eyes open

eyes open
"know thyself" is the cure, the answer, the process, the goal, the result


Social Entropy: Heller, Law Firm Collapse and the Second Law of Thermodynamics

You can't fight the facts. Even though death and taxes seem pretty darn unavoidable, they are less so than the 1st and 2d law of thermodynamics. Let's get it straight: 1) The energy of the universe remains constant; 2) entropy in any system increases over time. That means any closed or open system over time will tend to slow down, run down, get cooler, fall apart, unless energy outside the system is applied.

I was inspired by Paul Lippe's article (AmLaw Daily) about Heller's downfall. He predicts further firms to fall, but not more than is 'normal.' I'm not quite sure what a 'normal' rate of law firm failure means, other than this: in a go-go economy, almost every type of organization thrives. In a moderate-growth, flat-growth or negative-growth scenario, firms of a weaker organizational structure will fall apart. This is normal, healthy, and--in the macro sense--unavoidable.

In scientific terms, "social entropy" reigns. Unless outside fuel is applied to a particular system (organization like a law firm or even an entire economy), the system will begin naturally to fail. In one iteration of the theory, increased dissatisfaction means increased entropy (failure). This has been applied as broadly as to assert that as soon as fossil fuels became relatively scarce, the social structures of the US would begin to fall apart (the "Peak Oil" debate).

I don't know about that, but I do hypothesize that in order for firms to keep their assets coming "back up the elevator" every morning, they are going to have to expend more energy. If we postulate that law firms are a "closed system", that means the energy has to come from outside the system. As there is little economic impetus, there is little energy coming naturally to firms. Thus, firms have to increase the total energy pressure on their organizations by increasing the amount of energy expended by each individual member of the firm. Further, they'll have to think of ways to invite outside energy in.

Some concrete suggestions:

1) Law firm leaders need to think about bringing in professional management. I know, many firms are already on that bandwagon (or at least pay it lip service), but most firms are clipping along with the increasingly outdated 'managing partner' model. Great, energetic lawyers need to be expending their energies down the channels they know best--practicing their craft. They shouldn't be figuring out how to be creative managers and market-reading gurus. That energy can be tapped from outside the 'system' and should be.

2) Law firm leaders obviously need to be snapping up as many stars from the fallen firms as possible. This is obvious, but real attention needs to be paid to that recruiting function--internally and externally, to make an effective bid to capture the stars (and star groups).

3) Firms need to think about their partnership agreements and corporate organization. Some have postulated that Heller's demise was due in part, and perhaps largely, because it was organized as a partnership consisting of professional corporations. In order to avoid double taxation, it needed to empty the coffers every year by year's end. In short: they were even more undercapitalized than their competing US firms. Instead, law firms need to think about ways to increase their capitalization while still attracting talent. The only way to attract energy like that will be to apply even greater 'work' (in physics terms) to the organization. Bottom line: The "good ole' days of yore" when law firms were partnerships in spirit as well as on paper worked because of social norms, yes, but also because agreements incentivized loyalty to the group. We've got to get creative to recreate that in this age of "free-agentry".

4) Law firm leaders need to increase the energy they apply to the law firm as a social organization. The firm is like a factory only on paper. In reality, it stays together only because: the individual profit centers are incentivized to stay and because there is a social dynamic that reinforces those incentives.

Scientists point out that lower temperatures will not naturally flow to higher temperatures without work being applied (think of your refrigerator--it only works because energy is being applied to its compressor, etc.). Thus, if law firms are going to attract talent, they are going to have to work even smarter.

Because law firms are complex organisms in a complex society, large amounts of energy must be constantly applied. Another analogy: law firms are alot more like helicopters (scrambling to say in place) than airplanes (application of a single source of power in a single direction). That means we've all got to be alot more flexible--something lawyers are temperamentally not inclined to do.
Bottom line: if you are unwilling or unable to being to apply yourself in new ways, your chances of flitting from firm to firm (with successively decreasing results) increase.