Changing direction: Create a culture of continuous innovation

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Three things you will learn from this Masterclass:

1. How to overcome lawyers’ resistance to change

2. How to create a culture that supports innovation

3. How to lead radical change within your law firm

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It may be a cliché to say that today's
law firms must be constantly agile,
but it's still true. They must look for new services to offer, better delivery methods and different ways of meeting client needs, which are often in flux. Law firms must deal with the fact that legal services are being increasingly commoditised and, to a large extent, can be obtained from non-traditional practices. In many areas, a law firm strategy which worked six months ago may be outdated today.

Many firms are questioning the very nature of the business they're in, reinventing themselves as everything
from legal outsourcing centres to
high-tech software outfits. Some firms, such as national Australian law firm Minter Ellison, are even considering becoming more general consultancy practices. Meanwhile, the distinction between legal and financial advisory firms is becoming increasingly blurred, with many of the
large consultancies building up a substantial legal capability to offer clients
a one-stop experience.

It is difficult if not impossible in the short term to be certain that a certain change of direction will be the right one, which is one reason why many law firms fail to act. But, one thing is certain: those who refuse to look at fundamentally new options and make the hard calls may not survive.

Firms sometimes confuse fashionable trends with innovation. Moving to a new office layout, offering flexible working options without looking at the real demands that will be made of staff, adopting new technology systems without strong links to client needs, or geographically moving back-end internal services to cut costs
are not in themselves fundamentally innovative approaches.

Successful innovation largely depends on the ability of the leader to recognise the need for change, to decide the right strategy and to keep the firm on that course. Many managing partners at leading law firms are unable to embrace the right change for the right reasons and have suffered accordingly.

Resistance to change

There are a couple of pervasive assumptions about resistance to change:

1. the age of a leader prevents him or her from changing; and

2. the length of service of a leader diminishes his or her ability to change.

Contrary to popular thinking about how the brain works, research in human ageing has proved that old dogs can indeed learn new tricks. As the brain changes with age, we become wiser
and develop better judgement, but
have reduced short-term memory and cognitive speed.

People naturally resist change.
We can get set in our ways and become more attached to our assumptions and beliefs at any age, but people in their
70s and 80s can be as innovative and open to change and learning as much younger people.¹ Age is not, in itself, an impediment to running an agile law firm of any size in a fast-changing market.

Neither is length of service an impediment. One leader of a large national law firm made a concerted effort to change his leadership style over the course of a decade. This enabled him to take on new ideas and to inspire his firm to rapidly implement them. As a result of some very new ways of engaging legal staff and more robustly addressing specific client needs, his firm has gone from losing clients and market position to surpassing its financial and new business targets.

"At each point I made a conscious decision to change," he said. "When I first came on board, the firm was in trouble financially and I adopted a more transactional style - I needed to get people to do specific things quickly and without much debate.

"But now we are in a new phase and I saw that, in order to identify and really commit to more productive directions,
a more coaching and transformational style was required."

He continued: "I now have developed a strong team of leaders in the firm and I realise I can step back somewhat and let them get on with it while I focus more on development of the culture of the firm and on overall strategy. However, I still spend 40 per cent of my time coaching and developing our partners."

There are three major blocks
to change:

1. outdated assumptions about how the law should be practiced and how firms should be run;

2. an 'executive bubble' which rejects new ideas from outside the leadership sphere; and

3. leaders feeling uncertain and pessimistic, and lacking authentic relational safety.

Let's consider each of these in turn,
along with the techniques which leaders can use to overcome the blocks to change
in themselves and in those who work
with them.

1. Clinging to assumptions

All decisions are based largely on assumptions we have made from past experience - 70 per cent of which are wrong, according to recent research.² With time, unchallenged ideas tend to solidify as more neural power is brought to bear on their preservation.³

Long-held beliefs and assumptions become part of our identity and we unconsciously tend to perceive any change to them as a threat to our sense of personhood.⁴ Most dangerous of all, we often don't recognise our assumptions as such - they just seem like obvious truths.

One law firm leader notoriously resisted letting go of a block of non-performing partners who were costing the firm more than they were bringing in and who were not balancing this with non-financial contributions. His reason? "We've always had that number of partners and clients expect it."

2. Leadership bubble

Our assumptions become reinforced over time, particularly if we are successful in our careers. After all, why mess with success? So the higher up people are in an organisation, the less likely they are to examine their assumptions or to allow them to be challenged. Researchers call this phenomenon the 'executive bubble'.⁵ Fortunately, the bubble is not impenetrable.

Tom Bender, co-president and managing director of American law firm Littler, says the only way out of the bubble is "to get out there and talk to people,
your lawyers, your clients, your staff".

"Find out what they're thinking.
Be prepared to really listen," he adds.

The next step is to encourage people to try out new ideas in safety. The firm's leader must create an environment that encourages experimentation.

Says Bender: "It's important to give people the flexibility to try new things and allow them to bring new ideas to you. Some of these ideas will be unworkable, and that's fine, because others can change the business."

This approach was key to the development of Littler CaseSmart, a proprietary case management system which has earned the firm substantial new business, as well as awards and accolades for its innovative approach.⁶

"My job is to give people the space
to create, which would be impossible
if I thought I had all the answers," comments Bender.
 

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Escaping the leadership bubble

• Realise that many of the assumptions you have may ?be hidden or false

• Before trying to solve any problem, write down all of the assumptions you have about it

• Ask others for their assumptions and compare notes (neither may be right, but they will probably differ)

• Ask an executive coach or trusted friend to respectfully question you and make you defend your ideas

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3. Risk avoidance

One cherished assumption of many managing partners is that you can get people to change either through rational persuasion and explaining the benefits of the change, or by creating anxiety and fear about what will happen if change doesn't occur. Recent psychological and neurogenetic research has shown that these assumptions are false.

Research in behavioural economics science has found that people don't behave rationally in financial matters or, indeed, any others.⁷ In fact, all brain-imaging studies over the past few years have demonstrated that people don't make decisions based on either facts or reason.⁸

What this means is that just seeing and understanding the need for change, adaption and innovation will not make any of it happen. Under stress, humans will do things the same way as they always have, perhaps harder, but not in smarter or different ways. It may be an inconvenient truth, but people only innovate or adapt to change when they feel safe.⁹

"People become more open to change the more secure they feel," comments
Mark Rigotti, joint CEO of global law
firm Herbert Smith Freehills, which was formed in October 2012 through a
large-scale merger.

"Many promising change initiatives in firms were closed down when the demand for legal services fell off after 2008. This heightened the level of anxiety that many law leaders naturally feel made change even more difficult. Fortunately, that wasn't the approach we took at HSF. We persisted with both the merger and the significant culture and other changes that were required, and we're now reaping
the benefits."

In these uncertain times, stress and a level of anxiety are almost expected in senior law firm leaders. The problem is compounded, in many cases, by a predisposition among lawyers to avoid risk
at all costs and to rely on precedents to justify decisions.

As both Bender and Rigotti have noted, the default setting for many, if not most, lawyers is pessimism. Lawyers are also more vulnerable than others to anxiety and depression, as all of their training has led them to see the worst-case scenario in every issue. Senior law firm leaders are not immune to this way of thinking.

"Lawyers and law leaders demonise
what they don't know," says Bender.

This leads not only to a lack of experimentation but also to a dearth of optimism.

"As a leader, I have to believe that things will get better. Otherwise there'll be no change in the firm because I won't be open to it," he adds.

Safe to fail

In order to create optimism and a sense of emotional safety, it's vital to call on the most powerful driver people have (along with procreation and eating) - the need to feel surrounded by supportive relationships.¹⁰ Eighty per cent of our genetics and neurobiology is geared towards fulfilling this overwhelming and mostly-unconscious drive.

That means that people must feel that they won't risk their standing in the firm if they try something new. "Innovation and change require that people feel safe enough to fail occasionally. This means that the managing partner or leader must allow him
or herself the same right," says Rigotti.

In fact, people must be constantly reassured that they are of value to the work 'tribe' when they are acting to meet its commercial and social needs.

"Praise is one of the great creators of both optimism and safety," comments Rigotti. "Too often, law firm leaders don't know how to use it and don't know how to accept it when it's given to them."

In fact, what people who don't accept praise are missing out on is the 'dopamine effect'. Dopamine, sometimes called the happiness neurochemical, helps the brain
to work faster and more creatively, and
keeps the mind young.¹¹

Of course, it's important that praise is perceived to be sincere. First, it must be congruent with actions: don't tell someone they are doing a great job and then criticise every part of it. Use specific praise to show you're actually paying attention to what the person has done.

Praise should be given not only for obvious achievements but also for how people do things - for effort or trying something new, even if it's not immediately successful. Simply affirming the relationship you have or would like to have with someone releases the powerful bonding and trust neurochemical oxytocin and so reinforces a sense of relational safety and optimism.

It is just as important for the managing partner to give and receive praise as it is for a junior lawyer to do so in order to create a law firm culture that supports and enables real change. People need to feel that they matter, that they are supported and that their colleagues are watching their back. They will then be more open to change, adaption and innovation. Law firm leaders are no different.

 

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Creating a safe space for innovation and change

• Give your colleagues and ?yourself the freedom to experiment and fail

• Take steps to reduce your ?own stress levels

• Foster a culture of praise ?and recognition

• Praise people not only for what they achieve but also for effort and innovation

• Frequently make statements ?that affirm your relationship ?with people

• Accept and enjoy praise ?when it is given to you

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Alicia Fortinberry, PhD and Bob Murray, MBA, PhD, won the 2012 American Science achievement award for their work on the behavioural neurogenetics of motivation and personality. They are founders and principals of global consultancy Fortinberry Murray (www.fortinberrymurray.com).

References

1. See 'White Matter Structure Changes as Adults Learn a Second Language', A. Schlegel et al, Journal of Cognitive Neuroscience, Vol. 24, No. 8,
   August 2012

2. See 'Neurophenomenology; Integrating Subjective Experience and Brain Dynamics in the Neuroscience of Consciousness', A. Lutz and E. Thompson, Journal of Consciousness, Vol. 10, No. 9-10, Sept-Oct 2003

3. See 'Corporate hierarchy and vertical information flow inside the firm - a behavioral view' M. Reitzigi and B. Maciejovsky, Strategic Management Journal, 10:1002:2334, September 2014

4. Picturing Personhood: Brain Scans
   and Biomedical Identity, J. Dumit, Princeton University Press, 2003

5. See Rules of Thumb: 52 Truths
   for Winning at Business Without
   Losing Your Self, Alan Webber, HarperBusiness, 2009

6. See 'Rethinking workflows', Scott Rechtschaffen, Managing Partner,
   Vol. 15 Issue 5, February 2013

7. See 'Behavioral Economics, Past Present and Future' in Advances in Behavioral Economics, C. Camerer et al (eds), Princeton University Press, 2004

8. See 'Seeing Responsibility: Can Neuroimaging Teach Us Anything about Moral and Legal Responsibility?',
   D. Wasserman and J. Johnson, Hastings Center Report, 44 Suppl 2, March 2014

9. See 'Innovation is not enough: climates for initiative and psychological safety, process innovations, and firm performance', M. Baer and M. Frese, Journal of Organizational Behavior,
   Vol. 24 Issue 1, February 2003

10. See 'The need to belong: Desire for interpersonal attachments as a fundamental human motivation', R. Beaumeister and M. Leary, Psychological Bulletin, Vol. 117 Issue 3, May 1995

11. See 'Bolder, happier, smarter: The role of extraversion in positive mood and cognition' L. Stafford et al, Personality and Individual Differences, Vol. 48
    Issue 7, May 2010