Why Law Firms Need Non-Executive Directors

Topics: Law Firm Profitability, Law Firms, Leadership


Until recently and certainly before the failure of Howrey and then Dewey & LeBoeuf, the bankruptcy of a large law firm had been regarded as nearly inconceivable. In examining what went off track and in my article, Malignant Leadership, I reported that

too often, boards and/or executive committees facilitate firm failures by denying, overlooking, or ‘working around’ crucial issues.

In that same piece I cited a number of governance steps that firms might consider. One of the notable differences between the top U.K. law firms and top U.S. firms is that almost one-in-four (24%) of the U.K. firms now employ one or more Non-Executive Directors (NED) on their boards. Even more interesting, in a study released late last year, those law firms with at least one NED have seen revenues grow by one-third more than those without. In yet another research study, this one commissioned by BDO and published in April: Nearly one-third (33%) of the global firms had at least one NED on their board.

Law firm NEDs have often been drawn from a pool of retired law firm leaders, accountants and management consultants. None of the U.S. firms surveyed had any independent advisers involved in their firms’ governance. U.S. lawyers continue to be skeptical about the value an outside expert might bring.

Yet, the use of non-executive directors has grown significantly. Lovells was known to have appointed the first non-executive director back in the early 1990s and attested to the benefits of taking such a move. In raising this topic with Fred Lautz, Managing Partner at 480-lawyer Quarles & Brady, he offered this observation:

We have assembled a few partners who we call investment partners. They are attorneys who were partners in the firm at one time, and then went on to become business executives. After retiring or otherwise completing their executive roles, some of them have been willing to commit some portion of their time, under contract, to assist us in business development. We ask them to leverage their significant business contacts and community and business profiles to help position us to be in front of developing legal needs which fit our strategic imperatives. I frequently confer with a number of these investment partners on matters of firm business, service delivery, client relationships and Firm growth. I find their experiences in the business side of things (and in some cases as purchasers of outside legal services), coupled with their knowledge not only of the business and operations of a professional partnership generally, but of ours in particular, provide terrific perspective and insight for me as I lead our Firm. So, while we have not formalized any advisory board of outside business folks, I can certainly affirm the value of tapping into people with this type of experience.

I believe an NED can provide any law firm with a number of benefits, such as:

  • providing a dispassionate external view of the firm together with business experience and new concepts;
  • making a contribution to the firm’s strategy and market performance;
  • acting as a vital sounding board and an outside voice to challenge current thinking and practices;
  • strengthening the firm’s management and providing an objective view;
  • delivering a fresh perspective and opening up opportunities for how the firm might access new revenue streams; and
  • objectively assessing the firm’s performance and making recommendations for improvement.

Key areas that NEDs might be consulted on include governance, complex partnership matters, areas of risk management, changing partner performance evaluation, financing policies, along with many of the marketing and strategic challenges that today’s firms are facing. The ‘right’ NED can also be engaged in the role of leadership coach, helping the Managing Partner who may be an excellent attorney, but with limited leadership and management experience.

Lawyers recognize that it is good practice for their clients to involve external non-executive directors on their boards, yet law firms seldom adopt this practice themselves.

It is important that NED’s are focused on matters at the Executive Committee or Board level and should not be involved in the day-to-day operations of the firm. An outside NED should have a more objective view of external factors affecting the business than the partners and should not be afraid to comment and contribute accordingly in the longer-term interests of the firm.

Lawyers recognize that it is good practice for their clients to involve external non-executive directors on their boards, yet law firms seldom adopt this practice themselves. It is often claimed that only partners really understand the business or enjoy the necessary respect, and that elected partners don’t have the necessary oversight function. Yet non-executive directors are perfectly capable, in the corporate world, of commanding respect and of calling management to account on behalf of the shareholders. They can also use their outside experience to advise, and to challenge the sacred cows which tend to develop in any inwardly-focused organization. Thus they can help the board to see things from a different perspective, and to spot unforeseen risks and opportunities.

Perhaps it is time for law firms to adopt a similar strategy to what most of our corporate clients have been doing for decades. Indeed, many partners believe that their own firms need to apply a few more of the proven rules of good governance that they themselves recommend to their clients.