Managing Law Firms in Transition

Managing Law Firms in Transition

Practicality and Law Firm Strategy

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

business-strategyI was very encouraged by a recent Bloomberg article regarding Katten Muchin Rosenman. The piece describes the strategic priorities of Roger Furey, the newly-named chair of the firm. The three top priorities are:

  • Getting the word out regarding the firm’s reputation. Reportedly, the firm has an excellent reputation with existing clients and the goal is to make the broader market more aware of this.
  • Determine what the firm’s clients view as their needs. As is the case with all firms (or for that matter, any service related business), understanding the needs of clients —   learning directly from them about what they are thinking and what they need — will allow the firm to better serve them (and when done properly, almost always result in organic growth).
  • Attorney development. The firm intends to better use its more senior lawyers to enhance the capabilities of its more junior lawyers.

 

There is a lot to like about what this new managing partner is doing; but there are four things in particular that  I love about this strategy.

 

  • It is Achievable – Exotic, industry conquering objectives can be exciting but are often unrealistic. Goals that aren’t achievable can be more destructive than no goals at all. Outlining a series of objectives that are realized helps build a foundation of confidence and trust. And from here more aggressive objectives can be addressed.
  • It engages clients and attorneys – Attorneys and clients are the obvious life blood of any law firm. Strategic priorities that get both involved in advancing the firm’s strength is a recipe for success.
  • It provides clear direction – The Katten priorities provide guidance as to where the firm will focus and where it intends to invest resources. The priorities say the firm is going to be about enhancing its reputation through deeper service relationships with clients; and that it intends to accomplish this by listening to the clients, understanding their needs, and developing enhanced capabilities aligned with these needs.
  • It is Positive – This simple set of priorities creates a strategy that is easy to rally around. It is easily understood, easy to believe in and feel good about.

 

During these times where reports of law firm struggles continue to dominate the news, I found this article encouraging.

 

Does your firm’s strategy provide positive direction and is it achievable?

 

Hiring Ross As Your New Associate-Five Additional Steps for Law Firm Innovation

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

Business as usualThe march of change and innovation in the legal services industry continues.  Last week it was reported that Baker Hostetler has licensed “Ross” for its bankruptcy group. Baker Hostetler’s decision to use the Ross Intelligence artificial intelligence product to perform some of the basic functions traditionally the role of associates is innovative and signals change.

Some of the industry’s change and innovation is even slaying a few sacred cows.  A recent article/post by Scott Forman about “unbundling” legal services notes the dramatic change to the “one-stop shopping” model that so many firms have sworn by for years.  Unbundling means giving up inefficient elements of a law firm’s practice or innovating that practice to obtain efficiency-all in the name of client service.

Change and innovation, whether by adopting artificial intelligence or unbundling services, should no longer be viewed as groundbreaking but as a must.  The 2016 report from the Georgetown Law Center for the Study of the Legal Profession notes the systemic change being experienced in today’s legal services market.  The report observes that clients control legal services like never before, law firms’ share of the legal services market is declining and clients are keeping more legal work and doing it in house.  Responding through innovation, whether by turning to artificial intelligence, an unbundling legal service, or taking other action, is essential to remaining relevant.

For law firms seeking to avoid obsolescence through innovation and change, at least five steps should be considered:

Make Innovation a Firm Wide Mandate.  Change at law firms is hard.  Many new timers and old timers alike will bristle at abandoning the tried and true approach to law in favor of a new way.  So before new ideas are proposed or change threatened, law firm leadership should spend significant time changing the culture through educating the ownership about the new normal and the dangers faced.  An educated ownership becomes an ally, a font of ideas and drives the firm towards a more client-centered approach to law practice.  Make the owners own the change.

Rethink the Economics.  In the future legal work will be less labor intensive and clients will expect results based on an economic model other than the billable hour.  Building a non-billable hour economic model that is client responsive yet profitable should not only be a goal but also an imperative.  Creatively pricing legal services will become more important.

Reallocate Firm Investment.  The march of technology has been felt for a long time.  In the future, firms will need to allocate budgets not only for more advanced systems, but also for personnel that will fill a quasi-legal role to generate data and analysis that lawyers can use.  An incoming associate class may give way, at least partially, to an incoming tech class of which only some may be trained as lawyers.  Young lawyers with a start up mentality motivated to think about better or more efficient ways to do things could prove very beneficial.

Change the Human Resource Management.  Even in a world that includes Ross, good people will still be needed to deliver good legal services.  But human resource management will rely more heavily on contract lawyers (or their equivalent) and short-term outside services.  Whether the legal profession becomes truly “uberized” is subject to debate, but the underpinnings of the Uber model and client expectations will move the profession away from long-term personnel decisions and towards managing fluctuating demand by short-term hires.

Diversify.  If alternative legal service providers are making inroads and taking market share, think about joining the trend. More than a few firms have taken this approach by segregating into other business units labor intensive activities like document production.  By doing so they have delivered lower cost services on commoditized work rather than see that work or the client go elsewhere.  For the most part, there is no reason a regular law firm cannot provide alternative legal services if well thought out.

Ross joining Baker Hostetler is not as revolutionary as it may seem.  For some time now client expectations of better value and efficiency from its lawyers has furthered innovation in a profession generally slow to change.  Is your firm keeping pace?

 

Slowing the Law Firm Churn

Posted in Law Firm Growth, Law Firm Leadership, Uncategorized

Recently, I was asked if I was going to fire an employee who made a mistake that cost the company $600,000. No, I replied, I just spent $600,000 training him. Why would I want somebody to hire his experience?                THOMAS J. WATSON SR.

I Quit

How many lawyers have you watched move from one firm to another in the past year?  “The churn” as it has come to be known has become commonplace in the legal profession.

According to numerous reports, the average firm loses 20% of its associates per year.  And this is not a new phenomenon. This statistic seem to be relatively consistent for periods before and after the economic downturn.

The cost of the attrition, whether measured in terms of the bottom line or raw human drama, is extraordinary.  In term of dollars, on average, it costs law firms $200,000 plus to recruit, hire, train and replace the average associate. Compare this to the well run corporation, where turnover averages  2-3%.

The picture for partners isn’t any prettier. This article, by Michael Allen of Lateral Link, reports 2,000 to 3,000 lateral moves per year over at 5 year period. How successful have these moves been?  In short it is horribly unsuccessful. According to this post, a third of lateral partners leave their new home (for one reason or another) within three years. Almost half leave within five years.

The Reason For The Churn

There are a number of suggestions as to the root cause of such a high rate of attrition among law firms. These include:

  • The economy
  • Poor hiring practices
  • Overselling of individual value
  • Lawyers as managers
  • Overly aggressive recruiting from search firms

I’d like to suggest that something else is at play.

A Closer Look at Partner and Associate Attrition

I hear many law firm leaders talk as if they have come to terms with extraordinary attrition  as a “fact of life.”  The bottom-line cost, as well as the drain on productivity and the psyche of the firm are accepted as part of doing business.

But in a marketplace that has seen more than 10,000 partner moves in 5 years and an even greater number of displaced associates, are we really willing to accept this as a function of working in the legal industry? We certainly should not be satisfied to simply chalk it up to being a price of running a law firm.

Something is fundamentally wrong and I’d like to suggest something else is at play…..

The churn is the predictable and natural byproduct of a conflict between the direction and goals of a firm on one hand, and the career aspirations of an individual lawyer on the other.

Some may suggest that the right set of handcuffs would slow the rate of movement, and minimize its cost, but does any firm really want to build barriers that bind dissatisfied lawyers?  This approach doesn’t work with trade tariffs, and it won’t promote the creation of successful, stable law firms.

A more practical approach begins with management  acknowledging and understanding just how critical career aspirations are when it comes to determining an individual lawyer’s long-term fit in a partnership.

It is this simple: attentiveness to the things the majority of your lawyers value most will breed stability and provide a solid foundation for growth. A recruiting process – associate and lateral – that begins with a clear understanding of the firm’s common values and shared aspirations is one of the basic building blocks of stability. Firms that begin here are on the road to less waste and greater retention.

That said, in any enterprise there will be individuals whose professional desires are in conflict with the organization. Smart leaders in healthy organizations strive to identify a mismatch, and facilitate an orderly transition that fosters a collegial relationship and potential referral source.

How about this for a point of discussion: is it possible for  today’s law firm to grow an organization around common values and shared aspirations?  And will this speak to the incredible rate of partner movement, and reverse the churn game?

Law Firm Merger-Four Rules to Follow

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

Mergers between law firms garner headlines. Just last week, Kansas City’s Husch Blackwell was in the news when it announced that it was merging with Whyte Hirschboeck Dudek S.C., a Wisconsin based business and litigation firm. The merger comes less than year after Husch Blackwell’s Chairman Maurice Watson described the firm’s newly adopted strategy of focusing on six economy segments that it can better serve as industry subject matter experts.

Under this new strategy, Husch Blackwell is moving away from being a firm of “generalists” to becoming a firm demonstrating industry sector expertise in the health care, energy and natural resources, financial services, construction, food and agribusiness, and technology and manufacturing industries. The plan takes a fresh look on the legal services market and identifies a path to success through differentiation.

If Husch Blackwell’s merger with Whyte Hirschboeck Dudek is in furtherance of the industry-focused approach, it could be a smart move because the merger would be one that seeks to execute the vision of the firm.   If the merger is not predicated on implementing the firm’s “differentiation” strategy, its wisdom is suspect and it may amount to growth for growth’s sake. Right now, however, only Husch Blackwell knows the motives behind the combination and, in turn, its prospects for success.

But every time a merger is announced, it brings to mind the fact that only about fifty percent of them succeed. To improve the odds, there are at least four rules merging law firms should follow:

Further a Strategy Other than Growth. In most cases, growth is not a strategy but should be a tactic in furtherance of a thoughtful plan. Having a strategy for the long-term improvement of the firm that is enhanced by growth can be very successful. But if a merger results from simply being “opportunistic,” the outcome may be less than helpful to the long-term health of the firm. Merger or other combination should only be pursued if those growth tactics are consistent with a strategy that is not focused on growth.

Blend Two Firms that are Compatible. Too often firms are combined because outwardly they seem to be a good fit. But truly drilling down on compatibility involves comparing the two firms’ cultures, finances, clients, compensation and operations. If any of these five areas are not symbiotic, a closer look at pursuing the combination is required. While complete compatibility may not exist in every case, misfires should be kept to a minimum and a plan should be developed to forge the new firm into a harmonious whole. If a compatibility analysis shows too much dissimilarity, the firms would be wise to walk away.

Have an Integration Plan. As a combination heads towards closing, it is essential that serious thought be dedicated to developing an integration plan for the two firms. The integration plan should be a product of both firm’s input and should draw on leadership from both sides for its implementation. Full buy-in from the rank and file should be the goal. Upon closing, the integration plan needs to hit high gear with the support of leadership. There is no time to waste.

Have a Follow-on Plan. The consummation of a merger or other combination does not mean the firm can rest. While it should be in the midst of implementing its integration plan right after closing, it should do more. The firm must develop a strategy that leverages the excitement and goodwill engendered by the transaction so that momentum from the combination is not lost. Too often the merger process is so exhausting that little gets done post-closing to maximize the new firm’s prospects.

The idea of merger can gain support at some firms these days because it represents dynamic action that may offer a solution to a problem or an antidote to law firm malaise. Without careful thought, however, a merger is neither a solution nor an antidote. If your firm is thinking about merger, will it follow the four rules described above?

What is a Law Partner

Posted in Law Firm Growth, Law Firm Leadership

Another year and more turmoil in the legal industry!partnership

Although the improving economy has led to improved performance for some law firms, for many (most?) the disruptions in the legal industry continue to create serious challenges. As firms continue to search for a path back to health, there will almost certainly be an unfortunate number of partner terminations and demotions.

In far too many cases the effected partner is surprised.

In a conversation with Larry, a successful lawyer I once worked with, asked, “In managing law firm performance, how do we manage performance cycles, while honoring a culture that values the individual? We all talk about loyalty and being partners; but the concept of removal or demotion seems directly at odds with those bedrock concepts.”

Larry has put his finger on the heart of the issue – a pivotal point that, in my view, warrants some consideration. In pondering Larry’s observation, a fundamental question dawned on me — exactly what is a partner?

Unfortunately most law firms have not made partner a defined term, leaving it to individual and inconsistent interpretations. Certainly many firms have defined specific characteristics necessary for promotion from associate to the partner ranks. Some firms specify at what age you must retire from being a partner. But what I am talking about is a carefully thought through definition of exactly what it means to be a partner during the 30-40 years between these two points!

Let’s look at the spectrum of possibilities. At one end you have the firm with high standards for conduct and performance, and little tolerance for variation from those standards. At the other end we have the firm that operates with a philosophy of once-a-partner-always-a-partner, no matter the conduct or level of performance. Obviously, there is a universe between these two extremes.

My point is not that there is a universally applicable combination of factors that is right for every firm; rather that it is essential that each firm define what “partner” means for that firm.

Defining expected conduct and performance would:

  • Dramatically improve the odds that the firm will achieve the collective aspirations of its partners; and,
  • Provide a fair means of assessing individual partners.

I believe the degree of a firm’s success will be directly tied to two issues that stem from defining what it means to be partner.

First, the longer you allow the lack of definition to exist, the more varied the conduct and performance of the Partners will become over time, threatening the competitive position of the firm.

Second, once you have defined what partner means, the firm’s management must demonstrate the resolve to manage performance to that definition. To not follow through violates a basic contract with the partners, undermines confidence in management, and threatens the long-term health of the organization.

The clear definition, communication and observation of what it means to be a partner will unify and strengthen a firm’s position in today’s turbulent market, and help maintain stability and strength in the pursuit of tomorrow’s goals.

Exactly how does your firm define Partner?

Boomer Law Firms: Some Demographic Challenges

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

Ward Bower’s Existential Threats to Law Firms provides an excellent review about a few of the economic and demographic issues that threaten today’s law firms. As Mr. Bower notes, some of the law firms previously fixtures in league tables and in the AmLaw 200 have either failed, been acquired or otherwise have disappeared from view-all because economic and/or demographic issues had a significant impact.

The five issues or “existential threats” are easy to understand thanks to the clarity of Mr. Bower’s article. Too much long-term bank debt at a law firm can cause earnings to erode and contributors depart. An expiring lease is another threat, causing landlords to demand partner guarantees prior to any new lease being offered. If the landlord’s demand cannot be resolved favorably, the law firm’s partners may disperse.

A particularly insidious third threat exists when a law firm has unfunded retirement obligations. Like the bank debt, the unfunded retirement obligations can eat into earnings causing younger partners to depart. Today’s competitive lateral hiring environment yields yet a fourth threat. Firms that lured laterals with minimum income guarantees may be more financially stressed, especially if the hires have been lackluster.

Finally, the lack of succession planning threatens many firms because boomer leadership may retire, die or become disabled. Without an experienced hand ready for the tiller, the good ship law firm can easily run aground.

Mr. Bower warns that the presence of any of the five issues can leave a firm at considerable risk. His admonition that today’s law firm leadership takes heed is well placed. Yet firms receiving a clean report card on the five existential threats may still face risk due to the aging of today’s law firms. Three demographically based challenges, tangentially touching on Mr. Bower’s existential threats, are discussed below:

Expiring Leases. Mr. Bower’s focus on landlords demanding lease guarantees is spot on. A standoff between the law firm and the landlord could lead to partners throwing in the towel and winding up their firm. But even if no guarantee is demanded, the advent of a terminating lease can cause partner reflection that leads to some of them deciding to go their separate ways. When facing another 10 years with partners no longer as symbiotic as they were 10 years earlier, some may decide to not re-up. A fracturing of the law firm can result thus leading to its demise.

Retirement. Mr. Bower’s article highlights how unfunded retirement obligations can sap a firm economically, causing instability, departures and then the end of the firm. But even if a firm does not have an unfunded retirement obligation, it may have productive boomer lawyers facing a life crossroads. These lawyers may be less concerned about the financial burden of an unfunded retirement obligation and more interested in having a retirement benefit itself. While younger partners may be pleased that the firm is free from an unfunded retirement obligation, the boomer lawyers may wish their firm had a retirement plan providing more financial security for their latter years. Those thoughts about retirement on the horizon can stimulate departures by critically important partners looking to supplement a nest egg. For smaller firms that can’t easily endure the departure of significant economic contributors, the lack of a non-qualified retirement plan may cause wanderlust, departures and then crisis.

Guaranteed Income for a Laterally Hired Partner. While a firm may feel very good about not having offered guaranteed incomes to lateral hires, that same firm’s legacy rainmakers may be lured away by that exact kind of unwise inducement. In a legal services market in which self-interest fuels lateral movement, no firm is free from the risk that its most productive lawyers, including those from the loyal boomer generation, will leave for greener (as in money) pastures. So even if a firm has avoided the questionable practice of guaranteeing income for laterals, its best partners may have their heads turned (see Retirement, above) by firms not so disciplined. In today’s market, all firms are at risk of losing their most valuable assets.

Many law firms are blessed with productive lawyers from the boomer generation. But how many of those firms can afford to see those same lawyers decamp for another firm? What has your firm done to guard against that happening? Is it prepared in the event boomer partners say adios?

Is Your Law Firm in Transition

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

 

With the on-going market challenges associated with the legal profession, firm leadership is smart to periodically stop and evaluate the state of the firm. Is it in a transitional state?

Here are four questions that can help serve as a baseline diagnostic. Is your firm:iStock_000013760109Small

  1. Facing a decision that addresses the fundamental way the firm has been doing business — Firms regularly face these moments — significant business altering decisions that prompt a re-examination of the way business is conducted.. Properly responding to the shrinkage of a practice, lawyer count or market evolution, adverse litigation, financial losses or growth opportunities are typical precipitators.  These kinds of decisions, even though not motivated by the existence of crisis, should cause a firm to re-think its approach to the practice of law.  A firm in this position usually has the benefit of some time to make the right decision — but not unlimited time.
  1. Needing to reposition/restructure — The need to reposition or restructure can arise from a number of developments. Repositioning or restructuring usually involves a firm being in a state of greater urgency than simply facing a business altering decision such as those noted above. The loss of significant clients, practice groups, offices, key lawyers, or a cost structure that has gotten out of balance with revenue can all signal the need to consider a repositioning or restructuring in order to turnaround the troubled firm.  When this is the case, the clock is ticking — and decisions tend to become increasingly time sensitive and critical.
  1. In crisis — Issues that will test survival take the discussion to a different level. Continued attrition, missing partner draws, declining profitability, and threatened or actual removal of borrowing ability signal crisis. In these moments managing the law firm is traumatic.  And time is of the essence.
  1. Requiring an orderly liquidation — An unfortunate (but all too frequent) occurrence in our present market is the most extreme form of transition — the closing of a law firm. Firms in this position no longer have go-forward restructuring options. Often there is an insufficient number of producing partners, fixed costs exceed revenue, and continued operation is not viable. In this case, an orderly liquidation that manages claims against the firm, and minimizes disruption of lives is what leaders should be working toward. Choices made here are critical to a successful outcome.

The nature of the transitional decision faced by a law firm does not always fit nicely into one of these four categories. At times more than one of the categories is presented; a law firm needing to reposition or restructure may, simultaneously, be in crisis.  If repositioning or restructuring is realistic, it may avert the crisis.

In other instances, a law firm may initially believe it has time to re-think the way it practices, and adjust some of the fundamentals that underlie its business.  But if the wrong decisions are made, it may soon find itself in crisis and needing a repositioning/restructuring lest it slip into requiring a controlled liquidation.

 

Law Firm Capital Contributions-How Healthy an Investment?

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Warning Signs

HealthRecent commentary on trends among law firms has highlighted the increasing popularity of requiring greater capital contributions from owners. As Law.com‘s Nell Gluckman notes, instead of capital requirements in the 20-25% range as was common for years, law firms more frequently are jacking up the owner capital requirements into the 30-35% level. In some cases, the capital amount expected by leadership is even greater.

Increasing owners’ capital obligations is partly in response to the negative experiences from the Great Recession as well as encouragement from bank lenders.

From a firm standpoint, the decision to make owners contribute more capital is fiscally sound. Unwilling to take only half-measures, Richard Acello writes that many firms have not only increased the capital required, but also have slowed down capital repayment with a combination of extending repayment term and by breaking up repayment into installments. These steps not only help the firm with its cash flow, but they can also cause some owners to think twice about leaving.

For law firm owners, however, increasing their capital contribution may not be so welcome. True, when thinking solely about the firm, an owner should be comforted to know that more capital should make his or her firm stronger. Yet when that same owner focuses on self-interest, the popularity of this new capital model can’t be so comforting for a number of obvious reasons detailed by Edwin Reeser.

If your firm is thinking about increasing its capital by requiring owners to contribute more, be ready to address the following concerns from owners:

The Investment is at the End of the Food Chain. As simple matter of priority, capital is subordinate to virtually all other law firm obligations. That may be okay as long as the firm is in business, but if Armageddon comes the priority of all other claims means repayment will come, if ever, only after a long time.

The Investment is “Covenant Light.” Generally, once the capital is invested in the firm nothing triggers its repayment other than a departure or liquidation. A firm’s poor financial performance, unwise decisions, “run on the bank” departures don’t activate an owner’s right to be repaid like they may for a third-party working capital lender. Unless an owner leaves thus triggering a repayment obligation, the capital will simply sit there even if management is running the firm into the ground.

When Things Go Bad, Recovery Prospects Depend on Others Who Don’t Care About the Owners. Because an owner’s investment is subordinate to virtually every other interest, it is the holders of priority claims that will dictate the steps taken to satisfy obligations. Those priority claimants will care little about the owner’s interest (other than to make sure it doesn’t get paid ahead of them). Worse yet, while all of the priority holders usually can sell their interests to obtain a market-based recovery, the equity holder is often legally or ethically restricted from selling the equity interest even if theoretically a market exists.

Borrowing to Buy Equity Can Be Scary. As equity requirements ramp up, the idea of financing a capital contribution gradually out of year-end bonuses and distributions becomes less practical. Body dragging your owner to the firm’s friendly bank so the equity owner can borrow the funds needed to make the contribution is easy for the firm, easy for the bank and heck, even easy for the firm owner. But when that owner departs for greener pastures or sees the firm fail, the demand for payment of the capital loan will come long before any capital, if any, is recovered. Taking on senior debt to acquire equity can be scary for your owner.

The Returns May Really Stink. Law firm equity has an unreliable return profile. Typically no interest is paid or accrued nor is there a stated maturity date. If the firm has some great years, the ownership interest may, in fact, deliver pretty decent returns. But unless good years are consistently delivered so that distributions over an owner’s “budgeted compensation” are regularly paid, the returns on the owner’s capital investment can be underwhelming. And it is not as if his or her equity is a passive interest. The owner is still expected to work hard during the year to justify the “budgeted compensation.”

When law firm leadership takes steps to increase capital, it seeks to strengthen the firm as an institution. From an owner’s standpoint, however, the capital call may be unwanted. If your firm is thinking about raising its capital, will leadership be able to address these owner concerns?

5 Easy Steps to Destroying a Perfectly Good Law Firm

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

FailureIt has become an all too frequent occurrence — the story of yet another law firm closing its doors. The headlines rarely convey everything — displaced personnel, inconvenienced clients, and the pain and disruption for the firm’s owners.

What drives this result? How has this become almost commonplace?

I believe any one of five things can lead to crisis within a law firm. Execute two or three — certainly all five — failure is virtually assured.

  • Spend indiscriminately
  • Borrow to pay partners
  • Recruit, associate with (and pander to) partners because of the size of their practice
  • Grow simply because you believe bigger is better
  • Assume successful partners equate to effective leaders

If you want to avoid these missteps, consider seriously addressing each issue. Here’s how.

  1. Make commitments/incur cost at a modest and sustainable level.

There is an almost unexplainable inclination to lease more space than necessary in expensive office buildings, and to add permanent personnel in advance of an assured level of client work. Be slow to make long-term commitments on space and to people.

  1. Live within your means.

Duh. Every single one of us knows this. Yet, bank loans and lines of credit have become the norm for today’s law firms. If you’re using a line of credit to pay partners before the profits have been earned, you have embarked upon a proverbial slippery slope. Surviving the ride depends on taking some quick action.

  1. Associate with those who share your values and aspirations.

Maybe the most under appreciated aspect of building a successful law firm is affiliation with those who share a common set of values and aspirations.

Today, a huge factor in deciding whether or not to add a new partner to a law firm is the size of that lawyers practice. There is no institutional glue associated with a large practice. When tough times come (and they always do) practicing with people that are trying to get where you are trying to get and who have a similar perspective on what is important along the way will help get you through to better times.

  1. Grow prudently

The days of adding lawyers and their capabilities to serve the needs of existing clients has largely gone by the wayside. The new norm is to add lawyers (one at a time or through mergers) because they are willing to come — and the apparent belief that being bigger makes us better There are countless studies that indicate that half of law firm mergers fail to deliver the expected benefits, and the results of lateral hiring aren’t any better. The bigger is better theory is significantly flawed. Pursue it at great peril.

  1. Develop leadership capabilities

The skills necessary to become a great leader are developed over time, through a combination of reading, educational programs, mentoring, affiliating with other leaders and through the fires of experience. Rainmakers are not necessarily good leaders. Strong personalities are not necessarily indicative of great decision making skills. The prudent lawyer that seeks to improve their firm’s future will invest in the development of firm leaders. It doesn’t matter if you are in a one or one thousand lawyer firm the message is the same — leaders are made through hard work and the honing of those skills essential to decision making, consensus building, compromise, collaboration, and listening. Leaders skilled in these areas have a shot at leading long-term success.

Is your firm taking steps leading to success or failure?

Law Firm Focus-When Positive Financial Performance Is Not Really Positive

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Transition

focusIn a time of increased competition among law firms, a firm’s positive news, developments or performance always seems welcome. Peer recognition for the firm is nice. Likewise, having clients show confidence in the firm by hiring it again and again naturally is a boost of confidence. And climbing revenues and profitability is almost always viewed as a barometer of success.

But not all indicia of positive financial performance means a law firm is doing well or headed in the right direction.   For performance data to be truly positive it should be indicative of advancing a firm’s values, culture and strategy. While it may be hard to imagine that more money can ever be a bad thing; if it comes at a cost to values and culture or causes a diversion from a well-considered strategy, it may be a dubious marker of success. Simply put, some financial success may not always be probative of the success a law firm seeks or needs.

When a firm enjoys a bell weather year financially it should look at that performance a little deeper. The proper perspective is to not just assume that a good financial outcome is the true measure of progress. Indeed, an uptick in revenues or profitability may mask substandard performance when tested against a firm’s values, culture and strategy. If you are incredulous about such a proposition, ask yourself how many times have you read about a law firm that closes while its last managing partner states, “we just finished our best year ever.”

That being the case, strong financial performance should be understood with the following thoughts in mind:

It May Be an Aberration. Some financial aberrations or one-time events are easy to spot. A significant bump in revenue and/or profitability may not be repeatable-at least anytime soon. If the spike in partner profits came because departures leave fewer shares to be divided, the concern over attrition may take priority over congrats for the extra money spread around. Collecting a large but old receivable or contingent fee may say nothing about your firm’s current direction. Patting oneself on the back may be unjustified. Equally concerning, complacency can ensue.

Is Performance Aligned with the Firm’s Values? Strong financial performance may or may not measure whether the firm is doing a good job standing strong about its values or being true to its culture. A firm deeply committed to teaming and building an institutional client base should not be overly swayed from a boost in revenues caused by laterals that can’t seem to un-silo their practices. The firm may still like the revenue created, but it cannot be sanguine that the uptick signals a faithful adherence to its values and culture. A firm should test the results to see if they are consistent with the long-term needs of the firm.

It Can Lead to Rewarding Contrary Conduct. Whenever a firm’s strong financial performance is attributable to the efforts of a few, there is a natural tendency to laud or reward that effort. But with humans being humans, the motivation to emulate the latest “stars” may yield more of the same behavior. As long as the original conduct was consistent with the firm’s values, culture and strategy, all will be good. But if that is not the case, the firm should beware. A firm should understand the nature of financial success before rewarding those responsible.

It Can Change Your Firm’s Values, Culture and Strategy. Repeatable strong financial performance can be a beautiful thing. But if it consistently is contrary to the long-held values, culture and strategy, it likely will forge those things in a new direction. That is not to say that the values, culture and strategy were right in the first place or unchangeable, but awareness of the change should stimulate an introspective look at where the firm is headed. If ownership is happy with that direction, fine. But if not, action will be required. Consistent performance not in sync with stated values, understood culture or adopted strategy should be discussed and evaluated. If the firm’s direction is to change, it must be done willingly.

Popping the champagne because of great financial success is always fun. But smart leadership looks beyond the bottom line results to see where their firm is headed. When your firm has enjoyed its “up” years, has it looked at its performance critically?

 

 

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