Managing Law Firms in Transition

Managing Law Firms in Transition

Law Firms Today-The Downside to an Unearned Raising of Rates

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

iStock_000013760109SmallOver the last two weeks some attention has been given to the topic of law firms raising rates. Bill Josten recently wrote about information coming from Thomson ReutersLegal Executive Institute and Peer Monitor that suggests that raising rates may undermine firms’ goals of greater profitability. A similar report followed, also drawing on Thomson Reuters’ Peer Monitor, and indicates that many firms are seeing increased demand if they take rate growth more slowly. As a matter of basic supply and demand applied to an industry that has seen softness in demand, the Thomson Reuters reports are not surprising.

Will this data concerning the efficacy of aggressively raising rates cause more firms to de-accelerate rate growth for a while? For many firms in which rate growth is a way of life, particularly larger ones, the answer is likely “no.” For a number of reasons, however, firms should take these reports to heart and consider pausing the annual practice of raising rates, or at least be more modest in the increase implemented. Besides what the reports are telling firms, an aggressive increase of rates can be ineffectual because it may:

Exacerbate a Demand Decline. If a firm decides to raise rates in order to maintain or increase gross revenue in the face of declining demand, the increase in rates may only drive demand down further. Raising rates to offset softness in demand may be the worst thing to do.

Diminish the Connection with your Client. Every less hour a client needs you means there is less opportunity to show your indispensability. A rate increase can limit the amount of time your client wants you to help in an already opened matter. High demand “keeps you in the game” by increasing interaction between you and your clients. There is nothing better for furthering client relationships.

Drive Away Clients in Two Ways. When you raise your rates it can evoke a “here we go again” response from your client. That reaction can morph into a client questioning whether a rate increase is deserved and strain the relationship. Further, a second and more direct impact happens if the client decides that a “lower rate shop” may deserve a chance. There are a lot of good lawyers willing to do their best for less. If you raise your rates when a raise is not deserved, you may find out how many.

Mask Other Issues. If revenues will go down without rate increases because your lawyers are not as busy, you’ve got a demand problem, a client-relationship problem, and/or a quality of legal work problem. Your problem probably is not that your rates are too low. Charging higher rates so you can keep revenues up may succeed in the short-term, but the rate increase does little to fix what may be the more systemic issues. The short-term solution may leave unaddressed underlying issues that compound and fester. Better to address the root of the problem rather than cover it up with an unearned raise.

Fuel a Sense of Entitlement. In most cases the rate increase is a response to increased pressure to boost gross revenues. Perhaps additional expenses need to be paid; new lawyers with increased starting salaries need to be hired, and annual pay raises for partners are expected.   If increased partner compensation is not deserved, should clients nonetheless see the rates they pay go up? A rate raising solution to partner compensation expectations is fraught with peril.

Law firm staff members and associates don’t dictate to managing partners their next annual raise. However, if staff and/or associates earn a raise by their performance, a reward is more likely as it is deserved. Should your firm risk the consequences of raising rates if the rate increase you intend to impose on clients is not deserved?

Is Your Law Firm’s Market Disappearing?

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


There continue to be reports addressing the challenges facing the legal profession related to a falling demand for legal services and the increasing number of alternatives to traditional law firms.

At a macro level the demand for legal services has been flat to negative for the last decade. While larger firms have faired slightly better over this period, most observers believe any increase in revenue has come at the expense of mid-size to smaller firms.

At a micro level the future is concerning for all but the most highly regarded (and often specialized) law firms.

In-House Is Becoming More Robust 

A distinct trend of legal work shifting in house has been accelerating for years. 2012-2014 saw billions of dollars in legal work previously handled by outside firms move in-house. During 2015 and 2016 the trend has shown no signs of slowing. In fact, the growth of in-house capabilities and in the work these groups are prepared to handle has continued at an aggressive pace.

Altman Weil’s annual survey of the legal marketplace, reflects a consistent trend of law departments increasing their budgets for in-house legal expenses while shrinking the budget for outside counsel. The same survey indicated that general counsel expect this trend to continue at least through the next year.

Not surprisingly, a key driver cited as central to the decision to move work inside is the high and increasing billing rates quoted by law firms. This post by Verizon’s General Counsel offers a compelling perspective on why the trend of work moving in-house will likely continue.

Competition Is Growing

 As if the in-house shift weren’t enough, market share is continuing to shift at an increasing rate to non-traditional service providers. This category of competitor is evolving quickly, and on a global level includes outsourcing, legal staffing, consulting firms, accounting firms and pure technology firms and more.

In an environment where the total growth of revenues available to traditional law firms is flat or falling, these new competitors are reportedly growing at 25-35% annually. Although impacting a small percentage of today’s total legal spend, their collective slice of the pie is growing rapidly.

Especially at risk is legal work product that is routine and subject to mechanization. Growth in the artificial intelligence arena, and the leverage that AI affords in the right situation, puts increasing pressure on the traditional law firm model.

So What To Do?

The million-dollar question for lawyers and leaders of law firms is “What do we do?”.  What is the appropriate response to a market in transition? Consider these steps as an initial way to address the question.

  1. Get out of low margin areas. Develop an immediate awareness and understanding of the areas of work that generate reasonable margins for your firm. Carefully examine the areas being pressured by market realities. In areas that are providing low margins, consider your options. These could well include partnering with an alternative provider with specialization in the area, or getting out of the business line completely.
  1. Focus on efficiency. Become experts in work processes that create new levels of efficiency. See this description of Seyfarth’s work in this area.
  1. Manage capacity very carefully. Much has been said about this; but, survey data continues to reflect an overall industry trend of hiring and retaining too much capacity. It is much easier to figure out a productivity solution when you’re too lean.
  1. Invest in client ccommunication. There is no better way to know how you can improve, retain existing work, and deepen relationships than to have routine communication with the people you are paid to serve. Get and stay focused on making your clients business partners.

For reasons that I don’t really understand law firms have historically been slow adapters to change. Perhaps it is rooted in a belief that the pendulum will swing, and things will return to the way they were. It may be a lack of understanding about the realities of the marketplace. If you listen, you’ll hear some law firm leaders scoff at things like AI and alternative legal providers.

Whatever the reason, a continued reluctance to acknowledge a changing market will put an increasing number of firms at risk. Don’t be one of them.

Law Firms Today-Preparing for an Uncertain Future

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

Forbes’ article Cab Companies and Law Firms Are Taking the Same Route presents the provocative view that law firms face disruptive innovation similar to the kind experienced over the last eight years by cab companies. Ride sharing innovation through the likes of Uber, Lyft and others has undermined the once financially formidable cab business. The article, written by Mark A. Cohen, predicts a similar future for the legal services market. He suggests that a game changing approach to the delivery of legal services, as of now not fully understood, could hit traditional law firms and upset their world much like Uber did to taxis.

Cohen talks about legal service change but does not simply speculate. He observes significant change already experienced-more legal work going in house and greater client reliance on alternative service providers. This trend has impacted traditional law firms already. Even though the need for legal services keeps rising, the market share enjoyed by traditional law firms has remained fairly flat. These inroads into the demand for law firm legal services could be, according to Cohen, the tip of the iceberg.

Citing to the transformative effect Legal Zoom has had on existing and untapped consumer retail need, Cohen posits that although a similar transformation in the corporate sphere has not yet been widely experienced, it likely is coming.

Knowing that time marches on and we live in a business culture in which innovation as the great differentiator stimulates entrepreneurial thought, it is hard to argue against significant change being in the future for Big Law (and for that matter, traditional small law). Preparing or planning to stay ahead of the curve is the laudable goal but is not the easiest thing to do.   Since few law firm leaders can predict the breadth of future change and plan accordingly, it is best to prepare for its uncertainty by following five important guidelines:

Think About Work Being Scalable and Repeatable. As unnatural as it is for some lawyers and firms, making daily work scalable and repeatable is great preparation for the future. Not only does it improve the efficiency of client work, but also it will instill a thought discipline about efficiency that translates to client value. While unique work will still exist, that notion should not be the crutch to ignore the need to think about scale and repeatability.

Think About Delivery. Even if work is made more scalable and repeatable, the benefit will be lost on the client if delivery of the work is not improved. Delivery of legal services is one of the most outward facing aspects of the attorney-client relationship. Improved delivery enhances that relationship for the client and differentiates the firm from its competitors. Improved delivery goes hand in hand with scalability and repeatability.

Listen to Clients About Satisfaction. The ultimate measure of client satisfaction is in the times it returns for additional legal work or refers you to others. Getting to that point depends on communication. Having a client express how it is best satisfied gives a law firm a window into how it can be successful. It also can give the firm insights on how it can achieve greater scalability and better delivery, an expectation that clients will increasingly have. Ask and listen.

Be Technologically Savvy. Being technologically savvy is not just buying the latest in hardware and software so that no competitor is more current than you. Rather, it is using technology to provide the means to improve client satisfaction with your legal services. Whether it is relying more on artificial intelligence or tech based process, technology is the tool to make a difference.   Today’s technology is woefully underutilized if it is not used as the instrument of innovation in the delivery of legal services.

Listen to and Integrate Your Newest Generation of Lawyers. The old way of integrating new lawyers into the firm was to bring them along slowly until they were like the firm lions and fit into long-standing firm culture. Culture is always good, but in disruptive times it may be the young entrepreneurial-minded lawyers whose ideas and perspectives stimulate a watershed change in how the firm does business in a changing world. Your young lawyers may have more value sooner than you think. Remember, it was not a crusty old cabdriver that brought us Uber.

Few law firms have the will or the means to invest millions of dollars towards the goal of disrupting the traditional law firm delivery of legal services. That investment in disruption will come from others. But every law firm can invest time, thought and resources in preparing for a disruptive future. Will your firm?

Challenges of a Law Firm leader

Posted in Law Firm Leadership

In a previous post I suggested some of the unique characteristics associated with effective law firm leadership. Today, let’s look at the unique dilemma facing a law firm leader.

First of all, it should be noted that there is a clear correlation between the size and practice diversity of a law firm and the amount of time the leadership role demands of its Chief Executive (Managing Partner or Chairman). But regardless of size and complexity, all law firm leaders face the dilemma of how to balance the tension between their practice — serving clients and building client relationships — and the demands of being an effective leader. The further from retirement the leader is, the more their personal practice is at risk while serving as a firm leader.

Managing The Dilemma

Here are a few steps that can be taken to help manage this conflict between maintaining a personal practice and charting a course for a firm’s profitability and stability.

Role clarification

One of the biggest favors a partnership can do for its leadership – or, for that matter, the leader can do for himself/herself — is to establish clearly written objectives regarding the role and the expectations associated with it; to the extent the amount of time committed to the role will be limited, so should the expectations.

During role clarification, the prudent leader will use the process as an opportunity to introduce (if it isn’t already in place) the concept of strategic direction, and to set related goals for the firm. These goals, in conjunction with specified actions and accompanying timeline, provide a basis for a reasonable assessment of the leader’s performance.


To balance the demands of serving the client with those of leading the firm, the law firm executive must assemble a talented team of professionals. This team will not only leverage the leader’s time; a professional team will improve operational efficiencies and leader inspired initiatives.

The leader’s team should include appropriate expertise in each of the firm’s critical operational areas (finance, technology, human resources, marketing, etc.) as well as each of the firm’s offices and legal practice disciplines.

Kevin McKeown, President of LexBlog, presents some interesting perspectives on the mindset changes necessary in many firms in order for the lawyer-leader to successfully navigate the shift in roles from lawyer to leader in this recent post.

Career change

The profession is changing, and changing fast.

One option, that would have been unheard of just a few years ago, is a career as a law firm Chief Executive. I expect that in the relatively near future we will begin to see law firm leader mobility similar to what we have seen for decades in other businesses. So, for the law firm leader who enjoys the unique challenges associated with the position, a new career field may well be on the horizon.

How are you and your firm managing the leader’s dilemma of client vs. firm work?

Law Firm Merger-Four Key Stages to Success

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Merger

Law firm growth gets a lot of attention. Among the various approaches to law firm growth is the tactic of merger. Almost weekly we are treated to another announcement about two law firms fulfilling their desire to grow by combining. And although law firm mergers have been part of the landscape for years, since the Great Recession the incidence of law firm growth through merger has become more commonplace.

Generally, until the merger itself is announced little is publicized about a law firm’s merger activity. Even in the instances in which a law firm’s interest in a merger is leaked before the merger is a done deal, details about the merger mechanics are scant. The leaked news usually only stokes a rumor and a closed deal may or may not result.

For firms that have not done a merger the question often asked is “how does a merger come together?” While the genesis for each transaction is unique (as are the negotiations), virtually all mergers involve four distinct stages that are interrelated and build on each other. Performed well and a merger is positioned for success. Performed poorly and a merger’s prospects are suspect. The four key stages are:

Stage One-Deciding to Pursue Merger. The reasons behind a firm’s decision to pursue a merger can be many. Some firms need a rescue; others see a need for additional capabilities or have a desire to enter a new and critical market. A frequent reason to merge is one premised on the combination adding market share not easily gained through organic growth. As the Boomer generation reaches retirement, merger also can be a useful tactic to address leadership or succession issues. Whatever the impetus, the decision to consider merger should be one premised on meeting a strategic initiative identified through thoughtful and critical analysis.

Stage Two-Establishing Your Requirements. In Phase Two, it is essential that the criteria for a merger be clearly identified before seeking out a potential merger partner. Only once the criteria are established should a firm purse candidates-all the while remaining faithful to its criteria. Whether acting opportunistically or methodically, staying true to the criteria protects a firm from letting the thrill of the conquest dictate its tactics. It also provides the foundation for the discipline needed to walk away from a bad deal that momentum would have you close otherwise. Understood criteria and discipline prevent emotional or irrational decisions. They should not be compromised.

Stage Three-Finding a Match that is Compatible. For firms approaching merger correctly, a thorough diligence process provides guidance on firm compatibility. In this phase, a firm should consider whether it and its prospect are compatible on matters of culture, finances, compensation systems, clients and operations. Also key is the fit of leadership styles and the potential for evolving to a leadership team that will be accepted by people in the unified firm. Ideas on succession and vision should be compared to further confirm the fit.

Stage Four-Making the Combination Work. While it is essential that the integration and assimilation of the two firms be planned before the merger is finalized, also essential are an attention to detail and a dedication to bringing together disparate groups post-merger. Everything from forging a singular culture to creating systems, processes and procedures to gauge, motivate and reward the new firm’s valued behaviors.   Hard work post closing is not only important to avoiding crisis during the honeymoon period, but it also is important to the care and feeding of the next generation of performers and leaders.

Doing the right merger and finding the right partner takes work. It does not come about by happenstance but requires an unyielding focus at critical points along the way. Has your merger experience shown you other important steps?

Opportunity and the Law Firm Turnaround

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

When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.

John F. Kennedy


The Crisis at Kaye Scholer

I was sitting reviewing law business related articles recently. As the stories of doom and gloom and struggling law firms big and small continue to occupy print-space, I reflected back on a law firm crisis story which had a happy ending. The story, although a little dated, is interesting and instructive for law firm leaders facing crisis today.

Kaye Scholer is a New York based law firm that has an interesting history dating back to its formation in 1917. From the earliest days up to 1992 the firm developed a great reputation as a premier law firm in the area of bankruptcy and reorganization.

In the spring of 1992, Kaye Scholer found itself in as precarious a position as any law firm had ever been. In the mid 80s, the firm had begun representing a California based S&L — Lincoln Savings. They had been retained to assist the S&L with a government investigation into its lending practices. The S & L ultimately failed, costing the government and taxpayers more than $3 billion.

In addition to pursuing the owners and managers of the failed S & L, the government went after Kaye Scholer like no law firm had been pursued before or since. The government accused the law firm of providing unsound advice and misleading statements contributing to the S&L’s demise..

Frustrated by a perceived lack of cooperation from the law firm the Federal Office of Thrift Supervision and the Securities and Exchange Commission decided to turn up the heat. They demanded an immediate payment of $275 million in damages for misleading the government, and took the unprecedented step of freezing the firm’s assets as well as some of the assets of individual partners. The firm couldn’t pay rent, payroll or even the light bill – signs of serious trouble.

A Crisis Indeed!

At this point, nothing short of prompt decisive action could save Kaye Scholer. Fortunately, bankruptcy partner Michael Crames, a relatively new addition to the firm, stepped forward. Crames offered an aggressive plan to immediately reach an agreement with the government and the firm’s bankers. Crames’s plan was successful in not only reaching the necessary agreements, but in convincing partners to stay the course during the turnaround. For handling the difficulties in such an impressive manner, Crames was elected the firm’s new Managing Partner and served in that capacity for five years.

A crisis that would have killed most firms became a successful turnaround. Kaye Scholer not only survived, but has grown, becoming very profitable and establishing itself as one of the leading firms in the world.

Anatomy of Kaye Scholer’s Success

Successful transition doesn’t just happen. In fact, in our increasingly volatile environment they seem infrequent and more difficult. We’ve shared thoughts based on our experience working with law firm leaders here, and here; and the Kaye Scholer case confirms at least three elements that are critical to a successful turnaround:

Early Recognition. When crisis looms there is a tendency (perhaps natural) to suspend recognition and acknowledgement that real trouble looms. Time is not on your side. Know the signs and the odds of a successful transition shift dramatically in your favor.
Leadership. In the moment of crisis a successful turnaround rests almost solely on the shoulders of visionary and decisive leaders who are able to put an actionable plan in play.
Communication. Successful turnarounds don’t occur behind the closed doors of private conference rooms. As the Kaye Scholer example demonstrates, timely transparency with partners and critical allies like lenders and landlords can result in important continuity.
These days, we all benefit from examples of timely transition and successful law firm turnarounds. Do you know of one?

Law Firms and Retiring Partners-The Issues Extend Beyond the Financial Ones

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

At a growing number of law firms, the Boomer generation is reaching the age when retirement among the ranks has partners leaving in increasing numbers. Recent writings, including Debra Cassens WeissAs Baby Boomer partners retire, law firms face increasing costs and client issues, have noted the numerous and significant financial issues for law firms that are associated with partner retirement.

The increased incidence of partner retirement can be a financial hit on many levels. The monetary payout associated with the retirement benefits is one. While some firm’s retirement plans are fully funded, many plans require a “topping off” of a guaranteed benefit and others, not being funded at all, must be satisfied out of yearly profits. Second, when senior lawyers retire the impact can be negative due to the loss of their productivity not so readily replaced. Third, retirements generally require the return of capital to retiring partners. In a world in which partner capital contribution levels have grown, the capital to repay can be significant-certainly often greater than the capital being contributed by incoming partners.

Individually each one of these financial “hits” can be significant. When considered together (as they often occur), they not only can strap a firm but also can upset the financial bargain the younger non-retiring partners have come to expect. To respond to that predicament, firms are taking action to lessen the financial impact by reducing the overall financial benefit paid on retirement, extending the years for repayment of capital, extending the years of service necessary to vest in a retirement plan, and lowering the cap on annual retirement benefits paid by the firm in any given year. Because such modifications generally must be phased in over a number of years, however, the initial ameliorative effect can be modest.

Even a proactive financial solution to the increased retirements does not necessarily solve all problems. Other issues tied to cascading retirements can loom over a firm, including:

Modifications to the Plans Can Take Too Long to Assuage Younger Partners. Because most modifications to the bulging retirement obligations firms face are phased, the financial strain on the firm and potentially felt by the next generation is not avoided immediately. That can mean an inordinate portion of the firm’s positive financial performance (at least in the eyes of younger partners years away from retirement) is allocated to retirees. With a sense of security and loyalty among partners lower than ever before, opportunities for younger partners to go elsewhere may resonate.

Eagerness to Invest Capital at Firms is not a Given. As senior partners retire and start recovering their capital, younger partners are afforded the opportunity to invest capital in the firm. Sure, it often is the sin qua non of a nice compensation package, but what if highly productive attorneys eschew partnership in favor of a contractual arrangement that requires no capital contribution. It happens now and may happen more often in the future.

Longer Vesting Periods Will Create Other Issues. Engineering the retirement benefits with longer vesting periods and the like may work in a firm’s financial model, but it could create a caste system among generations of lawyers. Moreover, in a market that competes for high value laterals or transformative mergers, the handling of “years credit” towards retirement plan vesting can be thorny. Many law firms will find that the vesting issue for new additions can have destabilizing ramifications.

Demographics are Trending the Wrong Way.  To the extent demographic trends make Social Security a bad bet, the demographic trends at law firms could be worse. The pyramid is dead and buried and signals a shrinking law firm workforce that will be expected to shoulder tomorrow’s retirement obligations. Today’s numbers, as reported by Julie Triedman in her The American Lawyer article Pensions Pose an Increased Threat for Some Firms, are not great. There is no reason to believe that they will improve in the years ahead.

Many of today’s law firms are taking sound steps to address the progression of partner retirements. They simply have to. But as helpful these steps are to the long-term bottom line, they also may contribute to or fail to address some long-term implications that won’t be felt for years.   As you engage in retirement plan tweaking, are you addressing these long-term issues?

Law Firm Culture and Stability

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

Is culture something entirely different?

Here’a a working hypothesis for today’s conversation: you can’t help it – every firm has a culture. However, for law firm leadership the concern should be less about good versus bad, and more about ensuring a culture that is aligned with the aspirations of those wth whom you wish to share the advernture of partnership.

This seems worth discussing, given the excessive rate of partner churn in so many law firms today.

Partner Turnover, Growth and Stability

What causes a firm like K&L Gates, according to American Lawyer, to be the “number one gainer” of partners in 2009, but in 2011 they were the “number one loser” of partners, and the “number two loser” of partners (percentage wise) for the five year period 2009-2013?

I suggest the answer lies in firm culture.

But as I mentioned above, this is not a good versus bad issue. Culture – as fuzzy as it sounds — is how a firm is day to day. What its behaviors are, what it feels like and what it cares about. There is a strong correlation between a firm’s culture and what it most values. Not what it says about these things on the website or in recruiting materials; but where investments are made and stakes put in the ground. Eloquent copy describing a shared commitment to client service, community, collegiality, and collaboration are common. There is often a world of difference between what the website says and what the law firm is.

In fact, a keen focus on certain of these firm characteristics may make a culture a better fit for one individual than the next; but there is nothing inherently wrong with any of them. Cultures vary greatly. For example:

One firm may be family orientated, committed to a serious balance between work and personal life in an environment that provides quality services to clients while earning a reasonable level of income;
Another firm might be committed to driving the greatest level of profitability possible; in this culture there exists the expectation of a continual sacrifice of personal time in order to yield those profits.
There are obviously countless variations between these two extremes; but the point is that they are both cultures. Neither is good nor bad. A person attracted to one is not likely to be attracted to the other. It is reasonable to think that one landing in or recruited into a culture that does not align with personal values and objectives will not last long in such a firm.

Without regard to the type, firm cultures range from strong to weak. Those with strong cultures have a high degree of consistency between their behaviors, policies, procedures and practices. They hire, train, recognize, promote and compensate in ways that further strengthen that culture.

Weak cultured firms are the opposite. There is little consistency in what they do and how they do it.

Strong Culture Is No Accident

A strong culture does not just happen. Leaders of those firms have an understanding of what is important to partners, and direct the development of the firm in a manner that progressively builds on and strengthens culture.

A strong culture helps shape and define successful hiring (hires that further strengthen the firm for an extended period of time) at all levels of the organization. To maximize success in hiring, a firm must understand its own culture and have the skills to draw out the aspirations and values of prospective hires.

So back to K&L Gates and firms like them — the more rapidly a firm grows the more difficult it is to maintain culture and hire in a manner that consistently reinforces that culture. Think about the challenges a firm faces when it is on the acquisition fast track. Each incoming group of laterals brings varied practice and cultural make-ups. At the same time injecting lateral hires with varying aspirations . The successful integration of those firms and individuals is very difficult, if not impossible.

So my theory for the day is two fold; firms that have a strong culture and knowingly recruit individuals and groups with values and aspirations that align with that culture will enjoy the benefits of a higher retention rate. Those that have a weak culture (probably synonymous with but not exclusive to rapid growth) will continue to have a high rate of turnover . And, if you are going to grow extremely fast, you’d better be extremely profitable…because compensation is likely to be the only glue that will hold those hires in your firm.

Preparing Your Law Firm for the Future-Don’t Confuse Tactics with Strategy

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

Challenges ahead warning road signSuperficial solutions to the long-term challenges law firms face are seldom lasting. The right answers only come through disciplined strategic thinking that projects beyond a looming horizon. Unfortunately, some thinking in the guise of being strategic is anything but. And for the law firms trying to position themselves past that horizon, misinterpreting motion for progress can be a bad thing.

A recent piece by Ivan Rasic entitled Law Firms vs NewLaw: How to face the future of legal services? is loaded with interesting and provocative thoughts about today’s law firms readying themselves for life in a NewLaw world. It is commended reading.

An interesting discussion in Mr. Rasic’s article, among many, credits Casey Flaherty for some insightful thoughts about technology and innovation. One of Mr. Flaherty’s points is that in this high technology age some law firms wrongly view technology as a giant step towards innovation. He cautions that the use of technology can be an aid to innovation, but it is not innovation itself.

Mr. Flaherty’s view about technology and innovation highlights the danger of confusing tactics for strategy. Leaders in the legal services market trying to unlock the future and how their firm will fit in it have a formidable task. In seeking the answer to that puzzle, however, it is imperative that leadership not be fooled into thinking that action is synonymous with progress.

But because every law firm’s place in the future is unique and leadership prescience is not a certainty, sometimes it is helpful to start by thinking about what not to do. Avoiding common mistakes won’t necessarily deliver a visionary strategy for the future, but it can be helpful in eliminating distractions, false starts, or missteps.

Some of the more common ways firms mistake tactics for strategy follow:

Overinvest in Technology. Just as Mr. Flaherty argues that technology is not innovation, it is true that investing heavily in it does not assure long-term progress. Investing in technology without understanding the goal it will help achieve misdirects the potential advantage technology can provide. It can waste capital and misdirect a firm’s focus.

Pursue Growth. Similarly, while in a cursory fashion law firm growth connotes action, it is not always aimed towards an articulated purpose. Before growth is to be embraced, it is critical that the time consuming and financially expensive tactic be tied to a strategic objective-hopefully one that is premised on a desired long-term result. As action packed as growth may be, it often is nothing more than a tactic whose promise is overblown.

Add Substantive Capabilities. Focused firms do not try to be all things to all people. Even many “full-service” firms eschew serving the full range of potential clients but instead play to their strengths by doubling down on their expertise. With one exception, new substantive capabilities should be added to a firm only if they augment or enhance current offerings. The lone exception is when the new and unconnected substantive capability furthers a mature and well thought out long-term strategy. Otherwise, the new substantive capability should be carefully scrutinized if not declined.

Copy the Competition.  Just because “everybody’s doing it” does not mean your law firm should follow a competitor’s lead. Law firm leaders should be wary of trying to copy the same steps taken by other firms, especially since the quality of a competitor’s reasoning and analysis largely will be unknown. What a competitor does may be useful in stimulating thought, but it should not be a substitute for an independent consideration of your firm’s status, condition and place in the marketplace.

Preparing a law firm so that it can compete and endure is no small task. Understanding the difference between a tactic and strategy helps in tackling such a daunting challenge. As you have positioned your firm for the future, have you been able to keep them straight?

Is Your Law Firm Being Ripped Off ??

Posted in Law Firm Growth, Law Firm Leadership

Far too often we see stories of law firms (mainly small to medium in size) that have been ripped off. here, here and here are three examples.

Reported thefts have  ranged from a few thousand to millions of thousands of dollars. Worse yet, sometimes we are talking about funds belonging to firm clients.


How does this happen?


After recently reading of another case involving the misappropriation of cash by an individual abusing trust, I thought a refresher course (or perhaps an introduction for some) on basic “blocking and tackling” might be appropriate.


As firms grow it is easy (in fact, not unusual) to fail to implement a handful of checks and balances that serve to decrease exposure to theft and fraud. Absent these business safeguards, it is easy to wake and find yourself the victim of someone all-too-willing to take advantage of your trust and a system that is far too easy to hack.

A relatively simple system of internal controls can provide significant protection, and decrease the risk of your firm falling prey to someone that doesn’t deserve your trust.

A thorough discussion of appropriate internal controls is beyond the intended scope of this post; but consider the following primer.

The Basics of Protection

Segregation of duties

As a small law firm grows — both in terms of number of individuals employed and revenue generated — there is an ever-increasing demand on the owner(s) time. The resulting tendency is to delegate activities related to receiving and accounting for funds, as well the approval, payment and accounting for payments related to obligations of the law firm.

As the volume of work delegated grows, separate individuals should have responsibility for authorizing, making and accounting for payments.

Additionally, different persons should have responsibility for opening mail, depositing payments and accounting for their receipt.

Limitations on authority

One approach to decreasing exposure is to apply limitations to authority. For example, many firms require two signatures for payments that exceed a certain threshold such as $1,000. This is not about trapping a dishonest employee; it is about installing smart checks and balances around judgements and decisions that can be pivotal in nature.

Transaction review

 A firm owner should receive, unopened, the firm’s bank statements, and review them on a monthly basis. The simple fact that the statements are being reviewed will prompt a better decision making process.

For firms with two or more owners, it is smart to separate responsibilities, having one owner authorize payments (coupled with a requirement for two signatures), and another review the bank statement.

Budget/financial planning 

An annual budget reflecting anticipated expenditures and receipts is a tool that helps to minimize exposure. A monthly review of actual to expected performance will identify unplanned and perhaps inappropriate transactions.

Mandate vacations/job rotation 

A practice of forcing a continuity break by mandating vacations away from the office (and away from access to the firm’s financial systems) has a strong impact on decreasing temptation and exposing inappropriate activity. A system of rotating responsibilities associated with cash related functions has a similar impact.

External audit

Contracting with an independent accounting firm for an audit of the firm’s books is a very healthy practice. Much like other aspects of a good internal control system, employee knowledge of the fact that periodic audits occur will decrease the likelihood of a problem.

Implementation of any of the above will result in a more secure operation but a professional review of your firm’s financial processes and controls is most appropriate and is recommended.


How are your internal controls?