External environment of global legal industry

1. External Environment of Global Legal Industry

To analyze Baker & McKenzie organization in order to provide its authorities with specific recommendation for the successful future management of the firm and its employees it is critical to evaluate the principal factors of External Environment of global legal industry that have implications for the management of people and organization. To design an elaborate plan and implement it successfully in the firm it is essential to be aware of the wide business environment in which firm operates and of how this environment is changing over time. PEST analysis is used to access Political, Economic, Social and Technological factors of the Global Legal Industry (see Appendix 1).

In general, the legal market was highly segmented comprising a few prestigious law firms at the top and small practices, consisting sometimes of a single attorney at the bottom. As a result of the globalization pattern a lot of legal firms became more international. While entering new markets and opening offices in new areas such political factor as local licensing laws pushed the firms to employ local lateral hires.

If we have a look at the global legal industry on firm-levels we can state that the structure of an average law firm was common:

In USA and many other legal jurisdictions the system of regulations was quite strict and law firms were not allowed to generate capital though IPO (Initial Public Offering) and the firms’ lawyers were the only ones who could held an ownership stake. This was a way to protect the company in terms of possible conflicts of interests.

By 2004 various industries had to face high turnover trend and legal industry was not an exception. Such social factor as a work-life balance tendency added a new criteria which were critical for potential employees while entering the company. In law firms associates were changing the employers more often than ever before due to various factors the main of which is disaffection of:

• Poor firm’s culture – the main reason resulting into “long work hours, lack of meaningful assignments and unfriendly work environment”.
• Compensation system – as a result of “war for talent” and the practice to attract and retain star attorneys from competing firms (“lateral hires”) there was a high spread between partner and associate rates (sometimes as much as 20:1).
• Promotion system – firm’s expansion strategyaffected the timeline for reaching the status of equity partner which was extended and a second tier of partner termed “junior partner” was addedto prevent the growing number of equity partners. In many firms it was understood that high billables were a requirement for advancement but in reality it did not necessarily encourage efficiency and taking into account the global character of some law firms such practice ran the risk of superseding all other metrics when promotion decisions were being made.

In the recent years the customer’s appetites to the quality of legal services have been changing significantly and the client’s expectations have been rising all over the world. The legal market was saturated with the number of law firms with appropriate professional expertise but only a few of such firms could offer a ”value-added” service.

Thus, to have a competitive advantage in the industry and to make a client happy a law firm had to accelerate its efforts to reduces associates turnover by focusing on corporative culture and soft skills and emotional intelligence development in the organization reviewing the performance management systems, financial patterns as well as each firm is to pay appropriate attention to all aspects of the international character of business and personal development maintaining a good relation with clients to make them satisfied.

2. Internal Environment of Baker & McKenzie

Baker & McKenzie was founded in Chicago in 1949 and from the very beginning has intended to be truly global. By 2004 it was the largest law firm in the world by headcount comprising about 9000 employees spread across 70 offices in 38 countries and being among the industry leaders in revenue.

Regardless of the fact that the firm has a strong position in the legal industry there are some areas alarming that Baker & McKenzie is to review its internal environment particularly focusing on attorney’s retention, motivation and improving company’s culture.

Such concepts as firm’s strategy, structure and culture are to be analyzed.

2.1. Organizational Strategy

For a long period of time the general strategy of Baker & McKenzie was global expansion. Due to the increasing competitiveness in global legal market and bearing in mind the fact that some clients became more oriented on not expensive routing legal needs in the late 1990th the firm felt that some changes were required not to lose competitive advantage. Baker & McKenzie came to conclusion that their initial strategy which included such learning program as professional management education for partners, key-client account program and four-point strategic plan, was not efficient and ambitious enough. Even though the firm did make impressive progress on many fronts a more sophisticated approach was needed to develop further.

By 2004 a new strategy was developed the main objectives of which were as follows:

• To achieve market preeminence by building upon unparalleled international capabilities through: deeper penetration of major clients; growth of core practice areas; greater industry specialization;
• To develop the firm in a systematic way so each office is able to support multinational clients and global strategy and excel and prosper in its local market;
• To align the firms organizational, financial and management structures more effectively with its strategic objectives.

Finally, Baker & McKenzie realized that people were paramount to the firm’s successful future and in this updated strategy the focus was shifted from the expansion to people’s qualities prioritizing the HR management.

To achieve a competitive advantage in the quality of legal services the following combination of HR and competitive strategies (Armstrong, 2000) were followed:

One of the major improvements in HR strategy was the implementation of Associate Training Program (ATP) which allowed the associates to transfer for the period of a year to 18 months among any Baker & McKenzie office in the world. The strategy was a success as it enhanced the lawyer’s experience by exposing them to different jurisdictions, laws and cross-border terms. Also it was a great tool to embed and develop the relationships across the firm.

It is also important to mention the rewarding performance which was used in the firm. For many years Baker & McKenzie used a compensation system of objective nature called “the formula” rewarding the following four criteria:

• “Work Credit” (personal productivity of a partner;
• “Client Credit” (partner’s ability to delegate and supervise work done not by partners);
• “Associate Profit” (work done by non-partners);
• Tenure with the firm (number of years as an equity partner).

As a result of such strategy the partners were not focused on development tasks but principally on generating fees. Such compensation system was suitable in early years when the firm opened its first offices in different countries. However, such formula is not efficient today and Baker & McKenzie was to review it bearing in mind the best interests of the business.

In 2002 the firm adopted new rules that facilitated the evolution to discretionary compensation systems based on more subjective criteria. In spite of the fact that not all partners were satisfied with such method and it was hotly debated before being approved, the key implication of such approach is growing recognition within the firm that changes in the financial structure and compensation system were needed to advance the overall strategy. However, the updated compensation system involving such new subjective elements as development associates and demonstrating leadership used for the evaluation of partners meant that there could be risk for the partner to receive substantially less.

To conclude it is to be emphasized that new strategy requires a well-developed framework for its successful implementation.

2.2. Organizational Structure

As it was mentioned in the previous chapter the principal strategy of Baker & McKenzie for a long time was global expansion with the local lateral hires which were more steeped in techniques and traditions of their region’s law (only few offices were staffed from the main office)3. It resulted to decentralization and spread among continents (see Chart 1).

As per Burns and Stalker (1961) Baker & McKenzie could be defined as an Organic structure rather than Mechanistic and can be characterized by the following:

• High decentralization of authority;
• Tasks loosely defined;
• Horizontal communications;
• Greater individual authority;
• Flexible and adaptable.

Chart 1. Baker & McKenzie organization, 2004

The advantages offered in the decentralization are that it:

• + Increased responsiveness to the local circumstances;
• + Enables decisions closer to the operational level of work;
• + Improved level of personal customer service;
• + More in keeping with developments in flatter and more flexible structures.

But there are also some negative aspects:

• The same lateral hires results in tough control over offices letting no interference;
• Firm becomes inert to new programs and changes or their implementation results are low;
• Low sociability and interaction between offices caused by rare meetings.

2.3. Organizational Culture

A key weapon in the war for talent in the 21st century is going to be organizational culture. To analyze the culture of Baker & McKenzie it is important to look at it from different perspectives and use various approaches.

In general, Baker & McKenzie’s culture was a strong one encompassing several core elements such as:

• Internationalism and multi-culturalism;
• Sense of friendship;
• Equality of employees;
• Strong sense of independence;
• Consensus-building based on multilateral mindset and highly consultative, transparent and respectful style;
• Attention to selection process of laterals.

According to Goffee & Jones (1996) Grid (see Chart 2) Baker & McKenzie located in Mercenary area gravitating to Fragmented organization as of its numerous offices around the world which tend to be autonomous.

That results in general low sociability of the employees. This can be supported by the fact that international interaction was quite poor, presented only by annual meetings for equity partners and some star lawyers.

Solidarity is high due to result-oriented strategy (a lot of billable hours required to be rewarded by bonus) and high compensation for partner’s level only.

Chart 2. Goffee and Jones (1996) Grid

Organizational cultures and their associated structures typology of Charles Handy (1986) is another popular model to examine the firm. According to his classification Baker & McKenzie is “the person culture & cluster structure” which is described as structure where autonomous experts and professionals pursue their own interests.

This type of culture is characterized by high autonomies of partners and associates where management hierarchies are not acceptable and the legal business is operated by mutual consent and influence based on expertise. Having noted that it could be stated that such culture is in balance with the decentralized structure mentioned in the previous chapter.

Facing high turnover and “war for talent” Baker & McKenzie has to pay more attention to its employees to shape a firm-friendly culture required not only for personal and professional development of the lawyers but such culture which could have an immediate positive effect on the successful future of the firm.

3. The Development Framework

By 2000 Baker & McKenzie recognized importance of retaining associates as every lawyer who left the firm within the first two years never provided the firm with even a partial return on investment in terms of training, development, and replacement costs. The developed HRM strategy was placed in jeopardy.

To find the causes of high associates turnover KPDC lunched a survey lead by two outsourced HR specialists which educed the following gaps in performance management:

• No or poor feedback on associates performance were provided (no deep review, no examples are given). This circumstance was complicated by cultural obstacle as many of associates reported that “it is not the practice of their offices to conduct reviews or that is a new concept”;
• No guidelines explaining business and legal skills required for each career step were given to the associates. This resulted in low motivation and lack of self development;
• Development opportunities and training programs were not clearly explained or not explained at all to the lawyers.

In April 2003 two industrial psychologists were invited to develop new framework to overcome these asperities and meet common performance expectation across different locations of the firm. It was the right choice as it is almost impossible to deal with the different cultures from the position of usual management.

The following final Development Framework qualities were highlighted as the basic criteria:

• Personal Qualities (PQ);
• Key Performance Areas (KPAs) comprising Individual Activities Categories (IACs).
• By such framework associates have been rated on a scale of 1-3 for each component:
• 3 “exceeds expectations”;
• 2 “meets expectations”;
• 1 “falls short of expectations”.

This highly segmented system of evaluation could satisfy everyone and could meet the needs of the multicultural firm. Also it represented an actual approach to talent management.

In general, the talent management strategy of Baker & McKenzie can be characterized by the following main aspects:

• Recruitment – identifying and selecting right people to met the challenges of the firm’s strategic goals;
• Development – personal and professional development of the employees;
• Career Management – coaching and supporting the employees throughout their careers.

Having analyzed the external and internal environments and the Development Framework it can be concluded the main tool for Baker & McKenzie successful recruiting, developing and retaining the chosen talent and to win war for talent is to find a common language within international offices of the firm for discussing excellence in order to facilitate firm activities and find the best fit between a lawyer and Baker & McKenzie’s operation and culture.

4. Recommendations

Undoubtedly, the New Development Framework is a well-designed foundation ready to be implemented and now it fully depends on how much effort the Executive and KPD Committees will contribute to convince each partner of its implementation importance.

Based on the analysis of the Baker & McKenzie’s organization, culture and strategy, including New Development Framework aimed on successful recruiting, developing, and retaining the talent it is recommended to pay more attention to the following aspects:

Recruitment and Selection Process

Organizational performance depends considerably on the quality of its workers. It is required to continue generating a pool of skilled and qualified associates, which have some of the necessary attributes to enable a suitable candidate to be selected. Appropriate range of selection methods of evaluation which can be partly taken from the Development Framework (IACs and PQs) are to be applied to cover such gaps as lack of soft skills for the potential employees. This will facilitate the candidates to integrate into Baker & McKenzie’s culture and to meet the expectations of the firm.

It is worth recommending while selection and recruiting process to bear in mind the fact that firm is working on standardizing its processes on international level. It means that there should be given more attention to the ability of the candidate to be a good team member. Such characteristic feature of the human being can be measured by some psychological testing as well the firm could several steps of selection process one of which could be a simulation or role-playing within the number of candidates. Such simulation should be observed by a number of specialists and assessed accordingly. Also it can be added that due the nature of globalization the preference is to be given to those candidates who have international experience or willing to obtain it.

Developing Competent Employees

In spite of the fact that the firm is focused on the highly qualified attorneys’ recruitment we should not underestimate the role of work-based learning. This is particularly important for paralegals being loyal to the firm and associates whose target is to become partners. Such methods can be divided into following groups:

• Learning from another person – consists of coaching and mentoring. Mentors provide two functions: 1) career advice and support, 2) psychological function. As we could see from the analysis of Baker & McKenzie’s performance management the lack of career development advice was one of the main drawbacks in the firm. It is important to note that coaching does not come naturally to all managers and it requires a number of skills which can be developed by sending the responsible managers to special management courses;
• Learning from tasks – consists of job rotation and delegation. This involves moving lawyers into different limitrophe groups (e.g. associates from the Major Project and Project Finance group may broaden their expertise by being placed into International Commercial or Corporate group, etc.) Delegation is also a way of developing of employee as it can offer new challenge and responsibilities.

Retaining Associates

As the final point Baker & McKenzie have to be focused on staff retention as high turnover damages not only performance, service quality and financial side but also a corporate image. First of all, Motivation is directly expressed by how to make people contribute to organizational goals while satisfying their personal needs. A good balance between extrinsic and intrinsic motivation is the key to success. In terms of extrinsic motivation can be applied such tangible rewards as:

• improved salary, the firm is to develop a more reasonable and balanced compensation system between partners and associates which can result to comfortable work-life balance;
• Perks like corporate transport or enhanced workplace.
• Performance Management is the other aspect which is extremely important for the firm to develop particularly in providing associates with:
• Constant and detailed feedback with clear explanations of their performance. Exposing their strengths and weaknesses;
• Guidelines explaining business and legal skills required for each career step. That will result in high loyalty and motivation as well.

All these recommendations will result in successful Talent Management and firm’s prosperity in the future. Detailed Implementation Plan provided in Appendix 2. Also it is important to control and shape the implementation of current Development Framework. The future researches on the results of implementation have to be carried on as well.

Bibliography

• Case study. Baker & McKenzie (A): A New Framework for Talent Management.
• MPO lectures.
• Goffee, R. and Jones G. (1996). What holds the modern company together? Harvard business review, November-December.
• Mullins, Laurie J. (2005), Management and Organisational Behaviour. 7th ed. Pearson Education Limited, Essex, England.
• Green, Richard, (2003), Business Environment: An MBA Study Guide. University of Hull, Hull, UK.
• Palmer, Adrian and Hartely, Bob (2002), The Business Environment. McGraw-Hill, New York, USA.
• Graeme Martin (2006), Managing People and Organizations in Changing Contexts. Butterworth Heinemann, Oxford, UK.