What Can Professional Firms Learn From Corporates?
Like their corporate counterparts, professional firms must inevitably refresh their senior leadership teams from time to time. A recent piece of research, published in Harvard Business Review, indicates that only 54% of corporate Boards are grooming a specific CEO successor and that 39% of them have no viable internal candidate. The same piece also indicates that the consequence of such poor planning and preparation can be significant, with an average loss of value for shareholders of around $1.8 billion.
In the corporate world, the tenure of CEOs is typically indeterminate, although conventional wisdom has it that it is becoming shorter on average. In professional firms, tenure of Managing Partners is often limited, in Presidential style, to two terms of three or four years. In some cases successful Managing Partners are encouraged to stay on beyond their allotted term.
Lack of succession planning
In both the corporate and professional worlds, however, it appears that insufficient attention is paid to selecting and preparing successors. That is true not only of CEOs and Managing Partners but also for less senior roles.
Professional firms often operate under an additional disadvantage in that few of their professional staff (let alone Partners) may have any great desire to become managers or leaders. Most would far prefer simply to get on with developing their practice.
Those firms that focus on succession planning and do it effectively typically deliver superior performance, whether they are corporates or professional firms. One of the most important success factors is preparing future leaders for their new roles. In the corporate world, those CEOs that have spent time in organisations that are recognised for selecting and developing talent will often deliver better performance (in terms of shareholder value).
External hires (or not…)
In the professions it is relatively less common to look for external hires into leadership roles. One law firm with which we have worked recognised that it might lack suitable internal candidates for Managing Partner. However, the Partners were almost unanimous in saying that they did not wish to bring in an external candidate, even if that person were to be a lawyer.
There is real value in ensuring that potential leaders are identified at an early stage and offered the opportunity to take advantage of a variety of development opportunities. Those may include business school courses or formal degrees such as an MBA (although that is relatively rare in the professions). Opportunities such as training and coaching are more common and can be highly effective.
The key is to flex the nature of development depending on the individual. It is also helpful to develop what is known in the American football world as “bench strength” so that the firm can have a number of leadership candidates from which to select. All of this takes time away from fee earning in the professions. However the benefits can be significant. The result is typically improved performance of the organisation as a whole and a reduction in internal friction.
Other leadership roles
When it comes to the selection of leaders lower down the organisation, the issues are similar. However company Directors and the Boards or equivalent of professional firms often fall short in identifying potential leadership candidates, nurturing them and giving them opportunities to demonstrate their capabilities (or lack of them) in a reasonably safe environment.
One of the issues is that management roles in professional firms can be seen as less valuable than the routine of fee earning. That is reinforced to the extent that professionals are evaluated primarily on the basis of billings. One firm has created four parallel career tracks, one of which is management. (The others are “practicing lawyer”, “technical expert” (in a narrow silo) and “rain-maker”). All four pathways are equally valued and remunerated.
What happens next?
If management is a distraction from fee earning, there is also the question of what a newly-elected Managing Partner will do when he or she comes to the end of their allotted term.
Some may be asked to stay on (and the Partnership Deed may be altered accordingly). Others will be faced with a need to go back to their practice, from which they may have been absent for a number of years. In reality, so long as the Partners accept that a former Managing Partner will need time to rebuild their practice this need not be an issue.
In the corporate world, there is a trend towards external hiring for many upper-middle management to senior level roles. It is often said that the injection of new blood is good for organisational DNA. However, studies indicate that it is in fact the home-grown leaders that tend to be more successful, if any are available. “Home-grown leaders” is one of the factors cited by Jim Collins in his book “Built to Last” as an indicator of organisational longevity.
Relatively few professional firms in the UK select outsiders as their leaders. Where they do so, the results tend to be at one or other end of the spectrum; excellent or terrible. Those that do select outsiders tend to bring in others from the same profession who have demonstrated success elsewhere. Alternatively they may hire someone from a different profession (lawyers may hire an accountant as CEO for example).
In summary, then:
- It pays to identify and develop leadership talent early on in order to build bench strength for the future
- It pays to allow potential leaders opportunities to demonstrate talent (or a lack of it) in a relatively safe environment
- Home grown leaders tend to outperform
- Directors and Partners must pay attention to leadership roles at all levels in the organisation in order to identify and nurture talent. They need to understand both the requirements of the roles and the capabilities of the individual candidates and take objective decisions accordingly
What else can the professions learn from the corporate world? Recent research indicates that younger CEOs tend to outperform. As yet, relatively few professional firms appoint younger Partners to Managing Partner roles and fewer still as Senior Partner. It may therefore pay to look for the future leaders of your firm among the recently promoted Partners rather than those with longer tenure. However preparation of those individuals and effective mentoring will be essential to ensure their success.