“Hope is the denial of reality. It is the carrot dangled before the draft horse to keep him plodding along in a vain attempt to reach it.” – Margaret Weis
Most business people are familiar with Built to Last and Good to Great, both terrific books by Jim Collins. He published a less known book, How The Mighty Fall, that I like a lot. In it Collins describes a phase that many struggling companies go through — the phase of Denial of Risk and Peril.
Denial is a phase that I have seen many-troubled law firms go through; unfortunately for some it is the final phase prior to dissolution.
There are two primary scenarios in which denial can seem to magnify (or even hasten) the decline, and intensify the struggle:
- Undervaluing (or underestimating) the risk associated with a significant undertaking; or,
- Disregarding mounting evidence of decline.
Denying the Risk Associated With Major Initiatives
Struggling law firms often entertain significant changes (to the firm or in its culture) in order to “right the ship.” I define a major change as one that, if it were to go very wrong, might trigger the demise of the organization. Some examples include:
- Downsizing through the termination of individuals, groups or offices;
- Acquisition of another firm or practice;
- Being acquired;
- Restructuring management/governance; or,
- Modifying the compensation system.
Major changes are often necessary for a struggling firm, to be sure. However, a move from the frying pan into the fire is to be avoided. The overwhelming tendency is to undervalue the risk associated with major moves. To counter that tendency the prudent leader will seek to have the “worst case” scenario fully developed and discussed prior to decision-making. It is best to initiate major change with caution and counsel.
Denial of the Evidence of Decline
By definition, struggling law firms are operating in variance to desired levels. In the most extreme of cases – failed law firms — it is typical to find that there was mounting evidence indicating a decline – evidence that was discounted or ignored. Examples of mounting decline include:
- An increase in the level of undesired attrition/turnover
- Increased debt
- Declining profit margins
- Falling revenue levels
- Loss of meaningful client relationships.
SUCCESSFUL LEADERS RESIST DENIAL
Law firm leaders must be vigilant in monitoring the performance of the organization. Steps should be taken to ensure that the firm doesn’t veer too far for too long, from operating performance norms or targets. The longer the firm operates in variance, or the greater the degree of that variance, the stronger the corrective action needs to be. And the more frequently the performance needs to be monitored.
Often the leader of a law firm in decline becomes more insular, protecting the firm from “bad news” and trying to prevent alarm. The prudent leader will honestly communicate with confidence and conviction, while broadening the number of people from whom input and advice is solicited.
Is denial adversely impacting your firm?