We spoke to several experts working in the ESG arena within the legal industry across the world to see what developing issues they see as critical ones to watch. These are what they considered the five most important themes for the year ahead:

1. Supply chain transparency

Supply chain diversity and transparency of material issues around ESG will mature because of upcoming deadlines on reporting by regulators in the United States, United Kingdom, and the European Union.

“As law firms realize that they are actually just a vendor in somebody else’s supply chain, they must recognize the need to start making efforts to comply with regulations,” says Aragon St-Charles, Global ESG Officer at Dentons, adding that these regulations are increasingly being driven by new reporting rule-making by U.S regulators and implementation of existing E.U. Corporate Sustainability Reporting Directive regulatory mandates in reporting that are coming in effect in 2024.

Omar Sweiss, CEO of JusticeBid, a technology platform that helps corporate law departments expand efficiency in outside counsel selection and gain increased transparency on ESG topics for Tier 1 and Tier 2 suppliers, agrees. “A burgeoning area of focus coming in 2023 is that every vendor in the legal space, not just law firms, is really going to have to start thinking about their own supplier diversity programs,” Sweiss explains. “Up until now, the majority of these players in legal have been immune to supplier diversity efforts. I believe this is going to change dramatically in the next 12 months.”

2. The growth of ESG benchmarks, scorecards & frameworks

With an expanded collective understanding of ESG material issues for the legal industry, custom frameworks for the industry too will evolve. The beginning of this trend started in the last 24 months, as numerous outside parties began offering up metrics in the ESG space.

For example, impactvise provides a comprehensive measurement of law firms internal ESG strategy; and the Law Students for Climate Accountability focuses on law firms’ client work around climate in litigation, lobbying, and transactions. While Diversity Lab’s Mansfield Rule provides a measurement for diversity, equity & inclusion as part of the social part of ESG.

3. Increased legal risk for law firms

Clients are starting to make ESG demands about corporate values and positions that present a potential risk for multinational law firms, observes St-Charles. There are important implications for this growing trend regarding the rule of law and the right to representation for multinational law firms. To illustrate how the risk shows up, imagine a client working with a partner at the U.K.-based office of a law firm who asks the firm to agree to terms that contractually prohibit it from working with fracking companies, even in other countries. If that law firm is working with such clients in other jurisdictions, then agreeing to this could contractually open up the firm to legal risk.

4. Biodiversity as an emerging dimension of the “E”

The critical need to retain abundant biodiversity is an issue requiring closer attention of the legal sector, notes Adam Woodhall, chief executive for Lawyers for Net Zero, a non-profit initiative launched in mid-2021 that supports general counsel and their teams to drive action on climate and ESG within their organizations. Indeed, governments from around the world — as part of the United Nations — gathered in December 2022 to agree on a new set of goals to guide global action through 2030 in order to halt and reverse nature loss; and the Taskforce on Nature-Related Financial Disclosures, a financial services industry advisory group whose members represent more than $20 trillion in assets, is expected to release its final risk disclosure framework in Fall 2023.

5. Increased pressure to speak out on controversial events

Law firm leaders are increasingly caught in the middle between activism coming from employees, clients, and politicians on one side of a hot-topic issue and another group of clients who may be on the opposing side. For example, we’ve recently seen corporate clients that are leaning into ESG actions, such as enacting net zero commitments, while expecting their supply chain partners to do the same; yet, on the other side, a small group of members of the U.S. Congress warned law firms in a recent series of letters about the “collusive effort” to restrict fossil fuels.

To successfully navigate these events, law firms should “think through the process of if, when, and how to respond and address it from the law firm’s values,” says Gayatri Joshi, former Executive Director of the Law Firm Sustainability Network and a Partner at Vorgate Legal ESG Impact. Indeed, many law firms already have been doing this during the Ukraine/Russia conflict, either by making public statements or internal statements to their employees or clients describing the impact of the this event on the firm and its stakeholders.

Although the ESG issues that stakeholders care about differ across the legal industry, the fact remains that ESG will only increase in prominence for legal organizations in 2023 because of the many external factors — regulations, clients’ ESG strategies, politics, and activism among stakeholders — that influence the industry.

That means, law firms should proceed with introspection and caution.

“Law firms need to get their own house in order if they do not want to run the risk of losing and not attracting new clients,” says Adrian Peyer, Co-Founder & CEO of impactvise. “Until now, the ESG performance of a law firm has been ‘a nice to have’, but 2023 and beyond will move it to ‘a need to have’.”

Woodhall, of Lawyers for Net Zero, agrees, highlighting the unique role of general counsel. “The foundation of our society is a livable planet, so savvy GCs and their teams are supporting their business to be part of the climate and biodiversity solutions, as well as providing the social and governance advice which helps nurture flourishing businesses and society.”

The number one reason for this lack of ownership mentality is that “most lawyers aren’t raised to think of the practice of law as a business,” says Elaine Fitch, of Kalijarvi, Chuzi, Newman & Fitch. “They become lawyers because they want to be lawyers, not business owners.”

This in turn leads into the personality traits of the kind of people who select law as a career. Many lawyers become lawyers precisely because they do not see themselves as future business owners, but rather as practitioners of a craft. “Their personal commitment to their craft is what often allows them to be great at what they do,” notes Joshua Driskell of Lagerlof. “When stepping into an ownership role, they might often feel as though they have a less intimate connection to their practice.”

Another obstacle to developing an ownership mentality is lack of training. Most law schools do not include any education or training in the business of law, and that is unfortunate. “The consequences of the lack of this training often shows up down the road,” says Brian Temins of Minden Gross. “Making the transition to owner isn’t as easy as just changing a title — training and preparation need to go into it.”

Indeed, adds Bijal Vakil of Allen & Overy, having business acumen “is just as important for obtaining work and retaining it.”

“Most lawyers aren’t raised to think of the practice of law as a business. They become lawyers because they want to be lawyers, not business owners.”

Often firms are not intentional about exposing their lawyers to the business side of the firm. And this problem starts early because many law firms encourage young attorneys to focus on developing their legal skills, rather than on developing a book of business. As their practice builds, these lawyers tend to focus on getting their legal work done, and perhaps never develop and understanding of why they do what they do. Instruction on why the work matters to the client, and how lawyers’ time is billed and collected, as well as how new work comes to the firm, may broaden attorneys’ focus beyond the day-to-day legal work.

Another possibility to consider is that an attorney may, in fact, already have an ownership mentality, but the more senior attorneys are not allowing him or her to express that. If senior partners insist on doing things the way they have always been done, or are not welcoming toward new ideas, other partners will have little incentive or opportunity to demonstrate an ownership mentality.

What’s a firm to do?

Many law firm leaders that were interviewed emphasize “drawing back the curtain,” and involving more attorneys in the business of the firm. This approach requires transparency and education at all stages. Tom Segars of Ellis & Winters recommends starting early by “involving young lawyers at every step of the initial client intake and billing processes, including conflicts checking, initial consultations, discussing terms of engagement, preparing an engagement letter, and editing invoices.”

David Lackowitz of Moses Singer, agrees, saying that transparency means sharing information. “Just like in other industries, [the attorneys] should be provided with data about lawyer productivity, revenue, expenses, hiring and firing, strategy, goals, etc.,” says Lackowitz, adding that such information given to attorneys at the beginning of their careers is the first step in creating an ownership mentality.

Too often, however, firms keep financial information within a small, tight circle. In some larger firms, even seasoned partners may not have access to important financial information. Instead, firms should share as much information as possible to encourage ownership mentality among their lawyers. “When people understand the mechanics of the business and feel like they have skin in the game, they are more likely to work harder for [the firm] rather than just themselves,” observes Sean Dolan of Evans & Dixon. Information is power and can lead to open discussions and improvements to the overall firm.

Law firms should start this process early by involving associates in the client relationship. This simple commitment goes a long way towards instilling an ownership mentality. When associates see how clients use and value their work — including knowing that the client has paid the bill for the work — associates then feel a sense of ownership to the client relationship.

Involving associates in the entire project creates a sense of ownership, while simply assigning tasks insures they develop purely a task orientation, explains Mickey Maher of Hecht Solberg. “If a younger lawyer hasn’t experienced the opportunity to take ownership of matters or some piece of client relationships, the lawyer will be less likely to take ownership in the enterprise of the firm over the course of his or her career,” Maher adds.

Indeed, firms should take this one step further — let younger lawyers play significant roles in hearings, depositions, trials, and more, especially as they become more senior. Introduce them to clients and encourage clients to contact senior associates directly with questions.

Heather Linn Rosing of Klinedinst observes that “the things that law firms can do to instill an ownership mentality in those up for partnership are the same things that firms can do to promote retention.” These include fair compensation, wellness programming, a commitment to the community, and a mechanism for employees to express their opinions and participate in the betterment of the organization.

Many of the leaders interviewed also emphasized the importance of active mentorship by senior lawyers, as well as active sponsorship for attorneys, and especially for women and diverse attorneys.

Promoting teamwork

While it is often challenging to motivate lawyers to participate in activities beyond their normal billing hours, firm activities that promote bonding, teamwork, and cross-selling are valuable in reinforcing ownership mentality. Involving lawyers on firm committees, such as recruiting, can help to instill an ownership mentality within them, says Heidi Yernberg of Jayaram Law. This activity brings “[the] entire team into operational issues from the beginning, involving associates in a wide range of areas, from project management and workflow to reviewing bills and budgets, to fostering business development relationships, encouraging thought leadership and more,” Yernberg says, adding that group activities, no matter what they are, instill a connection and sense of responsibility to others in the firm.

Developing a strategic plan, with the input of all attorneys and staff, is a way to encourage involvement and ownership. The plan should be consulted and reviewed on a regular basis, so that all stakeholders can see how it is being utilized to determine the direction of the firm.

“When people understand the mechanics of the business and feel like they have skin in the game, they are more likely to work harder for [the firm] rather than just themselves.”

Indeed, Mary Vandenack of Vandenack Weaver encourages her lawyers to develop their own practice plan and “that plan should be incorporated into the firm plan.”

At Ellis & Winters, a North Carolina-based litigation and commercial real estate firm, they take it further by having their director of Client Services & Business Development work with each attorney to develop an individual plan for business development, focusing on the lawyer’s interests and strengths, while holding each lawyer accountable for implementation.

And finally, accountability is a large part of this process — and often, it is the hardest part of the equation as managing partners often have difficulty holding their partners accountable. “I would give them actual business responsibilities,” says Marco Antonio Gonçalves of Veirano Advogados in Brazil. “A make them accountable for [those] responsibilities, as well as for what is expected from them as a firm partner in the long run.”

To reinforce what it means to be a partner, Fairfax, Va.-based patent law firm Harrity & Harrity conducts partnership skills training that requires new partners to meet with the managing partner on a bi-weekly basis to review scenarios, such as hiring or firing an employee, or how to deal with a potential malpractice issue. When a partner has an ownership mentality, they hold themselves accountable because they want their firm to improve and succeed in every way possible.

Clearly, creating an ownership mentality among firm partners is not easy. Often, all a law firm can do is provide training, resources, opportunities, and support. It’s up to the individual lawyers and partners to fully embrace being a law firm owner and all that it encompasses.

Indeed, one key metric — profits-per-equity partner (PPEP) — is down for the first time since 2009, which occurred during the last global financial crisis.

This scenario and lessons in how law firms are attempting to navigate these choppy waters is mapped out in the 2023 Report on the State of the Legal Market, issued today by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute.

The annual report reviews the performance of U.S. law firms and breaks down the factors that most impact financial success and drive the need for a strategic view of firms’ market positions, operations, and future plans.

This year’s report shows that throughout 2022, growing political and economic uncertainty significantly reduced clients’ appetite for transactional work — which had become the white-hot driver of demand throughout 2021 and the early part of 2022. Indeed, possibly the most prominent development in the legal industry in 2022 was the substantial slowing in demand growth that firms experienced throughout the year. On a year-to-date basis through November 2022, overall legal demand contracted by 0.1%, which stood in stark contrast to the 3.7% growth rate recorded for all of 2021.

Not surprisingly, this collapse in demand growth, especially in the transactional practice, fell more heavily on larger law firms. At the same time, many law firms continued to add new lawyers at a healthy pace. As a result, productivity declined, even as direct and overhead expenses remained high, much to law firms’ dismay.

The combination of all these factors pulled down PPEP from its 2021 levels, although it still remains in a relatively good position historically.

However, the report shows that growing uncertainty over macro-issues, such as economic sluggishness in the United States and throughout the world, the challenge of returning to the office, and the rising costs of talent all set the stage for a very difficult 2023 for the legal industry.

One interesting note to the report was the relative strength of the Midsize law firm segment, which stood alone among other market segments in seeing positive demand growth in 2022. The report attributes this to clients’ willingness to move work in search of high-quality but more cost-effective outside counsel.

Looking to the leadership of Luis Urzúa

The report also noted that in times of uncertainty, organizations have a tendency to hunker down to protect against both real and imagined dangers. To steer a firm successfully through such periods requires leaders to embrace somewhat different priorities and be willing to experiment with new ways of operating.

To illustrate further, the report relates the incident of the terrible mine collapse in Chile in August 2010 that trapped 33 miners for 69 days deep underground. Facing certain catastrophe, the miners rallied around their shift foreman, Luis Urzúa, who was a recognized leader and trusted by the men.

The report notes that Urzúa’s leadership skills were a key reason that the miners survived. Taking note that organizations rarely if ever face uncertainties as severe or as consequential as those that confronted the Chilean miners, the report states that nevertheless, it is often in extreme situations that critical leadership traits are most visible.

Urzúa’s leadership manner emphasized telling the truth, requiring teamwork, and staying focused to great success. It allowed his team of miners to concentrate on the singular task at hand — surviving their ordeal together — despite the dire circumstances in which they found themselves.

The report also suggests that as law firms confront a period of significant economic and market uncertainty, the lessons that were exemplified by the leadership of Luis Urzúa can provide some useful guidance for many law firm leaders as they navigate the uncertainties of 2023 and beyond.

You can download the full “2023 Report on the State of the Legal Market” by filling out the form below:

The Great Recession and its fallout saw the introduction of two relatively new concepts into the legal marketplace: the alternative fee arrangement (AFA) and the rise of in-house legal operations and procurement. Prior to the recession, the typical pricing arrangement between a client and a law firm was a relatively simple matter of the firm setting a rate, billing the client, and the client then paying the bill.

As clients increasingly turned to their legal operations and procurement teams to help drive down their own legal costs, the billing arrangements between clients and law firms became more complicated. Enter the age of the AFA, a plethora of pricing options encompassing capped, collared, and fixed fees, rebates, volume discounts, and much more.

While some law firms have had at least some members of their professional staff focused on pricing since long before the Great Recession, for many more, the idea of a dedicated pricing team has grown in importance in recent years.

In a few short years, the use of AFAs grew to nearly 20% of the average law firm’s revenues, and with the rise in revenue, so grew the need for experienced professionals to help shepherd these arrangements into being and thus ensure their success. A key part of that role quickly became having these professionals involved in direct negotiations on rates with highly trained procurement professionals on the other side of the table. In addition, law firm pricing professionals soon were responsible for other matters, such as the strategic navigation of tools like reverse auctions, which clients sought to use aggressively to contain their legal spend.

While some law firms have had at least some members of their professional staff focused on pricing since long before the Great Recession, for many more, the idea of a dedicated pricing team has grown in importance in recent years.

For many firms, this has resulted in fierce competition for experienced legal pricing talent to lead these critical pricing functions. Compensation has followed demand across the industry, from lead roles down to junior analysts.

The True Value Partnering Institute, in collaboration with its partners, Rees Morrison at Savvy Surveys for Lawyers, and the Thomson Reuters Institute, have tracked the progress of these pricing professional for many years. To that end, the group has published its latest report, Compensation for law firm pricing professionals at the start of 2023. Launched originally in 2017, this survey has charted the growth of legal pricing professionals, not only in terms of compensation but also team composition, as well as examining where the team fits into current firm structure, and how the team spends its time.

According to the most recent findings, compensation across pricing roles has risen notably. For example, in the last iteration of this survey, chief-level pricing officers were nearing $500,000 in total compensation; the most recent results show nearly every chief-level pricing officer exceeding this threshold. Even at the director level, some highly compensated directors were earning as much annually as their counterparts with chief-level titles.

For a more complete examination of the current state of compensation and job roles for legal pricing professionals, you can access the new report, Compensation for law firm pricing professionals at the start of 2023 here.

The findings also caution against falling into the trap of assuming that salary is reflective of experience or expertise. Drawing an analogy to lawyers, one would be mistaken to assume that a higher-paid lawyer at a larger firm always provides higher quality representation than a peer at an Am Law Second Hundred or Midsize law firm — the same holds true for law firm pricing professionals. In both cases, the successful outcome of a pricing arrangement is much more closely tied to the skill of the individual, and many skilled pricing professionals can be found outside the echelon of the largest law firms.

In that same vein, the number of years a professional has been with their current law firm was not found to be indicative of compensation. Indeed, it was more common to find higher compensation among professionals with shorter tenures at their current firms. However, this is likely a reflection of the highly competitive market for these professionals. More than 50% of respondents indicated that they’ve been with their current firm for fewer than five years with near 25% reporting a tenure of less than a year-and-a-half.

The market for experienced law firm pricing talent is, indeed, competitive, and the result, predictably, appears to be high mobility and commensurately competitive salaries.

A tax department operating efficiently can go beyond providing compliance work and instead make the shift to being a proactive business unit that provides the company with tax and business guidance to mitigate risk and improve profitability. However, leaders and department heads must first understand where their department stands before thinking or wishing to become proactive.

For example, how does a corporate tax department leader know whether the department is proactive or reactive?

Being proactive — creating or controlling a situation by causing something to happen, rather than simply responding to situations after they have happened — means that the department should be organized in such a way that even though all external factors cannot be controlled, the mechanism in place can help plan for the unknown or the out-of-left-field happenstance.

The nature of the types of work done by the corporate tax department and how that work gets done is under almost constant change — the recent local, national, and international regulatory changes is just the latest example. The use of technology also has collapsed borders, allowing individuals and companies alike to traverse with ease. Like the individual, many companies can stretch into parts of the world that would have been only accessible by a few large corporations in the past.

Yet, along with this ease of crossing borders, there is a complexity in navigating it, especially for doing business. Companies can grow by reaching customers across the globe, but the cost of doing business brings challenges, such as having to work within the legal and financial systems in which the customer is located.

Corporate tax department leaders must not only navigate the tax laws of a nation, state, and local government but now increasingly must deal with multi-nation rules, especially if their companies have customers around the globe.

Some corporate tax departments might find it hard to believe that they are not proactive simply because part of the nature of this department is to predict their company’s tax liability and ensure it remains tax compliant while paying the necessary amounts of tax.

Of course, there are some telltale signs that a tax department is not operating efficiently and therefore isn’t proactive. Taking a look at these four areas can help department leaders make a proper assessment.

1. Process management

Departments that use a systematic approach to ensure adequate and efficient business processes are in place are engaging in proper process management to better align business processes with strategic goals. For corporate tax departments, there may be different ways in which data is collected, reports filed, analysis provided, and feedback given back to the business that all may seem to work. However, if they rely primarily on manual work and are multi-stepped (to the point that it takes weeks and months to complete), it may be worth asking some questions of the department’s process management.

Indeed, does process management even exist within the department? Can it be articulated clearly, shown to work repeatedly, and stand on its own? Does it only work for the individuals that helped create it, or can someone new step in and have it work the same way? If the answer to these questions is no, proper process management isn’t in place.

2. Data management

How does the department gather data? Does it feel like a version of the Hunger Games that requires seeking, finding, negotiating, and trying not to step on a land mind? Is this a manual process, collecting various spreadsheets from around the business and then entering the information into the department’s management systems? Or, can the tax department software be integrated to extract data from other part of the business? Is it seamless? Manually processing data significantly increases the chances of error, makes it challenging to verify data sources, potentially creates a tax risk, and is time-consuming.

And yet, even when technology is employed, it’s only as good as its users. Leaders should assess whether current technologies are efficient or actually are creating more work or processes for the department. Often staff — whether incorrectly trained or simply preferring to use their own methods — utilize just certain parts of a software program and rely on manual labor to do other tasks.

In these cases, workers time is not being used efficiently. Further, not having proper data management systems in place also causes bottlenecks in the work flow of department as employees wait for pieces of data in order to move forward. These inefficiencies can create a potential opportunity for risk, such as missing or incorrect data that leads to erroneous results.

3. Compliance & reporting

How long does this process take? Quite often, reporting is the final step in the process and as such, can be significantly impacted by how well or how poorly the previous process were conducted. Again, if there are many manual steps here, it will likely result in wasted time and resources while increasing the chance of risky mistakes.

4. Analysis

Corporate tax departments have always been an advisory to the business by the very nature of their role in providing tax planning. However, this role has increased as departments are now expected to provide insights into tax implications related to deal-making, mergers, business divestitures, and environmental, social & governance (ESG) initiatives to name a few. For departments that aren’t functioning optimally, leaders will find that they cannot provide useful or beneficial advice to the larger businesses because departments themselves lack the bandwidth and resources needed.

Tax departments and their leaders should strive to manage processes and data efficiently and effectively. By utilizing automation and having a clear mindset about the role of the tax department within the organization, a leader can improve the department’s work process, relieve the stress on overworked employees, and provide invaluable information to the business to make it more profitable.

Indeed, this kind of transformation within corporate tax departments has happened, led by leaders who have recognized and adjusted to the new realities of the business and taken advantage of improved technology and process management techniques.

As a result, these topics will become part of the normal course of business discourse in 2023. More specifically, here are five ESG themes that will be on the horizon this coming year:

1. ESG takes two steps closer in becoming just “business”

At its core, sustainability is about using fewer resources — natural, financial, and human — to generate increased efficiency and effectiveness in business performance, while reducing risk and identifying leveraging opportunities. John Friedman, Managing Director of ESG at Grant Thornton, advocates for the idea of calling sustainability “business” and reframing it in that way, because “no matter what you call it, it is just smart business to understand and manage those things that are levers for attracting more customers and investments [and] engaging your workforce, which all drive profitability.”

To underscore that point, a recent Deloitte study found that more than half of executives said they anticipate benefits from enhanced ESG reporting, including increased employee retention (with 52% of survey respondents citing this as a benefit), improved return on investment (52%), stronger stakeholder trust (51%), elevated brand reputation (49%), and reduction in risk (48%). Indeed, Infosys research found a strong correction between ESG and financial returns and realized financial benefits, including the lower weighted average cost of capital, according to McKinsey & Co.

2. Return to office is so 2022

Hybrid work is here to stay, and employees continue to crave flexibility. In addition, there is emerging evidence that remote working does not automatically mean a lack of engagement based on recent research of metadata gathered from virtual meeting platforms from 10 large global organizations, spoiling one of the major arguments for bringing employees back to the workplace immediately.

3. Employees still maintain an advantage over employers in major markets, albeit a smaller one

The tight labor market is likely to continue in major markets, despite the expectations of a recession in the U.S. and Europe in 2023. A key factor behind this is that labor force participation rates in the U.S. and in Europe continue to shrink over the long term. Further, attracting retirees back into the work force and shrinking net migration rates in the U.S. and the European Union are unlikely to fill in the gaps.

Moreover, one-third of European workers surveyed in mid-2022 said they were expecting to “quit their jobs, even amid the destabilizing conflict in Ukraine, rising inflation, and [as] growing fears of hiring freezes and job losses have created a difficult set of conditions for companies.” Against this backdrop, the European Commission is seeking to attract and retain foreign talent in the region through the Skills and Talents Package, a set of operational and legislative proposals to attract highly skilled foreign individuals, that was established last year.

4. Power skills get the attention of corporate boards

There is a growing need in the nation’s workplaces to rebrand so-called soft skills and instead refer to them as power skills, which can be key to motivating and engaging high-performing teams consistently, especially in the aftermath of the pandemic. In fact, “executives and shareholders are now crystal clear on the value of the human side of leadership, meaning the capability to connect with others, show empathy and compassion, be inclusive and resilient, and excel even in uncertainty.” As a result, boards of directors now want even more involvement in workforce issues.

5. The “S” rising in importance

The momentum of the human side of business has been building since early 2020. In addition, elements of the “S”  are quickly becoming a key success indicator of an ESG strategy. These include workers’ well-being, executive pay increasingly being tied to diversity, equity & inclusion goals, and pay equity and transparency, according to Brian Bueno, ESG Leader at Farient Advisors.

Jenn Ramirez Robson, Vice President of Employment Services at disability inclusion nonprofit Northwest Center, and Gayatri Joshi, former Executive Director of the Law Firm Sustainability Network and Partner at Vorgate Legal ESG Impact, both say that pay transparency and equity are emerging as issues of increasing importance, even as jurisdictions enact additional laws.

In fact, concentrating on the individual well-being aspect of ESG highlights other areas of ESG, such as a critical focus on the environment, Joshi explains. “When we can give respect and equity to all people, the S paradigm will often shift to support E.”

One aspect of how society gains greater awareness of environmental sustainability is through its impact on people, she adds. “When we don’t have equity, we don’t have equal power and choices, and it can translate to whether you can afford to live in a place free of pollution and climate risks or affording healthy food. It’s one of the reasons why the S is so important — we need all those stakeholders to have power and have a say.”

As we enter 2023, business will continue to become increasingly human-centered, and as a result, ESG and workers will keep moving to the forefront, gaining critical attention and importance throughout the coming year.

We spoke to Marsha Huber, Director of Research at the Institute of Management Accountants (IMA), and a pioneer in this emerging area of study since 2014, about the key findings from her neuroaccounting research.

Understanding the brain & how accounting expertise is developed

In the beginning, a novice learner, such as an accounting student, has a lot of technical knowledge and neurons in the brain that contain bits of knowledge. However, these neurons have not yet developed into neural networks that enable learners to connect the dots and weave concepts together. “A novice auditor can follow checklists, but it takes a few years for the neurons in the brain to form networks to fully grasp the knowledge to the point where they can tie concepts together that they could not have done as a novice,” says Huber.

As accountants build their expertise after 10 years in the profession, the neural pathways expand and grow together. This is why an audit partner has the ability to forecast potential problems and determine mitigating plans and actions before they occur.

Huber’s electroencephalogram (EEG) studies of the brain with accounting students and their ability to identify relevant and irrelevant financial accounting terms provides proof. The novices’ brains did not recognize accounting terms that did not fit within a particular financial accounting schema. The more experienced students’ brains, however, did identify the irrelevant terms despite not being asked to do so.

Key takeaways for team managers & accounting employers

By using the insights from neuroaccounting, accounting team managers and accounting industry employers could maximize team performance and engagement among their professional workers. Some of these key concepts include:

Understand learning is nonlinear and grows in spurts — The basics of learning are irregular and vary among learners. Indeed, it takes time to learn, and the brain also learns in context. A novice may not be able to apply learning to different contexts, whereas an expert can. In addition, a learner’s knowledge grows in spurts. Learners often forget what they initially learned, but as time goes by and the brain makes better sense of things, the learner will level up.

Learning can occur during a class for one person, when working in a group for another, and still, working independently for someone else, according to Huber. As knowledge develops in learners, accountants can experience mini a-ha moments when new knowledge breaks through to the conscious mind from the subconscious mind. Insights tend to come when not actively working on the problem.

Increase the creation of “flow” time — Huber recommends that accounting employers create opportunities for employees to experience flow. “Because of neuroscience, we understand that being ‘in the zone’ or ‘flow’ can produce exceptional output,” Huber explains, adding that this practice and bring amazing feelings of energy and focus to work.

Activities that enable flow are having no-meeting days and taking breaks, such as siestas, in the afternoon. Employers should allow employees to block off uninterrupted time to create time for flow.

Investing in time for rest allows for incubation, where neurons can figure out better solutions and develop the neural networks of expertise. In a study that Huber conducted, she found that accounting students napped more than professionals (and other students), hypothesizing that they needed to replenish the energy they expended while learning complex content.

Learning on the job is a recipe for success for accounting professionals, of course, yet it also makes sense to remove the stigma of napping and allow for incubation and the neural networks in the brain to build expertise from the learned experiences during the day.

Understand the brain science of manipulation on accountants’ ethics and decision-making — Finally, understanding the implications of neuroscience indicates that some accountants are more prone to being manipulated than others. “Mirror neurons” in the brain unconsciously will cause some to mirror or imitate the actions of others.

This has implications for the accounting profession. Researchers studied this phenomenon in controllers. In essence, because of the way the brain thinks and functions, friendlier controllers could be manipulated more easily than unfriendly controllers. Controllers that mirrored other people were more likely to make questionable ethical decisions when pressured by others.

Managers of accountants also benefit from neuroaccounting in team assignments — Huber highlights the key takeaway of her work: That managers need to understand better how their teams are wired and play to each team member’s strengths and preferences through four profiles, which are:

1. 1. 1. Clarifiers ask a lot of good questions to get the group moving in the right direction from the start;
      2. Ideators like to brainstorm and explore new ideas;
      3. Developers identify pros and cons and enjoy developing mitigation plans; and
      4. Implementers prefer to focus on execution.

To put this into practice, managers could give new problems to clarifiers to clarify challenges, then, hand the challenge to ideators to brainstorm solutions, who send potential solutions to developers to analyze pros and cons and recommend a way forward to address the problem, and finally, hand it off to the implementers to execute the plan.

As an advocate and researcher in neuroaccounting, Huber says she hopes that an increased understanding of how the brain learns will enable more efficient training practices and help to close the talent gap in finding employees for current entry-level roles in the tax & accounting profession.

“We aren’t using neuroscience to train our people at all,” Huber says. “And if we used neuroscience and understood it, people would learn better, and we would teach better.”

However, does your tax & accounting firm know precisely what its work limit is? And can you say with certainty how far under or over that limit the firm is operating at any point in time during the year? If not, then “capacity planning” may be the management concept you’ve been looking for.

What is capacity planning?

Put simply, “capacity planning is the process of determining the maximum amount of work an organization is capable of completing during a specific period of time,” says Heather Sunderlin, a senior consultant in Thomson Reuters’ Tax & Accounting group. “If I have a one-cup measuring cup, it can’t hold a gallon of water — and the same holds true with accounting firms.”

During tax season, for example, many one-cup firms take on a half-gallon of work and hope there’s no spillover, even though a mess is inevitable. However, a firm that has engaged in capacity planning already knows exactly how much work it can handle given its existing client base and staff capabilities. There is no need to guess, and when crunch time comes, managers don’t have to bite their nails and hope their staff can rise to the occasion — because they will already know the answer.

With that knowledge comes control and power.

“Knowing with certainty how many billable hours are available and whether the firm is over or under their maximum capacity can help firm leaders determine when they need to hire people, and at what skill level,” Sunderlin explains. “It can also help managers understand how to delegate work more efficiently, and, if the firm has identifiable skills gaps, whether [those gaps] can be filled through learning and development.”

Capacity planning also can help in giving firms a long-term look at their strategy going forward, she adds, noting that “capacity planning can force a firm to take stock of its current client base, determine whether to off-board clients that are no longer a good fit, and on-board clients that are more closely aligned with their ideal client persona.”

In these and other ways, a firm that engages in capacity planning has much better information available to help it execute its business strategy and manage its growth, Sunderlin says, adding that in this way, staff burnout also can be avoided and morale improved.

What does the capacity-planning process look like?

The goal of capacity planning is to figure out how many billable hours are available at each level in the firm, and how close (over or under) the firm is to hitting that number. The basic process looks something like this:

1. 1. 1. Determine the number of available hours at each level of the firm by counting the number of total hours (i.e., number of staff x 40 hours/week x the number of weeks), then subtract holidays, paid time-off, short workweeks, and other non-billable time commitments.
      2. Determine how many of those available hours are realistically billable.
      3. Calculate the firm’s total capacity by multiplying billable hours at each level by the number of staff members at that level. For example, if the Total Available Hours for each staff member during the busy season is 600, and 95% of those hours are billable, the total billable hour goal for each employee at the Staff Level is 570. If there are five employees at the Staff Level, then the firm’s Total Capacity at the staff level for the busy season is 5 x 570 = 2,850 hours.
      4. To determine whether the firm is under capacity (can take on more work) or over capacity (cannot take on more work), you simply need to know how many hours employees have been assigned during the busy season and compare the target number. The same process can be repeated for managers and senior-level executives.

Project management is key

To get those numbers, however, reliable project management (PM) is a must.

“PM allows a firm to see what work is scheduled in a given time frame, which is critical for capacity planning calculations,” Sunderlin says.

Indeed, one key indicator that a firm could benefit from capacity planning is if they aren’t managing projects, tasks, budgets, and assignments, and don’t have numbers available for calculating capacity. Because if a firm doesn’t have those numbers, says Sunderlin, “it means the firm likely has no idea what their workload is in relation to their actual capacity.”

If the firm has accurate capacity-planning data, however, Sunderlin says a firm’s management can:

• • • make more informed hiring decisions;
    • delegate work more efficiently;
    • develop training to fill skills gaps;
    • evaluate the quality of its clientele; and
    • develop a better barometer for overall stress and morale in the workplace.

Not a one-and-done solution

For capacity planning to work, however, Sunderlin cautions that it “should be a continuous and ongoing part of the management process, not a one-and-done calculation.”

A firm’s capacity isn’t static — it is always fluctuating, she explains. Some people get sick. Some work faster than others. Some get bogged down by problem clients. Some work too hard for their own good. By gaining an understanding of these variables over time, capacity planning makes it possible to ensure that employees aren’t overwhelmed, and it also helps firms avoid the trap of “taking on too much work and hoping it will all get done, somehow, some way,” which is a perfect recipe for unnecessary stress, Sunderlin says.

“Ultimately, capacity planning focuses on a firm’s most important assets, which are its people,” she explains.

Looking over the past year, three key themes — around client feedback, talent management, and law firm business development — strongly resonated in our columns and throughout the legal industry.

Leveraging client feedback

Learning what clients are thinking by way of formal client listening programs or feedback opportunities was an especially potent manner in which law firms sought to improve their client relationships and demonstrate their value to clients over the past year.

Whether gathering feedback at the client interview stage or in post-pitch discussions, receiving feedback from clients around what the firm and its lawyers did right or wrong, how the firm’s client service could improve, and even what competitors were doing it better may lead to some uncomfortable questions, but such client insight can prove extremely valuable to the firm’s performance going forward.

Further, a two-part series of columns on client listening programs showed how valuable those can be to a law firm’s own bottom line, detailing how clients spend twice as much with those law firms that ask them for formal feedback than with those that don’t. The series also discussed the typical barriers that exist to establishing client listening programs, most significantly, of course, trying to engage firm partners in the process.

Talent & retention

Not surprisingly, finding ways to keep key legal talent was quite possibly the top concern among law firms and other professional services firms throughout 2022 — and our Custom & Advisory columns certainly reflected that.

Indeed, it became clear as the year went on that legal talent had become extremely mobile, and many lawyers, especially younger associates, were switching law firms with increasing frequency in order to find a good fit that met their needs. Interestingly, while the legal industry initially thought throwing more money at these associates would solve their retention problems, it seemed there was much more at stake in the minds of these associates.

Numerous industry surveys showed that among associates, compensation ranked lower as a reason to stay at their current firm. Much more important in their minds was the firm’s culture and leadership, according to our research.

This meant that law firms needed to look for incentives beyond compensation to retain their top legal talent, such as improving how fairly associates are treated and how much they are shown respect by their current firms — both of which ranked very high on the list of reasons why an associate would choose to leave or stay at their current firm.

In our surveys, associates also noted that they are most likely to leave a firm if they perceive a lack of opportunities for career growth. This insight was extremely valuable to those law firms that were concerned about lawyer retention because it gave them one clear area to address by offering more career development, networking, mentoring, and training opportunities. In fact, all of these factors contributed greatly to an enhanced sense of well-being among lawyers, something too that law firms would be wise to promote in order to keep top talent from leaving the firm.

Business development strategy

As the legal industry (and the rest of the world) moved past the worst of the global pandemic throughout 2022, those law firms that embraced remote and hybrid working environments were now confronted with managing clients that had done the same, dramatically changing how lawyers and clients were interacting.

For example, during the pandemic and now going forward, it became clear that videoconferencing was far superior to phone calls with clients, allowing lawyers to better establish rapport more rapidly and greatly enhance the client relationship.

Another Custom & Advisory column picked up on the theme of improved client relationships by suggesting that a business development strategy that’s lodged in how the firm’s value is demonstrated to clients can be a way for firms to differentiate themselves from the competition. Clearly, all firms lay claim to having client-centric service, but only those that make that claim come to life by demonstrating at every touch point within the client experience will truly differentiate themselves, the column noted.

Like with many strong themes that emerged through our Custom & Advisory columns, embedding the demonstration of value within the client experience was not just a good-to-have mantra of today, but rather a necessary component for law firms if they were to continue forward successfully in the current environment.

Clearly, business development doesn’t just begin and end with finding additional ways to serve current clients. Law firms should be constantly on the look-out for new practice areas or service offerings that can help them add business from current clients and attract new ones. For example, the area of environmental, social & governance (ESG) has become a potentially lucrative vein of new business in compliance, corporate work, and risk management matters for those law firms that are early adopters.

As reflected in our Custom & Advisory columns published throughout 2022, the themes of client feedback, talent management, and business development greatly influence firm leaders’ focus over the past year. Moreover, these themes — and others that will be chronicles here — are likely to continue weighing on law firms leaders’ minds into the next year and beyond.

If you’re interested in learning more about some of the research used in our monthly Custom & Advisory column, and how this data can be applied to your firm, please visit here.

Yet, what can managers in the federal government expect for future workplace attrition, and what best practices can they adopt to better attract younger workers to the public sector?

The retirement “tsunami” is still to come

The federal government weathered the COVID-19 pandemic with less volatility than state or local government agencies in terms of employee attrition. Indeed, record job vacancies in the public sector were largely seen as the result of the outflow of workers in local government and public education, according to Bureau of Labor Statistics data from the 18-month period between February 2020 and August 2022.

And one 2021 assessment from The Partnership for Public Service, found that attrition rates hovered around 6.1% within federal agencies, with slightly more than half of those leaving left due to retirement. This number was a slight increase from 2020 numbers of around 5%, but in line with pre-pandemic attrition rates.

Of course, these stable numbers may mean that the tsunami of anticipated federal retirements has yet to really hit.

More concerning figures relate to federal workforce age and incoming federal employees. A 2021 White House report, Strengthening the Federal Workforce, reveals that the percentage of federal employees over the age of 60 continues to increase year over year, while employees under the age of 30 continually decrease as a percentage of the federal workforce.

Younger employees simply aren’t joining the federal workforce at the needed pace to provide adequate succession planning for upcoming retirements. A 2022 Qualtrics survey on federal recruitment of more than 1,000 recent college graduates showed that more than half of those surveyed would not consider a career within the federal government.

Is workplace flexibility the key?

Understanding why a public sector career is unappealing to younger workers is a necessary first step to address the issue. Perceptions surrounding how and where federal work takes place appear to be the culprit.

In the Qualtrics survey, the top three reasons given by respondents on why they wouldn’t consider a career in government included: perceived under-qualification, lack of work/life balance, and experience gaps in their resumés. While many recommendations have been made about enhancing federal recruitment practices to successfully attract a diverse candidate pool, federal agencies would be well-served to highlight the flexibility of work that is already offered within the public sector.

Flexibility in how and where work occurs can be a key factor for attracting and retaining younger members of the workforce within the public sector. Fortunately for recruiting managers, the federal workforce already offers significant flexibility to current and prospective employees.

The federal workforce has adjusted in the current post-pandemic environment to offer remote working options that are either fully remote or in a hybrid fashion. In fact, the Office of Personnel Management’s 2021 Government Wide Management Report found that 57% of federal employee respondents worked remotely at least once a week, up from 23% just two years earlier.

Employee experience matters

Cultivating a culture where employees have the flexibility that they desire to achieve better work/life balance, and where they can feel connected and valued by their managers may seem like a daunting task to many government agency managers. However, managers can ensure that their culture puts people first by implementing several recommend best practices, such as:

Focus on building and maintaining connection with team members through short, regular check-ins — For remote or hybrid employees, managers can pre-schedule intentional meetings with a clear focus area.

Establish “buddy” or mentor programs to link up new and veteran employees within an organization — Programs that match new employees with peers (rather than supervisors) acknowledges the fact that employees may feel more comfortable asking some questions of a peer rather than their direct supervisor. Likewise, the mentor can provide the new employee with valuable insights about organizational culture. Mentorship programs also can be redesigned for remote or hybrid employees.

Offer diverse learning and professional development opportunities — The rise of hybrid and remote work has contributed to “Zoom fatigue” for many. Offering professional development opportunities that are a mix of webinars, in-person, or self-paced learning modules reinforces that employees are valued, while not contributing to the exhaustion that overuse of virtual video conferencing tools can generate.

Understand how your employees learn — Hand-in-hand with the point above, not all humans learn in the same fashion. Four dominant learning styles include aural, visual, kinesthetic, and reading/writing. Implementing learning style assessments into employee pre-boarding can help managers best understand how to most effectively train and on-board new hires.

Remember that team bonding is still important, remotely or in-person — As full-time in-person work continues to decline, some organizations have empowered employees to spend time together outside of work by volunteering, socializing, or even sharing a meal together. A lunch traditionally spent together in-person can be recreated by supplying remote employees with a gift card for food delivery or to a restaurant of their choosing. Managers also can prioritize scheduling a shared meal for hybrid employees when they are in-office.

Finally, it’s important to understand that the federal workforce has not experienced the rapid outflow of workers to the same extent that state and local government organizations have in the post-pandemic era. Yet, that doesn’t mean critical challenges around talent have been avoided for good.

In preparation for the upcoming retirement of aging members of the federal workforce, managers should consider adjusting their management style to be more people-centric and considerate of increasing remote and hybrid work preferences.