Do you ever actually look hard at your firm’s overall business structure?
Let’s go a step further. Stipulating arguendo that you are one of the rare few who do every once in a while take a hard look, what do you then actually do about it?
I submit that we have in two seemingly painless steps moved from 100% of Law Land to (say) 15% (“a hard look”) to, based on all publicly available evidence, some number asymptotically approaching zero (“what do you then actually do?”).
Comfortable, understandable, even up to a point excusable for the gilded few—you, and we, know who you are—but for the civilians among us, this will not do.
Markets, competition (including “substitutes” and good old doing-without), client preferences and demands, and the preferences and demands of talent, all change. National economies advance and recede in importance, as do the economies of cities and particular industries. The industry sectors clients are in are now more, now less, regulated, now more and now less global, now more and now less in ferment.
Yet the good ship of your law firm tends to sail on, on a course charted long ago if ever (purposefully charted, that is) as if the world were the same as it was five generations ago, or one generation ago, or five years ago.
How likely is it that your absentee-helmsman navigation is the right course?
These thoughts are brought to the fore by the news that General Electric is dismembering and selling off GE Capital, its massive financial arm. Why? Simple:
GE Capital’s share of GE’s revenue: 42% in 2008, 28% in 2014
And its share of profit: From nearly half (2008) to barely one-quarter (2014) to maybe 10% (2018).
Making this decision is simple, that is, only if you’re “not a sentimentalist,” as CEO Jeffrey Immelt put it. The deal, “Project Hubble” as it was internally known, was put together in six weeks: Doesn’t sound too sentimental to me.
Not being a “sentimentalist” may be, for lawyers, the hard part. The numbers pretty much speak for themselves (courtesy The New York Times and The Financial Times):
Being unsentimental means not just gazing at the vivid picture these charts portray, but actually doing something about it.
Not only was GE Capital as a percentage of GE shrinking, but of course the regulatory environment for too-big-to-fail institutions (“SIFI’s” in the unlovely coinage) was also becoming parlous. This is exactly the kind of exogenous change I was alluding to when I opened this column. The FT put it bluntly in its headline on the deal: GE Capital succumbs to the regulatory climate.
In deciding to rid GE of financial services, Immelt was doing nothing so much as taking seriously John Maynard Keynes famous observation, paraphrased by history as “When the facts change, I change my mind. What do you do, sir?”
And since you asked, the stock market loved it: GE was up 11% on the announcement, to a level not previously seen since before the Great Meltdown. What Immelt has done at a stroke is as decisive, and as simple, as transforming the company he inherited from Jack Welch: Call it back to the future if you care to, but GE, the longest surviving member of the Dow 30 industrials, is once again 90% an industrial company.
So I leave you where we came in: Have you really (really) looked at your firm lately? And what are you going to do about it?
(Originally appeared on AdamSmithEsq.com. Reprinted with permission.)