Peddie: Blinkered pursuit of PEP lowers standards
It is a “uniquely arrogant and complacent facet” of law firms that partners think some key business functions are “dispensible” support functions rather than core elements, a senior lawyer has argued.
Jonathan Peddie also said that in-fighting among partners, driven by the “blinkered pursuit” of profits per equity partner (PEP), could result the law firm model moving “to something resembling the Hunger Games”.
The barrister was deputy general counsel at Clifford Chance before going in-house at Barclays, latterly heading the legal team’s financial crime capability. In 2015 he joined Baker McKenzie as a partner and led its financial institutions global industry group. He left the firm last month for some time out.
He has used to time to write The PEP Trap – the evolving law firm time bomb, which he published on LinkedIn this week seeking views.
He explained: “I’ve long felt that the legal services sector’s obsession with profitability, as well as being tone deaf in a stressed global economy, is a narrow measure of success that may deliver.”
In the article, Mr Peddie said that as the “vast majority” of those working in a law firm were lawyers – or rather “producers of time that is sold” – this could drive a bias against spend on cost centres that were not producers “for fear of their short-term impact on profit”.
He went on: “Finance, marketing, knowledge management, HR, communications, risk and compliance and many other key functions are run increasingly lean, leaner than sensible, and too lean to support the effective strategic growth that would improve business performance (including, but not limited to, profitability).
“In pursuit of economies every non-producer role is stretched and stressed, or left vacant, quality of overall output is reduced by maintaining a lower overhead of non-legal roles by not investing in the true cost of quality, accepting an eye-watering level of staff turnover with indifference and overlooking the fact that the organisation is in fact being used as a training ground and springboard to better paid roles beyond the organisation, handing knowhow and experience to the competition.
“As the stretch intensifies, this conveniently justifies and encourages a tide of recurrent complaints from lawyers that support is not as good as it should be, and despite spend the help is not there or not committed, supporting the call for further headcount cuts as the spend the partnership is already being asked to make does not appear effective.
“Talent remaining within that subgroup feels marginalised, unsupported and carries a rising sense of futility or anxiety about future prospects and workload.”
Mr Peddie said there was “an industry reluctance”, with some notable exceptions, to include non-lawyers in management and leadership, because of “a long-held belief that only a lawyer can successfully manage another lawyer”.
He went on: “A good brain surgeon does not get to run an entire hospital just because he or she became the most successful surgeon of his or her generation.
“Try running a hospital by only hiring doctors and cutting administrative roles to the bone, offloading nursing, porters, procurement, cleaners, pharmacists, accountants.”
Mr Peddie said that while law firms talked about “lawyers and non-lawyers”, hospitals did not talk about “doctors” and “non-doctors”. There are just hospital staff, a minority of whom are doctors.
He described PEP as “a bad starting point for a sustainably successful business heavily dependent on human talent”.
Firms with the strongest PEP “can be, and frequently are, the ones which force the highest financial performance and strip away distracting costs, bypass enriching behaviours, (quietly) recognising culture issues to be an inconvenient cause of problems not solutions”.
These firms may also be the organisations that prioritise ‘production’ above all other things – “health, welfare, sleep, balance, enrichment, even (deeply ironically) client relationships. Anything that wobbles the straight line between an hour worked and profit made is a threat to PEP.
“PEP is a narrow and short-term efficiency and delivery calibration, not a long-term business-health indicator. It’s like judging the quality of a sports car by horsepower alone.”
Mr Peddie argued that a PEP-centric law firm mindset considered that anything that affected PEP negatively must be weeded out but this actually risked making “the apparently highest performing businesses into the least well-armed for the future and distances the business from the client – the person who pays for the service, without whom there would be no business. The client’s voice plays no part in this internal dialogue”.
Mr Peddie said the “blinkered pursuit of competitive PEP” resulted in standards of service that fell below the price clients were paying.
“It kills repeat instruction as the model is a recipe for disappointment. It breaks down trust and confidence within a partnership and promotes in-fighting between members of the same business.”
Mr Peddie said “the role of politics” increased while “respect for true expertise” declined.
“There is a gradual polarisation of the in-crowd and the dispossessed. The model moves from thriving big firm to something resembling the Hunger Games.”
I agree totally that non Lawyers/Solicitors staff can be ignored, but realistically, those staff are the ones who bring in the most work like criminals, or matrimonial clients who they may know in there residential area and do most of the administrative work for lawyers as not in Court as l did.