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In the beginning lawyers operated as solo practitioners. Then came the day when two attorneys decided to join forces, combine expertise and leverage efforts. That began a debate still raging today: the debate over how to compensate partners fairly.

As law firms placed more emphasis on business development during the past several decades, many in the legal community have analyzed and written (and yes, even consulted) about the partner compensation issue. A handful of firms have bravely gone where few have been willing, attempting to avoid controversy through the creation of various hybrid compensation systems. However, the debate rages on.

In fact, disagreements about compensation fairness seem to be increasing in intensity. David Maister, a recognized authority on law firm leadership and management, has written extensively on partner compensation. In his 1993 book, Managing the Professional Service Firm, Maister says partner compensation is an issue as great as any facing law firm leaders. In a 2000 Compensation Systems Survey, Jim Wilber of Altman Weil noted, “… Altman Weil gets more calls regarding partner compensation than any other management issue.”

So, with seeming agreement that partner compensation is a critical issue, and in the absence of a definitive solution (or solutions), is there a good way to proceed? Perhaps an attempt to step back and examine the current state of various compensation systems can point to a process that will help law firm leaders establish the right compensation approach for their firms.

Even though no two compensation systems are identical, it appears evident that law firms having compensation problems demonstrate characteristics that are distinctly different from those of firms that deal with the issue more successfully. In a vast majority of cases (and in spite of how complex the discussions become), good systems and poor systems can be differentiated using four simple criteria:

Consequences

The reality is that all compensation systems – good or bad – will produce both results and consequences. It is the latter that fuels the debate, so let’s examine the unfortunate consequences associated with poor compensation systems. There are five that eat at the fabric of a firm:

• A loss of confidence in leadership;
• Turmoil among partners;
• Turnover;
• An underperforming organization; and,
• The prospect of firm dissolution.

On the other hand, a good compensation system produces a series of desirable positives, including:

• Energized professionals;
• Confident support of firm leadership; and
• Organizational momentum to pursue (and achieve) collective aspirations.

The challenge facing law firm leaders is to create the foundation upon which an effective partner compensation system – encompassing every process from hiring to retirement – can be based. To be truly successful this foundation must clearly reinforce shared firm values, and include guidelines for rewarding the achievement of agreed-upon objectives. Such a foundation can only exist in an aligned firm.

Alignment

The aligned firm bases each of its systems – including partner compensation – on two realities. First, the firm has established (or is in the process of establishing) organizational clarity – a clear understanding throughout the organization about the type of firm that is being built. Perhaps more than in any other enterprise, law firm leaders are reluctant to identify and articulate what their firm is all about and what it hopes to become. And though that may have the sound of consultant-speak, experts agree: without this kind of clarity, there is no framework for sound decisions on baseline issues like compensation.

In the book The Four Obsessions of an Extraordinary Executive, Patrick Lencioni describes a healthy organization as one that “minimizes the potential for confusion by clarifying…

• Why the organization exists;
• Which behavioral values are fundamental;
• What specific business it is in;
• Who its competitors are;
• How it is unique;
• What it plans to achieve; and
• Who is responsible for what.”

Lencioni further states, “An organization that has achieved clarity has a sense of unity around everything it does. It aligns its resources, especially the human ones, around common concepts, values, definitions, goals, and strategies, thereby realizing the synergies that all great companies must achieve.”

This level of clarity about its identity gives a law firm a sense of unity about everything it does, and supports its vision with goals or objectives for every single partner. The objectives may range from direct economic contributions – such as the expansion of specific client representation, the origination of new business, or a specified production level – to firm contributions that might include practice management, recruiting, or training and development. Most importantly, these objectives provide a focus for evaluating partners as they pursue the agreed-upon organizational goals.

The second reality of the aligned firm is that it compensates its partners for conduct and achievements that strengthen the firm’s core values.

What is the difference between organizational goals and core values? A law firm’s core values define how the firm will operate as it strives to achieve its organizational goals. As James C. Collins and Jerry I. Porras noted in the business best seller Built to Last, “Like the fundamental ideals of a great nation, church, school, or any other enduring institution, core ideology in a visionary company is a set of basic precepts that plant a fixed stake in the ground: ‘This is who we are; this is what we stand for; this is what we are all about.’”

If your law firm does not have clearly established core values, don’t be too hard on yourself. According to Ken Blanchard, co-author of The One Minute Manager and other best selling business books, fewer than 10 percent of all organizations have reduced their values to writing.
How can a law firm identify and articulate its core values? A look at what one successful firm has done suggests the steps that other firms can take.

Shaw Pittman and Core Values

Shaw Pitman, a 400-lawyer firm based in Washington DC, did a good job of defining its values and aligning its practices with those values. According to its Web site (www.shawpittman.com), the firm used the assistance of Jim Collins, the co-author of Built to Last to identify four core values during a 1997 retreat: top-quality client service, integrity, respect for colleagues and professional satisfaction.

Shaw Pitman’s commitment to aligning all efforts with these values is underscored by periodic employee polls that seek new ways to coordinate operations with firm values. And, not content to deal with general ideas, the partners of Shaw Pittman have developed specific principles to expand on the definition of their core values:

Top-Quality Client Service

• Excellent legal work
• A practical approach
• A commitment to understanding our client's business
• Outstanding results

Integrity

• Honesty with ourselves and others
• Ethical behavior

Respect For Our Colleagues

• Assisting one another
• Accommodating the personal and professional commitments of others
• Taking pride in others’ accomplishments

Professional Satisfaction

• Challenging work
• Gratifying client relations
• Opportunities for growth

Core Purpose

• “Working together creatively to help our clients succeed”

Every firm has core values, whether or not leaders know what they are. The experience of the partners at Shaw Pittman supports the premise of Porras and Collins: that core values are not chosen; they are discovered.

Core values relate directly to compensation. Firms whose core values focus solely on profitability of individual lawyers are likely to reward lawyers differently than firms whose core values focus on teamwork, contributions to the community and the bar. (Note that for an effective compensation system, it matters less what your firm’s core values are, and more that you compensate partners based on them…whatever they might be.)

Discovering Core Values in Your Firm

A simple facilitated approach is the best way to discover and document your firm’s core values. Here’s a look at a proven process in its most basic form.

Assemble a values team
It’s stating the obvious, but senior leadership must lead the way in a successful core values discovery process. The first step is assembling a values team. This team will represent the entire partnership, so its makeup is critical. It should include a combination of leaders (who must play a visible role because they have the most at stake in the process) and standard bearers (individuals recognized by everyone as reflecting what the firm is all about.) Key leaders will be ultimately responsible for adherence to the firm’s values, and everyone will be watching them to see if they walk the walk.

Engage a professional facilitator
The values team should have the help of a professional facilitator. Although it is possible to manage this process without outside help, leaders will find it much easier to function effectively as members of the group if a professional from outside the firm has responsibility for guiding the effort. It is leadership’s job to select a qualified professional who will work well within the culture of your firm.

Conduct discovery group meetings
The right facilitator will break your values team into groups of four or five professionals and lead each group through a series of questions to identify the unmistakable elements of your firm’s core values. A skilled facilitator will pose questions that define what is important to a supermajority of your firm’s members, while paying a bit of deference to firm leaders who have the key role of reinforcing the results. Examples could include:

• During good times and bad what do we want our clients to say consistently about our firm?
• In decades to come, why will lawyers and professional staff be attracted to our law firm as a place to work?
• What kind of reputation are we building within the local community?
• When thinking back on the firm’s history, what are the stories that make you proudest of the firm? Saddest?

Typically, an experienced facilitator will change the makeup of each group at key points during the process. This change is far from random; rather, it is designed to ultimately winnow down the feedback from these meetings. The objective is to discover the three to six fundamental values of the firm. Virtually all experts agree that if your process does not identify six or fewer values, you have not articulated your firm’s real core and have a list longer than your organization can embrace.
Test the core values

With the values identified, it’s time to test the discovery process. You will know that you have a good list of core values if each one meets all of the following criteria:

• You will feel the same about the value when the economy slumps and profits are down as you do in good times.
• You will hold the value in the same high regard even as the firm’s mix of services and practices changes.
• You will adhere to the value whether the organization expands or cuts back.
• You will find the value to be as relevant in a decade, two or nine as it is today.

Communicate, communicate, communicate...

The work has only begun once you agree on your set of core values. The next and never-ending step in the process is to communicate these values, elaborate on what each means, and reinforce all of them at every opportunity. Certainly, compensation underscores core values within the partnership; however, consistent, careful communication gives these values dimension at every level of the firm.

Conclusion

Visionary law firms clearly articulate who they are, what they want to become and how they intend to get there. These firms have the foundation to develop a compensation system that will serve them well. Such a system will by definition will be in writing, consistent, transparent, and aligned with overall goals and objectives. Firms that fail to invest the time necessary to articulate their core and chart their future will never achieve a unified partnership — much less, a satisfactory compensation system.

Roger Hayse, managing principal of The Hayse Group, a legal consulting firm.