Alleviating Managerial Dilemmas in Human-Capital-Intensive Firms Through Incentives: Evidence from M&A Legal Advisors

Forthcoming for publication at Strategic Management Journal

HEC Paris Research Paper No. SPE-2015-1120

45 Pages Posted: 20 Nov 2015

See all articles by Olivier Chatain

Olivier Chatain

HEC Paris - Strategy & Business Policy

Philipp Meyer-Doyle

INSEAD - Strategy

Date Written: September 27, 2015

Abstract

Research summary We examine how human-capital-intensive firms deploy their human assets and how firm-specific human capital interacts with incentives to influence this deployment. Our empirical context is the UK M&A legal market, where micro-data enable us to observe the allocation of lawyers to M&A mandates under different incentive regimes. We find that law firms actively equalize the workload among their lawyers to seek efficiency gains while ‘stretching’ lawyers with high firmspecific capital to a greater extent. However, lawyers with high firm-specific capital also appear to influence the staffing process in their favor, leading to unbalanced allocations and less sharing of projects and clients. Paradoxically, law firms may adopt a seniority-based rent-sharing system that weakens individual incentives to mitigate the impact of incentive conflicts on resource deployment.

Managerial summary The study highlights the dilemmas when professional service firms allocate their key individuals to incoming projects and the role that monetary incentives play in aggravating or alleviating these dilemmas. In the context of UK M&A law firms we find that partners have a tendency to be attached to too many projects and not to share enough work, which is exacerbated when individual monetary incentives are stronger. Firms adopting a seniority based incentive system (lockstep system) are able to alleviate this effect. This implies that there is a tradeoff between rewarding personal performance versus balancing workloads and fostering collaboration among professionals.

Keywords: Human-Capital-Intensive Firms, Human Capital, Managerial Dilemmas, Incentives, Capabilities, Micro-foundations, Mergers and Acquisitions, Law firms

Suggested Citation

Chatain, Olivier and Meyer-Doyle, Philipp, Alleviating Managerial Dilemmas in Human-Capital-Intensive Firms Through Incentives: Evidence from M&A Legal Advisors (September 27, 2015). Forthcoming for publication at Strategic Management Journal; HEC Paris Research Paper No. SPE-2015-1120. Available at SSRN: https://ssrn.com/abstract=2693097

Olivier Chatain (Contact Author)

HEC Paris - Strategy & Business Policy ( email )

1, rue de la Libération
Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.olivierchatain.com

Philipp Meyer-Doyle

INSEAD - Strategy ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
97
rank
265,968
Abstract Views
1,396
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information