Solving the handshake problem

Things fall apart

By the late 2000s the New York law firm of Dewey & LeBoeuf had established itself as one of the largest and most prominent in its profession.1 With roots stretching back to the early 20th century, it reached its final form following a mega-merger in 2007 that brought together two firms with powerful networks. The partnership was growing, billings were up, and peers ranked it highly in multiple legal specialties.

Just five years later, after a cascade of internal failures, defections, and financial mismanagement, Dewey & LeBoeuf ceased to exist.

Its undoing stemmed from multiple factors, but what sealed its doom was leaders who were increasingly mercenary, focused less on building something enduring and more on establishing personal fiefdoms and ensuring cash flowed into their own pockets, heedless of the long-term health of the organization. When the financial crisis of 2008 dried up client pipelines, the firm quickly realized its prestige and accompanying profits were ephemeral.

The challenges Dewey faced were an illuminating real-life example of a common math exercise known as the handshake problem. The idea is straightforward: for a given group of people, determine the minimum number of handshakes that must happen so that each person meets everyone else.

Consider an organization with only five employees. In this situation introducing everyone is straightforward, since meeting every colleague requires each individual to shake hands with four others. Only 10 conversations take place in total. Renewing these relationships can be done regularly, without much deliberate effort. Smaller teams have an easier time building connections and ensuring a common vision.

But as headcount grows the number of handshakes needed does so quickly. With 100 employees, nearly 5,000 such interactions would have to occur in order for everyone to personally interact.2 At its peak, the merged firm of Dewey & LeBoeuf had more than 1,300 lawyers with over 300 partners, making the development of a cohesive culture challenging, even without a crippling recession to contend with.

Big organizations naturally respond to the handshake problem by forming isolated centers of power, clustered around relationship networks that can be reasonably managed. At Dewey that is exactly what happened. Factions aligned with various practices and originating in different predecessor cultures guarded their own independence while the overall firm slowly disintegrated. Law partnerships were traditionally based on consensus, mutual accountability, and shared responsibility. Such a model is very hard to maintain when several hundred people are involved.

Getting to know you

Teams naturally respond to the challenge of managing growing cultures by creating divisions and other silos that make the process of engaging with colleagues manageable. They also implement chains of command and communication networks designed to keep information flowing. Innovative companies invest heavily in building social bonds between coworkers. Google’s legendary free employee cafeterias may come across as altruistic, but they create a tailor-made environment to spark and renew connections between colleagues.3

Those that manage the challenge well understand that size drives how a culture propagates. A tiny non-profit and a massive multinational corporation can have vastly different levels of complexity but, with limited exceptions, they each have only one chief executive. While the head of a smaller team may know all key players and make a meaningful contribution to most decisions, a global leader can weigh in on just a small fraction of the choices made. This raises the stakes of investing in relationships, making sure that colleagues are bound to a common cause and less likely to go off on their own to the detriment of the broader mission.

For Dewey, the most fatal choice of all was the fact that the bonds normally cementing groups together—a mission, affinities, common experiences—were largely replaced with one thing: money. Partners were poached from competitors through the offer of large and contractually-guaranteed payouts that made the overall financial situation unworkable. Not surprisingly, it turned out that cash was a poor substitute for actual loyalty.

Solving the handshake problem

Organizations have different ways to address the handshake problem as they expand:

• Grow slowly, giving relationships time to propagate organically and reducing the chances that networks will be overstretched. This is easier said than done, especially when those around you are gobbling up greater shares of revenue, customers, employees, etc. Incidentally this is the approach chosen by some of the most prestigious law firms, which deliberately remain small and collegial.4 This could require finding a niche and being willing to stay within its boundaries.
• Center an iconic leader who inspires people without needing to develop deep relationships with everyone. In rare cases, a highly-visible leader can have outsize influence that serves to keep all parts of a distributed organization on the same page, just on the strength of his or her esteem and reputation. Conjuring one from the ether is tricky—you either have this or you don’t. For the consulting firm McKinsey, Marvin Bower played this role, serving as a de facto moral compass for decades after his retirement. Groups can maintain cohesion as they expand by staying linked to a central figure and, more importantly, the idea he or she represents.
• Create a network of smaller more independent units. Recognize that in some instances it is infeasible to keep disparate parts of an organization on the same page, and split them off accordingly. Google’s restructuring into Alphabet allows an increasingly diverse portfolio of businesses to live under the same umbrella without being held to the same rules. In more extreme cases complete separation is sometimes necessary, if the different sub-groups have diverged too much.5

Getting this wrong can be costly. Dewey & LeBoeuf’s acrimonious implosion managed to wreck a number of careers and unravel a firm whose reputation and history suggested years of continued dominance.6 Yet when managed thoughtfully, solving the handshake problem can help growing teams navigate the challenge of culture-building in a way that enables long-term success.

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References

The New Yorker has an in-depth article on the machinations that ultimately sunk Dewey and LeBoeuf.

Other details on the firm’s collapse from The Daily Beast and The New York Times.