How to hold on to star talent
Law firms and other professional services outfits are often victims of the talent drain. The solution? Generosity.
by Jeffrey Pfeffer, Business 2.0 Magazine contributor

(Business 2.0 Magazine) -- Whenever someone from a big professional services firm utters that trite phrase "People are our most important asset," I have to laugh. Because, frankly, people management at those kinds of companies is notoriously horrendous.

A 2003 survey of lawyers reported that 62 percent of women and 47 percent of men intended to stay with their current firms for less than five years. The estimated cost each time someone leaves? About $315,000 per head.

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One law firm I worked with a few years ago had promoted or hired 160 partners during a five-year period - but had lost just as many over the same time. It's a big problem, since a study of 80 law firms that had dissolved found that inability to retain key partners played a critical role in their demise.

Accounting firms, investment banks, and management consulting companies all face turnover challenges. Even recruiting companies experience annual turnover of 20 to 25 percent.

So it was with some skepticism that I listened recently as David Teece, a University of California at Berkeley business school professor I've known since the early 1980s, told me he had figured out how to solve this problem and had actually implemented the solutions as chairman of LECG, a highly successful publicly traded expert-services company.

He described an enviable record: The company has grown from about $25 million in revenue in 1995 to $300 million today, with a comparable rise in profit. LECG (Charts) has been able to hold on to almost all of its rainmakers and has been able to attract new people at a prodigious rate.

For instance, in 2004 it grew its number of experts by 47 percent. It's done that by attacking some of the core contributors to worker churn: long hours, little attention to work-life balance, poor supervision and mentoring, and the pernicious politics of pay and promotion - the idea that it's who you know and your ability to attract powerful sponsors, rather than your performance, that determine success.

A simple solution

LECG's management approach has several elements that make complete sense but are often totally absent in professional services companies. The first is that even though the company is publicly traded, it takes care of its experts before the shareholders and everyone else.

At a typical firm, management committees set compensation levels subjectively and people earn a small fraction of what they bill. At LECG, director-level employees receive 70 to 80 percent of their hourly billings as compensation, and less senior consultants get 30 to 60 percent.

This means that not only are workers paid better, their pay is based on what they do, not on the firm's profitability. Because people get a fixed percentage of their billings, there isn't, as Teece put it, "worn carpet leading to higher-ups' doors" from people wheedling their way to bigger bonuses.

Autonomy

A second element of the LECG model is to operate a very decentralized management hierarchy in which the professionals get to decide things for themselves. Think you need to go to a conference?

LECG pays half, no questions asked. Want to publish a paper? It's encouraged. If a group of people is responsible for bringing in a contract, how is the attribution fee allocated among the group? The members decide. Teece says the appeals process set up for impasses or disputes in these decisions has never been used in the 18-year history of the firm.

The benefits of this system are many and obvious.

First, the company doesn't have the enormous costs associated with HR staff and layers of management.

Second, because employees are given autonomy and held responsible for results, LECG has an attractive work environment for top talent. Highly skilled people - actually, all people - like autonomy. At this company they actually get it.

Maybe even more important, the key insights that guide the firm's management apply to any business: Turnover is expensive, the ability to attract top talent is a key competitive advantage, and it costs a lot to have loads of people telling others what to do.

So being generous, with the distribution of both revenue and decision-making authority, is actually good for a company's bottom line.

Business 2.0 columnist Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at Stanford University's Graduate School of Business.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.