Managing Law Firms in Transition

Managing Law Firms in Transition

Another Record Year for Law Firm Mergers-Reasons Your Law Firm Should Not Be Next

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

In a newly posted piece, Casey Sullivan‘s Law Firm Mergers Reach Highest Point in Nearly a Decade reports that 2016 is to be yet another record year for law firm mergers.   As the cascade of announcements show (as well as the Altman Weil research compiled in its Mergerline), merger as a law firm strategy has gained in popularity since the legal industry shakeout of a few years ago. Among many of the mergers are a number of smaller ones in which the size of the firms involved are less than 35 lawyers. The fact that merger is not just reserved for the bigger firms is evidence that firms across the size spectrum find the idea of combination compelling.  With merger being an idea that is not abating, is it time for your firm to merge? Before you answer “yes,” there are certain things to consider.

Deciding whether to combine law firms requires intense analysis. Besides the usual metrics of revenues, expenses, headcount, practice expansion and the like, law firm leaders face intangible issues, such as whether disparate practices can coexist, whether some clients’ incompatibility precludes their being served under one banner, or whether strong personalities can get along. These issues can be tough to resolve and it takes a great deal of work to sort through them successfully.

Other issues should not be so tough to assess. In fact, there are certain issues, danger signs if you will, that augur against any combination if they cannot be resolved with adequate certainty and confidence. If these danger signs surround the potential merger target, it may be time back away from merger or look for another candidate.

No Integration Plan Exists. One of the most difficult tasks in trying to make two law firms or practices come together successfully is how they will live together. Different systems, philosophies, core values and strategies can’t wait to be resolved later. If you don’t know how you will work out these issues, you should not combine. Even worse, if you have not taken the time to identify the issues, you are not close to being ready to combine.

The Firm Cultures Clash. Law firms often describe their culture in reverential tones that connote a gratefulness that it is not like other firms. The “other firm” likely feels the same way. No one firm culture is the best any more than one expensive golf putter is better than another. But understanding the cultures of the two firms walking down the isle is vitally important, and if you don’t know how the two cultures will mesh, turn around and walk back out of the church.

Prior Lateral Growth of Your Target Has Been Significant. If your target has grown recently through significant lateral acquisitions, be wary. Most laterals arrive with a book of business that is easily re-packaged and moved to another firm. If you are counting on a lot of that laterally acquired business staying, you may be disappointed.

Your Merger Target “Needs” to do the Deal. We all like a good deal-that is our nature. But if a potential combination candidate seems desperate to do a deal with you, there likely are fundamental problems under the surface that have put it in such straits. It is a little like buying a used car from the salesman that won’t let you leave the lot without making a deal. At the time of sale he knows something you don’t. Weeks later, when your clunker won’t start, you know.

Rate Structures and Practice Sophistication Are Dissimilar.  “Once we started talking, we were surprised at how similar our firms were.”  If the press release is not “merger-speak” and management of the two potential merger candidates truly believe such a statement because it is true, a merger may be beneficial.  But if the gulf between the two firms’ rate structures and practice sophistication is substantial, compatibility is suspect and integration issues will be significant.

There is too much at stake to combine law firms when danger signs about the combination are obvious. Common sense should steer you away from many combinations. For those possibilities that remain, in-depth analysis should provide the kind of guidance needed to avoid mistakes and make a successful combination possible.

What other reasons should cause you to walk away?



Law Firm Merger — An Ideal Time To Evaluate The Cost of Operating

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


Merger planningIf your law firm is considering a merger, it is a perfect time to evaluate the operating cost associated with the combined organizations.

Mergers are risky transactions. Having operating costs in line from day one will decrease pressure on the new entity.

Although all costs should be evaluated, we will focus on three areas in this post. Two represent areas where you should be able to realize a reduction in expenses (space and people), and one is an area where you should plan for a budget increase (business development/advertising).

Office Space

The cost associated with housing a law firm is typically one of the two largest expenses for firms. There are, of course, two key drivers in this discussion — the amount of space, and the cost per square foot.

On the first count, in recent years firms have found ways to decrease the amount of space required. Some of the efficiencies offered by technology combined with less spacious partner offices are among the big factors here. Reports suggest that over the last decade or so benchmarks for space have dropped from 900 square feet per lawyer to closer to 600.

But what about the cost per square foot? Thanks to landlords, this one is out of our control — right? Or is it?

There continues to be what I suggest is a false perception that firms need to be located in the very areas where rates tend to be highest. The inclination remains to lease space in the heart of the central business district, or the hottest new area of town in the newest building.

While many law firm leaders tend to view the cost of premium space as the price of doing business, the increasing reality is that this space is of no relevance to virtually any client.

As you begin planning for the combination of your firm with another, look hard at how you can realize some space efficiencies as part of the transaction.


The second area of significant cost for law firms is the direct and indirect cost associated with attorneys, paralegals and staff. In virtually every law firm combination, there are redundancies in one or more of these areas.

As you plan for the integration of the two firms each of these human resource areas should be evaluated for redundancy, improved efficiency, and effective client service and support. When two firms become one, the goal is to end up with the strongest organization possible. This means reassuring the best and weeding out the weakest.

Keep your eye on two periods, the “time of transition”, and the long term. Personnel needs are greatest during the transition period.

People decisions are difficult, and critically important. An open and honest approach to assessing the needs of the new firm will serve you well.

Leveraging the transaction

An area that you should consider making additional investment is market awareness. The quickest way to leverage the value of a merger is to ensure that existing, former and prospective clients know of the new capabilities resulting from the transaction.

This awareness comes about through a well-planned communication initiative. The project starts with the development of a clear and concise message, which reflects the enhanced value created by the merger.

The delivery of the message will vary by situation; but generally your plan should include, face-to-face meetings with key clients, direct mail, electronic communiques, and announcements in relevant professional publications.

Have you engaged in a thorough review of the cost structures as you plan for your merger? Do you have a well designed communication plan to let the relevant sectors of the marketplace in on the increased value you now represent?





Law Firm Merger: Five Compatibility Metrics

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

To merge, or not to merge? That is the question. More and more law firms face that issue these days. We often advise law firms facing that watershed possibility and take them from considering merger in the abstract to addressing its reality. But because roughly 50% of mergers reportedly fail, properly evaluating a potential merger is extremely important. A flawed analysis, a few undeserved assumptions or allowing momentum to overtake critical examination can doom a merger to failure. Conversely, a lack of confidence in a proposed merger because a systematic and thorough analysis was not performed can be a lost opportunity for both firms.

Numerous reasons propel firms towards merger but for many firms the business-altering step of merger is worth considering because (i) a new generation of leaders is not rising to the top, (ii) client needs dictate a broader platform, and/or (iii) financial or market dynamics augur for 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, in our experience, the analytics ultimately come down to five areas of compatibility. If compatibility exists, or reasonable measures can be taken over a finite period of time to reach compatibility, the merger has a much greater chance of success.

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

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

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

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

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

Merger’s can be risky, but they also can propel a firm to places not realistically possible if left to organic change. Digging deeply into the data and understanding compatibility in these five areas is critical to a successful merger.  What other compatibility metrics should be considered when contemplating merger?

Thinking Law Firm Merger? Here Are 3 Ways To Test Compatibility

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

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, when you begin talking merger, you’re talking about hitching your professional well-being to the productivity and stability of another law firm, It’s time to take real stock of the potential relationship.

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


 Every firm has (or should have) a clear perspective on the type of practice they are 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


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.


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 its 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 one in which all partners make exactly the same. Any system can be made to work if it is embraced by all partners.
  • 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 individual discretion of lawyers.

We’ve touched on but 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 suffer from a lack of appropriate attention since energy is often directed exclusively to the potential deal itself.

Mergers are not easy. The track record is not great. It could well be the most important business deal you will ever work on or 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?






Law Firm Management and Raising Rates: A Short-term Solution that Needs Some Long-term Thinking

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

HealthSara Randazzo’s recent How Can Law Firms Increase Revenue? Charge More reported about some law firms dealing with revenue demands by increasing the rates that they charge. Increasing rates, especially at a time when demand for legal services is tepid at best, seems counter-intuitive. But for some law firm leaders, the need to increase revenue overwhelms contrary logic and rates get raised.

Given today’s legal market, raising rates should raise eyebrows. Productivity at law firms is challenged, clients are pushing back on increased legal fees, more clients are bringing legal work in-house and alternative service providers are taking more market share.

Of course, to many law firm leaders the idea of raising rates is both tidy and familiar. In an industry where law firm success and confidence may turn on the most recent compensation round, making sure attorney compensation continues to rise is a paramount concern. Facing this pressure, the increasing of revenue almost always becomes a necessity. The reliable raising rate tool comes out of the toolbox, gets used and the short-term challenge is met.

Unfortunately, law firm health is not a short-term matter and the raising of rates offers few guarantees in the long-term. Besides being a crutch, it can be a lazy man’s misguided attempt at maintaining a law firm’s health. And as some clients evolve into being more like competitors than consumers, the need for clients to pay rates of any level, let alone rising ones, is reduced.

Planning for the long-term health of a law firm requires that leadership temper its reliance on the raising of rates and consider some new ideas. Admittedly, in implementing the new ideas rates may need to be raised as a bridge towards the implementation of long-term initiatives. But if leadership is looking for long-term health, it should think beyond raising rates and pursue other initiatives, including possibly:

Having Technology Play a Central Role in the Future. You can’t open a legal publication these days without reading about the critical role that technology will play in the future. Artificial intelligence, algorithm based communications, data analytics-all will supplant to some degree the labor-intensive activities on which today’s law firm model is based.

Moving Away from the Hourly Rate. The need to consider a different fee model is not simply based on a growing client discomfort with paying higher rates (especially for the junior to mid-level lawyers-a firm’s bread and butter as Martha Neil reports), but also because client demand for efficiency will make hours harder to come by.   Stout rates times a smaller number of hours does little to grow a revenue stream. Other means of charging for legal services responsive to clients will need to become the norm.

Thinking About Investing in Innovation. Transform the firm’s culture into one that constantly looks for ways to deliver legal services so valuable that clients will gladly pay. Except for the bet your company cases, many clients that pay legal fees view them as a necessary evil. Innovation can change that outlook and build greater relationships.

Rethinking the Personnel Model. Technology may reduce your personnel needs and with it your personnel costs. The growing free-lance economy may make it possible to minimize the financial burden of the large workforce that is taken for granted today.

Rethinking Overhead. Few firms aren’t willing to cut costs. If a firm works hard at the four transformative steps above, it may find that its overhead is reduced. Even if less lease space and personnel costs are offset by increased investment in technology or other innovations, the value added may prove more tangible to clients than unproductive empty offices and employees currently covered by the rates they pay.

Some firms have no choice but to raise rates in order to meet revenue targets. That can be a bad place to be. With client expectations and innovation making inroads on the industry financial model, long-term thinking must not be forgotten as rates are raised. If your firm raised its rates this year, was it simultaneously working on long-term initiatives that would reduce future reliance on the raising of rates?



The Key To Resolving The Lawyer / Marketing Dichotomy

Posted in Law Firm Growth, Law Firm Leadership

I am very pleased that Eric Fletcher has agreed to provide this insightful guest post. Eric is an extraordinary law firm marketing professional who leads marketing and BD at Liskow & Lewis, is the author of the Marketing Brain Fodder blog, and is the co-author of 8 Mandates for Social Media Marketing Success. Eric is a husband, father and a long-time advisor and friend of mine. If you haven’t seen it Eric’s TEDx talk is worth your time.

Enjoy Eric’s post.

Corporate rivalryThere are exceptions; but the fact is that for many lawyers, marketing is an annoyance, if not anathema. And there is good reason.

Talk to either or both sides of the conversation, and at least two possibilities arise.

  • Lawyers, often by nature and certainly reinforced by education and training, are highly skilled at spotting problems, whereas marketing professional services is about the identification of opportunities; and,
  • Historically, the practice of law has been reactive, providing analysis and applying precedent, while business development is based on proactive pursuit.

Yet, notwithstanding the glass-half-empty vs. glass-half-full perspective, neither of these are the reason marketers and law firm leaders frequently seem at odds.

What About Changes In The Industry?

Granted, these are not the good ole days. For years the challenges of legal business development were camouflaged by remarkable growth. But for at least a decade an increasingly competitive marketplace has introduced the legal industry to the uncomfortable reality of disruption.

The once rock-solid cornerstones — the right law school, passing the Bar, hanging a shingle and delivering quality work — guarantee nothing in this new normal. Already wrestling with the practical applications of all things marketing, lawyers now face the challenges of finding new work.

But every industry changes. Even major shifts in the legal space are not the root cause of the lawyer / marketing dichotomy.

The Problem and the Opportunity

At its best, marketing is not about spin, or tag lines. Nor does success hinge on a splashy new website, the colors of a logo or an award-winning ad.

Whatever you might label it — marketing, client relations, business development, or sales — the law firm marketing function is about facilitating and supporting opportunities for lawyers to develop relationships with a strategic market.

The Best Marketing Is Born Of Aspirations

Roger’s most recent post discussed the fabric of successful and enduring partnerships — shared aspirations.

The suggestion is that there are a handful of goals so central to the reason a partnership was formed in the first place, that these aspirations become the backbone of strategic direction. Every critical decision — compensation, growth, practice diversity, where to invest — is measured against this set of aspirations.

And yes . . .shared aspirations — implying they are well known and discussed — provide rich context for a natural approach to marketing.

The pursuit of those universally held, jealously guarded goals becomes a cultural marker. In this environment — where objectives, priorities and the allocation of resources are clear, marketing becomes organic; and the partnership’s marketing professional can lead a calculated pursuit of a clearly defined target.

Organic marketing delivers unique leverage because everywhere the organization touches its market, the DNA of the firm is planted.

If marketing is mystery or anathema in your firm, progress may be as close as examining whether the critical aspirations shared by your partnership are at the heart of why and how you take your story to your market.

More Innovation for Law Firms Coming-How it Will Change Your Practice

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

As staid and conservative lawyers and their profession may seem, it is undeniable that change is a part of their world.  The change that has confronted the legal profession since the collapse of 2008 has garnered a lot of press, but lawyers and their firms have had to adjust to an altering world for a lot longer than just the past seven years.  Even so, most would agree that the economic turmoil of 2008 has been followed by a more demanding client base, the advancement of alternative service providers and increased competition, including from clients.

Recent attention has been directed to non-financially driven developments that suggest a future in which the delivery of legal services will change further, perhaps dramatically so.  Data analytics in litigation is being touted as a tool that will make litigation outcomes more certain.  Algorithms are being used to write articles, which mean that a new communication medium may supplant some of the work that lawyers currently do. “Ross” has been introduced to the legal world and while arguably not much to look at, he (or she?) is an artificially intelligent attorney that does legal research. And the “Uberization” of law firms is also being sighted on the horizon.  If these developments don’t actually take hold, other innovations certainly will come in their wake to impact lawyers and law firms.

The coming law firm revolution (or latest evolution) means, to one group of commentators, more technology and fewer lawyers.  For some smaller firms, it will allow them to “punch above their weight.” In the case of other firms, possibly not. At least one bar leader has warned her colleagues to “get an edge on artificial intelligence.” Do all these advances threaten the future of law firms, as we know them? For law firms that are prepared to meet these changes head on, the answer is “no.”  Other law firms that insist on “whistling past the graveyard” will find the future much more difficult.

Artificial intelligence, algorithm based communications, data analytics and Uberization are groundbreaking in any industry and certainly could be in the labor-intensive business of law.   With the advent of these changes (or ones that prove more effective), law firms should be prepared for at least five consequences:

Clients Will Compete With Firms Even More.  Since 2008, more clients have built up their in-house legal staffs to do the more commoditized work previously performed by outside counsel.  New technologies will reduce barriers to entry and accelerate this trend.  New tools will render the currently complex more routine and clients will compete with law firms more than ever.

Legal Work Will Be Less Labor Intensive Thus Undermining the Value of the Billable Hour.  The new tools will drive efficiency unseen previously.  Firms that base their economies on hourly rates may find it difficult to generate sufficient hours to support their financial model.  Firms of the future will need to migrate to a financial model that generates revenue outside the billable hour.

Firm Investment Must Be Reallocated.  The march of technology has been felt for a long time.  In the future, firms will need to allocate budgets not only for more advanced systems, but also for personnel that will fill a quasi-legal role to generate data and analysis that lawyers can interpret.  An incoming associate class may give way, at least partially, to an incoming tech class (some my be trained as lawyers).

Pricing Legal Services Will Become More Important.  A by-product of increased efficiency and reallocation of resources at law firms will be the need to price services based on product and results delivered.  Pricing will need to adequately blend certainty and client results, return on investment for the firm, and positioning against competition (other firms and in-house) in order to thrive.

Human Resource Management Will Change.  Human resource management will rely more heavily on contract lawyers (or their equivalent) and short-term utilization of outside services.  Whether the legal profession becomes truly “uberized” is subject to debate, but the underpinnings of the Uber model will drive the profession away from long-term personnel decisions and towards managing fluctuating demand by short-term hires.

Law firms with a healthy respect for and curiosity about innovation will adapt as these or other new changes take root.  Firms that fear change will struggle.  Which path will your firm take?

A Singular Predictor Of The Success Of Your Law Firm

Posted in Law Firm Leadership

imageTo what degree do you and your partners share aspirations? The answer may, more than anything else, be an indicator of your future.

Few would deny that the legal market is increasingly complex and competitive. Many suggest the model for success is changing.

But whether you are one of two or three partners launching a boutique, one of a thousand or more in a Big Law venue, or anywhere in between, there is perhaps no greater predictor of stability and sustained success than the degree to which the partners in the venture share aspirations.

Aspirations can cover an array of topics; but these are the very few things that are of utmost importance — to an individual, and to a partnership. A breakdown of categories might include:

  • Profitability
  • Social contribution
  • Reputation
  • Type of work
  • Types of clients
  • Work / Life balance
  • Culture
  • Values
  • Legacy

In an ideal world I guess all lawyers would aspire to:

  • make a lot of money
  • have a positive social impact
  • have a great reputation
  • enjoy the benefits of perfect work / life balance
  • go to work each day in an environment that most would call pleasant
  • and leave a mark on the next generation

You might reorder, add to or eliminate items on the list; but the issue is that one must make choices as to what is most important.

The more diverse the list of things of utmost importance, the more the fabric of the partnership is at risk.

The real-world difficulty is that commitments in any one area are likely to run counter to the priorities and values represented by another. Investments in one priority will, by necessity, deprive other areas of resources.

There is immeasurable leverage and minimal conflict when everyone on a team is seeking to build and accomplish the same thing. This is a basic truth of organizations — whether you are talking about the 2015, World Cup winning, USA Women’s team . . . or your law firm.

Certainly there are policies, procedures and tactics that play an important role in efficient and successful operations. And it is a given that you must assemble a team capable of delivering excellent work.

But when it comes to long term stability and success, the most important question may be — to what degree do you and your partners share a common set of basic aspirations?

Strategic Shrinking-Spinning Off the Struggling Law Firm Office

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

200px-For_Sale_by_Owner_Sign.svgLaw firm growth is a popular strategy or tactic among law firms seeking to compete in today’s ultra competitive legal services market.  Growth often is achieved through mergers, practice group acquisitions and lateral hiring.  And in some cases, the growth initiatives result in new offices being opened in markets previously not served.  New offices create excitement and usually generate visions of success on account of expected synergies, anticipated new opportunities and the adding of a roster of respected lawyers.  Over time however, the excitement can wane and in some cases is replaced with the realization that the new office is more of a burden than a benefit.  The malady is not confined to new offices-long standing offices can become burdensome over time as well.

Fixing the problem office, whether traceable to financial performance or other issue(s), is critical to the health of the firm at large.  Substandard financial performance can not only undermine the larger firm’s bottom line, but it can foment morale and cultural issues system wide.  Finances aside, problems with practice quality risk a firm’s reputation and must be addressed to avoid tarnishing the brand.  Inconsistent cultures can likewise be disconcerting.  Whatever the basis for the problem, prompt action is required.

Unfortunately, not all problems associated with a distant office can be solved easily.  When the solution is too complicated, requires the investment of too much capital or is too formidable due to market dynamics in the city the office calls home, the drastic option of office closure is presented.  But the better approach may be to “spin off” the office and depart the market.  If law firm leadership finds itself dealing with a struggling office that does not seem to be easily fixed, the following thoughts are worth considering:

A Spin Off Should be Done for the Right Reasons.  Just because a distant office struggles does not mean that it should be closed.  Hard work and basic blocking and tackling can correct many a problem.  But if substandard financial performance appears uncorrectable, strategic incompatibility exists, or the culture is not in harmony with the rest of the firm, finding a new home for the office may be a good alternative.

One Man’s Trash is Another Man’s Treasure.   While not all spin offs need to be described so pejoratively, the point is that just because an office is not valuable to one firm does not mean it won’t have great value to another firm.  A large firm deciding to spin off an office can often find suitors for the office if it tries.  Alternatively, sometimes the smaller office is a good candidate to become a stand-alone law firm.   In any event, a struggling office may just need to be put in a position to succeed and a new home may be the right solution.

Timing is Important.   Ignoring the opportunity to affect a timely spin off can subject a smaller office to eventual defections, terminations and an inability to recruit.  A crippled office will end up being unattractive and leave the larger firm with many headaches, including unwanted lingering liabilities.

For Clients and Personnel, It May Be the Best Thing.   A planned and controlled disassociation may be far better for clients and personnel than a painful stream of departures, defections and terminations.  With foresight and planning, the transition of an existing office to a new firm or the creation of a stand-alone firm can be seamless for clients and personnel.  Not only are their interests supported, but also the remaining firm can lessen its malpractice risk and liabilities typically associated with closure.

Once Divested, the Leadership Can Focus on the Firm’s Future.  An office that is incompatible to the firm as a whole takes a lot of leadership’s time and energy and detracts from the efforts to run the rest of the firm.  Once disassociation occurs, however, time previously spent on the now departed office can be dedicated to implementing the strategic objectives of the firm as a whole.  By being able to focus on a unified strategy implemented in a consistent way, the firm optimizes its prospects for the future.  And by eliminating the incompatible competing interests presented by the troubled office, leadership’s message about the firm’s direction not only becomes more consistent, but more credible.

For many firms, a poorly performing office is ignored, bolstered with additional investment or closed.  Yet in some cases, a spin off may be a preferable alternative.  If your firm has a struggling office, would a spin off work be a possible solution?

When Law Firm Expansion Is A Precursor To Fracture

Posted in Uncategorized

growth-strategyRecent posts from Above the Law and Law360 have focused on K&L Gates, and happened to touch on an issue we’ve been wrestling with for some time. The primary focus of the articles was departures from the firm; but it also touched on the challenges that are part and parcel with building large geographically and practice diversified law firms.

The posts suggested that at least some of the departures being experienced by K&L Gates are directly linked to the fact that those leaving the firm have little, if any need for the platform the firm has developed. Their practices didn’t require the capabilities and infrastructure required by a global organization; and they were not interested in paying for something they didn’t want or need.

This post isn’t really about K&L Gates, but it is important to point out that Peter Kalis, the firm’s chairman, had an interesting response to the article. Kalis pointed to his firm’s debt free balance sheet, and the success the firm has had in importing/exporting business from region to region.

What this post is about is the cost of building an infrastructure that doesn’t create value for a super-majority of partners of the law firm.

Many firms in the legal profession continue to suffer from an all too often reckless and ill-advised bias for growth. One must conclude that there is a basic belief that adding more practice areas and more offices in more countries on more continents will somehow make the firm stronger.

As a general rule it does not.

In fact, when the steps taken to precipitate this type of growth are taken without the support of the super majority of the owners mentioned above, one must wonder whether this kind of growth is about anything more than feeding the ego of a chairperson or management committee.

The cost associated with expansion, the increased operational complexity and the varied support requirements all put pressure on a law firm. This kind of pressure can certainly be dealt with and effectively managed if it stems from a shared goal, priority or aspiration.

When the complexities of expansion are encountered in a culture characterized by splintered goals, no one should be surprised when partners elect to depart.

Any investment, and especially those that come with the consequential changes of expansion, should pass a rigid and objective test of the value associated with it. Does the investment clearly benefit the super-majority of the firm’s partners in a verifiable fashion that would pass a review by an outside analyst?

If not the investment should be passed on. Or at least sent back to the drawing board.

How are your firm’s investments evaluated?