Managing Law Firms in Transition

Managing Law Firms in Transition

A Primer On Survival for the Small to Medium Sized Law Firm

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

Strength and growth come only through continuous effort and struggle. – Napoleon Hill

Even as the economy improves for some, we see many law firms — without respect to size — continuing to struggle. Mid sized firms seem to be having the greatest difficulty adapting in the evolving marketplace.

In a Forbes article, Basha Rubin suggested that we might be seeing the end of the mid-tier firm. Rubin’s reasoning is that the growth of in-house counsel staff and their uses of temporary legal resources to manage fluctuating workload results in dim prospects for the mid-tier firm.

Step Away From The Ledge, And Remember What It Takes To Flourish and Grow

There is no denying that a number of forces are creating pressure on many firms; however, the fundamentals of what it takes to grow a successful practice remain the same – for firms of any size. Here’s a quick primer.

  • Manage obligations to a low and sustainable level. This means:
    • Not committing to expensive (and extravagant) office space. Resist the siren song of that newest office tower – and the long term lease that comes with it.
  • Limit hiring of permanent lawyer and support staff until an extended and reliable need has been established. In the interim, learn to rely on part time, and temporary resources.
  • Focus your practice on an area of law for which you have a passion, and for which there is a significant demand.
  • Strengthen and expand your relationships. This means the network of those that you have a direct relationship with, and those that can be developed in person or increasingly through social media.
  • And of course, do work of a quality that will bring clients back, and turn them into referral sources.

Success is not about size. In fact, solid growth and profitability are not dependent on or guaranteed by the addition of people, offices or the obligations that accompany them.

Success and stability are about purpose, passion, wise management and a relentless focus on nurturing and growing your network.

How do you see the future for small to mid-sized firms?

Seeing Softness in Demand? Steps for Law Firm Stability

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

Challenges ahead warning road signOne current report signals that the legal services market is suffering from a decline in demand. Reed Smith’s inabilities to keep its full complement of lawyers busy lead it to layoff 45 lawyers recently. According to Peter Zeughauser of the Zeughauser Group, other firms have been stealthily bleeding layoffs here and there for some time. Altman Weil’s 2015 Law Firms in Transition Survey has noted the trend while also identifying some of the reasons.

Some additional research supports the view that law firm leaders don’t view softness as a temporary blip. An analysis from Citi Private Bank says that confidence among many managing partners is the lowest since 2012. In this time of declining demand, keeping your law firm stable is imperative.

Managing stability at a law firm when lawyers are begging for work is easier said than done. For any firm experiencing a drop in production, the managing partner’s toolbox contains a number of action steps. Yet not every one of the steps will necessarily fit nicely in every case. Indeed, some “best practices” employed by some firms will be the wrong choice for another firm. With that in mind, leadership seeking to improve a firm’s stability in a time of softness should consider the following:

Understand the Decline and Understand Your Firm.  Despite the numerous press reports about lessening demand for legal services, law firm leadership should delve into the reasons for the decline it is experiencing and not let press reports about the industry or other firms dictate its response. A thorough understanding of a particular firm’s situation is essential to designing an appropriate response or determining if one is even needed. Also understanding the firm’s ability to “circle the wagons” in order to ride through the downturn is crucial. A firm with a “lock arms” culture can endure slowness much better than one with lawyers continually espousing a “me” philosophy.

Consider Layoffs But Do So Thoughtfully.         If the analysis indicates that excess capacity is not a short-term issue but has a long horizon, layoffs sooner rather than later can often help a firm get ahead of softness and preserve capacity for the firm’s keepers. That said, well-managed layoffs involve the art of cutting fat but not muscle. Before layoffs are executed, consider the firm’s strategic plan. Ask whether the proposed layoffs cut into muscle and undermine the strategic plan long held dear.

Work on the Top Line. Initially, it might seem silly to dedicate extensive time trying to improve the top line as a solution for reduced hours. But in many cases softness has followed a period of robust matter intake that spawned complacency in the prior business generation effort. Take stock of relationships and mine them for all they are worth. Top line improvement can be successful through methodically attending to mining the relationships that exist, even if they have grown a little stale.

Let Your Clients Know That You Are Listening.           Reduced client demand can be traced, in part; to clients’ need to roll back their legal spend or reduced activity in the deal market. Hustling those clients for work as if everyone is still enjoying good times is being tone deaf. Creatively addressing clients’ aversion to legal spending shows the clients that you are listening and responding. It may mean you eke out additional work under alternative fee arrangements, but it improves utilization and every little bit helps. Besides possibly keeping some people busy, and it also may preserve or strengthen the client relationship.

Protect Your Flanks. Lawyers get nervous when things are slow, including the lawyers that have the least reason to be anxious. Don’t be sanguine because some lawyers happen to be busy. It is the busy ones that may bolt when least expected. Give the stars lots of attention.

Stability in a law firm is always better when morale is good. When times get slow, morale tends to dip and things can get wobbly. Addressing slowness is the key to maintaining stability. If your firm is getting slow, what steps are you using to combat instability?

Four Keys To Building a Stronger Law Firm In 2016

Posted in Law Firm Repositioning/Turnaround/Restructuring

improvementI was inspired to write this post after reading a couple recent headlines–

  • Law Firms Risking Obsolescence, Report Says – an article from The New York Times, last week and
  • Reed Smith Layoffs: A Sign of Things To Come – a recent American Lawyer article.

A State of Change

The fact that the legal profession is changing is undeniable. Law firm leaders who choose to ignore this fact will wake one day to a new reality. In fact, the industry has been in state of flux for the better part of a decade. According to a very interesting 2015 report from The Georgetown Law Center, there has been a fundamental shift “from a sellers’ to a buyers’ market, one in which clients have assumed control…..”

A Failure to Act

Observant leaders recognize the change. Virtually everyone charged with any level of leadership feels it.

But few know how to respond in a way that drives the necessary change.

A study from Altman Weil reflects this situation with an overwhelming majority of Managing Partners seeing a permanent shift in the demand for legal services and the efficiency by which law firms will need to operate, but few (less than 40%) said they have changed their strategy in response to the shift.

A Plan for Action

For law firm leaders that are looking for a plan of action, either in response to market pressures or to just better position their firms, I recommend the following four steps:

  1. Learn what your clients are thinking.

Identify your firm’s 10 most significant clients, and schedule a meeting devoted to understanding how each feels about your firm, and what specifically the firm could do to improve its service to them.

  1. Learn what your attorneys are thinking.

Conduct a mini survey of your firm’s attorneys seeking their response to two questions:

  • First, what do they believe could specifically be done to improve client service; and,
  • Second, what do they think should be done to improve the firm’s financial position.
  1. Target one area of improvement to service delivery.

Based on the information gathered from the firm’s clients and attorneys, select one area in which you will lead a firm wide effort to improve client service.

  1. Target one area of improvement to the fiscal health of your firm.

Based on the responses from the firm’s attorneys, select one area in which you will drive an improvement in your firm’s financial health.

These simple steps will yield a stronger law firm. Once you and your firm become more comfortable with the process of identifying areas to improve, and then executing on an improvement strategy, you can expand on the number of areas within which you intend to drive improvement.

Do you have confidence that you are on track to improve your law firm this year?r

Managing in Today’s Changing Legal Services Market-How to Avoid Obsolescence

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

Another year for law firms is in the books and the numbers, to state it mildly, do not signal a return to the pre-2008 halcyon days. Based on a report from the respected Georgetown Law Center for the Study of the Legal Profession, it appears that challenges to the legal profession continue and are potentially systemic. The Center’s Report on the State of the Legal Market provides a cautionary assessment that law firms should note about their future.

First, the Report recognized what many already know and that is that clients control the legal services market like never before. It also sums up the numbers that reflect, among other things, sluggish growth in demand, negative growth in productivity and continued pressure on rates and realization.

These downward indicia of legal industry health are not all. The data also reflects a decline in law firms’ share of the total legal market due to the increasing influx of alternative legal service providers and clients taking more work in house.

Based on the analysis in the Report, the data is not an aberration. Indeed the Report concludes that this growing competition now cutting into law firms’ market share is not only not likely to abate, but could very well get worse.

Elizabeth Olson of the New York Times recently reported on the Center’s study and highlighted the risk (noted in the Report) that law firms that do not adapt could risk obsolescence. She cites the Report’s admonition that law firms that don’t make “bold, proactive changes” to the way business is done are in jeopardy.

While the looming hazard may exist, for most firms it is not imminent. Nonetheless, action must be taken now or the risk of a fateful future mounts.

Firms heeding the call for “bold, proactive changes” will need to consider fresh ideas borne from the new normal in order to remain relevant and competitive. Not all the new ideas will make sense, but thinking about them and today’s changed legal environment increases the likelihood of future success and sustainability.

For firms trying to prepare for change, here are five things to consider:

Educate.         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, spend significant time educating the ownership about the new normal and the dangers faced. An educated ownership could become an ally, a font of ideas (good and bad), and could drive the firm towards the client-centered solution needed.

Rethink the Economics.     The billable hour is the common foundation for many law firms today at the same time it is falling out of favor with clients. Building a non-billable hour economic model that is client responsive yet profitable to the firm should not only be a goal, but also an imperative.

Change the Culture.             One thing the Report criticizes is the billable hour culture on which so many firms measure an owner’s worth. A client service oriented culture, measured by indicia other than the billable hour, may be just the change needed to compete in the future.

Do a Merger with an Alternative Service Provider.     Okay, this may be impossible in many instances because of the prohibition on non-lawyer ownership in law firms. But instead of merging with another law firm that, like yours, risks being outdated and left behind, think about joining with or being around the new generation of legal service providers.

Hire People with Start-up Mentalities.   Many of the best and brightest of our youngest generation are bypassing the law for the start-up world in order to create the next best thing. The mindset that motivates them to find a better or more efficient way of doing things could prove very beneficial to a law firm preparing for the future.   Instead of hiring solely on the basis of class rank, judicial clerkships and social connectivity, hire some “out of the box” thinkers that will stimulate a perspective that counteracts tradition for tradition’s sake.

Is your firm thinking about what it will do as law firm market share of the legal services market continues to decline? What will it do to sustain itself and thrive while other law firms do nothing?

Will Your Law Firm Become Stronger In 2016?

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

company-115883_1280-2As 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 2016?”

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 2015, and plan for next year.

What do you think?

Like Divorce, Law Firm Crisis is More Likely as the New Year Starts-Reprised

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

iStock_000013760109Small(This post previously appeared on January 15, 2015 and noted some of the similarities between marital divorce and one of the more extreme forms of law firm transition-breakup.  As we reach the end of 2015, for some firms the joy of another year completed may be supplanted by the tension and stress that often accompanies a disappointing year.  For law firms experiencing this form of transition at the end of 2015 or as 2016 begins, the lessons from the post Like Divorce, Law Firm Crisis is More Likely as the New Year Starts)

In his January 2015 Divorce Rush Dates Back to the Middle Ages, Frederik Pederson examines the annual spike in English divorces every January and traces the phenomenon back to the Middle Ages. His research into the records of medieval church courts is interesting and supports his thesis. Mr. Pederson’s article backs the view that whatever the century, the built-up strains in a marriage finally prompt action as January starts. Indeed, among some divorce lawyers in England, Mr. Pederson notes that the first Monday in January is known as Divorce Monday.

In some respects, law firms are like the institution of marriage. Many married couples reach their breaking point at year-end and flock to divorce lawyers as part of their Holiday hangover. January is a time when partners at law firms likewise are more likely to reach their breaking point. Financial pressures, the prospect of another year in a dead end relationship, infidelity (or disloyalty) and discord of personalities can describe equally the dynamics in a strained marriage and a teetering law firm. Feelings and frustrations that have been pent up for too long finally bubble to the surface and someone vital to the relationship says “no more.”

Of course, not all spouses that initiate divorce discussions or proceedings end their marriages. Counseling, a change of heart, or a promise to “do better” can buy more time or solve the discord. And in law firms, not every threat of departure, actual departure, financial disappointment or disagreement over a firm’s direction means a law firm is at its end. But just as the strains in a marriage arise from some pretty typical situations, crisis in a law firm at a year’s beginning often comes from common occurrences. Five scenarios described below are repeated every year and create law firms crisis.

Take Their Money-Take Their Leave. The year-end ritual of distributing profits, bonuses or otherwise sharing a firm’s financial performance is commonplace. Also common is the all-to-frequent event of departure after financial rewards are shared. Stretching the rewards out by making payments in installments can reduce a firm’s “grab and go” experience. But for many firms, the early New Year amounts to an extended “moving day.”

Where is the Rest of It? While some partners will bolt after getting their year-end money, some stay but respond to a firm’s disappointing distributions by expressing dissatisfaction loudly and repeatedly. Even if they have good reason to complain, constant grousing can undermine a firm even if remedial steps to improve performance are underway. When the talk in the halls is negative, crisis can follow.

As Productivity Trends Down, So Too Does Optimism and Morale. Most people want to be part of something that is exciting, vibrant and improving. Stagnation is bad enough but when productivity trends down optimism and morale can fall as well. A firm facing a downward productivity trend is in trouble.

Banking Bad. Firms that rely on banking lines of credit can experience year-end results that adversely affect its banking relationships. Covenants can be broken creating the uncomfortable meeting with the bank. Even if covenant compliance is not an issue, the prospects for the coming year may project a need for increased borrowing, potential for covenant stress or the need for future additional availability. Finally, recent financial performance may cause your bank to try to exit the relationship. A strained banking relationship places a firm in crisis.

Palace Coup. The jungle drums may sound after a bad year. Unfortunately, existing leadership can be deaf to the cacophony of sound heard by everyone else. More importantly, if the natives are restless it means that leadership and the rank and file are not on the same page. Crisis can ensue.

When the intensity of year-end lightens and the law firm books are closed, there is time to reflect. There also is time to look at the hard data that measures a law firm’s performance. Like in the case of unhappy spouses, at law firms it can be the time for a Perfect Storm. This January, are you ready to respond to the potential for crisis?

Merger As A Solution for the Underperforming Law Firm

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

 

As we approach the close of another year, a number of law firms are finding themselves underperforming relative to peer firms. business-163462_960_720For some, it is deja vu…for the second, third or fourth consecutive year.

You don’t need anyone to tell you that this is not a great way to venture into a new year. A firm that has experienced successive years of underperformance needs to consider whether they are going to be able to turn things around. Any firm can have an off year; but when underperformance turns into a trend, it is time to consider some broader questions.

The firm facing continuing problems may plan to turn things around by:

  • Trying harder
  • Becoming more “strategic”
  • Seeking outside assistance to identify and address basic issues
  • Considering a change in leadership/management, or
  • Entering the merger arena.

Merger is often an overlooked strategic option for firms. Assuming a firm can find the right cultural fit, a combination can be an effective answer to underperformance.

But it is not a silver bullet. Caution should prevail. There is no worse strategic option than joining forces with another underperforming firm.

We have witnessed this approach many times. And it is destined for failure.

While the leaders of some underperforming groups seems to gain comfort through affiliation with firms in a similar position, weakness added to weakness spells failure.

On the other hand, a firm considering merger as a way to compensate for underperformance must proceed strategically in order to realize success. In the ideal scenario, firms entertaining a combination would make up for each other’s weaknesses in the context of cultural compatibility.

Areas where we have seen firm’s effectively seek a merger partner to compensate for issues effecting performance include:

  • Technical capabilities
  • Geographic presence
  • Bench depth and broader expertise
  • Technology infrastructure
  • Leadership/management

There are countless nuances associated with successfully executing a merger with another firm. But with laser focus on the right issues, appropriate assistance, and enough time, merger may be a great solution for the underperforming firm.

If your firm is underperforming, have you considered a merger as a solution?

For those interested in additional readings on the topic of law firm mergers please see here.

 

Law Firms With Diverging Interests-Five Notions For Law Firms “Calling it a Day”

Posted in Law Firm Crisis, Law Firm Liquidation, Law Firm Succession, Law Firm Transition

Succession planning is an issue that many law firm managers worry about. They ask whether their firm has done enough planning, whether the pool of successors is deep and whether the firm will be stable when transition to new leadership happens. Because succession planning is so important to many of today’s law firm leaders, we’ve written extensively on the subject in Managing Law Firm Transition. For law firms that care about succession, preserving the firm’s legacy is a paramount concern.

For many firms, however, a legacy is last thing thought about. Some law firms, particularly smaller ones, can’t be bothered by the thoughts of legacy but are more interested in the here and now. Getting clients, doing good legal work and making money provide the essential motivations. When such a law firm’s year concludes and final profits are distributed, the partners tend to hop back on the merry-go-round and focus on doing it again in the coming year. That is, of course, for the firms satisfied with the status quo.

Other firms reach a different conclusion at year-end. Upon assessing the prior year’s performance and thinking about the future, more than a few law firms’ partners conclude that their respective interests have diverged or gone in different directions. For those firms, there is no “hopping back on the merry-go-round.” Instead, the partners decide to go their separate ways and end the law firm’s existence. When that happens, there are at least five things the owners should do.

Determine Assets and Liabilities. A fundamental first step is to assess the assets and liabilities of the firm. For some firms, the “one for all and all for one” culture never got started and instead the firm forged ahead with a “this is mine and that is yours” approach to assets and liabilities. Whatever the firm’ style, owners readying for a wind-up must have a full understanding of where the firm and they stand when assets and liabilities are considered.

Review Applicable Agreements. Most law firms will have various agreements that establish the relationships between the owners, such as a partnership or shareholders agreements. Other ancillary agreements may exist that further define their contractual duties to each other. These seminal agreements must be read and understood as the firm embarks on a wind-up. In addition, all third-party contracts entered into during the firm’s existence should be reviewed to see how they are impacted by a wind-down and how they will impact a wind-down.

Take the High Road. In a perfect world, divorcing owners will deal with the split amicably. Taking the “high road” can minimize animus and unfortunate behavior that makes separation difficult. Of course, not all law firm break-ups will be amicable. Indeed, some break-ups are the result of estranged relationships the repair of which was deemed impossible long ago. Even when the break-up starts out ugly, however, at sometime during the course of the divorce the hatchet will probably get buried. The sooner a hole is found for the hand axe the better.

Obtain Third Party Assistance. Turning to others to provide dispassionate help in the wind-down is a good idea for a couple of reasons. First, the owners of law firm often are too close to the situation to see the obvious or avoid the ridiculous. Second, the divergent views that precipitated the split up may make interested partners less than trusting when wind-up decisions are proposed by another interested partner-soon to be former law partner. An independent third-party solely interested in executing a successful wind-up can not only earn the trust of all sides but also do wonders for keeping a wind-up on track.

Think About the Future. When law partners decide to split the sheets, they often do so because they want their future law practice approached differently. Thus, it is contrary to that objective to bog down in the wind-down with petty disputes and score keeping at a minute level. Rather, former partners moving on should focus on the future, get their former law firm home wrapped up promptly and efficiently and avoid dwelling on the things that were irritating enough to compel the break-up in the first place.

When any law firm decides the joy is gone and it is time to call it a day, five ideas should guide the firm as it gets on with its divorce. Given what you know about your law firm and its partners, could your law firm follow these five concepts if it decided it was time to move on?

 

 

Debt and the Law Firm Leader

Posted in Law Firm Crisis, Law Firm Leadership, Law Firm Transition

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One of, if not the key responsibility of a law firm leader is ensuring that the viability of the firm is not threatened. No doubt, one of the primary threats to law firms today is excessive debt.

Clearly it is a rare business that functions without incorporating some form(s) of debt as part of an operations strategy.

Law firms are no exception. And managed appropriately, debt can serve as an effective means of realizing certain goals and objectives.

The key here is appropriate management.

On one hand, most firms finance the purchase of furniture, equipment and leasehold improvements. On the other, some firms go as far as to utilize debt to finance payments to the owners when collections are slow or business is down.

It is not breaking news that the greater the debt relative to revenue, the greater the risk to the institution. With higher debt levels a firm is under increased scrutiny, and — in practical terms — the control of the debt provider.  By default, handing greater control to a lender limits options for the owners of the firm.

Law firm debt in conjunction with a fluctuating market for legal services has led to crisis for an alarming number of firms. Some end up being successful in restructuring in response to the crisis. Others, sadly, are faced with no option other than firm closure.

The profession seems to be learning from those that have failed. This article from the Wall Street Journal describes some of the changes occurring at Akin Gump and other firms.

In short, debt is being reduced or eliminated as firms reassess operational principles. Given what can often be erratic timing of revenue, many firms are requiring greater capital contributions from their owners — or simply choosing to live within their means.

The WSJ article points to a 100% increase in the average level of capital contributions from equity partners over the last decade.

Key to successfully implementing a move toward a decreased reliance on external financing is getting the firm’s partners on the same page. The more disparate the aspirations of a partnership, the more difficult it is to obtain the requisite buy-in to a debt reduction plan.  Some partners are conservative and willing to trade a degree of short-term cash flow for longer-term stability; others are predominately interested in maximizing immediate personal cash flow.

One approach that can help firms navigate a resistance to debt reduction is a phased-in reduction. This approach, through which a firm achieves a targeted level of debt reduction over time, is made even more painless if the funding of the debt reduction can be taken from year-end distributions.

One firm we worked with had maintained a required equity partner contributed capital balance equal to approximately 8% of the partner’s income. In order to decrease outside debt, partners agreed to increase their contributed capital to 22% of their budgeted income. The increase was funded in increments of 2% per year for 7 consecutive years, all funded out of year-end distributions.

I think Warren Buffett’s quoted perspective is worth considering.

I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing. – Warren Buffett

Has your firm considered decreasing risk by decreasing the use of debt? Is this a conversation your partners are willing to have?

Law Firm Succession-Key Elements for Today and Tomorrow

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

Law firms today and in the future must deal with a shifting legal services market that makes succession a more formidable task.  Succession is not simply finding a way to deliver the gold watch with dignity and promoting firm-wide acclamation for the new leader.  No, it is a lot more as recent reports and analyses affirm.

The Altman Weil 2015 Law Firm in Transition Survey noted that while revenue is up for 2015, demand growth for legal services generally is down.  Citi Private Bank Law Firm Group’s 2015 third quarter report had a similar take on law firm demand growth, observing a downturn in demand as compared to the same period of 2014.  Although the AW and Citi surveys present just a snapshot of the industries’ year-to-year performance, they address trends the industry is seeing.  The AW and Citi studies should make law firm leadership think about the future.

One law firm leader that has done just that is Seyfarth Shaw LLP’s Stephen Poor.  As he writes in his Amid Mounting Pressure, Law Firms Must Change; Mr. Poor thinks the AW and Citi reports indicate that Big Law is in the throes of structural change.  This change, Mr. Poor suggests, is fundamental.  While he does not expressly say so, it is reasonable to conclude that any fundamental change experienced today won’t end in 2015-it is destined to continue and evolve long into the future.

If Big Law and the relevant market forces are in a state of change, how is succession at law firms impacted?  For one, simply having a system or culture that transitions leadership smoothly to the next generation will not be enough.  If the coming changes alter the fundamentals on which law firms will operate, future leadership will face new challenges they must be prepared to confront.  But how?

Understanding how to manage through change is a start.  And while it can be a fool’s errand to try to predict the future, enough is known to offer five management principles that can help future leaders tackle the change they may see:

Leadership Must Be More Strategic.  For the health of the firm today and for the benefit of future leadership, the firm’s strategic thinking needs to recognize that past tactics, as trusted as they may have been, may be outdated.  Because service, value and judgment never lose their luster, strategic thinking must be unyielding in finding new tactics that will deliver those three indicia of success.

Growth and Sound Strategy May Not Be the Same.  Mr. Poor provocatively asks whether growth by merger and acquisition is the panacea some firms seem to think it is.  Growth makes firms bigger, but not always better.  In the future, growth as a strategic solution should be questioned if is viewed as an initiative and not an outcome.

A Need for Lawyers May Decline.  If demand growth is falling as AW and Citi reported, it could be that demand itself will go down in the future.  Couple that possibility with how technology could reduce the role lawyers play in the delivery of legal services, and the number of lawyers a law firm needs may drop.  Accept that as a possibility and be prepared to respond.

Success Will Depend on Innovation.  Just as the firm’s strategic plan should not assume that the “old way” is the “best way,” today’s leadership and that which follows must be innovative.  More and more general counsel approach legal services in new ways and will be looking for outside counsel to do likewise.  If your client is asking you to do something innovative that was its idea, you are simply a follower.  For tomorrow’s client, that is not impressive.

Demographics Will Change.  Over the last 40 years demographics at law firms have changed.  For most law firms, the “triangle” is gone.  Today’s geometric shape depicting the make-up of the firm’s workforce will change yet again.  Doing things like incurring long-term obligations when demographics could change even more may create burdens that in later years you’d much rather not have.

While much of the coming changes will be addressed by a law firm’s next generation, preparing future leadership to handle fundamental change is the responsibility of current leadership.  Teaching the management principles needed to address the coming change are key elements to a good succession plan.  As your firm addresses succession, are you engaged in that kind of forward thinking and teaching?

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