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Does Leadership Style Matter? A Study To Psychological Contract Breach And Turnover Intentions Within Law Firms.

 

To what extend does the (perceived) leadership style within law firms influence the psychological contract of legal professionals and subsequently their turnover intentions?

 

Motivation for research

Jochem Roelofs (Stibbe) conducted this study in 2015-2016 under Bas Kodden’s supervision at Nyenrode Business Universiteit. He submitted his thesis in partial fulfillment of the prerequisites for the degree of Master of Business Administration in Business and IT of Nyenrode Business Universiteit. Nyenrode Business Universiteit, founded in 1946, is the only privately held university in the Netherlands.

Main findings

  • The results of this study indicate that when empowering leadership is perceived by legal professionals, this has a direct effect on their turnover intentions.

  • Legal professionals are more likely to stay at the firm if they observe empowering leadership.

  • This research indicates that the positive effect that the perception of empowering leadership has on turnover intentions of professionals, is also measured when mediated by the concept of psychological contract breach.

  • Developing empowering leadership skills of senior legal professionals is a great point of departure for firms that want to lower early outflow of legal talents. This can be achieved by a training program for legal professionals, preferably before they become a senior lawyer and have to train and manage young professionals.

Jochem Roelofs

Introduction

According to Lub, Nije Bijvank, Bal, Blomme and Schalk (2012), people belonging to Generation X change jobs on average 7 to 8 times during their career in pursuit for more challenging environments or higher salary. Workers of the Generation Y cohort stay even shorter in one job; between 18 months to two years on average, after which they move on in search of career advancement[1]. But being a professional in a legal service firm typically involves a life-long career. According to Wallace (1995), professionals in general are more loyal to organizations that facilitate personal development of the professional’s career, and that lawyers who work for a private law firm are more committed to their organization than those who work for non-professional organizations. In general, Professional Service Firms (PSFs) are knowledge-intensive or knowledge-based organizations with a distinctive organizational form and comprised primarily of professionals who deliver non tangible services enriched with complex knowledge (Anand, Gardner, & Morris, 2007; Greenwood, Suddaby, & McDougald, 2006; Von Nordenflycht, 2010). Such firms are unique because they are high in credibility qualities as their core output is applied knowledge and skills that are difficult for a client to acquire and understand (Hogan, Soutar, McColl-Kennedy & Sweeney, 2011). Because a considerable amount of this knowledge resides in the firms’ professionals, retaining experienced lawyers is key for the successful future of the firm. According to recent figures[2], legal specialization and internationalization forced the top law firms to scale-up head count in the recent past. Nevertheless, staff numbers of these top legal PSFs have been decreasing for some time now (Rabobank, 2013). Besides some internal organizational restructuring due to the recent financial crisis, this has also something to do with another visible trend in the Dutch legal industry; more often, young lawyers with a couple of years of experience in a large legal service firm, choose for association with peers in smaller or specialized ‘boutique’ firms, while others leave the large firms for a career in a non-professional organization (Rabobank, 2013). The latter despite the fact that earlier research showed that lawyers are more committed to their organization when they are working for a PSF (Wallace, 1995).

 

Among some of the reasons mentioned why they leave the firm are that they get burned out or seek a better balance between their work and private life. Law firms flourish on the inflow of recently graduated legal talents and retaining experienced lawyers as they are the most important assets of the firm. Human capital is of strategic importance to a law firm, and “retaining human capital is very important in the ever-increasing competition to employ the most valuable employees in the marketplace” (Carmeli & Weisberg, 2006, p. 191). When employee turnover is high in an organization, this can be destructive to the firm in the form of direct costs like the selection, recruitment, and training of new employees and indirect costs like the loss of social capital, reduced morale, and pressure on existing employees (Sang Long, Yean Thean, Wan Ismael, & Jusoh, 2012).

 

There are many factors that can influence the chance that an employee will leave or stay at the firm somewhere in the near future; for example

Bas Kodden

 

the already addressed powers of organizational commitment or ease of movement. According to Carmeli et al. (2006) the most important rationale for an employee to leave the organization is that the persons’ potential can result elsewhere in higher productivity and more significant contribution to the firm, while simultaneously increasing wage and rewards.

 

Turnover intentions are significantly related to actual turnover, but numerous extraneous factors (e.g. availability of job alternatives) often interfere with the workers’ ability to translate intentions into behavior (SamGnanakkan, 2010). Consequently, detecting the factors that could decrease a lawyer’s intention to leave the organization can help the firm prevent losing highly skilled employees, and the risk that experience, clients, and knowledge is transferring to other competing law firms.

 

A Transformational Leader is someone who identifies needed change and creates a vision to guide this change through inspiration with commitment of the group.

 

A Directive Leader tends to reach success competitively and tries to actively monitor and correct subordinates.

 

An Empowering Leader is a person who enables sharing power by providing greater decision-making authority in its employees.

According to Wells and Welty Peachey (2011), transformational leadership is an important factor in reducing and mitigating turnover intentions. A higher level of transformational leadership is associated with a lower intention to leave the organization (Sang Long et al., 2012). According to Du, Swaen, Lindgreen, and Sen (2012), a transformational leader is one who articulates a vision of the future that can be shared with followers, intellectually stimulates and encourages followers to question old assumptions so they can approach complex problems and issues in more innovative ways, while paying attention to individual differences among employees. This type of leader characterizes as highly ethical and focused on values and is more effective at driving change, or transcending the status quo; they inspire followers with their vision and create excitement through the use of symbolism and imagery (Du et al., 2012).

 

According to Hakimi, van Knippenberg and Giessner (2010), companies need to adapt themselves to the new economic market and therefore managers need to change their directive leadership style in a more motivational leadership style. Employees need to be stimulated by their leaders in order to be able to solve complicated, unclear problems.

Useful ideas by an employee or a group of employees, can fundamentally contribute to innovation, effectiveness, and existence of the company. Resulting from the research of Zhang and Bartol (2010), they suggest using the theory of empowering leadership instead of the theory of transformational leadership. Seniority and professional expertise are highly valued in a law firm, or any professional service firm for that matter. According to Mintzberg’s (1979) five basic configurations of organizations, the combination of the coordination mechanism, the environment and the design parameters determine the structure of an organization. Law firms can be categorized as professional organizations; however, according to Mintzberg (1979), professional organizations are complex and have many rules, regulations and procedures, which make them also very bureaucratic, almost similar to a machine bureaucracy. The disadvantage of the professional structure is the lack of control that (senior) executives have due to the fact that authority is shared by the hierarchy (Mintzberg, 1979). Therefore, it is reasonable to argue that law firms are often managed by the transaction type of leaders who are more effective at operating an existing system or structure; they set goals (define KPI's), and communicate explicit agreements regarding expectations and rewards while providing constructive feedback on the tasks. Motivation of group members is done primarily through contingent-rewards based on performance (Du et al., 2012). Transactional leadership is “the process of a leader establishing reciprocal communication with their followers to accomplish a task” (Gokce, 2014, p. 1550).

 

According to Redeker, de Vries, Rouckhout, Vermeren, and de Fruyt (2012), there is widespread consensus among scholars that interpersonal interaction between two persons is best summarized by two dimensions; communion (affiliate/love) and agency (control/dominance), which is somewhat in line with the transformational and transactional model. To distinguish a broader spectrum of leadership styles, Redeker et al. (2012) created a model with eight different leadership behaviors. The leadership style that probably fits the contemporary law firms best is the directive leadership style. Persons who practice this leadership style are characterized as “…tend to try to reach success competitively, tend to actively monitor and correct subordinates, and to behave strictly towards subordinates” (Redeker et al., 2012, p. 7). Many professional service firms can probably be characterized by this type of leadership as expertise and experience is a key driver for success within the firm. According to Lander (2012), PSFs typically combine competitive hiring processes with a high level of on-the-job training by senior professionals, and an up-or-out promotion system that regulates admission to firm ownership.

 

Looking closer at the career path of a lawyer at a large law firm, one aspect stands out; this path is exactly the same for everyone. The list of prerequisites[3] for the large law firm lawyers in the Netherlands starts with a university degree in law from a Dutch university with the ‘civil effect’ achievement for access to the legal profession. Subsequently, the aspirant lawyers will become a ‘trainee’ for the period of three years at one of the 16 – internationally active – larger Dutch law firms. During this period, the trainee lawyers follow the mandatory cognitive courses offered by the Bar Association[4]. After successful completion, they are admitted as a lawyer to the Netherlands Bar Association (the Bar), and if allowed to stay at the firm, the lawyers will become associates for the upcoming three years. But this does not mean that they have full autonomy when executing their profession, as they are still under supervision of a senior lawyer.

 

For legal professionals, being highly educated and fully licensed, the type of work they are performing and the degree of freedom they experience at the beginning of their career could be a disappointment if this does not match to what they were promised, what they expected of the job, the environment, organization or tasks on beforehand. The psychological contract that the young legal professional has with the employer could therefore be breached. According to Clinton and Guest (2014), scholars have found empirical evidence between psychological contract breach and turnover intentions. Because there is limited literature available that investigates the effects of the psychological contract on turnover intentions within a legal service firm, this research intends to contribute evidence of this.

 

At this moment in time, a large diversity of distinctive generations is represented in today’s workplace. Each of these generations possesses unique characteristics that affect their work ethic and perception of organizational hierarchy (Glass, 2007). In literature many generations are described, but these are strongly linked to geographical bound events (Macky et al., 2008). In the Netherlands, the most commonly used generational distinction is summarized in the research of Bontekoning (2007), and divides the population into the following generations: Protest Generation (1940-1955), Generation X (1955-1970), Pragmatic Generation (1970-1985) and the Screenagers (1985-2000). Nevertheless, the more international oriented literature distinguishes four almost similar generations with strong characteristics, which are commonly referred to as Traditionalists (<1945), Baby Boomers (1945-1965), Generation X (1965-1985) and Generation Y (1985-2000), with more or less similar boundaries. At this moment, all of these four generations can be found in Dutch law firms, although the majority of the active lawyers (56%) is of Generation X (NOvA, 2013).

 

When the Baby Boomers leave the legal profession within the next decade, Generations X and Y – which are characterized by the fact that they change jobs more frequently – will dominate the sector. Because legal PSF’s rely on the high expertise and skills of their professionals; high turnover intentions can therefore be a destructive force for large legal firms. A change in leadership style that fits the younger professionals and their expectations regarding their job and job environment could be a positive influence whereby turnover intentions might be reduced in a professional service firm. This leads to the following central research question:

 

“To what extend does the (perceived) leadership style within law firms influence the psychological contract of legal professionals and subsequently their turnover intentions?”

 

Procedure and sample

Data was obtained with the use of a questionnaire and a set of analyses was conducted to determine if the collected data could be used, by extracting the underlying factors with an exploratory factor analysis and reliability checks on all the factored scales for each of the constructs. The total number of respondents was 84. After deletion of the incomplete questionnaires, 61 complete questionnaires remained and were used for further analysis. The population of the 61 respondents represents 36 women (59%) and 25 men (41%). Of the respondents, 55,7% (34) are younger than 30 years of age and therefore belong to Generation Y. 42,6% (26) belongs to Generation X (between 30 and 49 years of age), and 1 respondent (1,6%) belongs to the Baby Boomer Generation (50 – 69 years of age). Approximately 59% of the population works at a law firm that employs between 100 and 199 legal professionals, almost 30% works at firms with less lawyers and nearly 12% work at firms with more than 200 lawyers and/or civil law notaries in the Netherlands. The area of expertise or practice area of the population was widely spread. The largest groups were experts in Litigation and Dispute Resolution (15%), Employment, Benefits and Labor (13%) and Corporate Mergers and Acquisitions (12%).

 

Management Summary

The core product of a law firm is legal knowledge. Professionals working in a law firm are valued by their knowledge of Dutch legal rules and regulations including negotiation and litigation skills, which is why they are the most valuable asset of the business. Because of the strategic importance of human capital in a professional service firm, it is important for the continuity of the firm that they will retain their legal professionals and inspire young associates to become future shareholders. Leadership behavior is addressed as a ‘pull-to-stay’ force when it comes to turnover intentions. Because senior lawyers are supervising less experienced colleagues, these junior associates learn the formal and informal procedures and behaviors directly from their superiors. This study investigated the effect of two relatively opposite types of leadership styles; directive leadership and empowering leadership. Persons with a directive leadership style tend to try to reach success competitively, tend to actively monitor and correct subordinates, and to behave strictly towards subordinates. Persons with an empowering leadership style tend to implement conditions that enable sharing power with an employee. They do this by delineating the significance of the employee’s job, providing greater decision-making autonomy, expressing confidence in the employee’s capabilities, and removing hindrances to performance. The objective is to demonstrate what type of leadership is perceived by junior associates in a Dutch law firm, and which leadership style has the least negative influence on turnover intentions. Besides leadership behavior, the individual’s beliefs about mutual obligations, in the context of the relationship between employer and employee could also influence the professionals’ intentions to voluntary leave the firm. Interpretations and promises made at the beginning and during the relationship between the legal professional and the law firm can be described as a psychological contract. When the personal interpretations of the legal professional about, for example, the meaningfulness of the work or the autonomy of the job does not match with what was expected during recruitment, there may be a breach in this psychological contract that could lead to voluntary turnover.

 

Expectations by legal employees towards their relationship with their employer and perception of good leadership behavior are different for diverse generations. Men and women of each generation have deviating values and expectations regarding leadership style of their managers, and best practice regarding employability and engagement including motivation, working hours, opportunities for development, autonomy, and the meaningfulness of the work they execute. The leadership style that is perceived by legal professionals, and the effect this has on their perception of a psychological contract breach or intention to leave the law firm they are working for, could differ for each generation. The purpose of this study, besides adding relevant new insights to the literature, was to be able to suggest practical recommendations to law firms how to retain their valuable assets, especially with the entrance of a new generation legal professionals.

 

Five hypotheses were formulated to investigate each relationship between the constructs in the model. The model was designed in such a way that, if an effect of perceived leadership style on turnover intentions was measured, the mediating psychological contract was the possible explanation of this effect. A validated questionnaire was constructed in order to be able to measure each construct and effect in the model. In the second stage of this thesis research assignment, there has been made a pre-selection of Dutch legal professional service firms. Through (personal) contacts with boards, HR, and Marketing departments, the questionnaire was e-mailed to lawyers and (candidate) civil law notaries working for these pre-selected law firms. The empirical data of this study was gained between February 2015 and May 2015 and eventually resulted in a response rate of 61 fully completed surveys. Regrettably, due to the sample size, it was not possible to perform a multi-generational research. The size of the returned valid sample was most likely also the reason that it was not possible to measure an effect of directive leadership on psychological contract breach (H3) or a direct effect of directive leadership on turnover intentions (H1).

 

After analysis of the data, the results indicate that empowering leadership is significantly related to psychological contract breach (H4) and also towards voluntary turnover intentions of the lawyer (H2). Therefore, within the context of this study, there is a strong indication that when a high perception of empowering leadership style is measured in a law firm, this significantly lowers the chance that a lawyer, legal tax advisor or (candidate) civil law notary decides to leave the employing law firm. The analysis furthermore reveals that in this research the construct of empowering leadership is composed in two dimensions. The first dimension that was extracted was measured with questions in the survey about the leaders’ ability to foster participation in decision making, the expression of confidence in high performance, and providing autonomy from bureaucratic constraints. The results indicate that for this dimension, the relationship between empowering leadership and turnover intentions can be explained by the perception of a psychological contract breach (full mediation). The other factor that was measured covered the element of the empowering leaders’ ability to enhance the meaningfulness of the work. The analysis showed that the effect on turnover intention of this construct could not be explained by the breach in psychological contract (no mediation).

 

Developing and enhancing empowering leadership skills of senior legal professionals working for a law firm, can lower the early dropout of legal talents. This can be achieved by a training program for legal professionals. In some traditional “old school” law firms even a more profound measure is necessary to create empowering leaders. A full change management program must be installed to create an open, stimulating, trustworthy environment where entrepreneurship, self-reflection, and creativity is very much appreciated and part of the organizational culture. Furthermore it is recommended to give more decision making authority to young legal professionals.

 

Legal professionals are most likely more risk-adverse by nature than enormous risk takers. If their manager is constantly correcting them or their work, and is for example unwilling to let them have direct contact with clients, they will probably look for approval continuously before taking any decision. They will not feel responsible or appreciated for the work done. Giving responsibilities to the young professionals (without putting the whole firm in their hands or at risk) encourages them to be more proactive and makes them feel that they have more impact. It is furthermore important that senior lawyers understand that their subordinates want to know that their input is valued and that they are acknowledged and rewarded in the fact that they deliver valuable work which contributes to the firm.

 

 

 

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[1] http://www.smu.edu.sg/perspectives/2014/06/25/managing-gen-y-workplace

 

[2] https://www.rabobankcijfersentrends.nl/index.cfm?action=print.printPdf&id=402f6b04-6845-4106-8856-595b335a6799

 

[3] https://www.advocatenorde.nl/1716/studenten/.html

 

[4] http://thelawfirmschool.nl/

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