Managing Law Firms in Transition

Managing Law Firms in Transition

Is Your Law Firm Slipping Into Trouble

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

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

 

The first key to managing the transition of any law firm to a more productive and stable position is the early recognition of a potential problem. In an earlier post, What Caused the Pain, we discussed the fact that a declining market position is almost always indicative of underperformance. The challenge for leadership is to recognize the condition early enough so that decisive action is able to turn the tide.

This begs the question — What are the most common signs that a firm’s position is beginning to slip? Consider these nine.

1. A sudden unanticipated loss of lawyers – We’re not talking about normal “comings-and-goings” here. 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 stronger the signal.

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. While savvy management works hard to avoid the too-many-eggs-in-one-basket syndrome, a portfolio of clients central to success almost always exists. 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 may be shifting in a way that directly impacts your position, or your planning needs some scrutiny. Either is an early warning sign.

4. Increasing turnover in key positions in 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. See Judy Capco’s article on causes of employee turnover.

5. Flattening or declining profits. On one hand, this seems simplistic, if not painfully obvious; on the other, the degree to which profit can, at the same time, be the source of consternation and ignored as a signal of issues is baffling. 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 an early reason for concern.

7. A 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 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. 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 to the firm it is either the sign of a declining market position or an increase in the perception that the firm is in decline. And this perception is, itself, an early 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 take away from our list? Does your firm monitor the early warning signs?

Moving Laterally? – Being Careful is More Important Than Ever

Posted in Law Firm Growth, Law Firm Transition

 Movement of attorneys between law firms is as robust as ever with today’s lateral hiring not just focusing on the hiring of individuals. Firms seeking to fill out capabilities often hire away groups of lawyers in an effort to gain some velocity from their expansion strategy. True mergers, especially when a large firm is eyeing the practice of a smaller firm, are increasingly being replaced by large lateral transactions.

As the recent Law.com article Firms Increasingly Making Partners Pay to Leave points out, however, departing a law firm is becoming increasingly painful. More and more law firms are seeking to stem attrition by requiring sign-on bonus paybacks, reducing or eliminating participation in profits, requiring pay back of compensation “not earned” early in the year, stretching out capital repayment terms and modifying financial benefits even after a firm has been joined. For a workforce used to unfettered free agency, these new obstructions are unwelcome if not surprising.

For any attorney, group of attorneys or small law firm thinking about moving to a new firm, these trends suggest that prior to saying “I do” it is vital to know how the new firm treats its departing lawyers. In particular:

What Are the Terms of Any Financial Inducement? Without a financial inducement to leave, many attorneys will not bolt from their present firm to a new one. So it is not surprising that “sign on” bonuses or other benefits are offered to attract lateral hires. But as the Law.com article notes, more and more of these financial lures come with conditions that trigger a repayment obligation whenever the attorney departs again for a new firm. Before being swayed by the up front “easy money,” the details, especially any obligation to repay, need to be understood.

How Does the Partnership Agreement Deal with Departure? Being excited about the opportunity presented by a new firm is great, but a calm and detached reading of the firm’s partnership agreement is essential. Increasingly such agreements contain provisions that delay the repayment of capital, impose specific procedures and deadlines connected with resignation and speak to repayment of cash related to “sign on” bonuses. To many a departing attorney’s surprise, the dense provisions may also deprive a leaving attorney of year-end distributions or even require repayment of “unearned compensation” which is directly tied to the firm’s profitability on a partner’s departure date. Understanding the nuances of a partnership agreement should occur prior to joining a firm, not once the firm has already been joined, or worse yet, after the resignation letter has been signed.

Is Any Penalty for Leaving Commensurate with Inducement for Coming? If there is a penalty associated with leaving, that penalty should be compared to the benefits to be enjoyed when joining. A new home that will effectively have you in debt on departure had better be worth the cost. If the new firm provides guaranteed compensation, a cost/benefit analysis may ameliorate the negatives of a departure penalty. Or it may not. In any event, careful analysis is required.

Can the Departure of Others Create an Adverse Financial Impact? As true mergers become less common, especially when a large firm swallows a small firm by taking its talent in a mass lateral transfer, the terms of that addition should be understood. If after you join colleagues of yours decide to move on, be sure that their decision to leave does not adversely impact you even though you are happily staying.

How Easily Can the Partnership Agreement Be Amended? Even if your new firm’s partnership agreement seems acceptable respecting your treatment should you ultimately decide to depart, consider whether the partnership agreement can be easily amended. More than one firm has recently adopted more draconian provisions respect the treatment of departing partners in an effort to stabilize the institution. For a new partner faced with a proposed partnership amendment designed to strengthen the institution, speaking out against the new measure many not be the easiest thing in the world.

It is nice to be wanted but when another law firm comes calling some level of caution is a good idea. Besides considering the traditional questions of culture, conflicts and compensation, it is wise to understand how difficult it will be to depart if things don’t work out. With today’s law firms trying to shut the revolving door, will your new home try to bar your exit?

What To Do To Manage Law Firm Turnover

Posted in Law Firm Leadership, Law Firm Transition

 

 

revolving doorThis post was spurred by two recent articles/posts — Biglaw Firms Must Conduct More Layoffs, Before It’s Too Late, and A Law Firm Structure that Avoids Layoffs.

I have written before about the horrific performance of law firms when it comes to retention. Previous posts have discussed the enormous direct cost, indirect cost and human cost associated with attorney turnover.

Fortune 500 companies can maintain turnover rates of 2-3%. Meanwhile, law firms as a whole have averaged around 20% turnover a year for the last several decades.

Think about that. We’re not looking at a single blip on the radar over an extended period of time. For an industry to consistently experience turnover of 1/5th of the talent something must be broken in the hiring process, the management systems or both.

As is implied by the above articles, as law firms see a fluctuation in demand the knee-jerk reaction seems to almost always be to downsize. Then when things pick up we can always re-load.

All businesses — including every one of the Fortune 500 — experience demand fluctuations; but in every sector outside of legal they somehow seem to be able to weather the storm with significantly better retention rates

How And Why?

I believe there are five key reasons for the superior retention in the Fortune 500 vs. law firms. Consider the impact these 5 areas have on turnover:

  1. Companies on Fortune’s list, by and large, know what it takes to be successful in their environment, and they recruit to those characteristics.

The culture of every organization is different; service and production means and standards vary widely. But the organization that knows with specificity what characteristics are reflected in individuals that are successful is in a much better position to do a better job of hiring

As Jim Collins says “First…Get the Right People on the Bus.”

If you aren’t recruiting people that are a great fit to start, odds greatly increase that these individuals will rotate out in the midst of any high-consequence change.

  1. The Fortune list is, for the most part, made up of companies that are run by professional managers

The people that run large non-law firm businesses are seasoned executives. They have come up through the ranks, and developed the ability to make sound long-term decisions…knowing how to count costs (hard and soft), factor ups-and-downs, and manage through volatility.

There has been a bit of an increased focus on management and leadership skills in law firms, but we have a long way to go. It is still fairly common for a Managing Partner’s first management role to be the one she was just elected to.

The impact quality and experienced management could have is still seriously under valued in most law firms.

  1. The well-run business (on or off the Fortune list) invests in retention.

More specifically, the successful business invests significantly in developing and understanding its workforce.

  1. Well-run businesses utilize creative means to staff for peak periods.

The seasoned business executive knows that an “uptick” in demand isn’t necessarily permanent. In order to avoid the myriad costs associated with hiring as if it is, successful businesses make much more extensive use of temporary staffing, seasonal players, outsourcing, and par- time to potential full-time arrangement.

In many situations, law firms would be better served to under-hire permanent attorneys until the demand is demonstrated over a longer period of time.

  1. The “best places to work” know why people leave. . and they build around why people stay.

Exit interviews are essential to understanding why you are losing the people you are losing. A common business practice is to conduct two exit interviews; one while the person is on their way out, and a second as a follow-up exit interview after the person has been gone a few weeks or even a few months.

The follow-up exit interview is valuable for a couple of reasons. One, there is a greater willingness to be frank after a physical separation; and second, it sends a message that you do really care about losing the individual as a member of your team.

I am not saying that downsizing is never the answer. The fact is that , some firms find themselves in a position where there are no other viable options for survival. But, surely we can do much better.

 

Addressing Your Law Firm’s Declining Demand Through Change-Five Considerations

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

Action Changes Things AcronymAlthough pockets of law firms are enjoying increased demand, revenues and profitability, the general news about the industry as a whole is tepid. A recent article by Chris Mondics about law firm financial performance cites a common problem these days of law firms lacking enough work to keep their lawyers busy. The article (drawing on a survey recently completed by Altman Weil) notes an obvious cause of overcapacity by reporting that for many firms pre-Great Recession client demand as not returned.

The annual American Lawyer rankings were published last month and while some elite firms in the Am Law 100 are enjoying top-level performance, most of the firms in the Am Law 200 are less fortunate. To top it all off, the stories of lawyers jumping from one firm to another in search of a “better platform” has contributed to a feeding frenzy that for many firms amounts to a revolving door; in some cases solving few problems but leaving behind challenges to confront.

For the firms seeing a sustained slackening of demand, there is no shortage of ideas on how to combat the problem. More than a few experts question the long-term vitality of the hourly rate model due to waning client interest in perpetuating its perceived inefficiencies. In the face of such questioning, some advisors recommend that firms respond with fixed fees or hybrid rate structures where some payment is conditioned on success. These creative ideas, however, are not for all firms.

Before a law firm replaces its hourly rate model in favor of something new, it is imperative that it introspectively takes stock of its culture, its clients, its people and its short-term and long-term commitments. As it contemplates a new model, it should be inquisitive and ask at least the following five questions:

How engrained is the hourly rate model in your firm? A firm that historically has been completely an hourly rate shop will have the biggest adjustment. In contrast, a firm that has experience with alternative fee structures will adapt more easily. If your firm is more like the former than the latter, the adjustment period will be longer and potentially more difficult. Consider taking it slow.

How well do your attorneys deal with change? Attorneys often do not do well with change. Taking away the hourly model can take away a lawyer’s security blanket. It is important to recognize the difficulty that many attorneys will experience and develop ways to assuage their discomfort.

Can your attorneys deal with a little (or a lot of) income volatility? In a firm traditionally using the hourly rate model, gross revenue variability often was a function of billable hours booked and bills collected. Aggressive expense management and rate increases often addressed any softness in those numbers. Some of these tools may be unavailable if alternative models are adopted. Until a firm gains experience with new models, revenue volatility gets translated to income volatility. Can your attorneys and your firm weather that kind of uncertainty?

Is the proposed change something your clients will embrace? Presumably, many of the firm’s clients will gladly accept an approach that provides greater fee certainty and aligns the law firm’s interests with theirs. But whenever fundamental change is contemplated, it is important to be certain that the proposed change is something clients will embrace. Doing your client centered research is critical.

How strong and deep is your firm’s expertise? In the end, a firm’s reputation and expertise is what will help it weather radical change. A strong reputation and renowned expertise will attract clients regardless of the fee model, but a fee model attuned to clients’ interests will convert that attraction into greater client demand. If the lure of your firm’s reputation and expertise is slight, the conversion from one model to another may not be a panacea.

If demand is down at your law firm, it is a problem in search of a solution. One solution is to move away from the hourly rate model. But finding a solution is more than adopting the latest trend. The right remedy depends on your culture, your people, your clients and your areas of strength. If you are tackling the decline in demand, are you asking the right questions?

Practicality and Law Firm Strategy

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

business-strategyI was very encouraged by a recent Bloomberg article regarding Katten Muchin Rosenman. The piece describes the strategic priorities of Roger Furey, the newly-named chair of the firm. The three top priorities are:

  • Getting the word out regarding the firm’s reputation. Reportedly, the firm has an excellent reputation with existing clients and the goal is to make the broader market more aware of this.
  • Determine what the firm’s clients view as their needs. As is the case with all firms (or for that matter, any service related business), understanding the needs of clients —   learning directly from them about what they are thinking and what they need — will allow the firm to better serve them (and when done properly, almost always result in organic growth).
  • Attorney development. The firm intends to better use its more senior lawyers to enhance the capabilities of its more junior lawyers.

 

There is a lot to like about what this new managing partner is doing; but there are four things in particular that  I love about this strategy.

 

  • It is Achievable – Exotic, industry conquering objectives can be exciting but are often unrealistic. Goals that aren’t achievable can be more destructive than no goals at all. Outlining a series of objectives that are realized helps build a foundation of confidence and trust. And from here more aggressive objectives can be addressed.
  • It engages clients and attorneys – Attorneys and clients are the obvious life blood of any law firm. Strategic priorities that get both involved in advancing the firm’s strength is a recipe for success.
  • It provides clear direction – The Katten priorities provide guidance as to where the firm will focus and where it intends to invest resources. The priorities say the firm is going to be about enhancing its reputation through deeper service relationships with clients; and that it intends to accomplish this by listening to the clients, understanding their needs, and developing enhanced capabilities aligned with these needs.
  • It is Positive – This simple set of priorities creates a strategy that is easy to rally around. It is easily understood, easy to believe in and feel good about.

 

During these times where reports of law firm struggles continue to dominate the news, I found this article encouraging.

 

Does your firm’s strategy provide positive direction and is it achievable?

 

Hiring Ross As Your New Associate-Five Additional Steps for Law Firm Innovation

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

Business as usualThe march of change and innovation in the legal services industry continues.  Last week it was reported that Baker Hostetler has licensed “Ross” for its bankruptcy group. Baker Hostetler’s decision to use the Ross Intelligence artificial intelligence product to perform some of the basic functions traditionally the role of associates is innovative and signals change.

Some of the industry’s change and innovation is even slaying a few sacred cows.  A recent article/post by Scott Forman about “unbundling” legal services notes the dramatic change to the “one-stop shopping” model that so many firms have sworn by for years.  Unbundling means giving up inefficient elements of a law firm’s practice or innovating that practice to obtain efficiency-all in the name of client service.

Change and innovation, whether by adopting artificial intelligence or unbundling services, should no longer be viewed as groundbreaking but as a must.  The 2016 report from the Georgetown Law Center for the Study of the Legal Profession notes the systemic change being experienced in today’s legal services market.  The report observes that clients control legal services like never before, law firms’ share of the legal services market is declining and clients are keeping more legal work and doing it in house.  Responding through innovation, whether by turning to artificial intelligence, an unbundling legal service, or taking other action, is essential to remaining relevant.

For law firms seeking to avoid obsolescence through innovation and change, at least five steps should be considered:

Make Innovation a Firm Wide Mandate.  Change at law firms is hard.  Many new timers and old timers alike will bristle at abandoning the tried and true approach to law in favor of a new way.  So before new ideas are proposed or change threatened, law firm leadership should spend significant time changing the culture through educating the ownership about the new normal and the dangers faced.  An educated ownership becomes an ally, a font of ideas and drives the firm towards a more client-centered approach to law practice.  Make the owners own the change.

Rethink the Economics.  In the future legal work will be less labor intensive and clients will expect results based on an economic model other than the billable hour.  Building a non-billable hour economic model that is client responsive yet profitable should not only be a goal but also an imperative.  Creatively pricing legal services will become more important.

Reallocate Firm Investment.  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 use.  An incoming associate class may give way, at least partially, to an incoming tech class of which only some may be trained as lawyers.  Young lawyers with a start up mentality motivated to think about better or more efficient ways to do things could prove very beneficial.

Change the Human Resource Management.  Even in a world that includes Ross, good people will still be needed to deliver good legal services.  But human resource management will rely more heavily on contract lawyers (or their equivalent) and short-term outside services.  Whether the legal profession becomes truly “uberized” is subject to debate, but the underpinnings of the Uber model and client expectations will move the profession away from long-term personnel decisions and towards managing fluctuating demand by short-term hires.

Diversify.  If alternative legal service providers are making inroads and taking market share, think about joining the trend. More than a few firms have taken this approach by segregating into other business units labor intensive activities like document production.  By doing so they have delivered lower cost services on commoditized work rather than see that work or the client go elsewhere.  For the most part, there is no reason a regular law firm cannot provide alternative legal services if well thought out.

Ross joining Baker Hostetler is not as revolutionary as it may seem.  For some time now client expectations of better value and efficiency from its lawyers has furthered innovation in a profession generally slow to change.  Is your firm keeping pace?

 

Slowing the Law Firm Churn

Posted in Law Firm Growth, Law Firm Leadership, Uncategorized

Recently, I was asked if I was going to fire an employee who made a mistake that cost the company $600,000. No, I replied, I just spent $600,000 training him. Why would I want somebody to hire his experience?                THOMAS J. WATSON SR.

I Quit

How many lawyers have you watched move from one firm to another in the past year?  “The churn” as it has come to be known has become commonplace in the legal profession.

According to numerous reports, the average firm loses 20% of its associates per year.  And this is not a new phenomenon. This statistic seem to be relatively consistent for periods before and after the economic downturn.

The cost of the attrition, whether measured in terms of the bottom line or raw human drama, is extraordinary.  In term of dollars, on average, it costs law firms $200,000 plus to recruit, hire, train and replace the average associate. Compare this to the well run corporation, where turnover averages  2-3%.

The picture for partners isn’t any prettier. This article, by Michael Allen of Lateral Link, reports 2,000 to 3,000 lateral moves per year over at 5 year period. How successful have these moves been?  In short it is horribly unsuccessful. According to this post, a third of lateral partners leave their new home (for one reason or another) within three years. Almost half leave within five years.

The Reason For The Churn

There are a number of suggestions as to the root cause of such a high rate of attrition among law firms. These include:

  • The economy
  • Poor hiring practices
  • Overselling of individual value
  • Lawyers as managers
  • Overly aggressive recruiting from search firms

I’d like to suggest that something else is at play.

A Closer Look at Partner and Associate Attrition

I hear many law firm leaders talk as if they have come to terms with extraordinary attrition  as a “fact of life.”  The bottom-line cost, as well as the drain on productivity and the psyche of the firm are accepted as part of doing business.

But in a marketplace that has seen more than 10,000 partner moves in 5 years and an even greater number of displaced associates, are we really willing to accept this as a function of working in the legal industry? We certainly should not be satisfied to simply chalk it up to being a price of running a law firm.

Something is fundamentally wrong and I’d like to suggest something else is at play…..

The churn is the predictable and natural byproduct of a conflict between the direction and goals of a firm on one hand, and the career aspirations of an individual lawyer on the other.

Some may suggest that the right set of handcuffs would slow the rate of movement, and minimize its cost, but does any firm really want to build barriers that bind dissatisfied lawyers?  This approach doesn’t work with trade tariffs, and it won’t promote the creation of successful, stable law firms.

A more practical approach begins with management  acknowledging and understanding just how critical career aspirations are when it comes to determining an individual lawyer’s long-term fit in a partnership.

It is this simple: attentiveness to the things the majority of your lawyers value most will breed stability and provide a solid foundation for growth. A recruiting process – associate and lateral – that begins with a clear understanding of the firm’s common values and shared aspirations is one of the basic building blocks of stability. Firms that begin here are on the road to less waste and greater retention.

That said, in any enterprise there will be individuals whose professional desires are in conflict with the organization. Smart leaders in healthy organizations strive to identify a mismatch, and facilitate an orderly transition that fosters a collegial relationship and potential referral source.

How about this for a point of discussion: is it possible for  today’s law firm to grow an organization around common values and shared aspirations?  And will this speak to the incredible rate of partner movement, and reverse the churn game?

Law Firm Merger-Four Rules to Follow

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

Mergers between law firms garner headlines. Just last week, Kansas City’s Husch Blackwell was in the news when it announced that it was merging with Whyte Hirschboeck Dudek S.C., a Wisconsin based business and litigation firm. The merger comes less than year after Husch Blackwell’s Chairman Maurice Watson described the firm’s newly adopted strategy of focusing on six economy segments that it can better serve as industry subject matter experts.

Under this new strategy, Husch Blackwell is moving away from being a firm of “generalists” to becoming a firm demonstrating industry sector expertise in the health care, energy and natural resources, financial services, construction, food and agribusiness, and technology and manufacturing industries. The plan takes a fresh look on the legal services market and identifies a path to success through differentiation.

If Husch Blackwell’s merger with Whyte Hirschboeck Dudek is in furtherance of the industry-focused approach, it could be a smart move because the merger would be one that seeks to execute the vision of the firm.   If the merger is not predicated on implementing the firm’s “differentiation” strategy, its wisdom is suspect and it may amount to growth for growth’s sake. Right now, however, only Husch Blackwell knows the motives behind the combination and, in turn, its prospects for success.

But every time a merger is announced, it brings to mind the fact that only about fifty percent of them succeed. To improve the odds, there are at least four rules merging law firms should follow:

Further a Strategy Other than Growth. In most cases, growth is not a strategy but should be a tactic in furtherance of a thoughtful plan. Having a strategy for the long-term improvement of the firm that is enhanced by growth can be very successful. But if a merger results from simply being “opportunistic,” the outcome may be less than helpful to the long-term health of the firm. Merger or other combination should only be pursued if those growth tactics are consistent with a strategy that is not focused on growth.

Blend Two Firms that are Compatible. Too often firms are combined because outwardly they seem to be a good fit. But truly drilling down on compatibility involves comparing the two firms’ cultures, finances, clients, compensation and operations. If any of these five areas are not symbiotic, a closer look at pursuing the combination is required. While complete compatibility may not exist in every case, misfires should be kept to a minimum and a plan should be developed to forge the new firm into a harmonious whole. If a compatibility analysis shows too much dissimilarity, the firms would be wise to walk away.

Have an Integration Plan. As a combination heads towards closing, it is essential that serious thought be dedicated to developing an integration plan for the two firms. The integration plan should be a product of both firm’s input and should draw on leadership from both sides for its implementation. Full buy-in from the rank and file should be the goal. Upon closing, the integration plan needs to hit high gear with the support of leadership. There is no time to waste.

Have a Follow-on Plan. The consummation of a merger or other combination does not mean the firm can rest. While it should be in the midst of implementing its integration plan right after closing, it should do more. The firm must develop a strategy that leverages the excitement and goodwill engendered by the transaction so that momentum from the combination is not lost. Too often the merger process is so exhausting that little gets done post-closing to maximize the new firm’s prospects.

The idea of merger can gain support at some firms these days because it represents dynamic action that may offer a solution to a problem or an antidote to law firm malaise. Without careful thought, however, a merger is neither a solution nor an antidote. If your firm is thinking about merger, will it follow the four rules described above?

What is a Law Partner

Posted in Law Firm Growth, Law Firm Leadership

Another year and more turmoil in the legal industry!partnership

Although the improving economy has led to improved performance for some law firms, for many (most?) the disruptions in the legal industry continue to create serious challenges. As firms continue to search for a path back to health, there will almost certainly be an unfortunate number of partner terminations and demotions.

In far too many cases the effected partner is surprised.

In a conversation with Larry, a successful lawyer I once worked with, asked, “In managing law firm performance, how do we manage performance cycles, while honoring a culture that values the individual? We all talk about loyalty and being partners; but the concept of removal or demotion seems directly at odds with those bedrock concepts.”

Larry has put his finger on the heart of the issue – a pivotal point that, in my view, warrants some consideration. In pondering Larry’s observation, a fundamental question dawned on me — exactly what is a partner?

Unfortunately most law firms have not made partner a defined term, leaving it to individual and inconsistent interpretations. Certainly many firms have defined specific characteristics necessary for promotion from associate to the partner ranks. Some firms specify at what age you must retire from being a partner. But what I am talking about is a carefully thought through definition of exactly what it means to be a partner during the 30-40 years between these two points!

Let’s look at the spectrum of possibilities. At one end you have the firm with high standards for conduct and performance, and little tolerance for variation from those standards. At the other end we have the firm that operates with a philosophy of once-a-partner-always-a-partner, no matter the conduct or level of performance. Obviously, there is a universe between these two extremes.

My point is not that there is a universally applicable combination of factors that is right for every firm; rather that it is essential that each firm define what “partner” means for that firm.

Defining expected conduct and performance would:

  • Dramatically improve the odds that the firm will achieve the collective aspirations of its partners; and,
  • Provide a fair means of assessing individual partners.

I believe the degree of a firm’s success will be directly tied to two issues that stem from defining what it means to be partner.

First, the longer you allow the lack of definition to exist, the more varied the conduct and performance of the Partners will become over time, threatening the competitive position of the firm.

Second, once you have defined what partner means, the firm’s management must demonstrate the resolve to manage performance to that definition. To not follow through violates a basic contract with the partners, undermines confidence in management, and threatens the long-term health of the organization.

The clear definition, communication and observation of what it means to be a partner will unify and strengthen a firm’s position in today’s turbulent market, and help maintain stability and strength in the pursuit of tomorrow’s goals.

Exactly how does your firm define Partner?

Boomer Law Firms: Some Demographic Challenges

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

Ward Bower’s Existential Threats to Law Firms provides an excellent review about a few of the economic and demographic issues that threaten today’s law firms. As Mr. Bower notes, some of the law firms previously fixtures in league tables and in the AmLaw 200 have either failed, been acquired or otherwise have disappeared from view-all because economic and/or demographic issues had a significant impact.

The five issues or “existential threats” are easy to understand thanks to the clarity of Mr. Bower’s article. Too much long-term bank debt at a law firm can cause earnings to erode and contributors depart. An expiring lease is another threat, causing landlords to demand partner guarantees prior to any new lease being offered. If the landlord’s demand cannot be resolved favorably, the law firm’s partners may disperse.

A particularly insidious third threat exists when a law firm has unfunded retirement obligations. Like the bank debt, the unfunded retirement obligations can eat into earnings causing younger partners to depart. Today’s competitive lateral hiring environment yields yet a fourth threat. Firms that lured laterals with minimum income guarantees may be more financially stressed, especially if the hires have been lackluster.

Finally, the lack of succession planning threatens many firms because boomer leadership may retire, die or become disabled. Without an experienced hand ready for the tiller, the good ship law firm can easily run aground.

Mr. Bower warns that the presence of any of the five issues can leave a firm at considerable risk. His admonition that today’s law firm leadership takes heed is well placed. Yet firms receiving a clean report card on the five existential threats may still face risk due to the aging of today’s law firms. Three demographically based challenges, tangentially touching on Mr. Bower’s existential threats, are discussed below:

Expiring Leases. Mr. Bower’s focus on landlords demanding lease guarantees is spot on. A standoff between the law firm and the landlord could lead to partners throwing in the towel and winding up their firm. But even if no guarantee is demanded, the advent of a terminating lease can cause partner reflection that leads to some of them deciding to go their separate ways. When facing another 10 years with partners no longer as symbiotic as they were 10 years earlier, some may decide to not re-up. A fracturing of the law firm can result thus leading to its demise.

Retirement. Mr. Bower’s article highlights how unfunded retirement obligations can sap a firm economically, causing instability, departures and then the end of the firm. But even if a firm does not have an unfunded retirement obligation, it may have productive boomer lawyers facing a life crossroads. These lawyers may be less concerned about the financial burden of an unfunded retirement obligation and more interested in having a retirement benefit itself. While younger partners may be pleased that the firm is free from an unfunded retirement obligation, the boomer lawyers may wish their firm had a retirement plan providing more financial security for their latter years. Those thoughts about retirement on the horizon can stimulate departures by critically important partners looking to supplement a nest egg. For smaller firms that can’t easily endure the departure of significant economic contributors, the lack of a non-qualified retirement plan may cause wanderlust, departures and then crisis.

Guaranteed Income for a Laterally Hired Partner. While a firm may feel very good about not having offered guaranteed incomes to lateral hires, that same firm’s legacy rainmakers may be lured away by that exact kind of unwise inducement. In a legal services market in which self-interest fuels lateral movement, no firm is free from the risk that its most productive lawyers, including those from the loyal boomer generation, will leave for greener (as in money) pastures. So even if a firm has avoided the questionable practice of guaranteeing income for laterals, its best partners may have their heads turned (see Retirement, above) by firms not so disciplined. In today’s market, all firms are at risk of losing their most valuable assets.

Many law firms are blessed with productive lawyers from the boomer generation. But how many of those firms can afford to see those same lawyers decamp for another firm? What has your firm done to guard against that happening? Is it prepared in the event boomer partners say adios?

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