Maintaining Culture in a Rapidly Changing Future
by Jose Luis de Salles Freire (Tozzini Freire Advogados, Sao Paulo, Brazil) (presented at the June 16-17, 2009 Symposium inPlano, Texas, USA “Making International Business Work in Distressed Markets”)

It is very difficult to speak about culture to an audience of lawyers and partners of law firms.

Why is it difficult? Well, I remember a program that I took at Stanford Business School on Leading Cultural Change. There I heard a funny example of how to change culture in an organization.

A company in bad need of changing its culture hired a new CEO to lead its cultural change. The first thing that the new CEO does is to invite the top 20 officers to lunch. By the end of lunch time he simply fires these people, goes back to the company, and hires 20 new officers with a different mindset. In just one day he changes the culture of the organization.

Obviously, one cannot do this with partners of law firms. Partners are also owners, not only the operating machines of the organization. This is the very reason why I said that the topic of culture in law firms is not an easy one.

I also have to confess that I have struggled with the topic of the conference. Is it how to maintain culture in a rapidly changing future or should it be how to change culture in order to adapt to a rapidly changing future?

In a scenario of rapid change I believe we have to be prepared to adopt changes to the existing culture of a given organization. As I also learned in Stanford, one cannot continue to do every day the same things and expect different results. So an organization has to be innovative. But being innovative does not mean that one has to lose its identity, and therefore the topic of how to maintain culture is highly important too.

What is culture? In a very simple definition, the culture of an organization is the written and unwritten rules, the formal and informal values, of the organization that contribute to the implementation of a desired strategy. The more formal the organization the more formalized these rules. The culture in more informal organizations can, however, be very strong to the extent that the informal values of the organization are widely known, understood and shared.

As one can notice in the foregoing definition, culture is attached to the strategy of the organization. There are various models for measuring the efficiency of the management of an organization. One of these models is through an analysis of the so-called 7 Ss. This model was developed by McKinsey, the well known consulting company. It argues that an organization is a complex system composed of many inter-related elements, each one of them contributing to the efficiency of its performance. There are, however, seven elements, the 7 Ss, which are critical to the efficiency of the organization and which must be aligned. These seven elements are: 1. Strategy; 2. Structure; 3. Systems; 4. Staffing; 5 Skills; 6. Style and 7. Shared Values, which is another name for culture.

Another method, this one adopted in Stanford, is the so-called congruency or consistency model. Pursuant to this model the desired performance in an organization is expressed in its vision, in its strategy and objectives.

Performance gaps are differences between the desired behavior and the behavior which exists in practice. Performance gaps generate opportunity gaps. Opportunity gaps may be viewed as mistakes or errors that an organization is making in trying to grab opportunities that the market is offering. Therefore, before discussing the opportunity gaps, which have to do with internal behaviors, the organization is not apt to take advantage of the alternatives or  opportunities that the market is offering.

So the first step of this congruency model is to define what is the vision of the organization and its strategy. The vision must be simple and must reflect medium and long term objectives while the strategy must reflect short term objectives, be clear and challenging.

Therefore, I advocate that law firms in this current environment should revisit their vision and strategy. Probably the medium and long term vision is not as much affected as the strategy. Remember that the strategy must be simple and challenging. Jack Welsch created a very simple and challenging strategy. GE was in hundreds of different business. He said: Either we are number one or two in a given business or otherwise we sell or close.

The next step is to check the kind of culture which is required in order to achieve the defined strategy and then identify the performance gaps which exist by reason of the existing culture. That is probably an enormous exercise in these difficult times because the existing culture is probably different than the traditional culture of the firm, be it because of lay-offs or other facts. Maintaining culture was already a difficult task in the past for many firms because of their extreme growth and the number of lateral hirings.

Going back to the 7 Ss model, I believe that one of the Ss has to be totally revisited in this environment post crisis, and that is the existing structures of the law firms. In my view, law firms have to undergo a tremendous process of deleveraging. The pyramid structure has to be changed. Clients are no longer willing to pay for training of young lawyers. They want to be assisted by senior people. In my view senior people, since they are more experienced, are less expensive. They do the work faster and better. And partners, because they will have to manage a smaller number of people, will have time to work more. Once the structure changes, other S´s, like for instance staffing and the required skills, will also have to change. And finally the style of the firm and mainly its culture will have to adapt to these new times.

Let me close by saying that the firms which are able to solve the opportunity gaps that exist internally in their structure will be the winners. They will be able to grab faster the opportunities that the new market will offer.

I heard from a Harvard professor a month ago the following: proactive firms will outperform reactive firms by (i) aggressively seeking out new market opportunities, (ii) by actively adjusting their profile to changing demand mix, and (iii) by having already made the adjustments when the economy improves.

In the middle of all this process do not forget the importance of leadership. Leadership, however, is a subject for another whole panel.