1. Managing Cultural Risk Managing Partners’ Forum—Risk Leaders’ Group Friday 13 May 2011 John Flood Professor of Law and Sociology University of Westminster London

2. Professional Service Firms Are Strange Creatures—especially law firms

3. What Are PSFs/Law Firms ? –They’re not companies –Think of Coase: “the firm is a way of reducing transaction costs” –Firms organize production and innovate –Firms build collective culture and organization

4. What Then Are PSFs/Law Firms Really? –Don’t always have strong corporate cultures –Don’t always manage production efficiently –Don’t always share knowledge well –Don’t innovate much

5. So How Do PSFs/Law Firms Exist? –Because they are made up of interlocking networks

6. So How Do PSFs/Law Firms Exist? –Partners compete for scarce resources and this is way of balancing power in firm –Centripetal and Centrifugal forces in firms –Role of culture in firm and groups within firm –E.g. lockstep v eat what you kill –E.g. finders/minders/grinders

7. Soft versus Hard Controls in the Firm –Soft controls such as building social capital through training and mentoring produce strong effects—professional socialization is important –Hard controls such as strategic planning management targets may undermine collegiality and produce agency problems –Research suggests informal practices are better suited to dealing with hard to observe and difficult to monitor professional behaviours

8. Future Risks –How far can PSFs/Law Firms go in changing their character without creating too many problems? –Compare company mergers: often fail—why? –CEOs fall in love with the idea and forget they are acquiring people—process management and communication are vital –Cultural clashes happen frequently—not just between companies but between “new” company and clients –PSFs/Law Firms suffer the same problems…frequently

9. After the Legal Services Act? –Problems of scale and culture will be exacerbated after the LSA with the introduction of Alternative Business Structures –New entities may make economic sense but will they make professional sense? –Add in external elements of International Expansion, Legal Process Outsourcing and new technologies such as intelligent data mining to compound the creating a new identity for a PSF/Law Firm

10. So How Complex Is It?

11. John Flood www.johnflood.com john@johnflood.com School of Law University of Westminster 4 Little Titchfield Street London W1W 7UW +44(0)7801705669