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AUWIEDERSEHEN VS GOODBYE AT LAW FIRMS

The 2005 Nobel Prize for Economics was awarded to Robert Aumann and Thomas C. Schelling. Schelling is professor of Economics at the University of Maryland and applied game theory to conflict. His focus was on the weapons issues but his ideas have been applied to a host of business issues.

In this column we will apply some of Shelling's concepts to how law firms fire attorneys.

Schelling says "uncertain retaliation is more efficient than certain retaliation" when bargaining and "the capability to retaliate is more useful than the ability to defend." Now let's get practical.

GOODBYE SCENARIO

As a verb, "goodbye" is the act of parting. It is also an acknowledgement of parting. A goodbye scenario assumes that once attorneys physically leave the building, they will never be a factor for the firm's future. The relationship was transactional and the transaction is now over.

If the firm defines the termination as a goodbye scenario, the firm should be guided by a business model that says, "What's the least expensive way of terminating this relationship?"

AUWIEDERSEHEN SCENARIO

"Auwiedersehen" is German for "Until we meet again." It has a more open-ended quality than the English "goodbye." In an auwiedersehen scenario, the assumption is that once attorneys physically leave the building, they may continue to be a factor in the firm's future. But it is unclear what that factor may be.

They may go in-house and become potential allies or opponents in the firm's efforts to gain/keep a corporate client.

They may join other law firms and become potential referral source for your firm or a potential source of caution to others about making referrals to your firm.

They may attend alumni programs at their Law School and encourage/discourage graduates from joining your firm.

Each of these scenarios assumes capability of retaliation plus uncertainty of retaliation.

The best practical defense for a law firm is a model that says,"Treat people with dignity on the way out because the assured costs of such treatment are less than the potential downside retaliatory risks.

AUWIEDERSEHEN VS IT'S NICE TO BE NICE

Some law firms treat departing attorneys with dignity on the grounds that "it is good public relations and good for morale if we are nice to people on the way out." This positive rationale works only in law firm culture supports such a rationale.

The auwidersehen rationale does not depend on a specific culture of treating people with dignity.

It develops a contingency approach to management based on a risk assessment.

There may be times when a "goodbye" scenario does indeed make good sense. There are other times when "auwiedersehen" makes better economic sense.

In applying Professor Schelling's theories, management's failure to take defensive measures with those possessing abilities and options to retaliate is bad economics.

REFERENCE: Thomas C. Schelling. THE STRATEGY OF CONFLICT. Boston: Harvard Press, 1980