Measuring Success in the Corporate and Legal Worlds

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

The answer: retained earnings.

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

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

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

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

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

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

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

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

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

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

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

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


Implementing a Deeper Review Process

I’m sure this will largely fall on deaf ears, but don’t turn solely to HR or management consultants to implement a performance-and-competency-based review system. Include experienced managers — leaders — from the corporate world.

Real manager will tell you how the process really works, and will help you understand what works in the rough-and-tumble of the business world when employees know their future “worth” depends on this review, what doesn’t work, and how to map from consultant simplicity to the messy real world.

When I ran departments in the corporate world, I used to hold an annual optional all-hands meeting for my teams called “How the Review Process Really Works.” It was better attended than many “mandatory” meetings. It took a full hour to work through the ins and outs of this process — not because it was all that complex, though it wasn’t trivial, but because the ramifications were so significant to employees that they wanted to be sure they fully understood it. It is somewhat complicated, to be sure, but it’s also very obvious, common-sense based in most areas. Employees were surprised no one, especially from HR, had ever been that open with them about the process in the past… yet there was absolutely nothing secret about it. Sure, what a given employee earns wasn’t shared, nor were other details about specific employees. But all of the aggregate data, and the way it was used, was public within the company.

Needless to say, I tried to avoid HR-speak when doing these sessions. I was also asked by some of my peers to give the same talk to their teams — not because they didn’t understand it, but because I was pretty good at clarifying all this stuff in plain talk and with a few well thought out examples.

So hire some experienced managers to run you through it if you’re moving in this direction. (I’m not necessarily pitching my own services; I’m no expert at designing these plans, just quite good at describing how they work and don’t work in reality.)

First, these systems do work. (Usually. Mostly.) Second, they’re not hard to get right, but they’re incredibly easy to screw up.

And be totally transparent about everything, including the aggregate numbers. Information abhors a vacuum, as the ATL column suggests; if employees don’t have good information, they’ll make stuff up! When it’s something as important as your future, even the most restrained employees let their worry pull them off into speculation — again as shown in the excerpt-quotes in the ATL column.

(I know there’s nothing about Legal Project Management in this column, but Legal Project Management is a big part of successfully implementing Alternative Fee Arrangements, which depend on being able to measure employees on metrics not involving realized/billed hours.)

1 comment to Measuring Success in the Corporate and Legal Worlds

  • Steven,

    Fully agree. I also had the same experience when I ran a legal dpt.: sessions in which you explain how performance is going to be measured/rewarded align the interest of employees more than other topics. The competencies model (I used the Hays scheme), is not always intuitive or clear enough, and metrics that are company wide do not always sit well with the legal dpt.