Managing Law Firms in Transition

Managing Law Firms in Transition

Five Keys to an Effective Law Firm Divorce-Being Smart When the Thrill is Gone

Posted in Law Firm Leadership, Law Firm Liquidation, Law Firm Transition

“A discord of personalities” sometimes describes the genesis for marital divorce.  It also can be an apt way to explain law firm break-ups when partners decide to go their separate ways.  Although law firm break-ups happen regularly, the low level of publicity surrounding most can be due to partners acting rationally even though they can’t continue together any longer.  Quiet separations and wind-downs occur when the splitting of the sheets is unemotional and professionally executed.  Publicized break-ups, with all their ugliness, arise when emotion and shortsightedness mix together to fuel what becomes an explosive process.

Successful break-ups (perhaps an oxymoron) universally share common strains.  They come about because tenets that auger in favor of conciliation and dispatch are followed.  Although the disappointment that leads to the break-up may make following these principles unnatural, adherence to them keeps unproductive behavior and tendencies to a minimum.

Historically, smoothly executed law firm wind-downs have five things in common.  These common traits are instructive to law firm leaders facing a law firm divorce.  In learning from what others have done, any law firm leader staring at law firm divorce would be wise to encourage the firm’s owners to act in the five following ways:

Agree on a Neutral Expert to Navigate the Course.  Winding down a firm is neither intuitive nor easy.  It is best accomplished if it is managed by an independent professional that has wound down law firms before.  An independent and dispassionate professional that has no agenda other than efficiently wrapping up the firm’s affairs serves all owners well. While some owners may argue for cost savings from a “Do it Yourself” approach, in-house people tasked with the DIY effort frequently have non-neutral agendas, are perceived to be non-neutral, and otherwise lack the trust of all owners.  A neutral expert can move the firm to a fruitful conclusion even while disputes between partners’ percolate and need to be resolved.

Retain Experienced Advisors.  Many law firm divorces involve anger, distrust or disappointment.  Diffusing that volatile mix is critical. Step one is to tamp down the emotions by getting the owners off the front lines.  Each identifiably different owner interest should retain an experienced representative that understands the vagaries of law firm liquidations and that has a track record of being solution oriented and collaborative.  While there is nothing to prevent the disparate interests from retaining as their representatives’ litigators quick to drop the cudgel, going that direction is neither smart nor cheap.  And as experience has shown, it seldom is quick.

Think About the Future as You Settle the Past.  If a law firm’s past was so great, there wouldn’t be any sentiment to shutter the firm.  Indeed, the decision to break up a law firm is driven by a view that a different future is better than the status quo.  If the past is not worth continuing, the future should be the focus on virtually all levels.  While every law firm wind-down necessarily involves a settling of accounts, the objective should be to settle quickly.  Rather than dwelling on past misdeeds and transgressions, the owners should wrap up the old firm expeditiously and economically.  In a world in which the maxim “time is money” encourages people to move smartly to the next goal, moving to the new day of a new firm allows the future to be realized.

Think About the Children.  Like matrimonial divorce, in law firm divorce peoples’ lives are impacted.  Taking care of the associates, contract attorneys and staff not only is the right thing to do but because non-owner cooperation is needed in wind-down, it also tends to make the process smoother.  An honorable end to the firm which fairly addresses severance, benefits, and outplacement tends to pay dividends over a long period of time.  In contrast, harsh or uncaring treatment to the non-owners is not only unfair, but can interminably impact owner reputations and pocket books.

Communicate (Talk it Out).  Like so many aspects of law firm transition, a clear and constant flow of communication serves a divorcing law firm well.  Advisors need to communicate with owners, owners need to communicate with each other, and non-owners need to be kept apprised until their interests are addressed.  In addition, as the wind-down progresses, clients, third-party vendors, banks and contract counter-parties (including landlords) must hear about and be engaged in the wind-down.  In law firm wind-down, silence is not golden.  Rather, it can become the spark that ignites an explosion.

When the thrill is gone, and a law firm calls it a day, risk to the firm’s owners can depend on their approach to winding-down their firm.  Would your firm and its owners be willing to do these five things that reduce their risk and make dissolution smooth?

Is it Time to Restructure/Reposition Your Law Firm?

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

One ought never to turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!    Winston Churchill

Law Firms, like all businesses, are in a constant state of change. Similar to an annual check-up on your health, law firm leaders should periodically take the time to evaluate the condition of their firm in order to catch looming challenges before they become a threat to the institution. Regular “check-ups“ increase the likelihood that you‘ll be in a position to take action in time to prevent a down stream crisis.

All of this begs the question — What are the most common signs that a firm’s relative market position is beginning to slip? 

  1. A sudden unanticipated loss of lawyers– We’re not talking about normal “comings-and-goings” the propensity for frequent movement of individuals is the topic for another post.  This is about a greater-than-normal degree of movement.  During a measured period, the greater the percentage of lawyers lost, or the more prominent those departures, the more this should be taken as a warning sign.
  2. The loss of key clients(or increased difficulty in winning new business).  Continuity of critical relationships is one of the greatest assets of any firm.  Savvy management works hard to avoid the too-many-eggs-in-one-basket syndrome, and insuring a portfolio of clients central to success.  But in any firm, the loss of one or two key clients, or the departure of a large number of clients from any group should set off an alarm.
  3. The absence of strategic organic growth.  If you are increasingly unable to win the new business targeted in your firm’s strategic plan, take heed.  Either the competitive landscape is shifting in a way that directly impacts your position, or the market is sending you a message. In either case, your firm is likely in some stage of transition. It is time to manage appropriately.
  4. Increasingturnover in key positionsin the firm. I often refer to Jim Collins principle of having the right people on the bus.  If you begin to lose significant non-attorney personnel, this can be much more than an inconvenient (and costly) loss of continuity. In a competitive marketplace, viewing key staff positions as fungible can serve to mask a troubling organizational issue.  (see short Collins video on the topic here)
  5. Flattening or declining profits. On one hand, this seems simplistic, but so often a continuing trend of economic performance falling below expectations is ignored and shouldn’t be.  If profits are flat or declining, it is almost always time for action.
  6. Falling revenues. Often declining profit is preceded by shrinking revenue…but not always.  Whether profits decline or not, falling revenue is a reason for concern.
  7. worsening relative debt position. Debt, in and of itself, does not spell trouble.  Most law firms rely on debt to some extent to finance growth and manage short-term fluctuations in cash flow.  That said, an increase in a firm’s relative debt position should be closely monitored.  Absent alignment with strategic moves, this is often a sign of impending decline in market position.
  8. Negative external visibility. Many firms receive some degree of bad press; loss of a case, a high-profile departure, or litigation filed against the firm are typical causes. But leadership must resist the temptation to ignore what can be viewed as uninformed voices.  An increase in negative visibility via local, regional or internet distribution channels is an early indicator, and cause for concern.
  9. Difficulty in attracting talent. When your firm finds it increasingly difficult to attract lawyers, it is either the sign of a declining market position or an increase in the perceptionthat the firm is in decline.  This perception is, itself, an indicator of decline.  If strategic talent believes your firm may be in decline, each day brings increased danger that the perception will become reality.

All well-run firms recognize benchmarks and maintain performance data. The best routinely evaluate performance in critical areas – carefully looking for any sign or signal that the landscape is shifting.

The more comprehensive our list of early warning signs, the more accurate our assessment of existing and future market position.  What would you add (or remove) from our list?  Does your firm monitor the early warning signs?

 

Read addition posts related to restructuring and repositioning here.

How to Thrive with Clients that Don’t Use Law Firms Like They Used To?

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

Despite today’s times being better for many law firms, the positive trends do not signal a return to the gilded pre-2008 days; unfortunately, those days are gone for good.  Law firms are fighting for market share in 2017 in an arena vastly more competitive than the one that existed a short decade ago.

Competition is not just from other law firms.  Clients are turning to alternative legal service providers for routine and commoditized legal needs.  Because these providers deliver services faster and cheaper for some tasks, many clients pass on using law firms.  Other non-law firm competition is at play.  Institutions that formerly relied almost exclusively on outside law firms have been building up in-house legal staffs https://www.youtube.com/watch?v=E3v3x9E4pW0 to address their business’ legal requirements.  In this revolutionized legal services landscape law firms no longer control the legal markets, clients do.

To adjust many firms will try to hustle more, hire more lateral attorneys or otherwise grow, or seek out improved efficiencies. Unfortunately, many of these strategies will fail to make a lasting difference.

While working harder and smarter is never a bad thing, as a response to the revolution it is inadequate.  In far too many instances, firms try to solve today’s problems with yesterday’s solutions and fail.  They miss finding a transformative answer.

To thrive in today’s world where clients look beyond law firms for their legal needs, a more thoughtful response is needed.  Five important thoughts law firms should consider:

Value is not only about Money.  High quality legal service is the expectation.  Beyond that, the value of legal services to a client is not just measured by the size of a bill.  Creating savings through reduced rates, fixed fees and detailed budgets, while valuable, is just one factor in achieving client satisfaction.  Clients that build in-house legal departments do so for more than monetary reasons.  In-house resources provide timely services that are enterprise focused and further the business’ mission.  A law firm that is not enterprise focused in a client centric way will not compete well with the client’s in-house lawyers.  There is great value in an enterprise orientation.  Clients with in-house departments already have it-law firms would be wise to follow.

Understand Your Clients(s).  In-house lawyers treat their company counterparts as their clients.  They seek to understand the business needs of their “clients” so that the overall purpose of the business is advanced and their client contact achieves unit and career objectives.  Done well, the “client” will serve as a good internal reference.  A law firm lawyer that thinks that client satisfaction ends at the legal department door misses the opportunity to truly serve his client, the company.  An outside lawyer must understand that he or she has two clients, the legal and business departments.  Law firms must enhance client satisfaction for both clients or they will not compare favorably.

Nurture and Invest in the Relationship.  Nurturing and investing in your client relationship requires an investment of time that goes beyond doing good legal work or entertaining.  It demands a commitment to understanding the needs and objectives of both the legal department and the business department.  Investing time and research into understanding the client’s business is an absolute necessity and will lead to greater attorney effectiveness.  The investment may not generate fees on every occasion, but in the long run the outside attorney’ indispensability to the client’s success will position the law firm for matters of significance that require outside counsel.

The Potential for Success is Measured by Touches.  An attorney that understands the client’s business and has invested to nurture the relationship will become a frequent resource to client contacts that need help.  The more times a client calls the more it is telling you that you are integral to its success.  As calls come in (many handled without the meter turning on) client capital is created. In due time, trust becomes implicit and the likelihood that key pieces of outside legal work being directed your way improves.  The potential for success is not measured in billable hours but is measured in client contact on things that matter.

Reconstruct Your Financial Model for the Reconstructed World.  A law firm reorienting its approach to clients that have in-house staffs cannot count on its attorneys always filling their day with billable hours.  While investing in the client will detract from the level of billable hours a firm may generate, the attorneys are not working any less.  Their non-billable work is an investment in the future.  A reorientation of a firm’s business model to allow for client nurturing may be required.  Without it motivation for attorneys to make the required investment in the client will be lacking.  And without the investment, law firms may not compare well with in-house staffs.

Since the revolution of 2008 client behavior has changed.  Turning away from law firms is now a routine option.  If non-law firm competitors have fueled this revolution, shouldn’t your law firm think about learning from their lead?

To Merge or Not To Merge – What’s A Law Firm To Do?

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

Merger mania continues in the legal sector. According to Altman Weil’s MergerLine, there have been more than 50 law firm mergers in the US so far this year; 2017 could well be a record year for law firm combinations.

The odds are high, whether your firm has been engaged in merger discussions in the past, it is likely to consider such discussions in the future. The purpose of this post is to increase the likelihood of success, should you decide to move forward with such discussions.

Most Mergers Fail

This is a harsh reality that rarely garners any attention once two firms embark on discussions of some type of combination.

Accept for a moment that corporate America is at least as competent as law firms in evaluating and structuring mergers. According to a McKinsey study, 70% of mergers fail to achieve intended synergies. Furthermore, numerous studies and reports indicate that far fewer than half of all law firm mergers deliver the expected value.

Why is this the case? The simple answer is incompatibility.

In this respect, a law firm merger is much like a marriage. The greater the degree of compatibility, the higher the probability the relationship will work for the long term.

While the “dating” process may be enjoyable enough — wining, dining with all parties putting their best foot forward — when you begin talking merger, you’re talking about hitching your professional well-being to the productivity, stability, and commitment of another law firm. All courting pleasantries aside, it’s time to take real stock of the potential relationship.

 

Three Compatibility Tests

When assessing the likelihood of a merger’s long-term success, it’s wise to consider compatibility (or incompatibility) in the following three areas.

Practice

Every firm has (or should have) a clear perspective on the type of practice the partnership is striving to build. When considering the firm you are about to create via merger, this conversation might include:

  • Types of clients
    • By industry (technology, health care, manufacturing, etc.)
    • By size (small business, individuals, national or global)
  • By location (local to anywhere)
  • Which side of the fence your firm will focus on
    • Plaintiff/defense
    • Employer/employee
    • Acquirer/acquired
  • Practice area(s)
    • General or specialized
    • One area of focus or full service
  • Sophistication of practice
    • Bet the company
    • Essential, but not life or death disputes or deals
    • High demand, but commoditized practices

Financial

A lack of harmony on financial issues is at the root of many failed mergers (and marriages). Areas that often are the basis for conflict include:

  • Debt – philosophies range from “our firm doesn’t borrow any money from outside sources for any purpose” to “we don’t invest any of our own money in the firm if we can borrow it.”
  • Capital levels – the amount of money contributed by the firm’s owners to decrease dependency on outside sources for cash flow.
  • Draws and distributions – like debt, approaches vary from fixed draws with periodic distributions regardless of profits, to irregular distributions when profits are sufficient to pay all current and prospective bills.
  • Spending levels — from “we must spend to grow” to “We spend as little as possible.”

Cultural

Culture is often hard to define but it may be the most critical of the three issues. Some have defined culture as the “way” a firm does things. Regardless of how you define it, typical cultural issues that lead to disagreement include:

  • Work expectations – successful firms clearly communicate what is expected of lawyers, ranging from “We just expect everyone to do their best”to “We have a specifically defined performance expectation applicable to each class of attorney.”
  • Commitment to client service – some firms have a deep and visible commitment to client service. It is talked about and measured. Other firms have a general understanding that doing good work is essential, but benchmarks and conversations on the subject are not material to the business of a law firm.
  • Compensation systems – Systems range from purely formulaic to ones in which all partners make exactly the same amount. Any system can be made to work if all partners embrace it.
  • Treatment of people – Some law firms have such a strong commitment to how people in the organization are treated that they are regularly recognized as a “best place to work” in national publications. Other firms leave the issue of how others are treated to the discretion of individual lawyers.

We’ve touched on a few of the issues that should be considered. The time to evaluate your firm’s own position on these issues is before sitting down with a prospective merger partner. Considerations of this type that are put off until actual merger discussions simply do not receive appropriate attention while energy is directed to (and attention distracted by) the potential of the deal itself.

Mergers are not easy. The track record is not great. Meanwhile, a combination could well be the most important business deal you will ever be party to. As such, discussions of combining forces deserve the diligence, resources and attention you would bring to the most significant matter you’ll handle.

What is your firm’s position on practice, financial and cultural standards?

 

For additional reading related law firm mergers click here.

 

The Important First Step in Law Firm Client Succession

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

Succession planning of client relationships at law firms requires a thoughtful examination of a law firm’s past, present and future.  Managing the transition of a senior lawyer’s practice to younger counterparts is not easy.  Poorly understood and executed, it can result in a loss of both valuable business and a cherished colleague.  The stakes are high.

To retain client relationships and reward the successful transition to a younger generation, law firms can draw on some tried and true techniques.  But before getting to the nitty gritty of execution, it is very important that leadership adroitly approach the senior lawyer whose practice, still vital and valuable, is the subject of the conversation.  Because many senior lawyers find the idea of retirement discomforting, introducing the topic through what can be a difficult conversation requires a deft touch.

A senior lawyer approached unskillfully may perceive the overture as seriously premature thus stifling results. In other cases, the poorly constructed conversation can result in the senior attorney angrily departing to another firm with clients in tow.

Under either result, the intended succession of client relationships has failed.  With so much at risk, five fundamentals should be followed when planning the succession conversation.  Specifically:

Don’t Delay but Talk in Due Time.  Planning for the succession of client relationships should occur early.  And because the succession process typically is neither easy nor intuitive, broaching the topic with a senior lawyer should not be delayed.  But a bull in a china shop approach is a seriously flawed way to advance the firm’s objectives.  It also risks the Boomer bolting to a more welcome place.  A careful and thoughtful analysis of the senior lawyer, his or her practice and relevant firm relationships must be considered before the topic is engaged.

Understand Your Audience.  Like any sensitive and potentially emotional conversation, it is wise to think about the person you are getting ready to speak to.  The senior lawyer’s personality must be considered.  A typically calm person gets approached differently than one that is more volatile or easily offended.  Understanding the senior attorney’s financial circumstances is very important, as is taking stock of the kind of relationships he or she has with colleagues.  The profitability of the client relationships is worth considering.  So too is the senior attorney’s history of moving laterally between firms.

Schedule Flexibly.  Even if the firm has done its homework to adequately plan the conversation and its details, it is wise for the firm to be flexible about scheduling the conversation.  Finding the right time to start the discussion can turn on when the senior lawyer is likely to be more receptive.  A conversation when the Boomer is on edge, feeling vulnerable or after having received some bad news is not recommended.

The Messenger Matters.  Picking the right messenger to kick off the topic is so logical it is a wonder that some firms fail.  People trusted by the senior attorney should lead the conversation.  A respected person with whom a rapport exists is ideal. The Boomer’s archenemy or an unfamiliar person should not be participating.

A Collaborative Approach is Best.  A plan to transition client relationships inside the firm is most effective if is based on a conversation, not an edict.  Succession plans tend to be more effective if they are the product of negotiation in which the objectives of the firm and senior attorney are addressed respectfully.  A plan that emerges from a negotiation likely incorporates the kind of motivations that fosters effective execution.  Collaboratively arriving at a client relationship transition plan ensures the greatest chance of success.

A law firm’s desire to address client succession is not only laudable but necessary.  Yet too often law firm leaders err by jumping into the issue without adequately thinking about how to approach the conversation.  In the vitally important objective of client relationship succession, can there be a more important first step?

The Makings of an Exceptional Law Firm Leader

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

A few weeks ago I shared some thoughts on the pivotal role leaders play in a post titled, “The Role of Leadership in Law Firm Success or Failure.” In today’s post, in an effort specifically designed to help identify the quality leader, I want to point to what we believe to be clear leadership characteristics.

An April 2017 McKinsey & Company article titled “What Makes a CEO ‘Exceptional’?” provides a compelling foundation for our examination, suggesting three signposts of the exceptional business leader. The article examines and analyzes an extraordinary group — the top performing 5% of roughly 600 of the Fortune 500 CEOs. The analysis revealed that these top leaders:

  • Came from outside of their organization
  • Acted strategically
  • Took informed action

Let‘s look at these three characteristics, and apply them to our conversation about law firms.

Came from the outside

The analysis indicated that the top performers were twice as likely to have been brought in from another organization. But even in cases where new leadership was promoted from within, the best performers in this group adopted an outsider’s perspective, enabling the leader to examine the organization and its issues objectively.

The idea of going outside for leadership is virtually unheard of within the legal industry; but it is an option that should be considered — especially by a troubled law firm or a firm in crisis. Viewing issues through the same old lens — doing things one way because this is the way we‘ve always done them is the surest way to impede important and necessary change.

Acted strategically

The highly successful CEO’s in the study were 60% more likely than other CEOs to conduct a strategic review of the organization in the early days of a new position. Equipped with perspective gained from the strategic review the leaders were described as being in a position to move “boldly,” driving meaningful change that had beneficial results.

An unfortunately low number of law firm leaders operate with the benefit of the perspective gained from a strategic review of the organization — its strengths, weaknesses and opportunities for improvement. Wise (and extraordinary) leaders make such a review an early priority, not because strategic studies are easy or painless, but because the findings of an in depth study informs and shapes the path to productive transition.

Informed Action

This third characteristic naturally follows acting strategically. The most successful CEOs in the McKinsey study did not rush to change simply for the sake of shaking things up. Instead they sought to accumulate the necessary knowledge of the organization and had the benefit of a strategic view before undertaking major restructuring.

Unfortunately, too often we see new leadership in a firm taking precipitous action in order to put their imprint on things. This rush to act usually belies little more than an unsophisticated ready, fire, aim approach to leadership.

Today, perhaps more than ever in the legal industry, the prudent firm leader will make critical moves only after possessing a clear understanding of needed change, as well as the potential consequences of prescribed action.

As the article points out, studying the actions of proven winners in any endeavor can yield valuable knowledge. Our propensity for thinking that our situation is unique is not a precursor for learning from the successes (and failures) of others. Successful leaders have much in common, no matter how different the various enterprises.

 

For those interested in additional reading on law firm leadership, click here.

 

Five Leadership Steps for Confronting Law Firm Crisis

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

Law firm crisis can surface at any time.  Its roots can be deep within the firm, or can be the outcome of unforeseen developments. However, or whenever it arises, the affected law firm must react promptly and strategically. A tardy reaction, or a misstep in action, can leave a firm in great danger and on the ropes.

For most law firm leaders, having to manage through crisis is a new thing.  Their experience in guiding their firms in the good times is little preparation for the bad times.  On being faced with the new challenge many managing partners start by asking the loaded question of “what do I do now?”

Law firm crisis is sui generis as no two law firm crises are alike.  Sometimes the crisis emerges from financial stress, personnel issues like unanticipated departures, the untimely loss of a leader to death or incapacity, bad publicity, threatening litigation, or internal political unrest.  Finding the right response will depend on the nature of the crisis and action most suitable to the threat the crisis creates.  Despite each law firm crisis being unique, any law firm leader searching for a “to do” list should follow five tried and true steps to implementing a successful crisis response:

Show Calm and Resolve.  As the walls of the firm may seem to be crashing all around, a firm leader must display a sense of calm and belief that a path to resolution is available.  While demonstrating calm, the leader must show all that are watching that he or she is resolute and unbowed in tackling the mess.

Determine the Crisis and its Depth.  A calm and resolute leader must do more.  Immediately a leader must assess the nature and depth of the crisis.  As much as it may be tempting to close the circle and hunker down in this assessment phase, it is better to get out among the firm and its people as the crisis is being measured.  Getting out among the firm’s people as data, information and mood are judged will deliver the better intelligence.

Develop and Push a Stabilization Initiative.  Leadership must move quickly to remove the latent uncertainty and quell unrest – it must stabilize the firm.  The nature of the crisis will dictate the stabilization steps most likely to work.  But unless stability is restored to some degree it will be difficult for the firm to compose itself for a resurgence.

Present a Path Forward.  Not long after the crisis surfaces, the firm will look to leadership for a substantive solution.  Leadership must demonstrate an understanding of the issue(s) and offer a solution.  Without being able to do so, internal support within the firm will begin to slip away.  If an understanding of the issues impacting the firm is not expressed along with a solution based response, any recovery strategy will lack credibility and the crisis may consume the firm.

Strive for Some Quick Victories.  While short term solutions will not dispose of the bigger crisis, nothing breeds success like success.  And successes build confidence and improve morale.  For that reason, leadership should look for low hanging fruit and correct relevant unresolved issues that have been deferred for too long.  Visible victories can build confidence and stop if not slow any downward slide.  Boosting morale early in a crisis can be a lifesaver and early triumphs, of almost any size, help.

Crisis, being action of a bad kind, must be met by action of a good kind.  These five steps won’t alone solve a firm’s crisis as crisis is always a complicated challenge.  But addressing crisis by using these five steps delivers the foundation for a positive and comprehensive solution. What other leadership steps would you recommend?

 

 

The Role of Leadership in Law Firm Success or Failure

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

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

 

As law firms, big and small, continue to struggle, it begs the question, what is going on? And (more to the point) what can be done to improve a firm’s odds of thriving in this emerging marketplace.The answer to this question is one of those good-news/bad-news situations.The good news is that, for most firms, the answer is simple and straight forward.

The number one determinant of the success of any enterprise is the quality of leadership. This is underscored by a Dun & Bradstreet (“D&B”) study describing the three top reasons for business failure as;

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

Though troubles often begin with an external development, it is the response (or lack thereof) that yields long-term results or consequences… D&B shockingly attributes 87.8% of business failures to leadership.

Leading The Law Firm

We mentioned good-news/bad-news. The bad news is leadership is something law firms struggle with mightily. If almost 90% of all business failures are directly tied to leadership, consider the implication of these law firm realities:

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

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

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

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

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

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

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

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

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

What To Do

The essential role of leadership is nothing new. A number of realities differentiate today’s market from the 90’s and 2000’s when quality lawyers could insure a thriving practice. Among the changes:

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

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

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

Healthy, Stable and Strong Firms

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

  • Development through experience. Experience is the best teacher. Building experience among younger lawyers in a structured manner where mistakes can be comfortably made is ideal.
  • Development through education. There are numerous excellent leadership programs. A few to consider include:
    • Harvard’s Leading the Professional Services Firm
    • Local MBA and EMBA programs
    • Any one of the seminars on the subject offered by the AMA – typically excellent and cost effective
    • Development through mentoring. Resist the temptation to write this off as touchy-feely stuff. Quality mentoring programs can be incredibly effective. This is an area where outside assistance is typically the cost effective way to go.
    • Development through feedback. Feedback and self-awareness are critically important to the development of leadership and management capabilities. The formal programs noted above make extensive use of feedback, and it is part of any serious on-going focus. Investigate the options, select an approach that is right for your firm, but don’t skip this critical step to improving leadership skills.

Firms That Are In a State of Transition or Stress

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

  • An outside perspective. Seek out an advisor that can help the firm through the transitional period, and then focus on hiring and developing in-house management and leadership talent.
  • Lateral Leadership Acquisition. An approach that is used frequently and successfully in the corporate arena, laterally hiring a Managing Partner is rarely considered by law firms.
  • Employing non-lawyer CEO/COO. Although the role of non-lawyers as COOs has been steadily growing, some farsighted firms are now hiring business leaders as CEOs. Time will tell how this trend develops.

 Conclusion

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

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

See more of our content on law firm leadership here.

Five Common Mistakes Law Firms Make When Entering a New Market

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

A dynamic law firm growth tactic involves opening an office in a new geographic market.  To move a firm into virgin territory requires careful thought about issues that go beyond simply hiring new lawyers.  Indeed, expanding a firm’s footprint requires many considerations, including good intelligence about the new market’s practice characteristics, bar personality and mores, prevailing rates, client expectations, and real estate location/economic issues.

No less important is finding the right pathfinding lawyer to open, manage and market the new office.  A lawyer’s lawyer may seem ideal, but if he or she tucks away into the new home’s bunker, the firm’s splash into the market will be more like a ripple. The best hiring decision lies in identifying a least one lawyer that brings the right blend of professionalism and front facing energy that advertises the firm’s new office as serious and formidable, and one that clients, lawyers and the business community will accept.

But even if good market intelligence is coupled with finding the perfect office leader, firms jumping into a new market should be wary of common pitfalls that can turn new office elation into old office despair.  Faltering in a new market can usually be tied to one or more of the following five mistakes:

Adopting a beachhead mentality.  The thrill of the chase makes some firms focus solely on getting the new office opened with good lawyers, an adequate stable of clients and a good lease.  The thinking goes that once a beachhead is established a natural progression inland will follow.  But it doesn’t work that way. A market entry without a long-range plan for post-opening initiatives will squander momentum and lead to atrophy.

Acting solely on opportunity.  Too often the notion of entering a new market is the outgrowth of an unsolicited opportunity that seems fortuitous.  If thinking about a new market is spawned by good fortune coming from somebody’s misfortune or wanderlust, the needed diligence and thoughtful examination likely is an afterthought.  An unforeseen opportunity and its momentum can endanger the making of a measured strategic decision.

Integrating one-way.  Kudos to the firm that enters a new market committed to integrating the new office into the rest of the firm. But many integration plans are too weighted towards acclimating the new office into the greater firm.  While there is logic in exposing the new lawyers to firm processes, procedures and culture, getting the larger firm platform to commit to the new market is equally important.  A plan integrating the entire firm into the new market will pay dividends.

Thinking that additional growth will be easy.  At the opening of most new offices the firm declares that it intends to expand and expects to be a multiple of its opening size within months.  It is not so easy. The new office, an interloper in the new market, has no record of performance, has not experienced success and is an unknown quantity.  Few great candidates will be willing to risk a move to such a nonentity.  Lawyers willing to join often have baggage that makes them generally. If a law firm thinking about a new market does not know how to solve the recruitment riddle, it should re-think its foray into the new market.

Treating the new market like a second-class citizen.  Except in the case of market openings that are specialized for a narrow purpose, no firm should go into a new market if it does not intend to compete at the highest levels of its selected niche.  To do so, the firm must invest in the new market with a plan to pervasively become known in the legal, civic and social community. A firm unwilling to make that investment should consider passing.

 Opening an office in a new market can be big news.  It can also lead to bad news if executed incorrectly.  Before your firm descends into a new market, will it guard against these five common mistakes?

 

Law Firm Survival and Succession Planning – 3 Steps

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

Succession and succession planning are hot topics in the legal profession. One statistic explains the focus on the topic – only about 30% of law firms make it beyond the first generation.

Why Do So Many Law Firms Fail?

Why do so few law firms make it to the second generation? Consider this progression of logic:

  • Few goals are realized by happenstance;
  • The greater the objective, the less likely it will be realized without serious intent;
  • A written succession plan is a reflection of serious intent;
  • 95% of law firms have no written succession plan;
  • For a majority of law firms, 25% or more of revenue is generated by or closely associated with lawyers that are 60 or older;
  • Few firms will survive the loss of 25% of revenue in a short period of time.

So What?

If you are a law firm leader, this reality does not surprise you. We regularly visit with managing partners and governing bodies that see the writing on the wall. With the exception of those who choose to bury their in the sand, most agree succession must be addressed. A comprehensive and workable succession plan is essential if a law firm hopes to survive beyond the current generation.

A 3-Step Path to Survival

Step 1Start now. As simplistic as this may sound, it may be the singles toughest part of developing a plan. The day-to-day demands of managing a practice make it difficult to step back and consider the future. This reality is one of the biggest reasons many firms find themselves in the current predicament — years of not having time to address relationship continuity and succession.   The first step is to be done with hand wringing and more talk.

To think too long about doing a thing often becomes its undoing” –Eva Young

Step 2Engage your colleagues in a series of discussions intended to yield a plan for succession. Inclusion is essential to obtaining the buy-in necessary for a plan to succeed. Conversations with those impacted (clients as well as lawyers) that focus on long-term benefits, continuity of representation for clients, and the value of legacy are critical pieces of the puzzle. Some of these conversations may not be easy; but without them you are reverting to a strategy of hope.

Step 3Execute and monitor the plan. Very few plans roll-out exactly as intended but the routine monitoring of performance to the plan provides a means of adjusting as necessary to achieve the objective. Succession is about the future — and any conversation about the future must be on-going. Inside a successful firm, a good plan must be able to evolve.

A successful succession plan doesn’t necessarily mean future leadership comes from within your firm. The plan may include the recruitment of new talent in the areas of leadership, and/or client generation and servicing. It may mean that the core of your firm survives a part of a bigger organization. The real key is that the result your firm ends up with is the result you desire. Without planning the desired result is highly unlikely.

One additional note that many firms miss when it comes to the issue of succession planning—-Succession is likely on the mind of your clients. The issues of experience and continuity are likely being dealt with inside your client’s organization. A thoughtful collaboration between relationship partner, the client and firm leadership is an opportunity to demonstrate that level of client-centeredness all law firms proudly tout.

Our experience is that most firms wait too long and suffer the consequence of fewer or no options. Don’t let that happen to your firm!

See here for additional reading on this topic.

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