Managing Law Firms in Transition

Managing Law Firms in Transition

Strategic Attorney Departure-Deciding to Not Join in Your Law Firm’s Merger

Posted in Law Firm Growth, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

Law firm mergers have continued this year and are approaching last year’s record. For law firms, any number of motivations can lead to merger, but the common denominator is the perception that merger serves the greater good. Despite the onslaught of mergers, a vast number of mergers are less than perfect. And while a merger may be for the “greater good,” its imperfections prevent it from being for the “universal good.”

Lawyers are the ultimate free agents. At any point in time, a lawyer can decide that his current firm is not suitable and decide to leave. In times of transition, especially in the face of an imperfect and impending merger, the declaration of free agency can be at its loudest. The experience of Patton Boggs (before and after the closing) and Bingham McCutchen, among others, prove this to be true.  Conflicts, compensation issues, cultural differences and underwhelming opportunity can compel a merging firm’s lawyers to consider an alternative course. For those lawyers, strategic reasons typically drive the decision to go a different direction. If a lawyer reaches that point, there are at least five things to keep in mind:

A Clean and Amicable Break is Best. Like any divorce, separation is best for all parties if it is clean and amicable. A clean and amicable break will assist in transitioning client files, understanding which relationships are off limits to raiding and how the separation is to be announced. For that reason, negotiations over departure should employ objective and rational reasoning instead of emotions. Because emotions sometimes can’t help but surface, rationality and traction towards an amicable split are helped by using a third party to negotiate the break.

Departure is Involuntary. In many ways, the departure is an involuntary act since it is preceded by a commitment to merge made by the firm, not the lawyer. That being the case, the decision to not join in the merger is not a sign of disloyalty but should be recognized as a difference in strategies. Because an individual lawyer cannot match the firm’s control over the firm’s destiny and the destination can be harmful to the lawyer, his or her decision to leave is, for the most part, involuntary.

Deferrals and Punitive Provisions Are Inapplicable. Because the proposed merger, not sought by the individual lawyer, is strategically unsound for him or her, the departure can be viewed as a forced one, similar to a constructive termination. For that reason, it can be argued that muniments of partnership status (capital, loan repayments, property) should be returned without delay and any punitive partnership agreement provisions should not apply.

Good Future Relations Benefit Both Sides. While having an amicable split is critically important in the short-term, thinking about how relations will be in the future can be very important for the long-term. Future referrals, sharing of information, joining in the representation of select clients are issues that should be explored as the impending departure is negotiated.

Numbers Matter. Some partnership agreements are onerous towards departing partners but the severity of the negative provisions is only appreciated when applied to real life financial numbers. Getting the “numbers” from the firm is step one. Vetting the numbers is step two. And negotiating from “agreed” numbers is step three-and the most important step. Like other aspects of negotiating a departure, outside help may prove useful in translating the issues into plain English. Anything less than a full understanding of the numbers and how they work leaves the individual lawyer at a distinct disadvantage.

Law firm mergers almost always stimulate fall-out. A lawyer realizing that he or she does not want to join in the merger can make a gracious exit that benefits everyone. If your firm sought a merger, would you be ready to not follow?

 

 

 

What Do a Law Firm and a Taco Joint Have in Common?

Posted in Law Firm Growth, Law Firm Leadership

Start by getting the right people on the bus. Jim Collins

When I ask what a law firm and a taco joint have in common, it is not intended to be another one of those lame lawyer jokes.

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The other night my wife and I stopped by Torchy’s Tacos for a quick bite, and my wife pointed to a large, colorful plaque hanging near the entry (the graphic here). 

The plaque and the Torchy’s story prompted me to think about the common vein that runs through all successful businesses, including law firms.

Torchy’s started in 2006 in South Austin as a food trailer. The owner, Michael Rypka, was a former Executive Chef and had an idea about building a business around a handful of basic principals. Generalized to all businesses his principles are:

  • Deliver a great product/service – Always
  • Honor your client/customer
  • Treat all employees with respect
  • Continuously focus on improving the bottom line honorably
  • Make the workplace a good place to be for all employees

Torchy’s has been a huge hit. People are lined-up, day and night.  The enterprise has successfully grown from a single food trailer to a dozen sit-down restaurants in the Austin area, and has expanded to Houston, Dallas and other cities.  This is a pretty amazing accomplishment when you consider that there is some sort of taco joint on almost every corner in Texas.

When asked about maintaining quality as the business expands, Rypka says that it substantially comes down to hiring and training people who have the same vision you do.  This is a lot like the Jim Collins quote above.

What principles are you building your law firm around?

Law Firm Alert-Get Your House in Order

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

In a recent interview about his advisory work on behalf of Patton Boggs (now  a part of Squire Patton Boggs), Zolfo Cooper’s Joff Mitchell recommended that law firms “get your house[s] in order.” While not all law firms today face the challenge that Patton Boggs faced and which Mr. Mitchell helped resolve, there are indications that firms should take heed.

Last week the Wall Street Journal’s Jennifer Smith reported on the growing competition that law firms face from their clients. As Ms. Smith noted, more and more companies are using their internal legal staffs to perform the routine work formerly sent out to private law firms. The data Ms. Smith recounts can be scary and tells a story that should concern law firms that are trying to survive in this ultra competitive legal environment.

It is not that clients have ended their relationships with law firms. Rather, today many clients reserve for their law firms’ only special projects. The routine legal work, previously a core component of a law firm’s business base, is being taken in-house. In bringing this work in-house, clients perceive at least three benefits. For one, many feel that law firms used the routine legal work to train the firm’s young lawyers-all on the client’s nickel. Saving that expense goes a long way towards funding an in-house legal department. Secondly, clients are finding that their company business units prefer the in-house lawyers for various reasons, including their better understanding of the client’s business. Finally, many clients find it cheaper to keep the legal work.

In the face of this competition, today’s law firms might consider it wise to “get your house in order.” But, how? Among other things, firms can:

Become More Specialized. Clients no longer see the benefit of paying for routine legal work when in-house lawyers are cheaper and more efficient. The commodity work that formerly supplemented a law firm’s more interesting and complicated matters will be harder to come by. Firms should recognize this fact of life and move away from offering a broad range of services. Instead firms should concentrate on the substantive area of their expertise. By building off that reputation and growing in specialization, a firm will be doing the legal work clients cannot do. And unlike the difficulty in touting general services, specialization allows a firm to differentiate itself more easily.

Change the Firm’s Make-up. Clients no longer want to pay for the privilege of training your baby lawyers. In part, that drives them to use their in-house staffs to perform the repetitive legal work your firm previously devoured.  Morgan Lewis & Bockius has recognized this and is placing its young lawyers directly with one client for training and subsequent hiring later. As you move from generalization to specialization, remake your roster of lawyers to more senior lawyers with experience in the firm’s chosen specialties. Because younger lawyers have not developed the critical expertise, many will have to go. Morgan Lewis‘ approach may be a partial solution.

Pursue Clients That Don’t Have Legal Departments. If you can’t give up the commodity work or need time to phase it out, pursue clients that have not yet graduated to establishing a legal department or hiring an internal legal team. Generally, this means pursuing a middle market client base. Unfortunately, diving into the middle market is not a panacea. Because middle market clients are not going to find large firm rates acceptable, they may balk at the kind of rates previously charged the large clients that are now the competition. Thus, if going after the middle market client, it is imperative that the reduced rates get modeled into the firm’s budget.

Competition is coming from many directions. Are you taking steps to deal with the competition from your clients?

 

 

 

Is the Purpose For Many Law Firm Mergers the Reason So Many Combinations Fail?

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

Efforts and courage are not enough without purpose and direction. – John F. Kennedy

It seems not a week passes without an announcement of another law firm merger.  A report last week of a rumored combination of Morgan Lewis and Transition-Planning-SignBingham McCutchen caught my attention.

The posting in Above the Law suggests that the partners of Morgan Lewis may be less than excited about the possible transaction; but, “… the lure of becoming one of the five biggest firms in the world is hard to resist.”

I hope that isn’t the real driver behind the deal.

There are a numer of solid strategic reasons for law firms to consider merging. In my opinion, three of the best include:

  • The addition of specific expertise and technical capabilities necessary to better serve existing or targeted clientele;
  • Succession planning; and,
  • Financial stabilization.

I have been encouraged by the fact that two recent mergers our firm was privileged to consult on were specifically driven by succession concerns. In each case, senior partners made the strategic and selfless decision to seek a culturally compatible merger partner in order to provide a platform of future opportunity for its younger lawyers.

Unfortunately a significant percentage of mergers are driven solely by a desire to get bigger.

Why do I say “unfortunately”? Isn’t growth a good thing?

Simply put — I believe the numbers-driven strategy is the root cause of a majority of failed merger initiatives. Getting bigger often only compounds existing deficiencies.

Is your law firm considering a merger? If so, what is driving it?

Unwanted Law Firm Departures While Negotiating a Merger-A Test of Leadership

Posted in Law Firm Crisis, Law Firm Growth, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

Law firm mergers seemingly are announced weekly and continue a trend as to which most observers are accustomed.  Just last week Locke Lord and Edwards Wildman Palmer jointly announced the signing of a letter of intent to combine their two firms. Not all law firm mergers are marriages of equals, or instances when the strategic visions align into making a combination a “no-brainer.” More than a few mergers stem from one of the merger parties needing to combine to avoid a potential collapse.  Unfortunately, for the law firm “needing” to do a merger, pursuit of a combination presents a “double-edged sword.”

Going down the merger route, under any situation, can be unsettling to a firm’s personnel, including its key contributors. Uncertainty abounds and producers, non-producers, associates, and staff wonder whether a combined firm, from a personal standpoint, will be good or bad. Indeed, uncertainty can result in unanticipated departures that can tarnish a firm’s appearance and attractiveness. Without adequate advance preparation, departures can adversely affect the merger discussions and, in some instances, spell their doom.

Preparing to pursue a merger takes more than addressing some deferred maintenance, polishing some dulled surfaces and identifying prime merger prospects. Because merger discussions can foment anxiety at all levels, attention to dealing with that anxiety is a must. Most particularly, it is important to prepare for potential departures prior to diving deep into the merger waters. To do so, law firm leaders must:

Recognize that Turmoil May Arise. Before any merger discussions get started, leadership must understand that anxiety at the firm will increase in a multi-fold way. Contributors of all degrees will wonder whether a merged firm is a place they want to work. Once merger is in play, normally calm people can become skittish. Leadership must be sensitive to this potential and act to provide a calming influence.

Understand that Intangibles Matter.   Merger preparation means that data will be assembled to identify a firm’s strengths and explain its weaknesses. These analyses, especially regarding the firm’s producers, will focus on their economic contributions and downplay or explain away the negatives associated with some of the more challenged firm segments. Yet the firm’s real weakness can be the lack of glue or adhesion in its component parts. Leadership must identify where fissures might erupt and take steps to bond around them.

Negotiate Knowing that Departures are a Possibility. Nothing can hamper merger discussions more than experiencing lawyer departures after having touted those same lawyers as key pieces of the proposed combination. For that reason, no one component of your firm can be oversold. Negotiations should emphasize that the firm is greater than the sum of its parts and is an institution of great value.

Confront Departure Issues Head-on. If you have an idea that a departure is possible, deal with that risk directly. Visit the potential expat to address any disaffection that is fueling those thoughts. While this is where persuasive powers are critical, it is also critical that leadership address with other attorneys any fallout if departures do occur. For those that remain, a departure of one or more lawyers may create panic. Eliminate their concerns with a factually backed analysis of the firm’s remaining strength.

Provide Comfort to the Merger Partner. In instances when the departure cannot be averted, inform your prospective merger partner about the departure quickly with an analysis that emphasizes the remaining value of the institution. If you have been successful in tamping down any panic, consider informing your potential merger partner that additional departures are not expected and why. Finally, if your firm’s original pitch presented the firm as an institution more valuable than the sum of its parts, a leader’s ability to comfort a potential merger partner is enhanced greatly.

Pursuing merger is a high risk/high reward proposition.  It should not be pursued without understanding that lawyers may leave the firm in the midst of the initiative.  Can you firm withstand departures and make a merger work?  Can you firm continue if merger discussions cause departures and no merger is consummated?

 

For Law Firms Everywhere, These Are Transitional Times

Posted in Law Firm Leadership, Law Firm Liquidation, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

Times of transition are strenuous, but I love them. They are an opportunity to purge, rethink priorities, and be intentional about new habits. We can make our new normal any way we want. – Kristin Armstrong

Business as usual

The recent closing of the Toledo, Ohio law firm of Cooper and Kowalski provides another reminder of the nature of competition in today’s marketplace.

The law firm, once one of Toledo’s largest, faced three obstacles that make competing an uphill battle:

  • Increasing difficulty recruiting top law school talent;
  • The departure of lawyers; and,
  • Fixed infrastructure cost.

Sound familiar?

For Cooper and Kowalski the challenges and the additional issues they precipitate eventually left the firm with few options other than dissolution.

It is not breaking news to any law firm leader that the evolution of competition within the profession is growing daily. A firm is either gaining on the competition or facing increasing risk of its own demise.

What is your firm doing to ensure its survival?

Law Firms and Big Ten Football-Leadership and Disruption

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

The Big Ten had a tough go of it last weekend in college football. Both Michigan and Michigan State failed to step up to challenges against non-Big Ten teams. In the Horseshoe, Ohio State lost to Virginia Tech in a contest pitting the Big Ten against the Atlantic Coast Conference. The weekend’s results again raise doubts about the strength and quality of Big Ten football. If today’s business concepts are applied to what is going on in the Big Ten, one might say that the storied conference is feeling the effects of “disruption.”

The disruption in college football has similarities to the disruption being experienced in the legal industry. While there is debate about disruption in the legal industry, many law firm leaders, like Big Ten coaches and athletic directors, are dealing with the impact of change. Smart law firm leaders, like Big Ten football leadership, will take pro-active steps to deal with disruption. And while tailgating and marching bands are as unique to football as billable hours and lateral hiring are to law, capable leadership in college football and at law firms will deal with disruption in similar ways. The Big Ten leaders and law firm managing partners will:

Think Short-Term and Long-Term.  Big Ten coaches and athletic directors, being among the best in the business, know that nothing gets fixed overnight. Most will develop short-term strategies for success (get some wins) while pursuing a long-term strategy to assure excellence in the years ahead. Astute law firm leaders will do the same. The short-term goal to deliver steady financial success will be joined with long-term preparations for “new law.”

Focus on Financial Issues.  Most people don’t feel sorry for the Big Ten when it comes to financial issues because its stadiums, boosters, and sponsors create a financial strength most schools only dream about (okay, the SEC doesn’t have those dreams). Yet you can be sure that member school’s current financial fortunes will not result in complacency. Ideas and strategies on how to maintain and improve upon the present financial girth will dominate leadership’s thinking. Similarly, any competent law firm leader knows that one good year does not guaranty another, and great attention will be dedicated to achieving future financial performance.

Invest.  Big Ten schools invest in talent and infrastructure and already have among the best of both. As for talent, university presidents will push to retain or hire the best athletic directors, the athletic directors will strive to retain or hire the best coaches, and the coaches will pound the pavement to find and recruit the best players. But that is not all. The competition for superior talent will motivate schools to build state of the art facilities (locker rooms, weight rooms, indoor practice facilities, booster reception areas). Law firms seeking to compete and survive will do likewise. Hiring the best associates, hiring the most desirable laterals and retaining the firm’s best producers will be a focus of any committed law firm. Leaders at those firms will also promote or hire the best management minds available. And while spending lavishly on dramatic offices has less utility than ever before, smart firms will invest in infrastructure that aids the efficient delivery of legal services.

Communicate.  When performance is down, communicating with anyone having a discernible impact on success is vital. Sharing the current status, future initiatives and hoped for results keeps people engaged. Simply “giving hope” won’t cut it long-term, but nonetheless contributes to keeping the people engaged. Big Ten leadership will inundate alumni, boosters and the public with information about the “good” in the present and the “great” expected in the future. A law firm leader dealing with or implementing change likewise will communicate to the firm’s lawyers and non-lawyers about the firms’ solid present and exciting future.

Remain Faithful to Core Values.  In the turnaround effort, Big Ten leadership will consider the best practices of other successful programs but only with alumni and boosters constantly in mind. Smart leadership will remain true to core values that go to the heart of a school’s identity. A law firm facing change should do likewise. Law firm leaders can learn from the best practices of others, but should never lose sight of the firm’s strengths and core values. Whether in football or law, the “latest and greatest” may not be for everybody.

Big Ten football’s stumble will not continue forever. Focused steps like those above will lead to its resurgence. Challenged law firms can use the same steps to arrest a decline and turn things around. Can the Big Ten and law firms facing disruption do more?

 

Vision and the Law Firm Leader

Posted in Law Firm Leadership

There’s nothing more demoralizing than a leader who can’t clearly articulate why we’re doing what we’re doing. –James Kouzes and Barry Posner

 

If conditions were always ideal, if the road ahead was completely predictable, leading would be a piece of cake.iStock_000016325121Small

But we all know things are never perfect. Every organization needs that individual (or team) who has a crystal clear idea of what it will take to navigate the turns and detours, and engineer an ultimately successful journey.

This kind of leadership isn’t about politics. Or charisma. And the well-run law firm doesn’t leave it to chance. A few basic questions form cornerstones for critical decision making – by an individual leader, as well as a governing body.

Are the firm’s make-up, market position, operational capabilities and profitability consistent with what success will require? Or are changes necessary?  And if so, how will this be accomplished?

Answer these questions, and you have the guidelines for where the owners of a firm want it to go.

A well-articulated vision is the compass for growth, resource allocation and investments in the future.

Real law firm leaders take steps to insure all strategic initiatives align with the shared aspirations of the law firm’s owners. In so doing, the firm’s vision becomes clear.

Forming the Law Firm Vision

Establishing a law firm’s vision is largely a matter of discovering the collective ambitions of the firm’s owners. The effort is a discovery process, seeking the common threads of values and aspirations.

This discovery may be structured around a formal planning process, or be informally executed through semi-formal individual and group conversations. The law firm executive who has limited experience with this process is well served in seeking additional perspective and support for the effort.

Articulating the Vision

Once the vision discovery process is complete, the next step is to describe it in a way that drives consistent action.

The vision must be articulated in a way that it inspires practical application across the firm. A well-communicated vision will not only be understood; it is a definitive call-to-action. And, it will inspire all members to greater levels of participation and commitment.

Reinforcing the Vision

Once communicated, for a vision to be effective it must be reinforced. It should be the frequent topic of the leader’s narrative, and the fabric of all internal communication.

The vision should be the basis for decision-making, and at the heart of all visible and material actions the firm takes. Budgetary, hiring, expansion, investment and client decisions should be openly anchored in and aligned with the firm’s vision.

Frequent communication regarding success (and disappointments) in the firm’s pursuit of its vision is essential. Transparency will further strengthen the vision, and improve future decision-making.

Is your firm’s vision inspiring the decisions you make, and the directions you take?

 

Law Firm Leadership and Merger-Finding the Right Fit

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

Although this year’s transactions generally are smaller deals, the robust law firm merger market of 2013 has been continued into 2014. Mergers grab headlines, create excitement and almost always provide the merged firm a little boost from the afterglow of positive publicity. Unfortunately, any positive vibe from a merger will not last forever. And more importantly, the merger itself ultimately can prove to be a big negative because only half of the mergers consummated turn out successfully. For a merger to end up on the “success” side of the ledger, today’s law firm leaders should proceed carefully to assure that in any merger the two firms fit together well.

Numerous reasons propel firms towards merger but for many firms the significant step of merger is worth considering because (i) it solves succession plan issues, (ii) client needs dictate a broader platform, and/or (iii) financial or market dynamics demand change. Getting from the step of being “receptive to merger” to the step of “closing a merger” is a long process that requires careful and in-depth analysis. While due diligence, merger term negotiations, who is included and internal selling can occupy firm management for weeks if not months, the analytics ultimately come down to five areas of compatibility. If the fit is right, or reasonable measures can be taken over a reasonable period of time to assure a good fit, the merger has a much greater chance of success.

Cultural Compatibility. Culture is more than being comfortable with your new partners. Culture involves many things that you may take for granted, including employment arrangements and practices with legal and non-legal personnel. How one firm hires or fires an employee matters. Promotion practices, performance evaluations and decision-making processes say a lot. These everyday interactive things define a law firm’s DNA and its personality. Understanding the two personalities avoids a schizophrenic result.

Financial Compatibility. Seldom do two law firms display the exact same financial metrics. Firms with a wide gulf in metrics like profits per partner, revenue per lawyer, productivity per lawyer, capital, and realization are not likely to mesh. Metrics that are more closely aligned nonetheless need to be scrutinized to avoid a false positive based on apples being compared to oranges. Disparity in billing rates, firm debt, unfunded pension obligations and space utilization undermine financial compatibility.

Client Compatibility. Clients make a firm. Besides the all-important question of legal conflicts, a firm needs to know the philosophical and strategic approach of its betrothed to business conflicts, client profiles and the proposed billing rates. While it is easy to see the incompatibility of a law firm with a huge union clientele trying to merge with a firm that represents management, other more subtle problems can lurk beneath the surface. These subtleties need to be studied. The respective firms’ clients that are “competing to the death” in the marketplace may not see the benefit of being represented by the single firm the merger creates.

Compensation Compatibility. The setting and paying of compensation is tough in any circumstance. But trying to blend two systems in which one firm’s lawyer behavior is different than the other firm’s due to compensation system induced motivations is even tougher. Moreover, if one firm’s lawyers are used to being paid a larger draw every month than the other firm’s lawyers, something will have to give. An otherwise compelling merger may be saved with phasing in the two systems, or better yet, a new system that utilizes compatible best practices.

Operational Compatibility. No firm can succeed if it does not operate smoothly. Technology or other operational concerns need to be understood and dealt with up front lest they create undue frustration post merger. Not all these issues can be resolved as of the merger’s effective date, but understanding the issues, developing a plan for dealing with them and communicating about them and their planned resolution helps greatly.

Merger’s can be risky, but they also can propel a firm to places not realistically possible if left to organic change. Prior to getting too deep in the merger discussions, strong law firm leadership will study the two firms’ compatibility in these five areas. When considering a potential merger, is there anything more important than making sure the fit is right?

 

Successfully Leading a Law Firm

Posted in Law Firm Leadership
     About twelve months ago, in the wake of a number of law firm failures,  I reflected on the challenges associated with leadership in an increasingly volatile marketplace. Today not much is different.  Our industry continues to experience transitional issues that signal a substantive shift in the way we organize, interact with clients in many instances, and even deliver counsel. With additional experiences under our belt, and mounting evidence that a new normal is, indeed, taking shape, I offer a slightly updated version of that reflection from one year ago. ——————————————————————————————————————————————————————–

 Leaders aren’t born, they are made. And they are made just like anything else, through hard work. And that’s the price we’ll have to pay to achieve that goal, or any goal. —Vince LombardiiStock_000017722659XSmall

 

As law firms, big and small, fail at alarming rates, it begs the question, what is going on; and (more to the point) what can be done to improve a firm’s odds of thriving in this emerging market place.

The answer to this question is one of those good-news/bad-news occurrences.

The good news is that, for most firms, the answer is simple and straightforward.  The number one determinant of the success of any enterprise is the quality of leadership. This is underscored by a Dun & Bradstreet (“D&B”) study describing the three top reasons for business failure as;

  • Lack of access to capital;
  • Poor or no marketing plan; and,
  • Number one, poor or lack of leadership

Though troubles often begin with an external event, it is the response (or lack thereof) that comes with long-term ramifications…  D&B shockingly attributes 87.8% of failures to leadership. Wow!

Leading The Law Firm

We mentioned good-news/bad-news.  And the bad news is leadership is something law firms struggle with mightily.  If almost 90% of all business failures are a direct commentary on leadership, consider the implication of these law firm realities:

  • Most law firm managing partners get their first experience leading an organization when elected as the leader of their firm;
  • The criteria most often used to select a law firm leader are success in building a practice versus success in leading an office, practice group or another organization.

The training most successful lawyers receive rarely focuses on the skills essential for success as a group, team or firm leader. Much has been written on the difference between what it takes to be a successful business leader and the career experience of most successful lawyers. Deborah Rhode’s paperWhat Lawyers Lack: Leadership — is particularly good.

McBassi & Company conducted an interesting study regarding law firms and leadership. The conclusion — that the top three factors in predicting a law firm’s profitability are:

  • Leadership skills – setting direction, building consensus and reinforcing values
  • Inclusiveness
  • Managerial skills – seeing that work product is prepared and delivered in a manner that the client expects

Two of these — leadership and management — receive little to no focus in most law firms.  If you question this, consider how many practice or committee leadership positions are near afterthoughts, having little to do with the ability to build consensus or engender collaboration.

Patrick McKenna conducted a survey of law firm leaders that is full of quality information; but, relevant to this conversation, the survey reveals that:

  • Approximately half of the law firm leaders surveyed had been in their position 0-5 years;
  • 72% had no job description;
  • 76% had no formal means of evaluating their performance.

In other words, the typical law firm leader is relatively new to a job that isn’t defined and has no feedback or accountability mechanism.

As David Maister said, “the number one thing lawyers (and in this case law firm leaders) have going for them is that they are competing against lawyers.” Unfortunately, as the market is evolving there is an increasing number of non-lawyer competitors taking a bigger and better piece of the pie.

What To Do

The essential role of leadership is nothing new. The increase in pivotal moments in the life of a law firm, however, may be.  A number of realities differentiate today’s market from the 90’s and 2000’s when quality lawyers could insure a thriving practice. Among the changes,

  •  A rapid number of developing alternatives;
  •  Competition has become global;
  •  Technology is replacing services (and people);
  •  Outsourcing is more than a passing fad;
  •  Clients expect more for less;
  • Consolidation is running rampant

In the context of today’s turbulent market, the shortage of effective leadership in law firms is a real and growing issue.   What every partnership should be seeking is measurable increase in the:

  • Leadership and management capability at all levels of the organization
  • Percent of decisions made by those with proven management and/or leadership experience;
  • Commitment to find specific expertise in areas where internal competence is lacking

Healthy, Stable and Strong Firms

If this describes your firm you have the luxury of time, and the opportunity to develop capability organically. Some of the strategies to target include:

  • Development through experience. Experience is the best teacher. Building experience among younger lawyers in a structured manner where mistakes can be comfortably made is ideal. One firm that is taking an impressive and progressive approach in this area is Bingham McCutchen.
  •  Development through education. There are numerous excellent formal leadership programs. A few to consider include

◦                     Harvard’s Leading the Professional Services Firm;

◦                     Local MBA and EMBA programs;

◦                     Any one of the numerous seminars on the subject offered through the AMA (provide link) – typically excellent and cost effective;

◦                     Development through mentoring. Resist the temptation to write this off as touchy-feely stuff. Quality mentoring programs can be incredibly effective. This is an area where outside assistance is typically the cost effective way to go.

◦                     Development through feedback. Feedback and self-awareness are critically important to the development of leadership and management capabilities. The formal programs noted above make extensive use of feedback, and it is part of any serious on-going focus. Investigate the options, select an approach that is right for your firm, but don’t skip this critical step to improving leadership skills.

Firms That Are In a State of Transition or Stress

If this describes your firm, time is not your friend. Implementing the above will serve you in the long term, but you likely do not have enough time to nurture the needed skills organically. The prudent leader of a firm in transition considers:

  • An outside perspective. Seek out an advisor that can help the firm through the transitional period, and then focus on hiring and developing in-house management and leadership talent.
  • Lateral Leadership Acquisition. Though an approach that is used frequently and successfully in the corporate arena, laterally hiring a Managing Partner is rarely considered by law firms. One large law firm that has shown amazing openness to this concept is DLA with their hiring of (link  ) co-global Chairman, a bold and innovative move.
  • Employing non-lawyer CEO/COO. Although the role of non-lawyers as COOs has been steadily growing, some farsighted firms are now hiring business leaders as CEOs. Time will tell how this trend develops; but my bet is that in 20 years it will be the norm.

Conclusion

The serious partnership does more than talk about leadership. The law firms that thrive in the context of high-consequence change will be those that find a way to focus the same energy here as is invested in the development of legal expertise.

Firms that choose to believe every rainmaker is a leader, or every partner should lead a committee, or the way to silence a strident voice is to bestow token leadership – these will be the firms caught in the most extreme forms of transition in the months ahead.

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