Compensation & Benefits for Law Offices, December 2005

Compensation & Benefits for Law Offices
December 2005
SECTION: LAW FIRM MANAGEMENT Vol. 2006 No. 1

HEADLINE: Bottom Line Management: Establishing a Link Between HR Management & Firm Profitability

BODY:
We all intuitively know that well-managed law firms tend to be more profitable than their less people-conscious peers. Indeed, many research studies have confirmed the link between supportive employment practices and performance and productivity results. One recent study found that those which implemented HR practices that showed high commitment towards employees had market values between $16,000 and $40,000 more per employee than their industry peers that did not use such practices.
Examining the connection between HR and profitability in law firms: The Report on Human Resource Practices in Small Medical and Legal Practices: The Impact of a High-Commitment Approach to Managing Employees-a study conducted by Dr. Christopher Collins of Cornell University's Center for Advanced Human Resource Studies-investigates that link between profits and HR management as they relate to law and medical firms of 125 or fewer employees. The data, however, provide food for thought for firms of all sizes.
Sponsored by Gevity Institute, a Bradenton, Florida-based organization dedicated to improving business results in small and midsize businesses, the study found that the way firm decision makers conduct HR strategy for paralegal and clerical employees "has a profound effect on firm performance."
Specifically, the study found that the 48 law firms that practiced "commitment HR" (practices that show the firm's dedication to individual employees) outperformed other firms by as much as 22%. Even the smallest firms (five to 39 employees) outperformed others by 15%. (See the accompanying figure.) This is not soft research, explains Institute director David Sikora. Cornell researchers have a 99% confidence level that the results are statistically significant.
Typically, Sikora continues, management at smaller professional services firms has the feeling that HR and people issues fall into the "not-profitable" category. Gevity's goal is to persuade firm leaders "that these things are important and can impact firm performance."
What is commitment HR? This is a group of HR practices that promote employee engagement in at least four key areas: training and development, recruitment and selection, employee motivation, and performance management. Specifically, researchers asked firms to assess the extent to which their organizations:
1. Develop support people internally;
2. Hire based on organizational fit;
3. Promote participation in the workplace;
4. Provide incentives for firm-specific learning;
5. Hire based on potential rather than current skills and knowledge;
6. Provide career development opportunities;
7. Pay based on skill level; and
8. Emphasize committed and long-term employment opportunities.
The Cornell researchers found that firms that practice commitment HR achieve higher levels of support staff discretionary effort and customer orientation than those that do not use the commitment HR method. In addition, viewing clients as the number-one priority is more important than discretionary effort in driving firm business success, the study discovered. In fact, firms with support staff that view client satisfaction as a priority outperform firms that do not by 42%.
More significant, the data suggest that paralegals have a greater impact on client satisfaction, which was the key driver of firm performance, the study found. So if resources are limited, the sensible decision is to make the biggest development investment in your paralegal staff.
Will this work in the real world? CBLO asked a manager with a 50-lawyer firm in the Midwest whether the findings of the Gevity/Cornell study would be likely to change the firm's HR practices. While the firm's partners would probably be impressed, she admits, they would be unlikely to change their commitment to nonlawyer staff.
"They already think this is a wonderful place to work so if it isn't broken, there's really nothing to fix." Still, the firm already embraces some degree of commitment HR: informal, on-the-job training for paralegals, hiring for performance and firm fit, and attorney-staff engagement and interaction.
A partner with another firm in the Midwest believes his organization has always practiced so-called high-touch HR. This is affirmed by professionals who say they stay with the firm because they like to work there. For firms that don't practice commitment HR, this law firm owner states, the results of the study should convince them to "think real hard about how you conduct business."
Larry Richard, J.D., Ph.D., director, leadership and organizational development practice at Hildebrandt International, agrees that the potential impact of the study is significant. Still, he believes attorneys by their very nature are skeptical and will likely question the connection between HR practices and profitability, despite the statistical soundness of the data. "Attorneys have personalities that make them good lawyers," he says, "not good HR people."
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Best practices for law firms of all sizes, as outlined in the report, lay out a good starting point for law firm recruitment, training, and compensation and HR professionals willing to investigate the merits of so-called "high-touch" management and its impact on firm performance and profits. Ideas to consider in key areas:
* Training:
- Offer training to promote staff long-term growth and development within the firm.
- Ensure that core skills are developed internally.
- Provide incentives for skills development.
- Encourage and offer opportunities outside training and/or coursework.
* Recruitment:
- Evaluate new hires based on how well they fit with the organization.
- Hire people who want to grow and develop with your firm.
* Motivation:
- Allow valued employees to participate in decision making.
- Encourage by providing ample opportunities to grow, develop, and sustain long-term employment.
- Compensate based on skill level.
- Put together a mentor program for professional staff and provide opportunities for career development.
* Performance management: Evaluate employee performance by looking primarily at how well these staff have grown and developed and contributed to the competitive advantage of the entire organization.
For more information on the Gevity/Cornell study, go online to www.gevity institute.com.