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The leadership role in law firms and other professional service firms (PSFs) tends to be either a residual characteristic or is defined by the “great man” ideal (think of Paul Cravath and his vaunted system). Modern versions exist still: the recently departed Joe Flom of Skadden and Marty Lipton of Wachtell were exemplars of visionary law firm leaders who created great law firms. However, since around 1985, PSFs and law firms have become more anonymous in their leadership as the bureaucratized firm supersedes the charismatic individual.

Usually when scholars study PSFs—and for purposes of this review I focus on law firms—the entire firm is the unit of study rather than its management or governance. If we think of Nelson’s Partners with Power, Starbuck’s Keeping a Butterfly and an Elephant in a House of Cards, or Wald’s Smart Growth: The Large Law Firm in the Twenty-First Century, leaders, senior partners, and others flit by, but they essentially subsist in an environment that is expressed as collegial and lacking in explicit hierarchy.

Despite the apparent nature of partnerships as collegially minded organizations sharing resources and profits motivated by the good of the common weal, the great recession of 2008 displayed a different aspect of firm leadership in PSFs. The reactions to the crisis showed management to be hard-headed and dirigiste when it came to laying off “redundant associates and partners.” In 2009, for example, Linklaters created its “New World” strategy to lose 120 lawyers and 150 support staff “to match the headcount of the firm to actual demand.” And by 2012, Linklaters was committed to its third round of restructuring in a decade. All of this is quite different from the “organic” days of Cravath.

Laura Empson, Professor in the Management of Professional Service Firms at Cass Business School, London, has spent the last three years studying this ignored aspect of PSFs and shows that leadership is a nebulous and fragile phenomenon in PSFs lacking the image of the “single heroic leader.” (P. 5.) Indeed, she says, without irony,

The problem with portraying yourself as a leader in a professional service firm is that your most valuable colleagues are likely to resent being cast as your followers. (P. 5.)

The converse of leaders is followers and where formal hierarchies are perceived not to exist the latter is a label that no one wishes to entertain. How then are management, governance, and leadership possible? Empson starts with partnership, which necessarily limits the exercise of formal power: primus inter pares in a law firm is not the same as being a CEO in a bank. Partners who become leaders find themselves in the perverse position of potentially losing power rather than gaining it. What gave them power—rain-making and work distribution—are set by the wayside as they assume positions of responsibility without much formal power. One question, which is not answered in Empson’s study, is do the most powerful rainmakers vie for executive power in firms or do they prefer to exert their influence more in the shadows? Furthermore, we don’t learn how particular lawyers decide to run for election. Her study focuses then on those who already occupy these managerial positions and the extent to which they can exert power.

Power here is plural, processual, and persuasive and is located within the “Leadership Constellation,” (Pp. 6-7) which consists of nodes that interact with each other. The key components are the senior executive dyad (senior and managing partners), heads of major practice areas (e.g., banking, litigation), heads of business services (e.g., HR, finance, IT), and key influencers (e.g., rainmakers and eminences grises). They are not a team but articulate the “informal power structure of the professional services firm.” (P. 8.)

Empson bases her research on an empirical study of three PSFs in law, consulting, and accounting. We are able to make occasional educated guesses on which is which. They are large and global with a mixture of eat what you kill to lockstep remuneration. Empson interviewed partners and had access to partnership agreements, board minutes, and records of leadership elections. A word of caution: Empson denatures her case studies in such a way that we aren’t sure if she is referring to a law firm or an accounting firm or anything else. This is necessary to keep them anonymous. But it means that we lack some of the rich, thick description that would really make the case studies fully comprehensible.

The report takes particular events in these PSFs and follows them chapter by chapter. In the first case, PSF A underwent an organizational crisis. The structure of PSF A gave no formal constitutional powers to the senior and managing partners nor to the Executive Board. Although partners were elected to these positions, they had to govern by their credibility and natural authority, or as Empson characterizes it: ambiguous authority. Beyond the senior dyad, management gets fuzzy. PSF A, however, celebrated this ambiguity since it enforced flexibility and went against dogmatism. It was a partnership that had grown together organically with relatively little lateral hiring.

The crisis came out of the global banking crunch. The senior and managing partners could see that work would decline and the partnership would have to shrink and be restructured. The question was: how to do it when there was no formal power outside a partnership vote? The leadership constellation was called on to analyse then recommend candidates for expulsion. It was a reiterative process that took months by which time a list had been drafted. Fifteen per cent of the partners were offered redundancy or de-equitization and all accepted the terms. The remainder of the partnership agreed.

Despite the resistance to formal hierarchy, there clearly was an inner circle of leaders, who through their social and cultural capital, were able to command influence and engineer results. The ambiguous authority cloaked a harmonious conflict. The senior dyad was able to steer the leadership constellation into believing in a plural system of leadership that had capacity beyond its individual components. One of the central reasons the strategy worked, according to Empson, is what she terms the “paradox of social embeddedness.” (P. 17.) The long-term organic nature of the firm had created high levels of trust between the partners through “intuitive working relationships” (P. 17), which reduced conflict and augmented active decision making.

Empson’s example of PSF C illustrates how leadership can fail when globalization runs amok in the firm without considering how different cultures might be integrated. The UK partners in particular were resentful because they thought they weren’t reaping any benefits from the expansion. This firm had a clearer leadership structure than PSF A with a chairman and CEO and an executive committee (Excom).

The chairman focused full-time on the global mergers, leaving the UK day-to-day management to the CEO. Excom seemed to be made up of warring factions with no sense of firm unity. The CEO reduced the size of Excom but those dismissed went to the chairman and were reinstated. No faction was pulling from strength.

Matters came to a head when the chairman resigned and an election was announced. Members of Excom put themselves forward as candidates but because of the dissension a group of firm elders organized meetings in which the candidates had to answer questions on their skills and responsibilities as chairman and the direction they would take the firm in. These meetings aired many complaints and began to salve the difficulties. The new chairman eventually came from outside the warring factions. He held one-to-one discussions with partners and he managed to rebuild trust. Although Empsom doesn’t say it, it appears the “outsider” was elected because he had no connection to the warring factions of the old Excom.

PSF C was a victim of its own inability to work in teams rather than the pressures of the outside world. Despite the breakdown PSF C finally recovered.

In other chapters, Empson explores the remainder of the leadership constellation and shows that all of its elements have important roles to play in the successful process of PSF leadership. One element that comes through in her study is the role of social embeddedness where trust has been built up over many years of working together. But as PSF C demonstrates, that trust can be easily lost. Ambiguous authority also enables leaders to “duck and dive” in their firm machinations, achieving results that may be more credible to the partners than if simply imposed from above, assuming they could be.

There is a similarity with some of Dezalay and Garth’s findings about notable international arbitrators in Dealing in Virtue. Effective leaders have to be highly respected, inspiring loyalty and commitment, able to build consensus, comfortable with ambiguity, yet not appear to want the position. Global professional service firms are now large organizations and therefore becoming increasing unwieldy to govern. PwC has over 160,000 professionals worldwide; DLA Piper has more than 4,000 lawyers, with the result that for some PSFs governance has to face up to the questions of formalized authority, constitutional power with consequent diminutions of ambiguity, collegiality and partnership. For Empson there are three overarching themes that emerge from her research. Firstly, power in ambiguity where structures are fuzzy can be effective as shown in PSF A. By contrast the leaders in PSF C, which had formal structures, found themselves effectively powerless. Secondly, social embeddedness is invaluable because of the trust it engenders; PSF C lacked this dimension but PSF A had it in full. Thirdly, political skills are absolutely necessary to hold the organization together even when politics is abjured as in PSF A. Yet we can ask if Empson’s study is one of an industry in transition to a new, less democratic age or a cri de coeur for a golden age past?

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Cite as: John Flood, How Are Professional Service Firms Governed?, JOTWELL (September 24, 2013) (reviewing Laura Empson, Cass Business School, Who’s In Charge? Exploring Leadership Dynamics in Professional Service Firms (June 2013)), https://legalpro.jotwell.com/how-are-professional-service-firms-governed/.