Leadership is the foundation of any industry or organization’s future. In any organization, leadership is influenced by historical background and then creates culture. Creating a culture that leads to a future of 1) revenue generation and growth, 2) profitability, 3) customer retention and satisfaction, and 4) retention, if not engagement, of the organization’s workforce, begins with empowered leaders with specific skills.
A strong correlation between effective leadership and organizational performance repeatedly shows up in research studies across industries. In one study of law firms, lawyers who communicated and interacted well with each other on different cases and for a multitude of reasons, correlated with a significant reduction in client attrition and revenue decline after the relationship partner departed. Communication is a central leadership skill.
The Financial Value of the Right Leadership Development Programs
Leadership development dollars yield a substantial return on investment. Skilled leaders retain and engage their people. The cost of losing employees or having a workforce of employees not highly engaged is high. The effect of leadership development on employee retention, satisfaction, and engagement is substantial. Engaged employees go the extra mile. They perform at consistently high levels. They improve productivity and profitability.
Compare:
Albert and Andy are associates in your law firm. They are paid the same salary to do the same job. Albert comes to work a little bit late and leaves a little early. He completes his work but never early and just barely on time and usually in need of revisions. He never volunteers to help others and doesn’t appear to be interested in your business or industry. Andy often shows up early to work and stays late, especially if others need his help or deadlines are approaching. He often completes his work early and it rarely needs any revision. He is always talking about events in the world that relate to your business and industry. Which one is giving you the better return on your investment in their salary and benefits?
It’s obvious that Andy is the keeper if you assume that Albert is the problem. Without critical thinking skills, another central leadership ability, people jump to conclusions based on limited and faulty assumptions. What if instead of making assumptions, you investigated the problem and discovered that Albert and Andy reported to different supervising attorneys? What if a pattern showed Albert’s supervisor generally had associates who were unhappy, disengaged and didn’t perform as well as other associates in the firm?
Employee engagement, commitment to stay (or intention to leave), and satisfaction are indicators of the risk of losing people—the most important and expensive resource in a professional services firm. The cost of turnover for a software engineer has been estimated at between $200,000 and $250,000 for each lost employee. What is the cost to your law firm of losing one skilled lawyer?
The Research
- Employee job satisfaction in 62 healthcare facilities was positively related to leadership competencies after a leadership feedback program. Satisfied attorneys are less likely to leave.
- A study of 7,391 leaders in hundreds of different companies showed that employee satisfaction and commitment increases with leadership effectiveness.
- A large insurance company found that leaders in the top 10% of effectiveness matched up with a reduction in turnover of 10%. Reducing turnover directly affected profitability, customer satisfaction, and claim-resolution speed.
- A study of more than 7,000 leaders from hundreds of organizations reported that 50% of employees working under leaders who fell into the lowest percentile of effectiveness were thinking about quitting, while only 15% of those working under leaders who were in the top 10% of effectiveness were thinking about quitting.
- A study of work groups in hundreds of organizations showed that only 13% of employees of leaders who were in the bottom 10% of effectiveness were highly committed, while 57% of employees of leaders who were in the top 10% of effectiveness were highly committed.
- A study of a Fortune 100 financial services company found that by training and developing each average or low-performing executive to become one standard deviation better on the key competencies that drive high performance, the company would generate an additional $467,000 per executive in first-year commissions while reducing turnover costs by $580,000 per executive. Leaders who know how to drive results are also self-aware and able to manage their behavior to become effective at client development.
- A leadership development program for vice presidents of a private label sales and marketing organization reported that changes in observable behaviors related to the following leadership competencies were positively correlated to profits, turnover, and actual net: customer focus, interpersonal communication, results orientation, decision quality, ethics, and values.
- Net profits at a mortgage bank varied considerably based on the effectiveness of its leaders. Leaders in the bottom 10% of effectiveness lost over $1 Million in net profits, while those in the top 10% doubled the profitability of the average leaders and generated over $4.5 million in net profits.
- In a study done with a high-tech communications company, leaders in the top 20% of effectiveness were rated an average of 82% in customer satisfaction, while those at the bottom 20% were rated an average of 21% in customer satisfaction. Happy clients return and also become your brand advocates.
This is compelling evidence that developing leadership skills spurs organizational performance improvements.
The Right Leadership Development Programs
Leadership development need not be expensive to be effective. However, it needs to:
- be championed by prominent and highly empowered organization leaders
- be properly resourced with time, space, and money
- be led internally to change the culture
- incorporate the workplace issues that participants face
- focus on the right skills using the right methods
- be spread over at least six months
- be attended by people, who are motivated to develop their leadership skills.
Five specific leadership skills are correlated with high organizational performance: 1) self-awareness and self-management; 2) communication; 3) developing others; 4) driving results, and 5) critical thinking. Self-awareness and self-management cut across all others. Without the leader’s ability to collect and reflect on feedback about how others perceive them, developing the other skills is impossible. If your law firm is losing associates it wishes it could retain, wouldn’t you want to discover why and look for areas to improve? If your associates aren’t as productive as you expect, your leaders may not be inspiring them to “go the extra mile.” If you aren’t retaining clients, wouldn’t you want to seek and address the reasons?
Leadership skills are developed through practice. If participants cannot integrate and apply their learning in the office, the best content will change nothing. The methods should be experiential and include individual assessments, goal setting, and assignments that use the new skills outside of the formal delivery of the course.
The evidence correlating leadership with organizational performance should be enough to make a compelling business case for leadership development in law firms. It isn’t. It should inspire the support of all empowered partners, who can drive the transformation forward or hold it back. It doesn’t. The evidence implicitly says, “don’t waste your time and money on any developmental efforts that aren’t clearly tied to behaviors that drive client, associate and staff retention and engagement or revenue generation, productivity and profitability in organizational performance.” Yet, there is still resistance.
The Problem
Even when the connection between organizational performance and the right leadership development program is clear, the people with the power to champion and drive leadership development are held hostage by annoyance at the disruption that comes with any significant organizational change or don’t understand a change of this type and magnitude. Any seasoned leadership and change consultant has seen this reaction to a leadership development program that intentionally creates a culture to drive organizational performance.
These emotions overwhelm and drown out the financial arguments and benefits repeatedly demonstrated with the right leadership development efforts. Many firms have immediate imperatives to grow revenue, increase profitability through efficiencies and cost-cutting, retain clients, expand their client base, and retain, if not engage, staff, associates, and partners, yet the leadership-grounded strategies to make that happen aren’t part of their plan.
They try to grow revenue and client base, only through acquisitions of other practice groups or partners. They improve profitability only by cutting expenses including attorneys and staff and sometimes by introducing new processes and technology to manage a project, matters, and clients more efficiently. They expect relationship partners to keep clients happy. They assume they will retain and therefore rarely engage staff, associates, and partners. Evidence suggests that these stand-alone strategies will work better when the people implementing them have the right leadership skills.
Conclusion
The pace of change in law firms today—new technology, changes in practice demand, satisfaction criteria for clients, partners, associates, and professional staff—require leaders to have critical leadership skills to continually improve business performance. Every firm needs leaders with the right skills if they expect to retain the right clients and engage their people to go the extra mile.
About the Author
Susan Letterman White is a practice advisor at Mass LOMAP, adjunct professor of leadership at Northeastern University, and the managing partner of Letterman White Consulting. Contact her on Twitter @susanletterman.