Managing Law Firms in Transition

Managing Law Firms in Transition

Law Firm Succession – Does Your Firm Care Enough

Posted in Law Firm Leadership, Law Firm Succession

 

Succession planning isn’t for everyone. If your law firm doesn’t have interest in long-term, multi-generational, viability (never mind the whole idea of legacy, which seems increasingly out of vogue) then this post isn’t really for you.

It should be acknowledged that a firm doesn’t have to transition from one generation to the next if its owners/partners have no desire to see the partnership live on. In fact, 70% of all law firms don’t make it beyond the first generation.

As a matter of record the profession does not have a great track record when it comes to planning for the future generally — much less, a well thought out roadmap for dealing with critical issues or navigating transitional challenges. Surveys consistently indicate that less than 10% of law firms have anything that approximates a documented succession plan in place.

The only viable conclusion is that succession simply isn’t very important to us.

Too harsh? Think about it. Virtually everyone reading this post will readily agree that in life we rarely accomplish anything we did not set out to accomplish.

Transitioning a law firm from one generation to the next is no exception.

It is arguable that there was a time in the legal profession when a reputation for excellence, or long-standing institutional clients, or even the fabric of a partnership was enough to somehow ensure, or at least facilitate succession. But I would suggest that day is gone. Clients drive a different conversation. The marketplace is definitively different. And law firms face transitional challenges on what can seem like an almost daily basis — not the least of which is that the young lawyers in your firm have their own set of goals and aspirations.

(In fact, the young lawyers in your firm are already talking about your firm’s succession plan…and evaluating career their options based on what they see.)

If you’re really serious about building a firm that moves from the founders to successive generations, it may be time for you to appropriately address how you hope to make that happen.

Planning for transition isn’t easy… But most lawyers I know love to tackle difficult problems. Deciding it is an issue that warrants the focus the most difficult part of the challenge.

Once you’ve decided to focus, an effective plan will tackle some admittedly significant questions. Among them, compensation, client control (or more accurately, relationship management — the client is the one in control), talent assessment, and the mentoring and cultivation of future leaders.

But not one of these issues is insurmountable…if succession is truly a priority.

For those that care significantly about successful transition the time to start the process is now.

Small Law Firms and Rough Seas-Navigating the Years Ahead

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

As December ends and January dawns, report cards on the legal profession are issued and crystal balls are studied. This year is no different with many articles offering assessments of the industry’s current state and its prospects.

Two pieces recently written about the industry’s present and the future are worth review. Mark A. Cohen’s Something’s Gotta Give: Partner Profit Rises While Law Firm Market Share Declines for Forbes takes stock of the prevailing state of the law firm market and some of the challenges faced.   He notes Big Law’s penchant for dealing with disruption by turning to short-term remedies that tend to not address the real challenges faced. One thing Cohen observes is that the “fixes” in the Big Law toolbox tend to focus on maximizing the value proposition for the law firm partners instead of the client.

Elizabeth Owens’ With Competition Fierce, Even Elite Law Firms Resort to the Unusual written for The New York Times is a good compliment to the article written by Mr. Cohen. In her article, Ms. Owens writes about Big Law’s willingness to “think outside the box” as competition mounts. For the most part, the creativity Ms. Owens details seeks to preserve firms’ financial health. For those firms that are successful, higher profits per partner, market share and increased size can result. But of the law firms resorting to the unusual, few appear focused on altering their business model fundamentals to drive a better value proposition for clients.

The articles by Cohen and Owens focus on Big Law and don’t posit whether smaller concerns, law firms outside the Am Law 100, likewise face similar challenges. Lest there be any confusion, the answer is a resounding yes.

Indeed, the very challenges faced by Big Law today discussed in the Cohen and Owens articles, promise rough seas for Big Law’s smaller brethren. If not noticed already, smaller firms will feel the consequences in at least five ways:

More Swimming Downstream. The competition among major law firms is fierce and driving an all-out war for market share. As legal work for the super large law firms becomes scarcer, those same firms will be willing to swim downstream in search of the legal work they previously eschewed. A domino effect will ensue and firms raided will have no choice but to act similarly by seeking legal opportunities among client classes previously not attractive. Trickle down supply and demand will result in the smaller law firm’s relationships coming under constant assault.

Dissatisfaction with the Law Firm Value Proposition Will Spread. Increasingly, clients are consumers who are conditioned by their experience with an economy in which efficiency and competitive pricing are but a few clicks away on a mobile device. Billing by the hour will not only become less acceptable, but it will seem illogical and anachronistic by the clients firms seek to court. Tinkering to improve the financial health of the law firm will not seem relevant to the most important party-the client. They will want value. Firms that can’t deliver value will struggle.

Alternative Providers’ Value Offering Will Spread. Right now alternative service providers are impacting larger firms the greatest. But as these non-traditional providers gain more experience and refine their processes and technology, they will find ways to touch upon the small law firm portions of the market largely immune from their reach. Advances in processes and technology will make their offerings scalable. The pain being felt today by large law firms will soon be shared with all law firms.

Band-Aids Won’t Stop the Bleeding. Much of the actions taken by large law firms in this disrupted market are designed for the short-term. If law firm financial metrics are down in a given year, steps often are taken to change the variables in the calculations behind some important metrics, but little typically is done to address the root cause of the problem-a broken model. Yet most large law firms are loathe altering the way business is done. Law firms of a smaller scale, usually more nimble, should not make the same mistake.

The Efficacy of In House Competition Will Develop. Client legal departments, relying on processes and technology heretofore unavailable, will become more efficient and effective. The legal services provided in house will be in sync with the client’s mission, value needs, and business philosophy. As that happens fewer clients will need law firms (or even, perhaps, alternative service providers) to solve their issues. Thinking like an in house lawyer that delivers results without the severity of outside law firm costs will become important.

Many large law firms are reacting to disruption-often by looking inward. Today’s smaller firms face or will face many of the same challenges. If you are at a smaller firm, will your firm look inward or take a client-centered approach?

 

Will 2017 Bring You a Stronger Law Firm?

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

iStock_000013760109SmallAs we enter the New Year, chances are good you’re dealing with a predictable slate of demands on your time: setting compensation and budgets; managing details associated with the latest departure; and interviewing this week’s lateral prospect. All important activities, and worthy of serious attention; but none of these is likely to make the firm fundamentally stronger, and better positioned to compete.

May I suggest something to spend a little time on that does stand a chance of making a real difference? Something that has a shot at making your firm better and stronger?

Spend some time really wrestling with this question: “What one thing if accomplished this year will leave us a healthier, happier firm — better positioned to compete in 2017?”

My wife recently read, The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results, by Keller and Papasan. The premise of the book is that we all face a tremendous number of distractions and demands on our time, most of which make no difference in our lives.

But if we take the time necessary to determine the most important thing to accomplish today, this week or this year, we can make a difference that really matters.

This isn’t a particularly complex concept; but it is one that far too few law firms (or individuals for that matter) seriously consider…much less, actually execute.

If you are in a law firm that doesn’t have a strong culture of planning, start by gathering the senior members of your firm for a discussion about the “one thing.” The dynamics will surprise you. Agree that you won’t be distracted…that you won’t attempt to solve every issue…but you’ll focus on one thing.

Agreeing on the “one thing” is more than half of the battle; but you will still have to execute. Things are more likely to really happen with some accountability built into action items. I recommend a regularly scheduled monthly meeting with your partners during which progress towards the “one thing” is discussed.

With these simple tools,you and your partners can take a giant step toward being in a different place when you take stock of 2016, and plan for next year.

What do you think?

Law Firm Departures 2016/2017: A Likely Source of Disputes

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

(As many law firms see their fiscal year close simultaneously with the calendar year-end, the risk of partner departures rise.  The lessons identified in the March 2015 blog Law Firm Departures: A Likely Source of Disputes have not lost their relevance as 2016 closes and 2017 begins.  That blog is reprinted here in its entirely)

Most law firms approach their practices optimistically-with a kind of “glass is half-full” outlook. Getting business, building client relationships and creating a brand typically are a firm’s focus rather than thinking about failure or disaster. That is especially so when law firms form. Future developments like mass departures or dissolution usually do not enter into the discussions at inception. Inevitably, when those transitional events occur the thorny issues that can arise, some of which could never have been predicted, finally receive the attention required.

A recent law firm dispute in the news was sparked when a group of lawyers from Nelson Brown Hamilton & Krekstein of Pennsylvania picked up and left. The controversy surrounding their departures demonstrates that disputes can take any form. As is usually the case, a number of the lawyers leaving took with them various client matters. While there is nothing particularly remarkable about lawyers leaving and clients following, the dispute has focused on the fact that the departing lawyers left with laptops and their former firm cried foul. The dispute touches on numerous issues, including the possible violation of the Computer Fraud and Abuse Act, and even though resolution by mediation was been attempted, it remains unresolved.

As the dispute involving Nelson Brown shows, predicting and/or pre-planning for every kind of controversy is an impossible task. Nonetheless, history has shown that in many cases disputes arising from transition have common origins or are traceable to things that are present in every law firm. How a law firm and its departed attorneys deal with these things can be the difference between a smooth transition for all concerned, or a dispute that distracts both sides from the goals of getting business, building client relationships and maintaining or building a brand. Any law firm facing transition caused by departure will experience a favorable or unfavorable outcome depending on how it fares in these four key areas:

Partnership Rights and Obligations. Clarity in a partnership agreement (or shareholder’s agreement) can be critical to a smooth transition. Moreover, if the agreement philosophically seeks to minimize partner claims against the law firm, disputes that arise tend to resolve quickly. Experience tells us that the more recent an agreement has been drafted, the more likely its provisions will follow state-of-the-art trends designed to favor the law firm. If your applicable agreement is simply basic or dated, a revision may be in order.

Client Obligations. Because clients are the life-blood of all law firms and their lawyers, it is not surprising that departing lawyers try to take clients and their former firms try to keep them. Because clients almost always have absolute discretion regarding who will be their lawyer, client retention is mostly a matter of client choice. If a client leaves after having made a reasonable attempt at retention, move on or try to win it back when the next opportunity arises. But don’t put the client in the middle of any dispute.

Ethical Considerations. Fighting with a former attorney over obligations may be justified-after all being a lawyer does not immunize one from fulfilling contractual or fiduciary duties. But disputes can get out of control when the combatants lose sight of their respective ethical obligations, especially when fighting over a client. Many disputes are prolonged because ethical concerns are forgotten.

Emotions. Too many disputes are fueled by emotion and start out or grow to be irrational. In many instances, far too much money and human capital is spent in the controversy before a sense of proportion prevails. Enlisting someone early in the fight to objectively assess or mediate the dispute can save the parties not only a lot of money, but a lot of angst as well.

Law firm departures can conjure up many reactions. In far too many instances the reactions lead to disputes that seldom end with total victory for one side. Firms with foresight and sound judgment tackle the key areas that foment ill will, seek to resolve them quickly and then try to move on. Do you think there is a better approach?

How Do You Measure Successful Law Firm Growth?

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Merger

 

I have shared numerous posts focusing on the dismal performance associated with non-organic law firm growth — that is, growth achieved through merger or lateral hiring. An excellent recent post by Eric Dewey, has prompted me to focus on a critical aspect of the lateral/merger conversation.

Peter Drucker, (credited as the founder of modern management) said, “if you can’t (or don’t) measure it, you can’t manage it,” and that is what this post is all about.

There are two distinct parts to a productive discussion on this topic:

  • strategy metrics; and,
  • performance metrics

Strategic Hiring Metrics

First it must be said — growth is not a strategy. It may be a means to achieving a strategic objective. But the idea characterized by some as simply being “opportunistic” is little more than an excuse for taking actions for which there was no specified link to a strategic plan.

A strategy is a means to a specified end. In the strategic organization, a strategy is supported by a series of steps or initiatives (the infamous Strategic Plan) that move the firm in a calculated way, down the path towards realizing a desired future state.

So, as it pertains to lateral hiring or mergers, the process begins with specifically defining the type(s) of capabilities the firm seeks to add. Acquisitions or hires that are the culmination of a targeted effort is a strategic hire. One-off hires that can’t be traced to a specific plan are not.

At the end of each year firms should evaluate the percentage of lateral hires or mergers that meet this strategic test. To the extent the percentage is less than 100% a discussion to determine what must be done to increase the success rate seems appropriate..

Lateral/Merger Performance Metrics

Without respect to whether an individual acquisition transaction was strategic (as defined above) one would still hope that each transaction delivers on realistic expectations. To know this you must have defined expectations in advance..

In the case of lateral hiring, expectations normally relate to the addition of specific levels of revenue associated with specific clients. Prior to or as part of signing an offer of employment, those expectations should be detailed and acknowledged by both parties.

As is the case with the strategic growth metric, the degree to which lateral hiring expectations are met must be monitored and discussed as part of improving your success rate associated with lateral hiring.

Merger performance tracking should be similar to lateral performance tracking. Expectations should be defined in advance and tracked.

The Dewey post referred to above provides some thoughts regarding some mechanics that will decrease the probability of an unfortunate surprise.

 

Fail to measure growth initiatives and you can expect to continue to experience the same level of success…or disappointment. On the other hand, monitor metrics that are the outgrowth of strategic planning and the smart organization will get better with each transaction.

Improving Your Law Firm’s Growth Prospects-The Importance of Discipline

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

 

For many law firms client expectations, increased competition (from traditional and non-traditional sources) and unreliable demand present formidable challenges. These challenges can be compounded as a firm’s senior lawyers age and succession gets added to a firm’s “to do” list.

Some firms have responded to these issues by growing through lateral hiring or merger initiatives. Hoped for market share gains and new blood can drive a firm towards a growth strategy.

The growth solution doesn’t always turn out well. Anecdotal evidence of lateral hiring or merger shortcomings is prevalent. Now, a study from ALM Legal Intelligence reports on survey results confirming suspicions that many firms do a poor job of executing on their lateral hiring strategies. Add to the ALM report the oft-cited statistic that only about fifty percent of mergers are “successful,” and one has to wonder whether pursuing law firm growth makes sense at all.

Done correctly and with discipline, law firm growth can leverage a firm to new heights. No doubt lateral hiring can be risky as the bidding gets out of hand and out-sized compensation guarantees and outsized expectations arrive. Merger likewise can prove inadequate for numerous reasons, including because “synergies” are overstated or otherwise can’t be realized. When lateral hiring and mergers go thud, it often can be traced to due diligence failure.

Using growth effectively to resolve transitional issues requires discipline. Five ways to achieve that discipline include:

Develop a Methodical Approach Prior to Getting Started. Careful pre-deal planning followed by meticulous execution can deliver a focus that is vital when laterals are considered or mergers pursued. ALM Legal Intelligence recommends a three-part process: develop a candidate profile, collect candidate data and use a scorecard.   Whether following ALM’s suggestion or not, the key is to develop a plan untethered to emotion and stick to it.

Know Your “Choke-Point.” Part of being disciplined in lateral hiring and doing mergers is to know the point beyond which a deal no longer makes sense. Establishing that “choke point” prior to getting immersed in a deal is very important. Once reached in the deal give and take, go no further. If the deal does not come back around to acceptable terms, discipline says the deal should be dead.

Separate Functions. Lateral hiring and merger talks can be part sale job and part negotiation. The persons involved in those activities should be nowhere near the due diligence evaluation. Keeping the functions separate helps avoid judgment becoming cloudy or unduly influenced.

Use Experts. Think like a client and get the most talented and critical thinking person running due diligence. If that person is at the firm, he or she will be a huge asset. If a firm is new to doing deals or its bench does not include an expert at sniffing out puffed up candidates, it should venture outside the firm and find advisors that can critically test the proposed deal. A good law firm advisor familiar with deal due diligence can help a firm avoid a financial loss that can be many times the fees charged.

Don’t Be Afraid to Walk Away. The essence of discipline is to be willing to decline a deal even it deal momentum is pushing it to the finish line. A deal that does not meet all the criteria identified at the outset of the initiative is probably not worth doing. No matter the time and money invested in pursuing a prey be prepared to walk away.

Growing a law firm to address strategic imperatives can succeed if pursued with discipline. A lack of discipline risks bad results that can take years to correct. If your firm is thinking about pursuing lateral additions or even a merger, will it have the discipline to make it a success?

8 Keys to Defining Successful Law Firm Merger Targets

Posted in Law Firm Merger

 

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Often the conversation goes like this – “Hey Roger, we received a call from the firm of Smith and Jones. They are a pretty successful firm based in Timbuktu and they are interested in expanding here. They think we would be a perfect fit. Can your firm help us look at this opportunity?

First, let there be no doubt — we are thankful for every one of these calls. Far too often, when we ask whether this firm measures up to their definition of a good merger partner, the answer is something like, “we haven’t really thought about a specific type of firm.”

A couple weeks ago we discussed the importance of integration planning in achieving success in the dangerous waters of law firm mergers. Today we want to talk about another key to merger success — the creation of a Target Profile.

The law firm market is absolutely obsessed with mergers. If your firm has concluded that some type of combination is the best (or only) way you’ll achieve your objectives, there are scores of firms that would love to talk to you.

Sadly, the track record of, when it comes to law firm mergers and long-term success is . . . well, to say it is dismal is to putting it mildly.

The odds of selecting a firm that is a “best fit” are highly unlikely if you haven’t taken the time, in advance, to define what a “best fit” for your firm looks like.

The elements of the target profile will vary from firm to firm. That said, here are some factors to consider when you’re considering the idea of a merger.

  • Culture and values — the standards for the way individuals will relate to and work with each other.

 

  • Client types — the nature of the work you want to do, and the individuals / companies you want to work with.

 

  • Practice mix — the specific set of capabilities essential to building the practice you envision.

 

  • Size — is bigger better? Are you looking to become part of a much bigger organization, is a merger of equals your ideal strategy or are you really seeking an acquisition in which your firm maintains control?

 

  • Financial characteristics — this is the stuff of business…profitability, productivity, debt and rates…and without compatibility here, the likelihood of success is greatly diminished.

 

  • Compensation system –a system that is consistent with your firm’s culture is essential to “key partner” retention post merger.

 

  • Type of firm governance — will decisions be by way of consensus…or will decision-making be delegated to a select group?

 

  • Geography — what locations support the nature of practices, specific capabilities and size you believe serves the interests of the partnership?

Without a pre-defined Target Profile for a prospective merger partners it is impossible to know if conversations with specific firms should be had!

 

 

 

Avoiding the Unplanned Law Firm Closure-Five Steps Every Law Firm Should Take

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

As the calendar year comes to a close, there is a lot to do at most law firms. Activities like collecting bills, distributing profits and casting next year’s budget can occupy many a leadership team. The tasks at hand can be time consuming and all engrossing. Given the importance of these short-term issues, thinking about a firm’s long-term strategy often gets reserved for the next year.

The importance of thinking long-term and planning for the future, however, cannot be over-emphasized. It is especially true when it comes to succession planning. Too little attention to succession planning can prove fatal, as may have happened at the firms of Trope & Trope LLP and Shannon, Gracey, Ratliff & Miller, LLP. Both recently announced the intention to close and in both instances the age and/or retirement of senior attorneys appears to have contributed to the decision to close.

Unless closing is part of a well thought out plan, no firm wants to face a closing crisis. But if firms are not attentive to the topic of succession planning, an unplanned closing, especially as year-ends approach, is a distinct possibility. It is at year-end that a firm’s lawyers think about their future, the stability of their firm and the suitability of the platform that supports their practice. The answers to those questions tend to be disquieting if succession planning has been poor. For a firm that fails to prepare, the end of calendar year attrition can sap a firm of its future generations and can put it on a path to eventual closure.

To avoid that outcome, firm leadership should:

Address the Topic of Succession Planning Early. Law firm succession planning is the essence of long-term planning. Planning involves more than identifying potential leadership and client relationship successors. It also involves planning and executing on a process of making succession a part of the firm’s culture. It takes years of continual attention to do it well.

Involve Your Lawyers in Succession Planning. Succession planning requires “buy-in.” While existing leadership can assure the planning process gets the attention it deserves, full-fledged engagement from a firm’s lawyers enhances the possibility of success.

Review your Plan and Update it Often. Succession plans, like most long-term planning efforts, are living documents. Every firm committed to creating an effective succession plan should frequently update it in the wake of new developments or even just with the passage of time. The elements of any succession plan aren’t static but always are evolving.

Enlist Clients in the Process. It is presumptuous to think that client relationship succession is a unilateral process controlled by the law firm. Clients have the ultimate say over whom they will use as counsel. Frequent communication with clients is essential to developing a strong succession plan. The firm will be informed better about how client succession can be effective and will avoid adverse surprises.

Build Confidence in the Future. A succession plan should not be a secret to keep. It should be used to instill confidence in a firm’s future. Share it with the firm’s next generation of leaders and solicit their input in the process. If the future looks good at a firm, it is less likely to suffer attrition from the next generations.   The future will look brighter and the fate that befalls firms that “age-out” becomes less likely.

As 2016 comes to a close, is your law firm well positioned with a clear and effective succession plan? If not, it is time to get started if an unplanned closure is to be avoided.

 

 

Six Keys To Integration Planning and the Successful Law Firm Merger

Posted in Law Firm Leadership, Law Firm Merger, Law Firm Transition

We have discussed the substantial challenges associated with law firm mergers and their woeful success rate in previous posts. But a frequently overlooked piece of a successful merger — an element that warrants serious attention — is a comprehensive integration plan.

Combining two groups of people, their clients, processes and systems is a daunting task for any management team; but a well thought out and executed integration plan will dramatically increase the odds of success in transitioning two firms into the one firm envisioned during merger discussions.

The process for developing a successful integration planvaries widely depending on the nature of the firms involved; but there are six basic areas that apply in virtually all situations.

  1. Leadership and decision-making .

You should count on the fact that integration will give rise to some tough questions that only the leadership of the emerging entity can answer. So firm leadership, decision making processes and the identification of “where the buck stops” — on both legal and administrative sides of the house — are orders of business that should be dealt with before integration begins.. Size and complexity of the combined firm will dictate specific positions; but don’t fool yourself — the management team should be identified and agreed upon early.

This process should certainly include the clear designation of an individual or team charged with responsibility of a successful integration. Those decisions should be communicated to all personnel with contact information.

  1. Systems

Moving from two systems to one impacts almost everyone involved in the combination. Individuals who know the pieces involved should have a hand in the creation of a detailed plan. Typical platforms to be considered include:

  • Client intake, conflict checking and acceptance
  • Accounting
  • Human resources
  • Technology & security
  • Marketing, business development & competitive intelligence
  • Knowledge management

In some cases the transition may take months. We know of one combination that saw a single firm operating with three separate accounting systems for more than a year. Whatever the reality, the plan and its timing should be communicated to all personnel with additional information as to who to contact regarding any transition process..

  1. Communication

Everyone talks about it; but there is no more important integration issue than timely, clear and concise communication. In short, merger related communication must start early, be frequent and continue until the two firms are effectively integrated. Separate communication plans should be developed for clients, the public and the various members of the firm.

Attempt to foster an environment in which everyone feels free to ask questions, express concerns, frustrations and criticisms and suggest solutions. Allow an environment of distrust to develop…permit issues to go unaddressed, and be prepared for a turbulent transition. Fear leads to poor integration and unwanted turnover.

  1. Culture, policy, standards and expectations

For two firms to become one they must operate with one playbook — one set of rules, values standards and expectations. Take the time to develop the playbook and deliver it as early in the process as possible..

Consistent with developing one culture, plan on frequent get-togethers during which individuals can grow to know, understand and trust one another. Create an environment in which wins and progress are a product of the new whole, and challenges are jointly addressed.

  1. Clients

Clients are (or should be) at the core of any operational decision a firm makes — including the rationale for a combination. Be certain that clients are advised of the value your transaction brings to them. Develop a plan to integrate members from both sides of the combination into as many client relationships as possible.

  1. Integration team

The integration effort should include a formal and recognized integration team. It is wise to staff that team, to the greatest extent possible, with administrative personnel, minimizing disruption to client service and revenue generation.

The chair of the integration team should report frequently to the firm’s senior leadership team regarding successes and challenges associated with the integration.

 

A quality integration plan will devote plenty of time and attention to these six basic areas — and will dramatically decrease the odds that your merger ends up being one of the poor statistics.

 

 

 

 

 

 

 

Preparing Your Law Firm to Compete in a Changing World

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?

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