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‘Devil’s advocates’ are key to law firm leaders embracing risk

Challenges to organisational orthodoxy will stimulate change and innovation

1 October 2015

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By Manju Manglani, Editor (@ManjuManglani)

Lawyers can be risk averse and still be effective law firm leaders, according to Mark Rigotti, co-CEO of Herbert Smith Freehills.

For him, risk aversion is a trait which can be managed by helping lawyers to become professional leaders and managers, rather than avoiding it by appointing non-lawyer managers.

"It is a problem, but I don't think it is insurmountable," he told Managing Partner.

Steve Billot recently suggested that lawyers are not well suited to managing law firms because they are inherently risk averse due to the nature of their work and training.

"Lawyers just don't make good decision makers. If you ask them for advice, they will tell you what not to do, rather than what to do," he said.

The managing director of Duff & Phelps' global restructuring advisory practice has conducted more than 300 reviews of law firms in the past five years.

He believes that lawyers' risk aversion manifests in partners being unable to make strategic business decisions on behalf of their firm, causing them to be 'bottlenecks to change' in law firms.

"Lawyers are fearful of making a commercial decision and of getting it wrong - they will find every reason not to do something," Billot said.

"But, taking risks is a big part of business and if you aren't prepared to make mistakes, you're stuck."

This is a view which has been echoed by Louise Fleming, a partner at Aretai Consulting who has 20 years' experience of working with professional and financial services firms in business and risk management.

She believes that law firm leaders need to view risk as a critical strategic tool, rather than as something to be avoided because it is potentially dangerous.

"Risk management needs to be seen as a business growth enabler, not a dull board agenda item or a box-ticking exercise," Fleming said to Managing Partner.

"In the current market there is significant opportunity for firms that are prepared to take a positive approach to risk."

Managing risk aversion in lawyer-managers

Rigotti agrees that lawyers' tendency to have a "perfectionist streak" and to be risk averse can be a challenge when it comes to making business decisions for their firm. But, he does not view these traits as a hindrance to lawyers becoming effective leaders and managers.

Rather, he believes that, with the right experience, mindset, training and development, lawyers can be as effective leaders and managers as non-lawyers.

"It mightn't be about being perfect, it mightn't be about squeezing out the last risk, but it might be about understanding what risks we are willing to take as part of our business proposition," he said.

He has found that one of the ways in which lawyers' risk aversion can be managed is by fostering "a healthy level of challenge and debate around key business decisions" within the firm's decision-making body.

"So, rather than only having a bunch of lawyers who will be completely risk averse, have some others who take on the role of devil's advocate or someone who will actually challenge some of the orthodoxy," he suggested.

In April, the firm appointed two non-executive directors to its governance board to provide this very function. Both Jane Hemstritch and Johanna Waterous have experience in management consulting and have served as a non-executive director in other organisations.

"Part of their role is to bring that external perspective into the room, to bring a different approach to risk and to challenge whether or not it is in fact a risk or if really it is something else dressed up as a risk, which is a reluctance to change because some partners don't like it," commented Rigotti.

"And, if something is dressed up as risk, but in fact it is something different, the issue is more around how we manage the change or convince the partners to embrace it."

Law firm leaders as catalysts for change

Lawyers have often been criticised by clients for being more focused on tradition than on adapting to meet clients' evolving needs.

However, evidence that the profession is capable of radical change can be seen in their development of NewLaw firms, alternative business structures, value-based pricing and flexible resourcing businesses.

"All lawyers can embrace change, there's no doubt about it," said Rigotti.

"However, there are a lot of centrifugal forces against that. Part of our training is to look at precedents, to look backwards, and part of our training is to avoid risk. With change comes risk - it might not work, we might fail.

"So there are a lot of forces against change, but I don't think they are irrevocable. I think it's all about what mindset people take and what future they see."

The key is for law firm leaders to set the 'tone from the top' and to establish a culture of readiness for change through a focus on continuous innovation.

"I think one of the roles for law firm leaders is to help people through the change. To help them to make meaning of the change," said Rigotti.

"Personally, I think the firms that choose good responses and manage the change the best will be the winners in all of this."

 

 

 

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