April 2006

Great post by Bruce MacEwen (author of the extraordinary Adam Smith, Esq.) on the Business Week article highlighting the performance of Nucor.  The full Business Week story is here.

The numbers tell an amazing story:  a 387% return to shareholders over the past 5 years, handily beating almost all other companies on the S&P Index.  Here’s a statistic I found amazing–66% of an average worker’s pay is based on performance. As a result, Nucor workers earn almost $30,000 more per year than their counterparts at US Steel.

The real story, however, lies behind the numbers.  The culture actually empowers line workers, rewards true teamwork, invests all employees in the business and eliminates the hierarchical command-and-control structure that dominates so much of American business.  At times when companies like General Motors and Ford are desperately in need of fresh thinking, the Nucor story stand out all the more.  Its an inspiring business success story, and the benefits to such creative thinking in our profession are readily apparent.

Picture this:  I’m driving to dinner with my four kids.  My wife is at her book club.  Desperate for a sound other than gameboys, I turn on NPR’s Marketplace program.  The host, Kai Ryssdal, is interviewing Anne Mulcahy, the CEO of Xerox.  She had been with the company for 30 years when she was unexpectedly tapped to be the CEO, and it happened at a time when Xerox was not doing well.  You can read or listen to the interview here, but check this out:

RYSSDAL: So what did you do? You sat down in your office that day, that very first day in the corner office. How did you start thinking about how to turn this place around?

MULCAHY: I think I began by asking for advice. I knew that we had a very tough set of problems and that my best shot was really getting some great counsel and listening to what the issues were, so I took advantage of getting counsel from people that I thought could help me, and I basically got on a plane for 90 days and talked to our employees.

I talked to our customers. I talked to industry analysts, and I should say most of that time was listening, not talking, just really getting a handle on what had happened, what the real issues were, not the superficial kinds of implications, but what were the real fundamental issues and how could we put together a plan to solve them.

RYSSDAL: When you spent that 90 days on the airplane — listening mostly, as you say — what were people saying; the analysts, and, I guess, most importantly, the people who work here at Xerox?

MULCAHY: Well, I’ll begin with our customers, who said that they loved our technology, but that our responsiveness was not what it needed to be. And the industry analysts would also agree this was a company that had great technology and innovation, but we’d spread ourselves too thin. We’d better make some pretty clear choices about who we wanted to be in the future and invest and focus on those.

And our people — and this was the most encouraging part — it was clear they would do anything that they needed to do to help this company survive. Very loyal, very strong culture, but they needed very clear direction.

RYSSDAL: Obviously, you did more things right than wrong because, first of all, we’re sitting here today, and people who know way more about this than you or I talk about you in the same breath as people like Lou Gerstner, you know? That said, you didn’t do everything right, probably. How did you recognize your mistakes and work around them?

MULCAHY: Well, there’s no question that not everything was done right, and I think, from the outside, perhaps the progress looks a little bit more brilliant than it actually was. I would call this blocking and tackling; a lot of logic, a lot of back to basics, a lot of discipline.

It wasn’t really the brilliance of the strategy. It was the discipline of the execution that turned this company around. So I think credit where credit’s due would say it would go to the people of Xerox in terms of their combined set of actions that allowed us to execute with a great deal of discipline.

Imagine!  Going to your customers and listening to what they say, even when its not positive.  Responding to their input.  Having the discipline to execute your plan.  Part of me thinks “Business Success 101.”  But the more knowing part of me can’t help but admire the rarity of this formula.  Lessons for all of us.

I was reading the “In-House Counsel” feature of The National Law Journal of April 10, 2006.  The featured lawyer was Andrew A. Merdek of Cox Enterprises, Inc.  In the section about his legal team and outside counsel, Merdek had this to say about his law firm, Washington-based  Dow, Lohnes & Albertson: “We don’t have their phone number, we have their DNA.”  Nice.  Sounds like a lawyer who is more than satisfied with his outside counsel.

And 8,784 in leap years. (If my math isn’t clear, its 24 hours per day, 365 days per year, plus another day every four years.)

After reading Gerry Riskin’s post “The Wall Street Journal Blasts Law Firms Salaries Arms Race” and Bruce MacEwen’s post “Associate Salaries: The Great Debate,” I couldn’t resist weighing in on the topic.  There are, of course, many angles from which to view this subject.  From the standpoint of the elite law firms, they look at salary as a principal means of competing for their share of the pool of “top talent”–that is, law review students from the top law schools.  The pool is not growing, but the competition for those students is.  Hence, rising salaries.

If one begins with the proposition that partners at large law firms want each new class of associates to generate profit, or at least not operate at a loss, and if we further accept the proposition that there is some limit on the hourly rate a client will pay for people who have no experience and add little to the value the client receives, then we must accept the proposition that there are practical limits to salary competition.  Not that we’re there yet.  But since revenue generation in firms is a matter of rate times hours, the practical reality is that increasing salaries will increase the number of hours associates are expected to work.  No, there will not be an announce increase in the number of expected hours.  That would be bad PR.  Hours will simply be “managed up.”

From the client’s standpoint, this means more work done on the same matters or more hours billed doing the same work.  Neither result is positive.

From my standpoint, this form of competition has a trade-off for clients. Sure, the top law firms can better compete for top talent.  But top law school talent is a lot like the draft of athletes in professional sports.  The highest draft spots do not always produce the top talent.  Start with Tom Brady and then continue with the scores of other examples.  The same is true in the legal world.  Big New York firms use the demand for top talent to perpetuate the myth that they have the corner on talent, and that PR works to a significant albeit eroding degree, but savvy consumers are now looking to those firms as useful only for exceptional matters, where the Board wants name comfort. 

Aside from that PR value, I believe that better training, reduced turnover and greater investments in associates will produce better results for smart firms.  And in the meantime, chalk about another strike against an economic system based on time rather than value.