Managing Law Firms in Transition

Managing Law Firms in Transition

Law Firm Succession Planning 2015: Leadership’s Hidden Challenge (Part Two)

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

As discussed in my last post, Law Firm Succession Planning 2015: Leadership’s Hidden Challenge (Part One), the confluence of upbeat economic news with generational differences in the lawyer ranks presents a problem for law firm leaders not having an institutional succession plan.  The issue is not just theoretical-Altman Weil’s 2015 Law Firms in Transition report warns that the many firms not having a succession plan (Altman Weil projects the percentage at more than 65% of firms surveyed) will feel the economic effects imminently.   For law firms in this predicament, the task of adopting a plan can be difficult but not impossible.

Contemplating a future without a well-designed succession plan, or just thinking that its preparation can be deferred to later, amounts to playing high stakes poker with a lousy hand. But it does not have to be that way. Five steps can be followed that can fill the void. A firm facing the risk Altman Weil warns about must:

Pursue a Prompt Solution. Do not wait. Altman Weils report tells us what everyone knows; many law firm partners are resistant to change (Altman Weil concludes that resistance to change is “a persistent threat to law firm success”). Today, the general resistance is compounded by the good times enjoyed by many law firms. Despite the significant challenge involved in rolling out a succession plan in that kind of environment, today’s management must steel itself to the task and forge ahead. While other problems may receive management attention, leaders must be resolute and prioritize the formidable task of succession now rather than wait until later. Excuses or preferences should be cast aside-unyielding attention should be directed to development of a plan and seeing to its prompt implementation.

Communicate. In times of change or transition, clear and constant communication is vital. When the Boomer with the client relationships is approached, the firm’s objectives should be explained and he or she should be encouraged to become an architect of a plan that provides for succession. The Boomer’s nominee as successor should be solicited. Likewise, a discussion with the client is needed to learn its preference. Views about fears, concerns and benefits of all concerned should be exchanged. Reconcile divergent thoughts, and then refine a plan that reflects that the firm has listened.

Create a Plan That Harmonizes Individual Self-Interest with Institutional Longevity. Whether the succession plan is management focused or client retention focused, it must answer each participant’s bottom line question of “what is in it for me?” All players in the succession plan, especially in light of the generational interests at play, will wonder about the benefits to be gained from cooperation. The Boomer, whose practice or position in leadership needs to be transitioned, must feel that the plan is fair, benefits generous and future secure. Promises must be more than words-they much be backed by commitments that are tangible, evident and secure. Similarly, the successors need to see reason to invest in the plan, even though today’s attention to the plan may seem like it asks for too great a sacrifice. These potentially conflicting interests must be managed by leadership with the goal of furthering the interests of the firm.

Make it the Key Players’ Plan. For change of any magnitude to succeed at a law firm, partner “buy-in” is required. In the case of a client succession plan, it is critical that the Boomer aging partner and the selected successor be deeply committed to the plan and its success. Again, harmonizing the ideal of key player self-interest (what are the “must haves” for the aging partner and the selected successor?) with the firm’s long-term objective is essential to making the plan work. Management should strive to develop an appealing plan that is executed by the two key players without constant prodding from up on high. If the plan becomes the key players’ plan, it has a great chance of success.

Earn Trust Every Day. Like an anti-biotic, a succession plan won’t be effective if not followed to its prescribed end. And just as the key participants must be fully committed, so too should management. To show its commitment, management must daily reinforce its unyielding support for the plan and its participant’s. By doing so, management will earn the requisite trust that is essential to success. Failing to earn that trust, or taking it for granted, will create doubt that deprives the firm of its ultimate goal.

If your firm is without a succession plan, there is no time to waste in taking these five steps.   Even so, are there other things to do that you think are equally important?

 

 

Law Firm Succession Planning 2015: Leadership’s Hidden Challenge (Part One)

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

Altman Weil’s 2015 Law Firms in Transition report recently came out and as usual it offers interesting and valuable information about the law firm industry as well as the perceptions and attitudes of law firm leaders. One fact noted by AW in its report is that in 2015 much of the industry is enjoying a recovery from the Great Recession.

The report is not all happy talk; however, as challenges faced by firms were noted, including the looming need for many firms to do more about client and practice succession planning. AW’s study of surveyed firms observes “only 31% of firms have a formal succession planning process in place,” and goes on to conclude that “the economic impact of this failure to plan for succession is imminent.” Among the more notable data points from AW supporting its conclusion is that in a large number of surveyed firms partners older than 60 years control at least a quarter of their firm’s total revenues.  In some firms surveyed, the percentage controlled by the aging Boomer is even greater.

The combination of today’s happier times at law firms and succession plan shortfalls is an unfortunate mixture, indeed, an insidious brew. As I wrote recently in Five Important Objectives For Law Firms Dealing with the Generational Challenge in Succession Planning, the generational challenges faced by law firms executing on succession plans are both subtle and significant.

The Boomer, having built a practice and reputation through hustle and hard work, may naturally be disinclined to gift it to someone else. Generation X lawyers, tending to be less loyal than earlier generations, may present risks to a plan of succession. Their comfort in moving laterally between firms may temper enthusiasm towards entrusting relationships. And the Millennial, not always motivated to jump onto the partnership track, can be even less suited for a role in succession. To varying degrees, the “Boomer with the book” may find it hard to relate to the up and coming lawyers and thus hesitate on the issue of succession.   Leadership may feel likewise.

These varied interests and motivations of the different generations can be hard to harness towards long-term goals like succession. And it is especially the case when the long-term goal of succession is trumpeted at a time when things are good and most individual partners are focused on their own personal agenda.

For the individual partner, “making hay while the sun shines” is a compelling motivator that subordinates thoughts related to the survivability of the firm as an institution. The “now” mentality also views with suspicion any firm program that contemplates change, like a succession plan would.   If times are good, all three generations may ask, why rock the boat?

In today’s law firm environment, in which a recovery from the Great Recession is being widely enjoyed, what are the 69% of surveyed law firms, the ones currently without a formal succession plan, to do? Although the dilemma is common today, not all firms meeting this profile will address the problem in a timely and sound way. If AW is correct, those that don’t fill the succession vacuum will feel an economic impact-and soon.

In part two of this post, I’ll examine some steps that law firm leaders should pursue today to prepare a succession plan for tomorrow.

 

The Law Firm Lease and Testing Shared Aspirations

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

CommitmentOther than when a firm is being formed, there is no better or more organic time to test a law firm’s continued commitment to one another than when nearing the expiration of an office lease.

Typically, when a firm is formed, two or three or a handful of individuals gravitate to one another, become increasingly aware that they share some combination of values, dreams and aspirations, and form a firm.

Time brings changes — in market and working conditions, and in the individuals. What was once important becomes less critical. What one was looking for when the partnership was formed has shifted. The greater the divide, the more the relationship is stressed. And “stressed” is shorthand for pulling in different directions.

To the extent members of a firm conclude that their aspirations have shifted to a point that it no longer makes sense to practice together, it is prudent to execute the separation in a way that causes the least economic (and other forms of) pain.

The firm’s lease can often be the source of a great deal of economic pain. But it doesn’t have to be.

What does all of this point to?

As a firm nears the end of a lease term on office space — often its largest fixed expense — a partnership has an organic opportunity to pause . . . and assess the degree to which the members of the firm are still on the same page. Does the partnership still share basic hopes and dreams?

Though no one really enjoys conversations that focus on disagreements and differences, a conversation today will help with one of two eventualities: either it will facilitate a discussion around clarifying shared aspirations or, a conclusion that dissolution is a better answer for all involved.

We recommend this process begin no later that 18 months prior to the scheduled lease expiration. The “glue testing” should be conducted with a laser focus on the core of how firm members really feel about the firm, where it is and where it is headed.

An impartial third party can insure that the process is collegial and effective.

One firm that seems to have successfully been through this process is the Dallas based litigation firm Hermes Sargent Bates. The firm, which had been in business for 15 years, has a lease expiring in 2016. As the partners discussed professional and personal goals and objectives, the decision was made to dissolve rather than extend or sign a new lease. According to reports, the members of the firm remain friends and have respect for one another; but the group had simply developed differences with respect to the types of law they want to practice, the types of clients they want to serve, and area of town in which they wanted to sign a new lease.

Having reached this conclusion, the firm seems to be taking an orderly approach to what is, for many firms, a disorganized, angst-filled experience.

What is the degree to which you and your partners are still on one page? Does your firm have the experience to really test the degree of continuing shared aspirations?

No Muss No Fuss Law Firm Closure

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

Growth among law firms generates headlines. Legal publications report on a merger here, a planting of a law firm flag there and the lateral moves of significant practice groups. The thing about growth is that it is a planned exercise-an initiative that is a matter of choice based on strategy. The opposite of growth, a law firm’s forced closure, often garners headlines as well, like the closings of Dewey, Brobeck, Coudert and Howrey, to name a few. Yet many law firm closings go unreported or fall under the radar because they just aren’t that interesting. The unreported (or underreported) law firm closings are, like growth, a matter of choice-in their case usually undertaken when owners simply decide that closing the firm makes more sense than continuing the status quo. For those law firms, closing becomes their strategy.

Law firm closings by choice tend to be quiet affairs. This year alone, three established law firms in Dallas decided to either close entirely or leave the market in order to concentrate elsewhere. Barely a ripple was made or observed. In each instance, the firms chose to close or exit the market as a matter of choice unforced by unforeseen circumstances or crisis. In our experience, when closing becomes a law firm strategy, five things tend to determine whether the strategy is successful:

Discussion Among the Owners is Unemotional.  Successful law firm closures by choice usually grow out of unemotional discussions among law firm owners about their firm’s future. Views are expressed and ideas are exchanged that ask about the law firm’s very existence. The reasons for the law firm’s formation, its historic successes and its recent frustrations and failures are all considered as the firm’s future gets questioned. Unlike law firm discussions that occur when departures or controversy stimulate animus or finger pointing, a discussion amongst owners seeking a “gut-check” about their future together tends to be more clear and rational.

Closing Experience.   The closing of a law firm necessitates the resolution of many issues that are never faced by the law firm operating as a going concern. Having experience in closing a law firm or drawing on professional assistance specializing in closure is extremely valuable. A DIY approach risks taking critical steps out of sequence or missing important steps altogether. As odd as it may seem, most successful law firm closures are not a “first rodeo.”

Advance Planning.   Law firm closing by choice usually involves careful consideration of all the ramifications that go with a closing decision. In those instances when a law firm has embarked on a closing strategy, it likely has time to plan its closing. The absence of crisis can allow the firm time to plan a closure that is both prompt and methodical.

An Impending Deadline Compels a Discussion and Then a Decision. Oftentimes, inertia causes a law firm and its owners to march along without considering whether a continuation is in everyone’s best interests. But when a significant business decision is presented, like entering into a new long-term office lease or appointing a new leader, the owners can take stock of the firm, their relationships with each other and individual desires. A watershed business decision creates a deadline and in many cases successful law firm closures grow out of one being presented.

There is Consensus About the Planned Wind-down. Nothing is worse than a law firm wind-down in which the owners are in disagreement about the objectives, the strategy and the person to be placed in charge. On the other hand, if the owners can be in agreement about how the firm will be wound down until it is dissolved and who is responsible for the plan’s execution, the wind-down can be effective and relatively painless. Obtaining consensus among ownership is not a given but hard work and dialogue can mediate differences of opinion. Even after the wind-down begins, a commitment to cooperate is vital if early consensus is to continue until dissolution is complete.

Each year, many firms face closure decisions, sometimes with little warning. All it takes is for a few owners to ask the fundamental questions about whether the firm should continue. Is your firm, as stable as it is, facing an important decision point about whether it should continue or close? If so, is it likely to respond in a way that would make its closure by choice a success?

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.

Development

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

 

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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.”

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