“We all cling to the belief that somebody out there, somewhere, knows what the heck is going on. Someone — a well-connected insider, an evil mastermind — must hold the details on the coming market crash. The US election in November or when the messiah will return. In moments of crisis, this delusion tightens its grip.” Robert Armstrong, Financial Times, April 21, 2020
In truth, nobody can predict how this current crisis will play out. I am as shocked as anybody that the present death toll in the US is writing 41,000. In truth, we look to our peers and also our leaders as to how to respond to an exponential crisis. I have friends of a mathematical mindset who quickly understood exponential numbers (how just a few cases can jump to over 200,000 in a matter of weeks). As well as an intuition that the world of 2003 which gave us SARS. It was not comparable to the present inter-connected world and adjusted their own behaviour and exposure accordingly. They were better to tackle the devastating rise in cases than those of an artistic persuasion.
Understanding what lies behind the numbers is also very important. The spike in deaths after Hong Kong’s SARS episode was due to the fact that ventilators were fully in use. I heard this from a doctor friend, my economics friend had his family out on the next available aeroplane. The conundrum of working out an end to the current crisis is further complex by the different rates. And also differing severity that the virus has hit various countries.
Taiwan for example currently logs a total of 420 cases and six deaths. Which contrasts strikingly with the current ravages of the virus in the UK and US. Human nature is by necessity positive and so we must do what we can and use the tools within reach to try to make sense of this present situation. So that we can lead ourselves and lead others in as coherent a way as possible. Bearing in mind that none of us have the secret sauce that can predict the end of this crisis.
What tools to employ? I have long been an advocate of seeking guidance from other industries and other disciplines. Tim Harford is an underground economist and commentator at the Financial Times. He has recently written brilliantly and honestly on the subject of how we all are victims of ‘the Ostrich Paradox’ (Howard Kunreuther and Robert Meyer). The Ostrich Paradox: Why We Underprepare For Disasters by Robert Meyer and Howard Kunreuther.
According to Harford, “Meyer and Kunreuther combine behavioural science with some striking examples: Hurricane Sandy, Hurricane Katrina, the Indian Ocean Tsunami, the 1935 Labor Day storm, the Beverly Hills Supper Club fire, and many others. They explore the cognitive biases that lead us to underprepare, or to abandon protection after a while.” We can also look at other industries and how other leaders of the banking industry can guide our understanding of the current crisis. The most honest response from senior folk in the banking industry I have read is: “I would say that, as a team, we’ve pretty much discounted a uniform V-shaped recovery. The question is, is it a U-shaped recovery, is it a W-shaped or parts of it L-shaped?”.
What the Banking Industry can predict is a retrospective look and extrapolate from there. Paul Donofrio, Bank of America’s pithy CFO put it: “What matters to banks during stress is not the loans booked during stress, but those booked in the years leading to stress”.
An honest, unblinkered re-assessment of the international law firm industry. And our part within that industry is necessary to begin to move forward. The image above is of some personal significance to me, not least because I take it of my daughter Nicole. And is similar to one I had on my desk at Shearman & Sterling. When I was racking my brain to find an image or a hook for a display advert for a Eurekahedge Fund Directory of hedge fund services back in the day circ. 2002. The words “Who knows what the future holds?” came to my head. And I realized that the picture expressed an ambiguity about the future. A lawyer’s role is to crystal-ball gaze and construct future-proof contracts that provide for every eventuality. That in essence is the ‘value-added’ of a truly in-tune lawyer, at least in my view.
On that criteria alone then, the international legal industry has let itself down and let its clients down. After all, what is a law firm but a risk advisor? Where was the advice and warning from the legal industry in the run up to the World Financial Crisis of 2008? Collateral Debt Obligations were paper structures drafts and approves by law firms in Wall Street. I have not heard of one lawyer that had the foresight to see that all this could come crashing down. Looking backwards before we look forwards. It is plain to see that law industry did not pick up the lessons from the Global Financial Crisis. This is not universally true and certain industry players with new business models have benefitted.
They get it from a genuine desire from law firm clients for new ways of working. But both anecdotally and backed by the following objective graph, it is clear that the majority of firms have responded to a decreasing profitability. They do it by simply increasing the charge-out rates of their partners and senior associates. Each year clients push back and refuse to pay the inflated Work In Progress (WIP). And each year law firms respond by increasing their charge out rates. This is evidently not sustainable.
We can look at peers within the legal industry — ex- A&O head David Morley draws some useful lessons from the banking crisis and examines how the post-lockdown environment will affect law firms.
But what should NOT happen in the execution of your crisis planning is to allow a back-track to the default of a male dominated, lawyer-dominated and clearly prejudiced thinking to take over. I am writing this from living through a number of externally generated crises. During the Global Financial Crisis a senior lawyer in a well know international law firm in an outlying office told me that there was a firing blood-bath in his office. And this brought out the very worst territorialism among his partner-peers. Out of the window went years of painful 360 peer review and the only criteria was “James is useful to me so I want to keep him at all costs”.
Just as the Covid-19 crisis has brutally exposed the fault-lines in the political and cultural mores in various countries and various world leaders, thus the crisis will test and may well expose the true culture of your own firm, for better or worse. A leader needs to ensure that the firm survives — and survival also includes the survival of the best aspects of its culture. Some positive predictions of cultural change that the crisis could engender include:
- A more positive attitudes to home / flexi-time working: According to Barbara Judge CBE attitudes to women working from home may change forever as a consequence of the crisis: “Company executives and business leaders have hopefully experienced first-hand that excellent work can be achieved anywhere. And that working from home does not equal work of a lesser quality… . Usually thought to be preferred by working mothers, working from home has sometimes been stigmatized and labelled as the “mummy track”. A path corporate women might desire to take after having children. Today women and men, chief executives and personal assistants, husbands and wives, have all been forced to work from home, and more importantly, to “make it work”.
- Humility towards life-time learning – learn from your peers and from other disciplines – there are many webinars currently available: here’s one that we are putting together with co-authors Paul Smith and Sally Dyson.
- Savings on real estate, as explored by Paul Smith.
- Law as a team sport, as expressed by Mitch Kowalski (webinar): Law firm leaders have leaned on their IT support staff, insisting that they take risks to keep the IT functioning of the firm safely and seamlessly during the crisis. This sacrifice and the effort involved need to be recognised. Also, it is important that the Marketing / Business Development Head(s) are invited to the table as communication with clients is essential during this time. It is also important for the Marketing Director to step up and offer creative and inspiring solutions to the crisis committee. Business communications should not be boring or business as usual: here is an example of an incredibly moving blog by master of communications Richard Levick, which manages to convey the personal and also the enormity of the crisis that is enfolding around us and should prove as an inspiration to all involved in professional communications.
- Honour your fallen colleagues — the following heartfelt obituary of my friend Matthew Seligman by joint head of chambers Charlie Cory-Wright QC of 36 Essex Court chokes me. I have amazing respect and regard for the chamber as a consequence.
- Technology — be aware of and open to changes in legal practice, including virtual courts, as explored by Richard Susskind.
- An end to ‘just in time’ culture: the partnership culture, dominated by partnership compensation per year. It meant that war chests of cash for a crisis is not there for most firms. Investment in technology is woefully behind most industries. Further, some firms have borrowed to pay compensation as well as even employed professional debt collectors to pursue over-billed clients. I remember the model of the cockroach as having survival instincts to adopt. As it is required that we prepare urgently and on a dozen fronts for the consequences of this present crisis. Mark Cohen talks about this and other aspects of the legal industry cogently.
- The Legal Media Industry should no longer encourage the worst excesses of the legal industry – more celebration of client service, less on measures of partnership compensation.
- Remain positive and creative – some of the greatest art is being executed presently within the confines of the virus – here is an outstanding, Quinacridone, a piece by Callum Innes:
- Mental health – we are all affected. In my opinion to a lesser or greater extent we are all mentally ill. Providing empathetic leadership and embracing new mores of working is essential going forward. It includes a start which is the Mindful Business Charter https://mindfulbusinesscharter.com/
- Decisive leadership:
- O bserve
- O rient
- D ecide
- A ct
The OODAloop is the cycle observe–orient–decide–act, developed by military strategist and United States Air Force Colonel John Boyd. Decisions are going to made after decisiveness after a full assessment of the situation is the mark of leadership.
Just as the 2004 hurricane provided a warning of the 2016 Katrina hurricane that devastated New Orleans. SARS of 2003, H5N1 2004, Ebola 2013, and MERS of 2016 all provided warning of the current Covid-19 crisis. The Covid-19 crisis is potentially not as bad as it can get. Tim Harford asks us to imagine a pathogen with the toxicity of Ebola that targets the young. The legal industry survives present crisis will need to change and also be future-proof for the next global crisis.
This article originally appeared in inhousecommunity.com
Photo Credit: Patrick Dransfield
