The economics of mutuality is a principle asserting that for businesses to thrive and grow, they should operate in a way that benefits all stakeholders rather than focusing solely on the bottom line. Bruno Roche—former Mars Chief Economist—has said:
“If a company invests in both non-financial and financial capital using standardized metrics within a broader ecosystem that includes all of its key stakeholders as well as its shareholders, not only does holistic value increase across the board, but the company’s performance also improves.”
This simple principle tells you everything you need to know about how to create consistent and profitable “strategic” growth.
When law firms focus solely on the bottom line, owners benefit from increased profits. But that growth will be limited if the firm’s other stakeholders – their clients and their people (attorneys and professional staff) – aren’t also benefiting.
Think about it. Profitability that impacts the level or quality of service to clients will have a negative impact on client loyalty. This increases client attrition and makes new client acquisition harder and more expensive, limiting profitability over the long term.
Similarly, if profits are prioritized over people, long-term growth will be limited. Unhealthy work cultures create more turnover and impact the delivery of services, which add more costs to the bottom line and make it harder to recruit new talent to fill the void.
Yet law firm strategic plans that create mutual benefits for all their constituents have unlimited growth potential. Equity holders still benefit from increased profits. Clients stay loyal during good economic times and bad. Attorney retention and recruiting soar.
Firms that seek to balance these interests are best positioned to accelerate their ability to achieve true strategic growth.
As a pressure test, consider these questions:
- How do the firm’s operational and financial decisions impact talent satisfaction and the ability to develop long-term loyal client relationships?
- How do efforts to build a strong culture to attract and retain top talent impact the bottom line and the ability to acquire and maintain high-value clients?
- How are brand and client experience investments translating to the firm’s bottom line and to the ability to attract and retain top talent?
If imbalances exist, consider ways to improve growth effectiveness with an integrated approach to achieving economic mutuality. Here are three places to get started:
#1 Understand your numbers.
Increasing top-line revenue is a table stake in any business, but not all revenue is created equal. Look beyond revenue alone to better understand client profitability and the strength of the firm’s overall portfolio. Prioritize investments in long-term, high-value clients, but also understand how those clients became top revenue generators to see if there are opportunities to find others.
#2 Invest in client experience.
Be explicit in defining client experience standards and behaviors before, during, and at the end of client engagements. This not only helps firms retain their best and most profitable clients; it turns those clients into a personal salesforce that creates a steady stream of new opportunities.
#3 Understand what motivates your talent.
They say culture eats strategy for breakfast. That’s because no amount of planning and innovation will be successful without a team that is motivated to execute. Invest in understanding the shared skills, interests, and styles of attorneys. There are multiple paths to success, so tailor the tactics you choose to those that will engage your best talent. By engaging everyone on the team in the process, you promote a culture of changemakers.
To be sure, there are circumstances when every firm must disrupt the balance of interests between its owners, clients, and talent in the short term. But when the economics of mutuality are the cornerstone of law firm strategy, there is no limit to what firms can achieve.
