in which the profit is distributed among the partners. In general, the more strictly merit based profit distribution is, the more loose becomes the fabric. Some firms even have had to adopt a system of ‘origination credits’ in order to stimulate sharing clients between partners. Despite the fact that many firms seem perfectly happy with such systems, I would argue that this is actually a practice that you probably should avoid. (read this article on origination credits) Don’t get me wrong. I am not at all claiming that a lockstep profit sharing model is better than a merit-based model. Also the lockstep model puts a lot of pressure on individual partners to meet certain performance criteria. Sometimes even more so than a merit-based system would, since equal sharing is based on the assumption of equal contribution, something a merit-based system does not care about. The point is that almost all law firms have explicit or implicit incentives for partners to focus primarily on growing their personal practice before growing the firm. Being under permanent pressure to perform, partners prioritize their personal turnover. Working in silos does not help Today many lawyers in the upper segment of the market have become highly specialized. Having narrow but deep specializations is typically seen as a must. Only the top-firms would have experts on niche areas, having deep technical legal expertise and a wealth of knowledge of best-market-practice in this one area. Having these specialists will have great value to certain clients who come with very specific questions. The thing with specialization is however that the more you focus on one area, the less interested you become in other areas. More often than not, experts in a certain field are not at all interested in what happens outside their direct scope. The higher the specialization, the lower the connection with other areas (specializations) and the looser the fabric becomes. Maybe it is time to start putting clients first As stated at the top of this article, we at TGO Consulting monitor the state of the economy on a daily basis. We also dedicate a significant portion of our time to speaking with business leaders. What we see and what we hear is that businesses today are facing challenges they have never faced before. Challenges that are closely tied to the future and very existence of the company. What once would be classified as ‘bet the farm’ will be ‘save the farm’ today. Confronted with today’s reality amidst a limping economy and an uncertain future, business leaders are searching to find the right direction. Faced with clients who have to rebuild their business model (aviation industry, automotive, retail, restaurants, entertainment, just to name a few), lawyers have to adapt their service delivery. The most fundamental issues clients are having right now, go well beyond what any individual partner could solve. Many topics will also go beyond the limits of the traditional legal areas of specialization. This is the time for lawyers to truly start putting their clients’ interest first. That means before their personal interests. To be honest, it would be a bit unproductive, to say the least, to continue having internal discussions on who has what revenue on his/her name, while outside clients are going out of business. This is the time to finally put all your internal differences and interests aside and grant your clients access to the full power of your firm. Not while claiming origination credits, not while making sure the file will be on your name, not by thinking that you as a partner need to have an answer to every question and will be perceived as being weak if you would ask advise from your fellow partners. This is the time to start putting ‘swarm intelligence’ into practice. You will be amazed what can be achieved if you mobilize the collective experience, market intelligence and creativity of your firm. Law firms that succeed in having partners cooperate on creating value to clients, will likely have a larger slice of the type of work that has low pressure on price. Law firms that cling on to the traditional individual approach will increasing struggle to keep their rates and profitability. So maybe cooperating will even be in your personal interest after all.