For all the chaos of these times, at least some things remain comfortably predictable. The business world has fundamentally changed in the past three months, yet, same as always, the legal industry drags its feet and pretends things will soon go back to how they used to be.
Home Office Is The New Office
Consider the new white-collar normal, working from home. What started purely as a safety measure is turning into a permanent change in how people do business. Tech industry leaders like Facebook and Twitter have announced that many of their employees may work remotely permanently, even after the COVID-19 crisis has subsided. Other industries are following suit. A recent Gartner survey found that nearly 75% of CFOs surveyed are planning to permanently shift at least 5% of their workforce to remote work once the virus is under control. About 50% plan to shift 10% or more. The promise of widespread telework that we’ve been talking about since the 1990s is finally arriving.
The justifications for a robust work-from-home movement are the same as they ever were. Studies have long shown that employee productivity doesn’t take the hit that many law firm partners might expect. In many cases, productivity actually increases without the distractions, busywork, and commute times that are part and parcel of the in-office experience. Remote working options increase worker satisfaction and increase productivity. What’s not to love?
And that’s just the employee-facing side of things. From management’s perspective, the balance sheet benefits can be huge. Businesses around the globe are already shrinking their physical footprint. It’s a lot cheaper to soak up the one-time cost of a laptop, phone, and desk for at-home workers than it is to pay rent to house them every single month. Remote work also greatly increases the candidate pool for new positions, which could be great news for people living in economically struggling regions with low costs of living. The remote-working revolution may be as much a boon for worker happiness and mobility as it is for corporate bottom lines.
Yet many law firm leaders I’ve spoken to are itching to get everyone back in the office as soon as possible. This astounds me. Lawyers are uniquely suited to work from anywhere. We’re not manufacturing widgets in a shop here. We sell advice, Word docs, and PDFs for a living. We can generate those as easily in a home office as we can in a downtown high-rise. When we have to meet in person or go to court, we still can — but that doesn’t require a daily in-office presence.
The Reverse Goldilocks Zone
Let’s go even more fundamental — how is the business world handling its cashflow? Many, if not most, companies are working hard to increase collections, decrease delinquency, and build a war chest to survive the coming months. Even as lending rates remain at new historic lows, cash will likely remain king until the market’s volatility calms. There are serious discussions to be had about the ideal trade-offs between reinvestment in the company and maintaining high liquidity, but the discussions are at least occurring.
At least they’re occurring in the normal business world, where management’s interests in keeping a company strong are usually weighted more heavily than ownership’s interests in taking cash out of the till. In small businesses where ownership and management are tightly held in just a few hands, ownership generally needs to keep their chief asset, the company, humming. If they don’t, they risk killing the golden goose. In large public businesses, ownership is often dispersed among a large class of shareholders. At firms around the globe, some shareholders do not care one whit about the health of the company over their own returns. Instead, the management team entrusted with keeping the company going will hopefully strike the right balance between reinvestment in the company and payout to ownership.
Many law firms, on the other hand, exist in a strange middle space. Law firm equity partners have the same motivations as everyone to make as much money as possible. But equity partners are also typically in demand and have mobile books of business, which means they may not worry as much about keeping the lights on once they’ve gotten their payout. They also may have the votes and political clout to prioritize short-term payouts over long-term reinvestment that may not benefit them directly.
We see these competing incentives reflected in the typical law firm fiscal model: strip the firm’s accounts dry on the last day of the fiscal year, distribute everything left over to the equity members, and start again fresh at midnight. This model allows for some reinvestment within the firm during the fiscal year, but also incentivizes keeping cash in the bank so it can end the year in partners’ pockets. This model has kept the peace between the competing interests of ownership and management in many firms for decades. It may be a significant hindrance to smart business survival in the wake of the coronavirus, though, where the need to have cash on hand to survive a potential recession or depression is becoming paramount. If firms want to survive the COVID-19 crisis, they may need to reformulate their basic financial model. Yet how many equity partners, in the face of all this uncertainty, want to cut back their take-home pay to keep the larger firm healthy?
The Consequences Of Doing Nothing
Hesitance to embrace change is nothing new to our industry. It’s perhaps easy to understand why there’s so much fear about changing what is, for many, the fundamental concept of how a law firm functions. Some management teams may fear losing the sense of community and camaraderie they’ve built up. Some may not want to spend the money and do the hard work when it seems like none of their peers is doing the same thing.
That’s the thing about adapting to the times: you choose to make it happen or you don’t, but the world keeps on changing around you regardless. You either grow and survive, or you wither and die. Fear is understandable, but if you want to be afraid of anything, be afraid of the consequences of doing nothing. The broader business world is moving with the times. We can’t afford to be left behind.
James Goodnow
James Goodnow is an attorney, commentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of NLJ 250 firm Fennemore Craig. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. As a practitioner, he and his colleagues created a tech-based plaintiffs’ practice and business model. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.