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Firm boards lose sight of business targets

Firm boards lose sight of business targets

Many law firm partnerships are operating with a flawed governance model, with boards getting preoccupied by operational concerns and overlooking long-term stewardship, a consultant has warned.

According to strategy adviser and facilitator Joel Barolsky, operational concerns have a habit of distracting many boards from their core function and business success overall.

“For those firms that operate with a board structure, a common observation is that they get bogged down in operational issues quite frequently and will talk about day-to-day operational questions, second-guess[ing] management,” Mr Barolsky said.

“This distracts them from their core role, which is the long-term stewardship of the firm,” he added.

Preoccupation with operational concerns like office layout, parking space and recruitment decisions can be symptomatic of law firm partnership models, Mr Barolsky said.

“Ideally a partner should be wearing the hat of a director and take a view of the firm from a sort of ownership and long-term stewardship perspective, but they take a view that is quite personal,” Mr Barolsky said.

“It manifests because the majority of the board are partners in the firm and so, in a way, they speak in their own personal capacity. In some firms, directors see themselves as representing one particular office or practice group, so some boards have a representational model."

While there are entirely appropriate strategic instances for partners to represent “factional interests”, Mr Barolsky believes they can lead to a fixation on operational issues.

“Partners come to the table with a view that they need to represent their factional interests – sometimes that’s entirely appropriate on strategy issues – but it can be quite easy for those [discussions] to lead to more mundane operational questions,” he said.

Mr Barolsky is a senior fellow at the University of Melbourne and teaches ‘Management for lawyers’ as part of its JD program. With more than 25 years' experience in consulting businesses in innovation and growth, he has worked with a range of law firms.

In his experience, firms are increasingly looking to incorporate non-partner leaders into their model.

“There is a growing trend for firms to have a board and some have non-executive directors on those boards even though they operate as partnerships," he said.

“In more recent times some of the larger firms have clearly delineated between a board and an executive committee."

He believes the presence of non-executive directors on boards can directly improve a company’s strategic performance.

“Non-executive directors help keep a board focused on substantive issues, they bring in fresh perspective and, in some cases, a new body of experience and networks,” Mr Barolsky said.

Notwithstanding the fact that there is no one template that suits every firm, Mr Barolsky suggests that ongoing business success can be achieved if governance teams readjust their approach and focus on four key targets.

Adapting the concept of ‘intellectual capital’ first coined by Erik Sveiby, Mr Barolsky recommends that boards focus on ‘four capital’ topics. Among them are relationship capital, human capital, brand capital and structural capital.

“Boards that have adopted the ‘four capital’ approach, or a variation thereof, usually rotate their agenda and focus on one area per board meeting,” Mr Barolsky said.

“Discussions usually revolve firstly around the nature, quantum and key trends in the asset class, and secondly, how the assets should be protected, developed and leveraged further,” he added.

“This approach results in a much clearer delineation in the role and contribution of the board and that of the firm's management team. It also means that in-depth deliberations around preferred colour of Post-it notes are omitted from the board's agenda.”

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