FROM ADAM SMITH, ESQ

New York City

rodrigo gonzalez fernandez
director, consultajuridica

Dear rodrigo:

October and, with luck, November in New York are the most beautiful months of the year here, as many of you know.  Everything seems to come together:  A new sense of purpose, the "new season" across the arts. social events, and even the climax of baseball and the kickoff of football, combined with spectacular weather, make it, year after year, the grandest season.

I'd like to believe it's been a fruitful period for "Adam Smith, Esq.," as well, but it is only in the eyes of you, Dear Reader, that that is or is not true.

So forthwith to some of the "greatest hits" of the past few weeks:

• You've heard all the biz-speak/managerial mantras of the past decade or two ("Management by Objective," "Management by Walking Around."  "Re-engineering."  "Six Sigma," "The Seven Habits of Highly Effective People," "Who Moved My Cheese?," etc.  If you're exhausted just reading that list (I am), here comes McKinsey to tell you it actually boils down to Just Three Things.
• Pop quiz:  Of the "Global 100" law firms, how many are US, UK, or former-British-Empire (Canada, Australia, etc.) based?  Tick-tock-tick-tock...  98.  No kidding.  I offer a theory of how that remarkable implausibility could be explained.
• Is the geographic distribution of brainpower (or its proxy, college and graduate degrees) changing in the US?  Yes, it is.  Is your firm where the brains are?
• I've written about "Social Network Analysis" several times, but now "SNA 2.0" has moved from simply analyzing the structure of the informal, but powerful, networks within your firm to quantifying their value.  What would it be worth to you to know that 20% of the value of a particular group was about to resign?
• Finally, what can  you as a leader of your firm learn from Andy Grove of Intel?  Start with brutal honesty, and an ability to stand outside yourself and outside the situation to reinforce your objectivity.

I'd also like to direct your attention to the "Adam Smith, Esq. Monthly Book Review," this month of James Buchan's The Authentic Adam Smith (W. W. Norton & Company, Inc.: New York, 2006).  Read about it here.

For our bonus, newsletter-only content, we have a look at the UK Magic Circle firm Slaughter & May, courtesy of last month's American Lawyer.  This won't be an exhaustive examination of Slaughter & May, but, I hope, will leave you with some insights about a distinctive—dare I say unique?—firm.

The 117-year-old firm, with 522 lawyers including 126 partners, has not only a lockstep compensation structure, but a two-tier structure, with those in the top tier earning twice as much as those in the lower tier (it takes 10 years to move to the higher tier).  Compared to this 2:1 ratio, 2005 AmLaw 100 firms that responded to the question reported an average spread of 10:1 from highest to lowest.  But Slaughter & May's 2005 PPP was more than $2-million (more than double its 1998 results).

Slaughter & May has other remarkably distinctive characteristics:

• It's intensely London-centric, having recently closed outposts in New York, Paris, and Tokyo, and maintaining only one foreign outpost of consequence, in Hong Kong.
• But it has by no means forfeited overseas opportunities, instead concentrating on establishing, cultivating, and maintaining a "network of best friends" across Germany, Italy, Spain, France, and even the US (notable "best friends" here include Cravath, Davis Polk, and Simpson Thacher).
• Culturally, the firm is sui generis.  Not only is its managing partner, Tim Clark, age 55 (son of a Slaughter & May partner), dismissive of modern management practice, he embraces old traditions while being aware of the antiquarian nature of some (if you just begin The American Lawyer story, you'll hear about the napkin rings).
• But unwritten rules are just as important:
  • No lateral partner hires
  • No partner departures to other firms
• And most important, the following (emphasis supplied):

  "Slaughter has no hourly targets, for example, but there is tremendous peer pressure to work hard for the good of the firm, say Slaughter partners and associates interviewed for this story. "The overriding thing about the firm was that you felt you owed the firm more than the firm owed you," says Francis Neate, who spent 34 years at Slaughter and May and is now of counsel at Kirkland & Ellis (following a decade at Schroders plc., an asset management company) and president of the International Bar Association. "It had a living strength. You felt guilty if you didn't pull your weight." The unspoken pressure often leads to early burnout. "You do the same work at 55 as at 33," Clark says, and while "some partners are doing that with vigor and enthusiasm," the overwhelming majority of partners retire by age 60."

As for the network of "best friends," is it a high maintenance creature?  Yes, of course; but its benefits are perceived to outweigh its maintenance costs, both financial and in terms of managerial overhead:

"All [the members of the network] were under pressure to globalize, but didn't want to do so by merging with a large, international firm. "There is an advantage to being rooted in our own country," says Umberto Nicodano, Bonelli's managing partner. "We know the courts, we know the system. Rarely, if ever, are the global firms able to establish these relationships." Practically speaking, Slaughter's Frank says, staying small keeps overhead low, keeps the firm cohesive, and makes it easier to pursue common goals than if lawyers were spread around the world. Furthermore, the fact that other firms don't feel that Slaughter is encroaching on their space makes the British firm attractive to work with, Frank says. In the mid-1990s, several years after their first discussions, the group realized that to compete with the global firms, they needed to do a better job of articulating their vision. So the firms drew up a list of basic criteria to define the relationship: Members are independent law firms based primarily in one country. Relationships are nonexclusive; legally, nothing binds the firms together."

So couldn't it all fly apart?  Well, that's a risk you live with.  My friend Tony Williams puts it in perspective: "Their business is sustainable as long as their best friends don't try and do something different," he says. But then he pauses. "So-called problems at Slaughter and May are problems that managing partners at other firms would die for," he adds.

Slaughter & May is not your firm, nor is it a model for all.  But it has a voice, it has a distinction, it matters to our profession.  You have permission to "think different."

As always, I invite thoughts, comments, and observations.  

That wraps up the "Adam Smith, Esq." monthly newsletter for November 2006.

My parting wish is that you let me know how I can make it sharper, more useful, more helpful.  "Adam Smith, Esq." is, in my mind, not a "blog," but a publication.  More than one of you has compared my site to other prominent legal industry trade journals, and said that the advantage of the online medium is being able to publish as many times per month as seems warranted.  I happen to agree, and I want you to know that the editor (that would be me) is always in, and always delighted to hear from my valued readers.

Best regards,