The Bitter Pill Of Competition Within Large Law Firms – Rimon’s Law360 Article

On October 19, 2015 the following article written by Rimon’s Michael Moradzadeh and Buz Barclay was published in Law 360. You can also see the article on the Law 360 site here.

Earlier this year an International Trade Commission Law Judge found that Dacheng Dentons, a 6,000 + lawyer enterprise structured as a Swiss verein, holds itself out in its marketing to be a single, global law firm.

Well, of course it does. Convincing clients, and lawyer recruits, that you are a huge law firm is pretty much the whole point of being huge. In pursuit of the largest companies with the largest, highest value engagements, and in pursuit of ambitious legal talent, size matters. The vereins are hugely successful at it so far, but they are hardly unique in seeking hugeness recognition.

The corollary claim of the large law firms is typically that their hundreds or thousands of attorneys in dozens of practice areas and many, many offices, work seamlessly together to produce the best outcome for the client. This is where we have to throw a flag. We would contend that competition among attorneys within the firm is inherently more intense and more frequently encountered in larger law firms that maintain traditional governance and compensation structures, including without limitation the vereins. When it does occur, the negative impacts of this kind of competition do a disservice to many of a law firm’s attorneys and clients.

Competition among law firms for business generates pressures that can produce ethical conflicts of interest. Although these actual and potential ethical conflicts may sometimes require judicial definition, as in the case with which Dentons recently struggled, they are confronted squarely and dealt with rigorously by ethical law firms of all sizes and structures.

Resolving them appropriately is a point of honor, the integrity of which is inherently respected by the firm’s attorneys, and, if sometimes grudgingly, by their clients. And the adverse consequences of this necessary triage are accepted by the attorneys who lose business opportunities or have their compensation adversely affected, as a result.

Competition among partners and other lawyers within law firms, however, is rarely spoken of, let alone written about. It is unseemly; anti-partnerly. This is, after all, a “partnership.” Clients are not to hear about it. It is inconsistent with the firm’s messaging about “seamless collaboration” of lawyers across practice groups and offices. Complaining about it, whether internally or externally, would likely be ascribed to weakness in the complainer, and could invite criticism, or worse.

But of course, damaging internal competition exists in real law firms of all sizes. It is not merely a feature of television law firms, however exaggeratedly it may be caricatured there. For some law firm lawyers – in particular those who are inclined to devote effort and time and resources into building new clientele and business – it may manifest in a frustrating and sometimes painful “business conflict.” This is where a lawyer is prevented from opening an engagement even though no ethical conflict would arise from accepting it, but it would, or potentially could, cause a relationship problem or embarrassment for another, more senior, powerful, or favored, lawyer or practice group.

This is not a problem that is felt by the majority of law firm partners or counsel. But for some great lawyers, and especially for the 15% or so who are most actively working to develop new business, the business conflict and other instances of internal competition can be a bitter pill.

These include the entrepreneurially-motivated lawyer, home grown or lateral, who is investing in building a clientele rather than remaining dependent upon a practice group leader to allocate work and client  responsibility, or take it away. Also affected are seasoned partners or counsel investing in re-orienting a practice after a change in law has affected it, or in re-building after losing a major client. Business conflicts and other forms of internal competition with more senior or more favored partners can keep those lawyers from bringing in, or keeping, clients and work that could be transformational for the lawyer, for the client, and for the law firm. That kind of thing does not have to happen very often, for a lawyer to lose that loving feeling.

Everyone understands the strategic decisions that firms make when they intentionally limit their investment in certain kinds of practices in order to avoid ethical conflicts or business conflicts with the kinds of work and clients they most covet. These strategic limitations are purposefully disclosed to and generally recognized by clients and lateral recruits before they ever come to the firm. The kind of internal competition we are talking about, however, is not strategic. It is personal, and competitive, and inherently unfair, and it undermines teamwork as well as trust in the firm’s compensation system. It can be a major professional setback when the partner loses the opportunity to gain experience that might have been leveraged to a broader market. And it is embarrassing and difficult to explain to an erstwhile client why the engagement was refused, without revealing firm confidences.

Internal competition in law firms can take several forms. As economic pressure continues to make the equity pies smaller, we hear more often, for instance, of senior partners and practice group leaders “stepping in” to matters originated by younger partners. That is not “eat what you kill,” which is a legitimate value proposition when the firm’s governance and compensation is built around it. It is eat what you can steal, and it is corrupt.

Another of the most common manifestations of internal competition is at least as frustrating for the business developing lawyer as would be a negative decision or pocket veto from the “Business Acceptance Committee” on account of a business conflict. Before the originator can even get to that committee, the conflicts database must be checked for actual and potential ethical conflicts of interest that could arise from accepting the engagement. In a large law firm, the potential hits to be resolved by the conflicts database can be overwhelming, but not simply because of their number. The insidious problem is that unless the originator / requester is a powerful senior partner, other lawyers who get emails or calls asking them to help resolve or clear potential ethical conflicts are not required, let alone motivated, (except by whatever moral compass they may possess), to respond quickly, constructively, or at all. Accountability for failure to do so is imperceptible. Other partners can take weeks to respond to the conflict clearance request – there are always plausible excuses in a busy lawyer’s life – by which time the putative client has moved on to another firm. It happens. Though we suppose that in most cases the reason for excessive conflicts response latency is not malicious, it is absolutely demoralizing and subversive when it occurs. And it happens a lot.

We think it should be obvious that firm management should not logically condone the rejection of business on account of ad hoc business conflicts, gaming the conflicts clearance system or other internally competitive acts, let alone overtly adopt such practices as policy. It is pretty evident to us, however, that competitive subversion of business-developing partners and counsel generally increases with increases in the size of the law firm. Can the vereins credibly claim to be immune to it on account of the “independence” of their member firms? We are not privy to the nuances of firm administration at the juggernauts, but count us as skeptical.

This all negatively impacts the firm’s clients and prospective clients, of course. Due to any number of politically or economically competitive impediments, a client’s relationship partner may simply not be able to reach across practice groups or offices to deliver a particular lawyer with special knowledge or capabilities that would clearly improve the client’s service. General Counsel have told us how frustrated they have been with the giant law firm they engaged for its array of talent when they want to speak with a specific expert whom they have identified in the firm, and, inexplicably, their relationship partner cannot deliver that person. Finally, a prospective client waiting for six weeks for its preferred law firm to decide whether to accept its engagement is not appropriately served, even if no canons of ethics are implicated by the delay or even by the refusal of service.

These are business problems the career-limiting impacts of which most often affect lawyers who want to build, or re-build, their business within the framework of a large law firm.

Probably predictably, these firms are discovering that these expensively trained, highly valuable partners and counsel are becoming frustrated enough to leave. It is one thing for a business building partner to “take one for the team,” in order to appropriately resolve an actual or potential ethical conflict. When internal competition proliferates, however, it is not about the team at all.

Professionals vote with their feet when they believe that they have not been given the means to succeed, that they are not appropriately compensated, or that they have been disrespected.

Internal competition feeds all three disappointments. A cost of the hugeness that brings in business is that it makes the problem of internal competition worse for the firm’s business developers. This irony is not lost on them, and by their nature, they look for and act on alternatives.

Access the original article here

Rimon’s Managing Partner Bernays T. (Buz) Barclay has practiced in several large and small law firms, and has been a partner of five. He can be reached at buz.barclay@rimonlaw.com

Michael Moradzadeh is a founding partner and CEO of Rimon, and represents technology companies in corporate and securities transactions. He has presented on innovations in law firm management and business models at Harvard Law School, Stanford Law School, UC Berkeley Law School and UC Hastings College of the Law. His innovations with Rimon have received awards from the Financial Times and the American Bar Association Journal and have appeared in a variety of international publications, including the Economist, the American Lawyer Magazine and the National Law Journal. Mr. Moradzadeh can be reached at     Michael.morad@rimonlaw.com