Managing Law Firms in Transition

Managing Law Firms in Transition

Is Turnover Putting Your Law Firm At Risk?

Posted in Law Firm Growth, Law Firm Transition


employee terminationIt has been estimated that lawyer turnover costs US law firms in excess of $13 billion per year — a staggering sum. At a more micro level the total cost of losing a lawyer is equal to more than two times the lawyer’s annual salary.

Although most industries face challenges associated with retaining talent, when it comes to managing the investments made in human resources, the legal profession’s performance is much worse than the norm. Turnover levels in US law firm’s often exceed 20% per year. Compare that to the Best Companies in America to work for, where turnover averages between 2 and 3%.

If your turnover exceeds 10% per year, you should be wondering why.

Here are four areas of management that you might want to take a look at.

Hiring Practices

Is your firm using all available tools to assess fit? Reportedly almost 90% of the Fortune 100 companies use psychometric assessments as part of their hiring process. By comparison, most law firm we know of adhere to the same hiring practices that were in place 50 years ago. If your due diligence consists of reviewing a resume or — worse yet — hiring based on proclamations of a portable book of business, you may have discovered the heart of your problem.


The existence of a clear path to self-development and professional growth is one of the keys to engaged colleagues. Firms that hire, invest 3 hours in “orientation” to processes and procedures, and then leave a new partner to sink or swim should not be surprised when there is little or no integration. Nor should you be shocked when talent winds up in an exit interview.

Satisfaction Monitoring

Do you know what the members of your organization really think about the firm? Do you know if they are content or discouraged? Often dissatisfaction is the defining fabric of an unproductive, unsettled workplace. And this environment gives rise to departures. Wise (and effective) firm leadership implements ways to listen, engage and respond to serious issues of dissatisfaction.

Economic Performance

Whether you believe it or not, the professionals in your firm know when the economic performance bar is set low. If your firm consistently performs at or above industry norms, you have a much greater shot at having happy and satisfied colleagues. If this isn’t the case, evaluation and adjustment are in order. Fail to address this issue, and be prepared to deal with serious retention issues

Managing turnover is a choice; firms that accept high turnover are unnecessarily costing themselves dearly. Which choice is your firm making?

Five Important Objectives For Law Firms Dealing with the Generational Challenge in Succession Planning

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

Passing on leadership to the next generation at small to medium law firms can be a challenge. These firms give themselves the greatest chance of success for eventual transition if they identify future leadership early and take the time to nurture the best prospects before succession presents itself. Taking on this blocking and tackling is critical to passing the torch. Yet the generational diversity present in many of today’s law firms, especially smaller ones, can make succession planning a challenge.

The recent post How Law Firms Can Navigate the Generational Divide by Jonathan Fitzgarrald drills down into the “generational divide” law firms face when trying to implement leadership succession, transitioning relationships and client succession plans. He identifies four generations and details their characteristics that make succession at law firms such hard work. Working with the different generations and their needs and wants is critical in virtually all circumstances, but particularly when considering leadership succession planning.

Mr. Fitzgarrald’s labels and descriptions of the four generations are both understandable and familiar. Not only have we heard about “The Silent [Generation],” “Boomers,” “Gen X,” and “Millennials,” but we all know people that are just as Mr. Fitzgerrald describes. As today’s law firms confront leadership succession, many involve Boomers looking to its Gen X and Millennial lawyers to assume significant roles for the future health of the firm. When bringing together lawyers of these generations to design an effective leadership succession plan, there are five key objectives:

Getting a Boomer to Trust. Transition or succession, whether involving clients, relationships or leadership, requires trust. While all parties involved in transition need to trust each other, the hardest task can be convincing the Boomer-the one you want to let go a little-to trust the process and its participants. If he or she cannot be brought to the trust tree, transition will falter, fail or result in his or her departure without succession getting a chance to take place.

Getting a Gen X or Millennial to Invest. The flip side of the coin in transition is to convince the Gen Xer or Millennial to invest time and effort in the process. For the typical Gen Xer, if his or her participation promises tangible or intangible rewards that are valued, participation and investment is likely. The same generally will be true for the Millennial, but the rewards valued by members of that generation may be different than the ones that motivate the Gen X generation. And while getting the younger generations’ participation and investment is vital, equally important is making sure that the rewards that stimulate their investment are not so generous as to offend the Boomer. Finding the right blend is no small task.

Protecting the Firm and the Boomer. Transition is not effective if your efforts lead to your anointed Gen X or Millennial successors transitioning out the door and joining another firm, especially if they take your best people and clients. Since many Gen Xers and Millennials do not view loyalty to the law firm as a paramount consideration like earlier generations, protecting the Boomer and the firm from possible departure has to be an important component to the transition plan.

Eliminate the Individual Score Keeping. Transition has to be measured by the firm to see if it is working. But score keeping between the Boomer and the successor Gen X or Millennial participants will undermine individual commitment and the firm’s chance of success. When the Boomer or the nominated successors compare each other’s contribution to the overall effort, seeds of discontent can be sown, resentment rises and a fracture becomes more likely. Should that happen, your succession plan is on shaky ground.

Institutionalizing Succession. If your succession planning turns out well, don’t rest on your laurels. Start planning for the next phase. A firm’s goal should be to institutionalize the concept of succession. It will strengthen the firm and all the relationships that matter, including the ones with clients.

When dealing with law firm succession planning, understanding the wants and desires of all parties affected is essential. When developing your succession plan, have you adequately considered the “Generational Divide?”

Debt and the Prudent Law Firm

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


The reality of today’s law firm  marketplace is that debt is a tool used to fund and manage:

  • Fluctuations in collections;
  • Purchase of fixed assets (furniture, equipment and leaseholder improvements);
  • Growth and
  • Partner compensation.

The challenge is to use the debt tool wisely.

To this end, we often hear some variation of two questions:

  • How much debt is too much?
  • Are there any guidelines related to law firm debt and borrowing?

Keeping in mind that no two law firms are exactly alike, and markets and circumstances present new conditions regularly, it must be underscored that, in the ideal scenario, a law firm operates with no debt. To the extent a debt-free approach is too conservative, less debt is better than more.

Law firm debt, not unlike in personal finances, is a stressor. The more debt relative to our income and/or net worth the greater the stress, and the more risky our future.

Yet, as we’ve noted, almost all firms choose to carry some level of debt. So, here are some guidelines to consider.

Guidelines For The Management Of Debt

Working Capital Line of Credit. Precious few law firms have the luxury of a consistent level of client collections. Most utilize a line of credit to help smooth things out. Smart management limits use of a credit line to a level that you can comfortably be out from under for several months of the year. A line of credit should always be paid down to zero by year-end.

Fixed Asset Financing. Using your bank to cover the cost on new fixed assets is routine, but should be managed. Ideally, a firm should carefully examine self-financing these additions; but if you are going to use external funds, limit fixed asset borrowings to less than 80% of net book value (cost less accumulated depreciation). This approach will consistently leave the firm in a position of equity in its assets.

Growth. Generally we would say it is imprudent to borrow to grow your law firm. The rate of lateral hiring success is dismal in the profession. So if you don’t have the resources on hand to self-finance growth, wait until you do. In the rare instance that you have to add capacity in order to meet a certain and defined client need, a short-term (9-12 months) loan to cover typical start-up costs might be considered.

Partner Compensation. A law firm should not borrow to pay partners. If the firm has significant fluctuations in cash flow that create uncertainty regarding the timing or amount of distributions to partners the firm should focus on some combination of increasing contributed capital or decreasing draws. Borrowing to pay partners is an early and clear sign of law firm trouble.

These guidelines are generally applicable to most law firms. You may have a unique situation. If you believe that is the case you would be well served to seek an outside perspective. It is easy to justify increased borrowing; but it is a slippery slope that has led to the demise of many firms.

We are seeing an increasing trend to decrease relative debt levels. This Law 360 article (subscription required, but also posted here on LeClairRyan’s website) discusses some of the rationale behind the trend. Simply put, many firms are taking a longer term view of their organization, choosing to set money aside to finance growth and short term needs in exchange for a more secure future.Not only do we see this trend as positive but a conservative borrowing practice is becoming a bigger and bigger issue to lawyers looking to move their practice.

How does your law firm manage its debt?



Law Firm Succession Planning: An Alternative

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

Leon Shapiro’s recent “How to Improve Your Organization’s Succession Planning” in Executive Street: The Business Leader’s Resource, reviewed the state of succession planning among many business organizations. Mr. Shapiro’s article noted the near universal recognition of its importance among business leaders, yet their confession that in many cases not enough is done for its preparation.

Among law firms, the same is often true. The press of everyday business pushes succession planning to the bottom of the “to-do” stack until it is too late. Many firms approaching the time for succession do not know who will succeed existing leadership, don’t have an actionable plan to implement succession, have not executed on succession a plan if it exists and have done too little in terms of developing a roster of future leaders. Some firms that allow their succession planning to slip and end up staring at a looming succession crisis turn to merger as a solution. This is especially true among smaller law firms, and many of them solve their dilemma by merging with larger, more established firms.

No doubt the smaller firms combining with larger firms frequently are being absorbed rather than surviving or entering into the combination as equals. In the case of law firm merger in which a smaller law firm is absorbed, any number of reasons can drive the decision to abandon independence. But given an aging of law firm leaders from the boomer generation, merger in which smaller law firms are absorbed may present an alternative to a more traditional law firm succession plan. Mergers driven by the need to provide for succession make sense for a number of reasons.

For the firm being that has not adequately planned for succession, merger can resolve many succession-planning issues. Without providing an exclusive list, a firm facing succession addresses some of its issues by agreeing to merge, including:

Leadership Dilemma. For some small firms, a future generation of leaders just never developed. Law firm leadership at those firms face the uninviting prospect of turning the reins over to unqualified or uninspiring junior partners. A merger can solve that problem.

Post-merger Continuity. Existing leadership may be concerned that a non-merger succession plan won’t go well and their firm gradually may wither away. Combining with a larger firm with solid leadership may reduce that risk and promise continuity. And that continuity may mean, at least in the mind of the boomer leaders, the law firm they started lives on.

Post-merger Opportunity. Feeling a possible lack of confidence in the leadership readiness of the smaller firm’s lawyers, boomer leadership may believe that a new and larger firm will provide better opportunities for their people for whom fondness remains. Leadership riding into the sunset knowing that they have provided opportunity to their people may feel more content.

Good-bye Worry. It is an overstatement to say that a merger removes worry for the former leaders of the absorbed firm. But a well-negotiated merger certainly can provide some sense of security to law firm leaders that have fought the good fight for so long without an end in sight.

Benefits. The merger agreement may include benefits to the absorbed law firm’s people, including former leadership, that are better than or more secure than benefits currently extant at the smaller law firm. It is inescapable that a law firm that closes due to a lack of succession planning will not continue to provide its people with benefits.

Although a smaller firm’s leadership may be motivated to merge in order to solve some of its succession issues, it is not as if the acquiring law firm does not benefit. The existence of firms with succession issues presents to the larger firm a market opportunity it may not otherwise have. In addition to gaining access to a desired market, the needs of the smaller firm to resolve its succession promptly may improve the economics of the deal and gains for the larger firm market intelligence that may exceed any that could be obtained by hiring a lateral or two to a de novo office.

These considerations already have been enough to propel some firms into merger-do they address the issues your firm faces?


Food For Thought. 6 Keys To A Healthy Law Firm

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

Food for thought

For decades we’ve known two things about personal health: ‘We are what we eat’… and ‘We need to move more.’

Specifics admonitions and instructions change, but the theme is consistent. The human body needs a balance of nutrient rich foods with a compliment of vitamins and minerals. And there are the things to avoid — especially in excess — sugar, bad fats and processed foods. Add some exercise that gets the the heart rate up and tones muscles, and we’re on the road to a healthier life.

But what are the keys to a healthier law firm? This post is about six things that a healthy law firm keeps an eye on — if you will, a diet and exercise program for law firm management.

 It is not complicated. We suspect (or intuitively know) most of this; but not unlike working out and eating right, sometimes the daily grind gets in the way of basic principles. But when it comes to the firm you manage there are a few things that you should really focus on. So here are 6 keys to maintaining a healthier law firm.

The healthy law firm avoids excessive:

  • Debt. Relying on debt to fund operations is like fast food — convenient; but often detrimental to the firm’s health. Very few law firms that manage their debt appropriately run into severe financial trouble…no matter how volatile the market might become. On the other hand, a little taste of that credit line in order to even out cash flow can be a slippery slope. Borrowing for new furniture and equipment acquisitions, or to finance lateral hiring are warning signs. An increasing reliance on debt can become a crushing burden.
  • People Costs. The cost of excessive staffing — whether attorney or administrative — is like two scoops of double chocolate chip every night. Not only does excess staffing come with a fixed cost; when the human resources exceed the amount of work to be done, morale drops. Financial pressures increase. Layoffs typically ensue. And culture is weakened — not to mention the damage done to those adversely affected. Careful modeling that clearly outlines the cost of adding people is one of the signs of a discipled and healthy law firm management team.
  • Space. (Now we’re going to step on some toes, because we love our office space.) All one need do is check the record. Commitments to expensive or excessive space have been the ruin of many a firm. Increasingly, healthy firms are minimizing the number of square feet they  commit to, and resist the temptation to lease premium space in the shiniest new building in town.

Avoid excess in these three areas, and you’re well positioned to focus on remaining three keys to health.

  • Stay Connected With Each Other. The things that brought you together as a firm are the things that, if nurtured, will create a cultural fabric strong enough to meet challenges, embrace opportunities, and withstand almost anything. It sounds so simple, but quality communication is often like the physical exercise we know we need; it is the last thing we get to…or not.
  • Remember The Sweet Spot. A firm grows stronger by focusing on excellence in work product and service. Stick with what you know. Resist the temptation to be all things to all clients. Unless yours is a most unusual firm, that’s likely not your sweet spot.
  • Stay Connected With Clients. A law firm that consistently maintains an understanding of what clients really think, care about, and need has landed on the formula for maintaining organizational health.


How healthy is your law firm?



Law Firms that Focus on Growth-Where is the Focus?

Posted in Law Firm Growth, Law Firm Transition, Law Firm Warning Signs

FocusDentons and McKenna Long recently announced the intent to merge.  Media reporting of the merger was substantial, including an April 8, 2015 article written by Sara Randazzo in The Wall Street Journal.   In her Dentons, McKenna Long to Merge, Ms. Randazzo quoted Denton’s global chairman Joseph Andrew as stating, “[O]ur goal was not only to make sure we can grow, but to demonstrate the importance of momentum.”  Mr. Andrew also noted Denton’s position in the competitive landscape by stating, “[W]e compete with everyone.  We compete with the largest law firms in the world and the smallest law firms.”

To be fair, the Journal’s reporting on what Mr. Andrew had to say may not have covered all the strategies driving the McKenna Long deal.  Being accurately quoted about the reason for the transaction and the firm’s place in the marketplace still may not have described adequately Dentons’ strategic considerations.   But when given the opportunity to explain the deal’s rationale to the Journal, the impression Mr. Andrew left was that Dentons’ growth was all about, shall we say, growth.  Without more, Denton’s justification for its expansion seems a tad underwhelming.

What is Behind Dentons’ Growth?  Our firm hasn’t worked with Dentons so we are left to wonder what is behind its expansion strategy?  Ms. Randazzo’s article prompts us to think about the possibilities.

·      Nothing was stated (or at least reported) about Dentons’ desire to improve client service.  Service improvement is likely important to Dentons and the expansion may further that goal.

·      Nothing was said about expanding its substantive specialties so as to achieve a first-in-class capability that leads to market dominance.   Although not cited, such motivation certainly could be behind Dentons’ growth.

·      Nor was there a mention from Mr. Andrew about improving efficiency of legal services as a predicate to delivering greater value to clients.  It too could be a strategic imperative behind merging with McKenna Long.

·      Dedication to growing client relations was not mentioned either, but it also could underlie Dentons’ commitment to growth.

·      And while maintaining uniformity of quality levels can’t possibly drive expansion, Denton’s silence about its plans for maintaining professional quality throughout its many offices does not mean that it isn’t an unspoken non-negotiable for the firm.

Strategic Growth.  Some may argue that growth is more of a tactic than a strategy.  As Beverly Landais recently wrote for Managing Partner in her Growing Your Law Firm Needs More Than A Focus on Size, “[s]ize does not win loyalty.  Well thought-out value propositions that consistently anticipate and meet client needs do.”  Indeed, in few instances does growth alone meet client needs.  Ms. Landais also thoughtfully points out, growth can bring with it greater challenges to success, not fewer. For that reason, if growth is not intended to improve client service, add critical services required by existing and future clients, improve efficiency and client relationships all the while improving the short-term and long-term financial stability of the firm, its strategic benefit can prove fleeting.  As many, including Ms. Landais, argue, a law firm doesn’t gain strength and stability just because its footprint gets bigger.

What Lies Ahead For Firms That Grow Without an Underlying Strategy in Mind?  For firms that just want to grow to show that they can, the near-term momentum enjoyed does not assure its future.  Nor does it necessarily improve the present.  For those firms, when the momentum stops, what is next?  Momentum can slow, it can stop, and it can be reversed.  Embraced too fully, it can deflect a firm from focusing on the true building blocks of success.  Measuring success by momentum seeks validation through the pursuit of a false positive-a pot of gold at the end of a rainbow.

In today’s legal landscape, law firm growth is all around.  But as hard as it is to compete in today’s legal environment, increasing a firm’s size or footprint without fulfilling a more deeply considered strategic imperative just adds to the challenges a law firm faces.   For firms that think growth is a panacea, consider the words of the infamous Charles Ponzi who stated “I went looking for trouble, and I found it.”

You’ve Lost That Lovin’ Feelin': A Story of Law Firm Failure

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

conflict imagepeopleAs we continue to see law firms fail, and dramatic efforts at restructuring continue at a heady pace, market analysts can’t help but look for a common denominator. Is there a quantifiable predictor of tomorrow’s troubled law firm?

While a number of things can push a firm into a transition mode, there seems to be at least one universal theme. Firms that wrestle with the most traumatic forms of transition once consisted of a group of professionals who found joy and satisfaction in working together, but today, to some degree, that joy and satisfaction is gone.

It may be a loss of confidence in the direction in which the firm is headed, diminished trust in leadership, or just an overall degradation of the pleasure that once came from sharing one another’s professional pursuits.

Repeatedly we see instances where leaders talk of their firm being a cohesive group with everyone committed to growing a firm together.

That’s what we hear.

But what we see is a key partner’s departure one day, the loss of a group the next…… A year later a floor is empty or an entire office closes. And before we realize what has been happening, a once committed partnership finds itself in bankruptcy court.

Admittedly there are economic and industry variables that contribute to the trouble. But it is almost always the case that to the degree that enthusiasm and joy of yesteryear is absent, the firm is at risk.

Is it possible to spot early warning signs? Can the leadership of a law firm monitor a partnership’s feelings?

We believe it is possible to spot the signs of diminished joy and impending trouble. And more to the point…there is something you can do about it.

How To Know

Most law firm leaders feel as though they are “in touch”, and have a finger on the pulse of their organization. Unfortunately, many are sadly mistaken. Follow these steps, and you have a shot at eliminating some of the blind spots and surprises:

  • Make it a routine to query individuals that are representative of segments of the firm. It isn’t easy; but if you’ll make it a habit to communicate often and listen hard, you’ll hear about feelings — personal as well as individual perceptions of the institutional feelings. (Warning: try faking your way through this and those who are most unhappy will spot the insincerity a mile away.)
  • Conduct a confidential survey of the organization periodically. The survey should be short, structured by professionals, and shed light on issues that are of significance to stakeholders of the firm.
  • Involve an outside perspective. The occasional use of independent facilitators at firm events can be a very effective tool in identifying areas of concern, and probing issues of importance to firm members.

What To Do With What You Learn

In order to get to the heart of the matter, you have to go deeper than simply spotting the fact that you have an issue. Addressing concerns in a way that makes a substantial difference requires that the driving force behind the concern or dissatisfaction be dealt with.

Using a drill down method for discovery will typically lead firm leadership to the center of the issue(s) being faced. Once again independent outside resources can be of great value in discovering what is at the center of any trouble that might be brewing.

Don’t wait until the joy is gone. Take steps today, and preserve all of the positives that brought your firm together in the first place.

Law Firm Merger-What Makes Merger Success Likely?

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

A headline from last week announced the law firm merger of Dykema with Texas’ Cox Smith.  Although Michigan based Dykema already had a foothold in Texas, its merger with well-regarded Cox Smith represents a significant commitment by Dykema to its Texas strategy.  The Dykema/Cox Smith combination also is further evidence that law firm mergers are a popular way for firms to grow in promising legal markets.

Numerous reasons propel firms towards merger but for many firms the significant step of merger is particularly 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.  Thus, there is a much greater chance of success if there is:

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. Being compatible culturally avoids a schizophrenic result.

Financial Compatibility. Seldom do two law firms display the exact same financial metrics. Two 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 different 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.

Mergers 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?

How Healthy is Your Law Firm

Posted in Uncategorized

As we conclude the first quarter of 2015 it occurs to me that now is a great time for law firms to conduct a quick self-assessment. Here are 5 areas that, ifHealth carefully analyzed, provide a preview of what the future may hold for your firm.

  • Turnover, any unexpected turnover is a sign of potential trouble. Law firm leaders should regularly monitor turnover levels with a process that quickly identifies any material uptick. Rapid change is destabilizing, even when there is an excellent business explanation. When spotted, decisive action in one form or another is likely in order.  What does your turnover pattern look like over the past 36-months?
  • Dissatisfaction, this metric is a key indicator of business risk.A growing number of law firms find significant management value in systematically monitoring the satisfaction of their lawyer and non-lawyer employee base. And with good reason, growing dissatisfaction is an indicator of future trouble. Do you have growing dissatisfaction in your firm?
  • Falling profitability, can quickly lead to stress for any business. I am not a believer in the Profits Per Partner (PPP) metric as a be-all-end-all; but if your law firm is paying progressively less for the same performance, it is at risk.

There are a number indicators of declining profitability besides the exalted PPP metric. These include:

  • Falling productivity
  • Loss of a key client(s)
  • Increased aging of payables
  • Increased aging of receivables
  • Falling client billing

How is your firm’s profitability holding up?

  • Debt, an increased use for operations is a clear sign of stress. Most law firms use some amount of debt, whether to smooth out collections cycles with a line of credit, or to finance growth and fixed asset purchases.  Any firm increasing its use of debt to cover basic operating cost has embarked on a treacherous path.
  • Litigation, of any type, against the firm can be enough to create instability for a law firm. Monitoring the frequency and size of claims against the firm is a must. If your firm has seen an uptick in claims activity, careful examination by leadership is essential.

The thing about organizational risk is that the sooner potential trouble is identified the greater the probability that a viable solution can be identified and implemented. The more serious the trouble, the greater the need for outside support, which can bring an unbiased perspective.

Do you know if your law firm is at risk?

There is a Lot More to Law Firm Succession Planning Than Just Planning

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

A recent ABA Journal article reported on the demise of a successful law firm that had been in business for 60 years. The story about Harding & Shultz of Lincoln, Nebraska noted comments from one of the senior partners whose departure from the firm allegedly contributed to its demise. Seems that the senior partner, still full of desire to work as he always had, left because the firm’s mandatory retirement policy gave him no choice but to leave and work elsewhere. His departure, as well of that of another senior partner, generated other departures, and the firm could not keep going.

Law firms close for many reasons, including because inadequate planning for succession leaves a firm unable to continue once its founders retire, die or simply move on. No doubt a lot of things contributed to Harding & Shultz’s closing, but the mandatory retirement policy may have sparked the fire that burned its house down.   If so, there is a little irony in the Harding & Shultz end because its inability to manage succession was, at least in part, triggered by the mandatory retirement initiative that was probably originally designed to stimulate future succession. Typically, mandatory retirement marks an effort to institutionalize opportunity for the next generation so that succession is more likely. In the case of Harding & Shultz, however, it looks like all the planning for succession failed because the next generation did not or could not step forward. When a law firm’s plan for the next generation fails, what is the reason?

In most cases, failure gets traced to a lack of execution. With utmost deference to the poet Robert Burns, the best-laid plans of law firms (and men) are not a solution but merely a step towards a solution. A law firm with an eye to the future must not only plan for the future, but it must consistently work to build for the future. In his Consistency of Execution, David Brock argues that effective execution in sales has three elements: knowing the right thing to do to drive expected results; doing those things consistently, day after day; and, continually sharpening the execution.   For a law firm wanting the next generation to take over, a similar focus means that law firms must:

Hire Talent With Long-Term Promise. Law firms seeking long-term sustainability hire the top talent they can find. Every associate hired or lateral added should possess skills, personality and drive that show leadership potential. Settling for less will dilute the premium prospects in a firm’s talent pool and will dummy-down its future. Hiring to this standard should be disciplined-every candidate should be viewed through this lens. While not every person hired will work out, settling for a lesser hiring standard reduces a firm’s long-term chance for success.

Develop the Talent Hired Day-in-Day-out. Even athletes with the best natural ability need to be coached and challenged to realize the All-Star dream. After a firm has hired its promising talent, it should not assume that he or she would develop in due course. Every day should be a day in which the talent pool is nurtured, stimulated and grown. Remember, a firm never knows which stars will disappoint it by leaving-so all must be trained with a daily dedication. Doing so provides greater protection against an inevitable attrition. No firm wants to be left with talent that no one else wants.

Reward the Talent While Continually Raising the Bar. Talented people leave if not rewarded. Rewards can take many forms: money, professional development, conferring responsibility and valuing institutional contributions. To have talent truly grow, rewards cannot be expected or a given. If they are, rewards have morphed into entitlements and the future is undermined. Constant challenge that raises the bar builds a reward system and culture that maximizes personal and professional development. Everybody wins and the prospect for effective succession is enhanced.

In preparing for succession, law firms can plan all day long. But all the planning in the world won’t do much good if no one is around to take over when the time comes. Effective succession is not just a question of planning, but it owes a lot to dedicated execution. How well is your firm executing on its succession plan?