January 19, 2022
A Strong 2021 For Law Firms
“The year 2021 has been one of the strongest years on record for the law firm industry, even accounting for the aberrational base year created by the disruption of the COVID-19 pandemic,” noted Citi’s Private Bank 2022 Client Advisory. It was a strong year for law firms measured in both demand and revenue growth rates, which were some of the best on record.
“While some of the largest and most profitable law firms are on track to register above average demand and revenue growth, 2021 has unmistakably been a year of strong growth for all segments of the industry,” the Citi report continued. Revenue grew 14.7% over the prior year, while demand grew 6.6%, and rates grew 6.5%.
Expenses also grew, according to the report, but most of it came from higher personnel costs and less from operating expenses. “In this strong demand growth environment, there are not enough lawyers to handle the rising tide of work, with total lawyer headcount growing just 0.7%. Indeed, productivity was up 6.1% for the first nine months, making burnout a real issue for many firms where productivity was already high... Meanwhile, the delay in returning to the office has led to more moderate growth in operating expenses than we anticipated, up just 3%,” suggested the report.
The war for talent in 2021 led to strong compensation growth for attorneys at all levels. “The competition for talent has created extraordinary compensation expense pressures – coming from spring bonuses, signon bonuses and the increase in base salaries adopted during the third quarter,” the report added. In 2021, upward pressure on compensation caused by the demand for talent resulted in a 14% increase in compensation expenses, which was the main driver of the 8% total increase in expense growth for the year.
The tailwinds from 2021 seem to presage a strong 2022 as well. The Citi report continued, “The positive demand environment seen in 2021 has created many opportunities for the law firm industry. The post-COVID reshaping of the global economy toward ‘Unstoppable Trends’ and the resulting macroeconomic climate will continue to strengthen the hands of many in the industry.”
Thomas Edison’s Soup Experiment
Thomas Edison, the prolific inventor and founder of General Electric (GE), used to require job candidates eat soup as an interview technique, according to an article in Medium titled, “Why Thomas Edison Required Job Applicants To Eat Soup In Front Of Him.” The article notes that Edison liked to be personally involved in choosing staff, so he would invite prospective candidates to lunch, and he would order soup for the table. When the soup arrived, he would watch the prospective candidate to see if they would salt and pepper their soup right away or if they would taste the soup first and then season it.
Why would he do this? Well, during his lifetime Edison logged a staggering 1,093 patents. “Among his innovations were early versions of light bulbs (although he did not invent the light bulb), the phonograph, movie cameras and alkaline storage batteries. However, he couldn’t do it all himself and had a large and talented staff through the years in his research labs. Accordingly, he had to make sure he was getting the right people,” the article notes.
So, he devised the simple soup test. If a candidate seasoned his food without tasting it first, Edison reasoned that the person was prone to act on preconceived beliefs or assumptions, which was antithetical to innovation, so he would reject the candidate. If the candidate tasted the meal first, it showed the person was curious and open to new information, which fostered innovation and creativity.
Does this mean you should invite a candidate to lunch and make them eat soup? No, what it shows is the best way to interview a candidate is to test their actual skills and competences. Typical question and answer interviews are not enough. Sure, candidate Q&A can give you a sense of the person’s background, general knowledge, and personality, but what it doesn’t tell you is if the person can actually do the job the way you want it done. Q&A interviews also reward slick talkers and outgoing personalities, but the best candidate may be neither.
So, what should you do? One idea is to require samples of prior work. When interviewing attorneys this is very easy, most laterals have plenty of work product to show, but for staff it might be difficult. For staff, you might give them trial assignments or mini projects to show how they work. In a recent Chief Financial Officer search, which we worked on at Legal Resource Group, involved each candidate putting together a presentation on how they would recommend growing revenues and reducing costs.
Bottomline, if you want to truly understand who candidates are and what they can do, develop ways to observe them solving real problems. This will give you a better sense of the person more than Q&A alone.
To Thine Own Self Be True
Many candidates believe that figuring out what an interviewer wants and pretending to be it is the trick to getting hired. In a Wall Street Journal article titled, “The Surprising Strategy for Acing a Job Interview,” the author Francesca Gino (a Harvard Business School professor) says, “studies that I and others have done show that catering to an interviewer’s expectations is less effective than being authentic—willing and courageous enough to express your own views, opinions, and preferences, no matter how unpopular they may be.”
The author’s thesis is that, “Catering hurts our chances for two reasons. When we cater, we are intentionally choosing to minimize our own interests and preferences in favor of those of the person we are trying to impress. This requires an effort to hide who we really are—a cognitively and emotionally draining process. What’s more, we can’t be certain about the other person’s preferences and expectations, no matter how much research we’ve done on them. This further raises our anxiety and hurts our performance.”
In one study Ms. Gino had nearly 400 working adults interview for a position, with some candidates told to imagine what the interviewer wanted and to conform their interview style accordingly. Another group was told to be authentic, and a final group was told nothing. To ensure strong performance all candidates were told there was a financial reward for scoring well in the interview.
“As we expected, participants who catered felt more anxious and strategic than participants who were simply being themselves on video or than those in the control group. The emotional state of those who catered, in turn, hindered their performance in the job interview. Those who behaved authentically were 26% more likely to be hired than those who catered, and those in the control group were 15% more likely to be hired than those who catered (and 9% less likely to be hired as compared with those who acted authentically),” the author reports.
So be authentic and land that next job!
“The year 2021 has been one of the strongest years on record for the law firm industry, even accounting for the aberrational base year created by the disruption of the COVID-19 pandemic,” noted Citi’s Private Bank 2022 Client Advisory. It was a strong year for law firms measured in both demand and revenue growth rates, which were some of the best on record.
“While some of the largest and most profitable law firms are on track to register above average demand and revenue growth, 2021 has unmistakably been a year of strong growth for all segments of the industry,” the Citi report continued. Revenue grew 14.7% over the prior year, while demand grew 6.6%, and rates grew 6.5%.
Expenses also grew, according to the report, but most of it came from higher personnel costs and less from operating expenses. “In this strong demand growth environment, there are not enough lawyers to handle the rising tide of work, with total lawyer headcount growing just 0.7%. Indeed, productivity was up 6.1% for the first nine months, making burnout a real issue for many firms where productivity was already high... Meanwhile, the delay in returning to the office has led to more moderate growth in operating expenses than we anticipated, up just 3%,” suggested the report.
The war for talent in 2021 led to strong compensation growth for attorneys at all levels. “The competition for talent has created extraordinary compensation expense pressures – coming from spring bonuses, signon bonuses and the increase in base salaries adopted during the third quarter,” the report added. In 2021, upward pressure on compensation caused by the demand for talent resulted in a 14% increase in compensation expenses, which was the main driver of the 8% total increase in expense growth for the year.
The tailwinds from 2021 seem to presage a strong 2022 as well. The Citi report continued, “The positive demand environment seen in 2021 has created many opportunities for the law firm industry. The post-COVID reshaping of the global economy toward ‘Unstoppable Trends’ and the resulting macroeconomic climate will continue to strengthen the hands of many in the industry.”
Thomas Edison’s Soup Experiment
Thomas Edison, the prolific inventor and founder of General Electric (GE), used to require job candidates eat soup as an interview technique, according to an article in Medium titled, “Why Thomas Edison Required Job Applicants To Eat Soup In Front Of Him.” The article notes that Edison liked to be personally involved in choosing staff, so he would invite prospective candidates to lunch, and he would order soup for the table. When the soup arrived, he would watch the prospective candidate to see if they would salt and pepper their soup right away or if they would taste the soup first and then season it.
Why would he do this? Well, during his lifetime Edison logged a staggering 1,093 patents. “Among his innovations were early versions of light bulbs (although he did not invent the light bulb), the phonograph, movie cameras and alkaline storage batteries. However, he couldn’t do it all himself and had a large and talented staff through the years in his research labs. Accordingly, he had to make sure he was getting the right people,” the article notes.
So, he devised the simple soup test. If a candidate seasoned his food without tasting it first, Edison reasoned that the person was prone to act on preconceived beliefs or assumptions, which was antithetical to innovation, so he would reject the candidate. If the candidate tasted the meal first, it showed the person was curious and open to new information, which fostered innovation and creativity.
Does this mean you should invite a candidate to lunch and make them eat soup? No, what it shows is the best way to interview a candidate is to test their actual skills and competences. Typical question and answer interviews are not enough. Sure, candidate Q&A can give you a sense of the person’s background, general knowledge, and personality, but what it doesn’t tell you is if the person can actually do the job the way you want it done. Q&A interviews also reward slick talkers and outgoing personalities, but the best candidate may be neither.
So, what should you do? One idea is to require samples of prior work. When interviewing attorneys this is very easy, most laterals have plenty of work product to show, but for staff it might be difficult. For staff, you might give them trial assignments or mini projects to show how they work. In a recent Chief Financial Officer search, which we worked on at Legal Resource Group, involved each candidate putting together a presentation on how they would recommend growing revenues and reducing costs.
Bottomline, if you want to truly understand who candidates are and what they can do, develop ways to observe them solving real problems. This will give you a better sense of the person more than Q&A alone.
To Thine Own Self Be True
Many candidates believe that figuring out what an interviewer wants and pretending to be it is the trick to getting hired. In a Wall Street Journal article titled, “The Surprising Strategy for Acing a Job Interview,” the author Francesca Gino (a Harvard Business School professor) says, “studies that I and others have done show that catering to an interviewer’s expectations is less effective than being authentic—willing and courageous enough to express your own views, opinions, and preferences, no matter how unpopular they may be.”
The author’s thesis is that, “Catering hurts our chances for two reasons. When we cater, we are intentionally choosing to minimize our own interests and preferences in favor of those of the person we are trying to impress. This requires an effort to hide who we really are—a cognitively and emotionally draining process. What’s more, we can’t be certain about the other person’s preferences and expectations, no matter how much research we’ve done on them. This further raises our anxiety and hurts our performance.”
In one study Ms. Gino had nearly 400 working adults interview for a position, with some candidates told to imagine what the interviewer wanted and to conform their interview style accordingly. Another group was told to be authentic, and a final group was told nothing. To ensure strong performance all candidates were told there was a financial reward for scoring well in the interview.
“As we expected, participants who catered felt more anxious and strategic than participants who were simply being themselves on video or than those in the control group. The emotional state of those who catered, in turn, hindered their performance in the job interview. Those who behaved authentically were 26% more likely to be hired than those who catered, and those in the control group were 15% more likely to be hired than those who catered (and 9% less likely to be hired as compared with those who acted authentically),” the author reports.
So be authentic and land that next job!