It is widely assumed that a strong balance sheet, an established brand, longevity and stability are enough for a business to thrive. And perhaps, in times past, that was the case.

But for the 95-year-old US law firm Weil, Gotshal & Manges, that assumption led to a rude awakening. Last week, the firm announced, without warning, plans to wind down. Despite having an enviable reputation as Wall Street’s whitest of ‘white-shoe’ law firms, being profitable and housing more than 1,000 lawyers, it concluded that it was no longer viable as an independent business.

What happened?

You can read more about the causes of the downfall here and here. However, the situation can be summarised as a law firm’s equivalent of a ‘run’ on a bank. In this situation, too many of their highly-paid ‘rainmaker’ lawyers were poached by competing firms, leading to a mass exodus. The partnership structure – so long lauded as the source of strength and longevity – proved to be a critical vulnerability, as nobody wants to be the last partner left in a failing firm. Financial health was concealing a fatal flaw in the way the company worked and its culture.

So What?

The implications of this are profound and should serve as a wake-up call for any company that relies primarily on human capital for its services and source of advantage (e.g. other law firms, accountancy firms, advisory boutiques, consultancies, etc.).

For some time, law firms have merrily been sailing into a strategic cul-de-sac of ever-increasing pay, coupled with an operating culture primarily focused on fee earning. The outcome of this has been a highly individualised culture and a transactional employment relationship. As Weil found out to its cost, this left them highly vulnerable to the distressingly simple act of offering your star performers enough money for them to defect. All the assumed attractions of the firm – colleagues, brand, reputation, etc. – turned out not to be as important as assumed, and the whole edifice crumbled.

Lessons to Take

There are two important lessons to this tale:

Firstly, organisations need to ask a simple but hard question: what’s holding our business together? Is it your bottom line? Your legacy? Your client portfolio?

If like, Weil, you have an individualised and financially-driven approach this may be an uncomfortable question. However, we suspect that it will cause some soul searching in most organisations. Moreover, with AI disrupting most jobs and industries if the board and leadership team is not asking which of the past certainties no longer applies, it’s not doing its job.

Organisations exist because they allow people to do work more efficiently than they could as individuals. This naturally implies that organisations need to create value greater than the sum of the parts. Economists refer to specialisation and reduction of transaction costs. Therefore, operating models and cultures that fail to explicitly design for collective success and encourage organic collaboration leave themselves open to Weil’s fate. This is especially true in a world where AI can often do the work of individual knowledge workers faster and better.

Secondly, this case shines a light on the importance of getting the culture right in professional services firms. Historically, culture has taken a back seat to professional competence, delivery and billing in these organisations. This leaves us with – at best – vague references to ‘good’ or ‘bad’ cultures, leading to ways of working developing as a result of this focus, not as a deliberate choice.

The Case for Culture

You now have to question the wisdom of this approach. Creating a deliberate culture, shaped by your organisation’s strategy and operating model, requires effort and ongoing focus. It is also probably your only meaningful differentiator for your business. It is also the only lever that can create an organisation that is greater than the sum of its parts.

Professional service firms are people-intensive businesses. Clients expect the best talent to represent or advise them. Yet firms can’t assume that attracting the best people and paying well is enough. They need to consider what it’s like to work there. They need to consider what behaviours their leaders encourage, and whether their culture supports people to succeed together or individually.

This creates an imperative for organisations to put culture at the heart of their strategy and business performance, establishing a role for leadership that both models and shapes the desired behaviours. Leaders can build ways of working within an organisation that act not only as an attractant to exceptional talent, but also as a deterrence to the same talent being lured elsewhere.

What’s next

Do you hear culture being summarised in a single word? We explain why it’s not that simple.

Confused about what ‘culture’ actually means? Here’s the difference between organisational and workplace culture.

Prefer your content in audio form?

Listen to Mark Cuddigan, CEO of THIS, discussing life in charge of a plant-based B-Corp certified organisation

Potential, realised

At Coode, we look at strategy through a human lens because success depends on how people work together. When leadership teams achieve real alignment in how they lead, they unlock performance that may have been present all along but not yet fully realised.

To explore how Coode helps leaders define culture and align it with their strategy and context, visit our services page or get in touch here.

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