Managing Law Firms in Transition

Managing Law Firms in Transition

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?

Culture and Law Firm Stability

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

 

Blured text with focus on CULTUREWhen you see the word “Culture” used in a discussion about today’s law firm environment, what comes to mind? A metric defying intangible that, though referenced in reverent tones in firm literature, bears little relevance to the bottom-line? Or, as a palpable reality that impacts human resources?

Or as something in-between?

Here’a a working hypothesis for today’s conversation: you can’t help it – every firm has a culture. However, for law firm leadership the concern should be less about good versus bad, and more about ensuring a culture that is aligned with the aspirations of those with whom you wish to share the advernture of partnership.

This seems worth discussing, given the excessive rate of partner churn.

Partner Turnover, Growth and Stability

What causes a firm like K&L Gates, according to American Lawyer, to be the “number one gainer” of partners in 2009, but in 2011 they were the “number one loser” of partners, and the “number two loser” of partners (percentage wise) for the five year period 2009-2013?

I suggest the answer lies in firm culture.

But as I mentioned above, this is not a good versus bad issue. Culture – as fuzzy as it sounds — is how a firm is day to day. What its behaviors are, what it feels like and what it cares about. There is a strong correlation between a firm’s culture and what it most values. Not what it says about these things on the website or in recruiting materials; but where investments are made and stakes put in the ground. Eloquent copy describing a shared commitment to client service, community, collegiality, and collaboration are common. There is often a world of difference between what the website says and what the law firm is.

In fact, a keen focus on certain of these firm characteristics may make a culture a better fit for one individual than the next; but there is nothing inherently wrong with any of them. Cultures vary greatly. For example:

One firm may be family orientated, committed to a serious balance between work and personal life in an environment that provides quality services to clients while earning a reasonable level of income;
Another firm might be committed to driving the greatest level of profitability possible; in this culture there exists the expectation of a continual sacrifice of personal time in order to yield those profits.
There are obviously countless variations between these two extremes; but the point is that they are both cultures. Neither is good nor bad. A person attracted to one is not likely to be attracted to the other. It is reasonable to think that one landing in or recruited into a culture that does not align with personal values and objectives will not last long in such a firm.

Without regard to the type, firm cultures range from strong to weak. Those with strong cultures have a high degree of consistency between their behaviors, policies, procedures and practices. They hire, train, recognize, promote and compensate in ways that further strengthen that culture.

Weak cultured firms are the opposite. There is little consistency in what they do and how they do it.

Strong Culture Is No Accident

A strong culture does not just happen. Leaders of those firms have an understanding of what is important to partners, and direct the development of the firm in a manner that progressively builds on and strengthens culture.

A strong culture helps shape and define successful hiring (hires that further strengthen the firm for an extended period of time) at all levels of the organization. To maximize success in hiring, a firm must understand its own culture and have the skills to draw out the aspirations and values of prospective hires.

So back to K&L Gates and firms like them — the more rapidly a firm grows the more difficult it is to maintain culture and hire in a manner that consistently reinforces that culture. Think about the challenges a firm faces when it is on the acquisition fast track. Each incoming group of laterals brings varied practice and cultural make-ups. At the same time injecting lateral hires with varying aspirations . The successful integration of those firms and individuals is very difficult, if not impossible.

So my theory for the day is two fold; firms that have a strong culture and knowingly recruit individuals and groups with values and aspirations that align with that culture will enjoy the benefits of a higher retention rate. Those that have a weak culture (probably synonymous with but not exclusive to rapid growth) will continue to have a high rate of turnover . And, if you are going to grow extremely fast, you’d better be extremely profitable…because compensation is likely to be the only glue that will hold those hires in your firm.

Your thoughts?

Law Firm Merger Today-Aligning the Cultures

Posted in Law Firm Growth, Law Firm Merger, Law Firm Transition

Merger is a frequent law firm activity, especially in recent years. Based on a recent review of Altman Weil’s MergerLine, over 600 mergers and acquisitions have closed since 2007. While not all the deals identified by MergerLine have been true mergers, many of the “non-mergers” nonetheless have been significant because they represent the near full unification of two going concerns. For about a decade then, the law firm industry has seen many combinations where two law firms come together and “merge” to be one.

At the 23rd Annual Law Firm Marketing Partner Forum held earlier in the year in Orlando, Florida a panel of seasoned law firm leaders discussed the topic of merger and their experiences with the merger process. Among the take-away’s were that three common themes impact whether merger participants enjoy success or disappointment.

In summary, the panelists generally agreed that any decision to pursue merger must be driven by an underlying strategy that is not the idea of merger itself. The importance of culture to the merger process also was noted, as was the importance of working hard on integrating the merged firms and their practices once a deal closes. Of the three themes mentioned, however, joining with the right culture was deemed “paramount’ to achieving success.

For the firm thinking that merger may be in its future, the warning about culture can’t be shrugged off. But what did the panel mean with its admonishment about focusing on culture? After all, “culture” seems to have a “squishy” quality that begs for something more concrete. Tangible indicia of suitability can come from comparing the following six areas of day-to-day law firm life:

Profession or Business? Today most firms acknowledge the importance of operating as a business but beyond that unanimity there can be widely divergent approaches. A firm’s unyielding dedication to business principles may be tough to swallow for another firm that has been slowly moving from a “law as a profession” philosophy to a more business-like outlook.

Money or Lifestyle? For some lawyers and their firms, making as much money as possible are reasons one, two and three for having their firm at all. For another firm that values a comfortable living while enjoying an equally satisfying quality of life, joining others seeking the last penny of every dollar could be an intolerable transition.

Compensation System and Behaviors? One firm’s approach to doling out compensation can be very different from the next firm. The incongruity of two compensation systems can suggest a poor fit. But the bad fit can go beyond the technical process of evaluating and rewarding performance. Compensation systems inevitably encourage behavior. Bringing together two groups of lawyers whose compensation system behavior could not be more different can compound an already formidable challenge.

Non-monetary Values? There is no right or wrong answer to whether a firm should be civic and profession minded or not. The law firm industry has more than enough room for firms of either bent. That said, two firms at opposite ends of the non-monetary value spectrum might prefer to remain apart.

Treating People? How a firm’s people (professional and non-professional) are treated says a lot about a firm. Lawyers or other personnel currently at a “people place” may find life at a more cutthroat shop impossible to accept. In any merger, the human resources equation must be solved.

Lone Rangers or Teammates? A teaming atmosphere can be dramatically different from a place where being helpful is neither expected nor rewarded. If a merger will bring together lawyers not on the same page about the concept of teamwork, inefficiencies and resentment will mount to the detriment of the merged firm.

There is no arguing that many a prospective merger can stall for non-cultural reasons. But the importance of a cultural fit cannot be discounted. If two firms thinking about combining are different in many of these six areas of day-to-day life, the two cultures may not be aligned. If you were considering a merger and many of these day-to-day characteristics of the firms weren’t matching, would you go forward?

Trust and the Law Firm Leader

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

It takes 20 years to build a reputation and five minutes to ruin it. – Warren Buffet

iStock_000016364296XSmallIn my professional experience, no attribute is more important for the leader seeking to turn around a law firm than trust.

In a Forbes article by David Horsager, the author eloquently articulates it. “Among all the attributes of the greatest leaders of our time, one stands above the rest: They are all highly trusted. You can have a compelling vision, rock-solid strategy, excellent communication skills, innovative insight, and a skilled team, but if people don’t trust you, you will never get the results you want. Leaders who inspire trust garner better output, morale, retention, innovation, loyalty, and revenue, while mistrust fosters skepticism, frustration, low productivity, lost sales, and turnover. Trust affects a leader’s impact and the company’s bottom line more than any other single thing.”

Horsager’s perspective is spot-on. Without trust, the hope of successfully leading a law firm turnaround is nil. The question is — how does a leader gain the trust of a firm.

In my work, I have only seen leaders earn trust when words and deeds align. This means three things:

1. Taking action. A law firm in transition needs a leader that will make decisions and then do what is necessary to drive change.

2. Communicating. Effective leaders communicate intentions (plans) and accomplishments.

3. Acting in the long-term interest of the firm. Extraordinary leadership transcends personal interest, political motives and a focus on the short-term.

The Upside of Fresh Vision

Most organizations facing the need for a turnaround or restructure determine it is wise to begin the effort with a new leader. Too often existing leadership is tied to the issues that brought about the firm’s decline; credibility often demands change. But recognizing the need is one thing; finding an individual that can lead from a position of trust can be difficult.

This article, “Why Trust is the New Core of Leadership,” provides insights into the makeup of a trusted leader, and offers the following behaviors as consistent with such a person:

• They themselves will be skilled at trusting, because trusting and trustworthiness enhance each other

• They will be good at collaboration and skilled in using the tools of influence

• They will operate from a clear set of values and principles, because opportunistic or selfish motives are clearly seen and rejected

• They are likely to be more intrinsically than extrinsically motivated, and more likely to use intrinsic motivations with others

• They will not be dependent on direct authority or political power.

Where Has The Trust Gone

Trust in our leaders may be at an all time low. It seems that every other day we read of a leader violating confidence. From Toronto Mayor Rob Ford to the U.S. Congress; from Bernie Madoff to those who watched over the demise of Dewey LeBoeuf –skepticism, if not cynicism of those who aspire to positions of leadership is difficult to overstate.

By contrast, Stephen Covey offers 13 Behaviors of a High-Trust Leader

1. Talk StraightWashington

2. Demonstrate Respect

3. Create Transparency

4. Right Wrongs

5. Show Loyalty

6. Deliver Results

7. Get Better

8. Confront Reality

9. Clarify Expectation

10. Practice Accountability

11. Listen First

12. Keep Commitments

13. Extend Trust

Outstanding organizations – those best equipped to adapt, change and survive, even in turbulent times, have trusted individuals leading the way.

How would you say the profession is doing when it comes to developing law firm leadership with the qualities necessary to lead appropriate change?

Law Firms Today-The Downside to an Unearned Raising of Rates

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

iStock_000013760109SmallOver the last two weeks some attention has been given to the topic of law firms raising rates. Bill Josten recently wrote about information coming from Thomson ReutersLegal Executive Institute and Peer Monitor that suggests that raising rates may undermine firms’ goals of greater profitability. A similar report followed, also drawing on Thomson Reuters’ Peer Monitor, and indicates that many firms are seeing increased demand if they take rate growth more slowly. As a matter of basic supply and demand applied to an industry that has seen softness in demand, the Thomson Reuters reports are not surprising.

Will this data concerning the efficacy of aggressively raising rates cause more firms to de-accelerate rate growth for a while? For many firms in which rate growth is a way of life, particularly larger ones, the answer is likely “no.” For a number of reasons, however, firms should take these reports to heart and consider pausing the annual practice of raising rates, or at least be more modest in the increase implemented. Besides what the reports are telling firms, an aggressive increase of rates can be ineffectual because it may:

Exacerbate a Demand Decline. If a firm decides to raise rates in order to maintain or increase gross revenue in the face of declining demand, the increase in rates may only drive demand down further. Raising rates to offset softness in demand may be the worst thing to do.

Diminish the Connection with your Client. Every less hour a client needs you means there is less opportunity to show your indispensability. A rate increase can limit the amount of time your client wants you to help in an already opened matter. High demand “keeps you in the game” by increasing interaction between you and your clients. There is nothing better for furthering client relationships.

Drive Away Clients in Two Ways. When you raise your rates it can evoke a “here we go again” response from your client. That reaction can morph into a client questioning whether a rate increase is deserved and strain the relationship. Further, a second and more direct impact happens if the client decides that a “lower rate shop” may deserve a chance. There are a lot of good lawyers willing to do their best for less. If you raise your rates when a raise is not deserved, you may find out how many.

Mask Other Issues. If revenues will go down without rate increases because your lawyers are not as busy, you’ve got a demand problem, a client-relationship problem, and/or a quality of legal work problem. Your problem probably is not that your rates are too low. Charging higher rates so you can keep revenues up may succeed in the short-term, but the rate increase does little to fix what may be the more systemic issues. The short-term solution may leave unaddressed underlying issues that compound and fester. Better to address the root of the problem rather than cover it up with an unearned raise.

Fuel a Sense of Entitlement. In most cases the rate increase is a response to increased pressure to boost gross revenues. Perhaps additional expenses need to be paid; new lawyers with increased starting salaries need to be hired, and annual pay raises for partners are expected.   If increased partner compensation is not deserved, should clients nonetheless see the rates they pay go up? A rate raising solution to partner compensation expectations is fraught with peril.

Law firm staff members and associates don’t dictate to managing partners their next annual raise. However, if staff and/or associates earn a raise by their performance, a reward is more likely as it is deserved. Should your firm risk the consequences of raising rates if the rate increase you intend to impose on clients is not deserved?

Is Your Law Firm’s Market Disappearing?

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

 

There continue to be reports addressing the challenges facing the legal profession related to a falling demand for legal services and the increasing number of alternatives to traditional law firms.

At a macro level the demand for legal services has been flat to negative for the last decade. While larger firms have faired slightly better over this period, most observers believe any increase in revenue has come at the expense of mid-size to smaller firms.

At a micro level the future is concerning for all but the most highly regarded (and often specialized) law firms.

In-House Is Becoming More Robust 

A distinct trend of legal work shifting in house has been accelerating for years. 2012-2014 saw billions of dollars in legal work previously handled by outside firms move in-house. During 2015 and 2016 the trend has shown no signs of slowing. In fact, the growth of in-house capabilities and in the work these groups are prepared to handle has continued at an aggressive pace.

Altman Weil’s annual survey of the legal marketplace, reflects a consistent trend of law departments increasing their budgets for in-house legal expenses while shrinking the budget for outside counsel. The same survey indicated that general counsel expect this trend to continue at least through the next year.

Not surprisingly, a key driver cited as central to the decision to move work inside is the high and increasing billing rates quoted by law firms. This post by Verizon’s General Counsel offers a compelling perspective on why the trend of work moving in-house will likely continue.

Competition Is Growing

 As if the in-house shift weren’t enough, market share is continuing to shift at an increasing rate to non-traditional service providers. This category of competitor is evolving quickly, and on a global level includes outsourcing, legal staffing, consulting firms, accounting firms and pure technology firms and more.

In an environment where the total growth of revenues available to traditional law firms is flat or falling, these new competitors are reportedly growing at 25-35% annually. Although impacting a small percentage of today’s total legal spend, their collective slice of the pie is growing rapidly.

Especially at risk is legal work product that is routine and subject to mechanization. Growth in the artificial intelligence arena, and the leverage that AI affords in the right situation, puts increasing pressure on the traditional law firm model.

So What To Do?

The million-dollar question for lawyers and leaders of law firms is “What do we do?”.  What is the appropriate response to a market in transition? Consider these steps as an initial way to address the question.

  1. Get out of low margin areas. Develop an immediate awareness and understanding of the areas of work that generate reasonable margins for your firm. Carefully examine the areas being pressured by market realities. In areas that are providing low margins, consider your options. These could well include partnering with an alternative provider with specialization in the area, or getting out of the business line completely.
  1. Focus on efficiency. Become experts in work processes that create new levels of efficiency. See this description of Seyfarth’s work in this area.
  1. Manage capacity very carefully. Much has been said about this; but, survey data continues to reflect an overall industry trend of hiring and retaining too much capacity. It is much easier to figure out a productivity solution when you’re too lean.
  1. Invest in client ccommunication. There is no better way to know how you can improve, retain existing work, and deepen relationships than to have routine communication with the people you are paid to serve. Get and stay focused on making your clients business partners.

For reasons that I don’t really understand law firms have historically been slow adapters to change. Perhaps it is rooted in a belief that the pendulum will swing, and things will return to the way they were. It may be a lack of understanding about the realities of the marketplace. If you listen, you’ll hear some law firm leaders scoff at things like AI and alternative legal providers.

Whatever the reason, a continued reluctance to acknowledge a changing market will put an increasing number of firms at risk. Don’t be one of them.

Law Firms Today-Preparing for an Uncertain Future

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

Forbes’ article Cab Companies and Law Firms Are Taking the Same Route presents the provocative view that law firms face disruptive innovation similar to the kind experienced over the last eight years by cab companies. Ride sharing innovation through the likes of Uber, Lyft and others has undermined the once financially formidable cab business. The article, written by Mark A. Cohen, predicts a similar future for the legal services market. He suggests that a game changing approach to the delivery of legal services, as of now not fully understood, could hit traditional law firms and upset their world much like Uber did to taxis.

Cohen talks about legal service change but does not simply speculate. He observes significant change already experienced-more legal work going in house and greater client reliance on alternative service providers. This trend has impacted traditional law firms already. Even though the need for legal services keeps rising, the market share enjoyed by traditional law firms has remained fairly flat. These inroads into the demand for law firm legal services could be, according to Cohen, the tip of the iceberg.

Citing to the transformative effect Legal Zoom has had on existing and untapped consumer retail need, Cohen posits that although a similar transformation in the corporate sphere has not yet been widely experienced, it likely is coming.

Knowing that time marches on and we live in a business culture in which innovation as the great differentiator stimulates entrepreneurial thought, it is hard to argue against significant change being in the future for Big Law (and for that matter, traditional small law). Preparing or planning to stay ahead of the curve is the laudable goal but is not the easiest thing to do.   Since few law firm leaders can predict the breadth of future change and plan accordingly, it is best to prepare for its uncertainty by following five important guidelines:

Think About Work Being Scalable and Repeatable. As unnatural as it is for some lawyers and firms, making daily work scalable and repeatable is great preparation for the future. Not only does it improve the efficiency of client work, but also it will instill a thought discipline about efficiency that translates to client value. While unique work will still exist, that notion should not be the crutch to ignore the need to think about scale and repeatability.

Think About Delivery. Even if work is made more scalable and repeatable, the benefit will be lost on the client if delivery of the work is not improved. Delivery of legal services is one of the most outward facing aspects of the attorney-client relationship. Improved delivery enhances that relationship for the client and differentiates the firm from its competitors. Improved delivery goes hand in hand with scalability and repeatability.

Listen to Clients About Satisfaction. The ultimate measure of client satisfaction is in the times it returns for additional legal work or refers you to others. Getting to that point depends on communication. Having a client express how it is best satisfied gives a law firm a window into how it can be successful. It also can give the firm insights on how it can achieve greater scalability and better delivery, an expectation that clients will increasingly have. Ask and listen.

Be Technologically Savvy. Being technologically savvy is not just buying the latest in hardware and software so that no competitor is more current than you. Rather, it is using technology to provide the means to improve client satisfaction with your legal services. Whether it is relying more on artificial intelligence or tech based process, technology is the tool to make a difference.   Today’s technology is woefully underutilized if it is not used as the instrument of innovation in the delivery of legal services.

Listen to and Integrate Your Newest Generation of Lawyers. The old way of integrating new lawyers into the firm was to bring them along slowly until they were like the firm lions and fit into long-standing firm culture. Culture is always good, but in disruptive times it may be the young entrepreneurial-minded lawyers whose ideas and perspectives stimulate a watershed change in how the firm does business in a changing world. Your young lawyers may have more value sooner than you think. Remember, it was not a crusty old cabdriver that brought us Uber.

Few law firms have the will or the means to invest millions of dollars towards the goal of disrupting the traditional law firm delivery of legal services. That investment in disruption will come from others. But every law firm can invest time, thought and resources in preparing for a disruptive future. Will your firm?

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