Managing Law Firms in Transition

Managing Law Firms in Transition

No Law Firm Succession Plan? Five Options

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

A Forbes article entitled Law Firm Leadership Survey:  Top Strategic Initiatives of 2017 shared some interesting information about the burning and not so burning issues for today’s law firm leaders.  The information was assembled through the work of David J. Parnell (the author of the Forbes article) and noted legal consultant Patrick J. McKenna.

The two recently presented to a group of managing partners some of the industry’s most timely and topical issues and surveyed them for their feedback.  The survey revealed the important and less important issues faced by many of the law firms that focus on management issues.  The leaders surveyed were from firms between 100 and 1,000 lawyers in size so the impressions shared were from a broad spectrum of law firm profiles.

Important to the assembled leadership were issues related to strategic focus, succession planning, “management matrix,” and cultural identity.  While all four of those identified issues are worthy of much discussion, the focus here will be on the issue of succession planning.

Respecting succession planning, the Forbes article noted that some leaders expressed concern that their succession issues were imminent, that leadership incumbency is a perceived problem, and that present law firm demographics are not conducive to effecting law firm succession.

The concerns expressed are not surprising but at least they come from firms that have done some succession planning.  As has been observed here and elsewhere many times, far too many firms have done far less and have not adequately prepared for succession.  If your firm is one, what are its options?

Start Planning.  Even if a firm has been idle in preparing for succession, initiating a succession planning process is an excellent option.  Not only does succession planning generally move a firm forward in preparing for organic succession, but it helps leadership understand the firm’s specific succession challenges so action can be taken.  The planning process may also stimulate the firm to consider options other than the traditional organic succession model.

 Find a Savior.  If organically turning the firm and its clients over to the next generation is not feasible, the firm may want to consider merging its practice with a more generationally prepared firm.  Moving the firm’s practice to another firm may be difficult for some firms and their partners to accept, but the other options may prove less palatable.

 Slide to Mediocrity.  Doing nothing to prepare for succession is not a good option.  Unfortunately, too many firms go this route. If the next generation of leaders or business developers don’t exist, or are not ready, willing and able to take over, the future of the firm will, at the least, slide towards mediocrity.  As bad as it may seem, in some cases the fate of mediocrity could compare favorably to firm collapse and failure.

 Prepare for Closure.  An objective analysis about succession may lead to the conclusion that the firm should close and wind-down.  Making that tough decision early enough can help a firm wrap up its affairs responsibly and with the least amount of suffering by the greatest number of people.  Closing a firm requires planning and execution but done can typically delivers a result far better than the alternative.

 Be Grateful.  In some cases, historically well-run firms have not planned for succession but have done all the right things that are needed for succession.  Those firms have hired well, trained their attorneys well in lawyering and administrative roles, and have introduced clients across the generational strata of the firm.  Firms that fit this profile are usually well positioned for succession.  For these firms, their bright futures are the result of more than luck but can be traced to a past heavy investment in good management.

A firm that has not planned for succession but is progressing towards a succession event still has options.  While it should not despair, it has no time to waste.  If your firm is in that predicament, is it ready to think about its options?

Growing A Law Firm Into Decline

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

Don’t confuse cause with coincidence. – W. Edwards Deming

Conceptual image - rise and falling

In Jim Collins’ book How the Mighty Fall, he describes phase two of business decline as “Undisciplined Pursuit of More.”

When it comes to law firms, we might call this phase of decline a period of Ego Driven Growth. This type of growth is always presented as in the interest of the firm and its partners. In fact, it serves to weaken the firm, and puts it at risk.

In most discussions about businesses that are in decline, it is typically assumed that the root cause of decline is either management complacency, or the failure to innovate and respond to market changes.  The Collins research debunks this theory. In most cases, the root cause of decline is over-reaching and growing in a reckless manner.

Brobeck – A Case of Reckless Growth

There are countless cases of law firms growing into decline but one of the best illustrations is still Brobeck. When the charismatic Tower Snow was elected as the firm’s chairman in 1998, Brobeck was coming off 72 years of steady growth. The firm was a highly regarded San Francisco based operation that proudly sat in the AMLAW top 50.

Snow had high aspirations, and sought to accelerate the firm’s rate of growth.  Focusing on the emerging technology sector, he had visions of building Brobeck into one of the world’s largest and most prestigious firms – quickly.  His strategy of hyper-aggressive lateral hiring was launched in the middle of the dot.com craze, a time in which it was difficult for law firms to go wrong.

And then the market cooled dramatically.

Instead of moderating the approach and battening down the hatches, Snow pressed ahead with his growth strategy. With profits falling and partners and clients leaving, Snow stepped down as chairman. His resignation was followed by the firm’s decision to close its doors. Ultimately, Brobeck was forced into bankruptcy.

In my experience, the needs of clients and working lawyers drive a very small percentage of law firm growth.  Rather, a leader who has determined that success is defined by size is almost always at the heart of a relentless appetite for growth.

When growth outstrips a firm’s ability to integrate and ensure quality, the firm is in decline.  The longer the trend continues the greater the firm’s risk of permanent damage.

Disciplined growth of a law firm — or any business for that matter — is not a problem; but growth that threatens an organization’s future is.

Common indicators of this kind of problem include:

  • Growth in size that has outpaced the experience of leadership and management
  • Disproportionate growth in debt
  • Additions are not being 100% integrated
  • Profitable areas of the firm are not receiving appropriate investment
  • Support systems are strained

On the other hand, disciplined growth is measured, strategic in nature, and the product of partner consensus and shared aspirations.

Jim Collins says it so well, “While no leader can single handedly build an enduring great company, the wrong leader vested with power can almost single handedly bring a company down.”

How is your firm managing growth?

 

 

 

 

Four Signs Your Law Firm is Not Ready for Leadership Succession

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

At many law firms that recognize the need for succession planning, preparation for leadership succession receives too little attention. Succession planning can languish for various reasons. In some instances, the press of regular law firm business distracts existing leadership from the issue. In other cases, the topic is an uncomfortable one so discussions are avoided. Even if these circumstances aren’t present, a firm can be so overwhelmed by the challenge that it can’t get out of the starting blocks. A form of paralysis can set in.

Another subset of firms simply doesn’t recognize the need to plan for succession. Not realizing the need, they miss the signs that should tell them that their state cries out for immediate attention.

For firms unsure where they stand on leadership succession, there are four clear markers that suggest and even show that a firm is unprepared. Not all four of these indicators need be present, but if more than one exists there is substantial reason for concern. Four indicia that a firm is unready for leadership succession are:

Demographics at the Firm are Unfavorable. A firm that faces a noticeable age gap between senior leadership and the rest of the firm’s attorneys is likely to struggle with leadership succession. If senior attorneys that have been running the firm are leading a firm of junior attorneys, the younger attorneys likely are not ready to step into any kind of a leadership role. A missing layer of lawyers between the ages of the young and senior attorneys is usually a problem. By taking a look at a firm’s demographics, a firm may see signs that it is not ready for leadership succession.

Control by Existing Leadership is Squeezed Tight. Far too often senior leadership grips control too tightly over most firm decisions. A firm lacking in shared decision making, even if major decisions are still reserved for senior leadership, is failing to provide needed experience to its future leaders. Sharing a role in decision-making is crucial to preparing for succession. If decisions are not shared now, a dearth of experience will make leadership succession harder in the future.

Training and Mentoring is Weak. A close corollary to sharing decision-making is having leadership mentoring and training programs that can aid in the preparation of the next leaders. Leaders are not always born-they often must be developed. If your firm has not created a way to mentor and train persons that will need to follow existing leadership, the firm is setting itself up for disappointment when the leadership torch needs to be passed.

 There is a Shallow Pool of Leadership Successors. It goes without saying that leadership won’t be passed on to the next generation effectively if successors can’t be identified. Having an adequate pool of potential successors is often the fruit of recruiting wisely so a deep roster of talent exists. If the pool of talent is there, leadership decisions can be shared with up and coming attorneys, their leadership skills can be refined further with mentoring and training, and the next leaders likely will emerge.   On the other hand, if the firm’s pool of potential successors is not very deep, the firm may not be adequately prepared for succession.

If any of the four circumstances noted above are present at your firm, there is room for improvement as the firm prepares for future leadership succession. If more than one of the indicia exists, much more work needs to be done before the firm can feel comfortable in its leadership succession preparations. Are there other signs to consider?

Is Your Law Firm At Risk?

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

One ought never turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!

Winston Churchill

 

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The first key to managing the transition of any law firm to a more productive and stable position is the early recognition of a potential problem. A declining market position is almost always indicative of underperformance. The challenge for leadership is to recognize the condition early enough so that decisive action is taken.

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

1. A sudden unanticipated loss of lawyers – We’re not talking about normal “comings-and-goings” here. The propensity for frequent movement of individuals is the topic for another post. This is about a greater-than-normal degree of movement. During a measured period, the greater the percentage of lawyers lost, or the more prominent those departures, the stronger the signal.

2. The loss of key clients (or increased difficulty in winning new business). Continuity of critical relationships is one of the greatest assets of any firm. While savvy management works hard to avoid the too-many-eggs-in-one-basket syndrome, a portfolio of clients central to success almost always exists. The loss of one or two key clients, or the departure of a large number of clients from any group should set off an alarm.

3. The absence of strategic organic growth. If you are increasingly unable to win the new business targeted in your firm’s strategic plan, take heed. Either the competitive landscape may be shifting in a way that directly impacts your position, or your planning needs some scrutiny. Either is an early warning sign.

4. Increasing turnover in key positions in the firm. I often refer to Jim Collins principle of having the right people on the bus. If you begin to lose significant non-attorney personnel, this can be much more than an inconvenient (and costly) loss of continuity. See Judy Capco’s article on causes of employee turnover.

5. Flattening or declining profits. On one hand, this seems simplistic, if not painfully obvious; on the other, the degree to which profit can, at the same time, be the source of consternation and ignored as a signal of issues is baffling. If profits are flat or declining, it is almost always time for action.

6. Falling revenues. Often declining profit is preceded by shrinking revenue…but not always. Whether profits decline or not, falling revenue is an early reason for concern.

7. A worsening relative debt position. Debt, in and of itself, does not spell trouble. Most law firms rely on debt to some extent to finance growth and manage cash flow. That said, an increase in a firm’s relative debt position should be closely monitored. Absent alignment with strategic moves, this is often a sign of impending decline in market position.

8. Negative external visibility. Many firms receive some degree of bad press; loss of a case, a high-profile departure, or litigation filed against the firm. But leadership must resist the temptation to ignore what can be viewed as uninformed voices. An increase in negative visibility via local, regional or internet distribution channels is an early indicator, and cause for concern.

9. Difficulty in attracting talent. When your firm finds it increasingly difficult to attract lawyers it is either the sign of a declining market position or an increase in the perception that the firm is in decline. And this perception is, itself, an early indicator of decline. If strategic talent believes your firm may be in decline, each day brings increased danger that the perception will become reality.

All well-run firms monitor benchmarks and maintain performance data. The best routinely evaluate performance in critical areas – carefully looking for any sign or signal that the landscape is shifting.

The more comprehensive our list of early warning signs, the more accurate our assessment of existing and future market position. What would you add or take away from our list? Does your firm monitor the early warning signs?

Law Firm Succession-A Future Leader’s Job Description

Posted in Law Firm Leadership, Law Firm Succession, Law Firm Transition

3D Leader Gold textThe topic of law firm succession is a hot one-discussed daily by commentators and law firm leaders alike. Of course, succession comes in two primary forms; client relationship succession and leadership succession. For many firm leaders, client relationship succession seems to have a heightened priority. But given the changing nature of the legal industry, a good argument exists that greater focus should be directed to leadership succession.

Patrick McKenna’s Why Law Firm Chairs Shouldn’t Pick Their Successor (Perspective) contends that the stakes are so high that a safe and comfortable pick in the mold of existing leadership is the wrong answer. McKenna’s point is that the challenges law firms face today require a new kind of leader-one that is prepared to deal with a rapidly evolving legal marketplace rather than implement yesterday’s playbook. It is for that reason that McKenna argues that a current firm leader should not have any input in naming his or her successor. McKenna’s provocative take on finding a law firm’s next leader is a worthwhile read.

One of McKenna’s points is that traditional managing partner skills may not be as valuable as once perceived and that a firm seeking a leader for the future should identify, among other things, “the specific skills and competencies that the best candidate for leadership will need to possess.” Implicit in his admonition is that traditional skills will have far less applicability in the future than in years past.

If McKenna is right, his thesis begs for a job description for the typical law firm’s next leader. Put another way, what skillsets should the future leader or visionary have? Given the industry change experienced and anticipated, a new leader must have the skills that allow him or her to:

Focus on Client Value in New Ways. More than ever, consumers of legal services are looking for value. The search for it has caused the steady growth of alternative service providers and in-house legal departments. For the most part, law firms have been reactive to this market share challenge. The next law firm leader should make it his or her priority to creatively and constantly seek an improved value proposition for the client. Thinking inside the box won’t work.

Focus on Faster Delivery of Legal Services. In about every way consumers of non-legal services seek immediate satisfaction. While the law is different and can’t always be rushed, pressure will mount for speedier delivery results. A leader that thinks about processes and procedures incorporating artificial intelligence as a path to greater speed has a skill that will be needed as the future unfolds. Regardless of approach, the next leader must recognize the need for speed.

Focus on Greater Collaboration with the Client. There is ample evidence that clients want to be more involved in their legal matters. The popularity of in-house legal departments is grounded on more than budgetary desires-it collaboratively aligns legal services with a company’s prioritized business strategies. That is not all. Today’s Millennial workforce is noted for its desire “to be involved” and understand the process. As that workforce graduates to executive ranks, collaboration between legal and business interests will become an imperative. Collaboration enhances client control-a goal clients are increasingly demanding.

Be Entrepreneurial. A leader for tomorrow must have the capacity to use a law firm platform, its people, and its relationships as the springboard to creating business strategies whose objective is to serve clients better. Merely managing a law firm platform so timekeepers can be more productive, alternative-billing ideas can be implemented, or more business generated (all good initiatives to be sure) won’t be enough. An entrepreneurial leader will direct the law firm to greater client satisfaction and, in turn, law firm success.

Be Flexible. Saying that the “future is unknown” is guaranteed to generate a pithy retort from Captain Obvious. But its obviousness demands that the next leader of a law firm be flexible. Well thought-out initiatives may lose steam or the market may turn away. A flexible leader will adjust instead of doubling down. A law firm lead by an adaptable person will pilot a firm through its rough spots and seize upon opportunity when it arises.

The five job description components are not an exclusive list of skills that the next law firm leader must have. No doubt there are other skills that would be helpful. What ones do you want in your next law firm leader?

4 Ways Law Firms Grow Revenue

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

I had a recent discussion with Eric Fletcher, a talented marketing executive author of  Marketing Brain Fodder  about law firm growth and specifically revenue growth. The somewhat obvious conclusion was that law firms grow revenue in four ways, each with its own challenges and issues by.

  • Raising rates
  • Hiring “laterals” who come with a book of business
  • Adding large groups of lawyers through merger or some other combination
  • Organically growing new business

While firms frequently attempt to address net revenue issues by cutting expenses butunless a firm is in a position to profitably reduce staff/attorney headcount or restructure cost associated with office space, this is typically a losing proposition.

Rates

In the marketplace of late, raising rates is becoming increasingly difficult. Clients are pushing back hard against the once common practice of increasing rates each year. If you’re managing a firm today you know that rate increases are far from automatic,…and tough to get approved in almost any situation.

Interestingly, over the last decade as rates have increased there has been a corresponding and consistent reduction in the collected realization rate. Increasing revenue by increasing rates is becoming a very difficult approach to increasing revenue.

Lateral hiring

Hoping portable business will grow the size of the pie and increase profits per partner comes with unique challenges. The realty of up-front costs, the fact that often portables don’t rise to the projected level, and the cultural impact of a move that is driven by the dollar sign can make this a rough adventure.

According to numerous reports fewer than half of surveyed managing partners have found their lateral hiring efforts to have been successful overall. Nonetheless, following attempted rate increases, lateral hiring continues to be the go to strategy for the vast majority of firms seeking to increase revenues.

Merger/Combination

Banking on a merger or combination to solve growth aspirations and/or profitability woes is the most risky gamble a group can make.

In the best of situations mergers brings significant positive change but can come with enormous cultural clashes and requires a ramp-up time that can be lengthy. Nevertheless, the M&A road is an alluring one. When successful and taken to the extreme it has a two-pronged benefit for a firm: revenue growth (though impact on profitability is another discussion altogether); and perhaps more seductive, a combination shrinks the competitive landscape.

When the situation isn’t the best? Well…the overall success rate for law firm M&A efforts is dismal – again, fewer than 50% of law firm mergers reportedly realize their intended benefits. Might a firm do better at a table in Vegas?

Old Fashioned Organic Growth

This leaves us with the least turned to approach to revenue growth on our list — actually developing new business with the current core of talent. And while today many (maybe most) firms in the NLJ 350 have someone in house with the words “Business Development”or “Marketing” in their title or job description, proactive business development is anathema to most lawyers and firms.

It isn’t nearly as seductive as growing the size of a firm. Bigger just seems a better solution…providing us with something instantly quantifiable.

But the real problem with business development efforts that impact the bottom line is that it is hard work and takes time — sometimes a long time. And while no top lawyer is afraid of hard work, most firms aren’t willing or prepared to invest the necessary time. In fact, many seem to wait until there is little time left to address the need.

There are, of course, firms that have become strategic, building new capabilities around an identified need among clients and  prospects. A handful of firms have unlocked the profitability of organic growth. They are not necessarily the biggest. Their lawyers don’t necessarily demand the highest rates in the marketplace. But the increase in the bottom-line is real, and profitability is solid.

A sustained focus on the organic growth of a law firm is the smartest and most enduring approach to revenue growth – by far.

How are you growing the revenues of your firm?

Law Firms in the Year Ahead-Is a Good 2017 That Much of a Good Thing?

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

 Georgetown Law Center for the Study of the Legal Profession and Thompson Reuters released their annual report on the state of the legal market last week and it is, as always, informative. The 2017 Peer Monitor Report is chock full of data and analysis respecting the tendencies in the legal market. While one might conclude that there is nothing groundbreaking in the 2017 Peer Monitor Report because it reaffirms the trends legal industry observers have seen for some time, its retrospective look at the legal industry’s last ten years says a lot.

Indeed, the report supports the view that the legal market fundamentally has changed. Once a “Seller’s market” largely controlled by law firms, the traditional legal market since the Great Recession has been transformed into a “Buyer’s market” where the consumer/client is the dominant player. The 2017 Peer Monitor Report concludes by recommending that law firms seeking a successful future focus more on profitability, a new leverage model, their core practices, and supply chain management.

Another report, from Bloomberg Law Big Law Business, delivers a slightly different message. Gabe Friedman’s Law Firm Leaders Feeling Good About 2017 notes an increase in law firm leader confidence because “[f]or the first time since the financial crisis, a majority of law firm leaders are projecting that demand for their firm’s services will increase.” The optimism, according to survey data collected by Wells Fargo Private Bank legal specialty group, is based on an anticipated uptick in transactional activity and a more favorable law firm environment under a Trump administration.

With the potential for a good 2017 for law firms as reported by Bloomberg Law’s article, should law firm leaders discount the conclusions in the 2017 Peer Monitor Report and its recommendations? There are at least five reasons they should not:

Client Control Over Legal Spend is Institutionalized and Will Not Be Ceded. The 2017 Peer Monitor Report’s data and analysis reflects economic and practice drifts that are now settled in the 10 years since the industry was turned on its ear. In that time, consumers of law firm services have seen the benefits of controlling legal spend. Whether resorting to alternative legal service providers, bringing legal work in-house, or dis-aggregating the outside services used, clients have seen and enjoyed the benefits of control. There is little reason for them to go back to the way things were prior to the Great Recession.

Client Legal Spend Options Have Become Engrained.   Closely aligned with having observed the benefit of control, clients have found that legal spend options work. Alternative providers deliver outcomes that are good enough for the client’s needs. In-house legal departments can offer a host of benefits that are not enjoyed when using outside counsel. Breaking up the client/attorney relationship into more specialty firms for the outside services really needed has been a revelation. And for many clients the options have delivered efficiency and economy not previously experienced.

Non-traditional Competitors Smell Blood. The advent of non-traditional competition is a relatively recent phenomenon. Yet in the short time alternative service providers have been battling law firms for legal spend, they have demonstrated an ability to focus on value, results and speed. In contrast, law firms are suffering from overcapacity, are slow to adopt innovation or transformative technology, and are populated with attorneys resistant to change. The alternative providers love the tilted playing field and a good 2017 for law firms will not change their advantage.

An “Up” Market Will Also Fuel Alternative Service Providers. If the outcome intimated by the Wells Fargo Private Bank survey results is realized, the “up” market will not just benefit the traditional law firm. More transactional work or a Trump bump will be felt across the business world and the tide that raises law firms will likewise raise the alternative provider. If alternative providers have a few banner years, their ability to raise capital will be enhanced. A better-capitalized alternative for clients will only exacerbate the competitive pressure law firms have been feeling.

Better Law Firm Results May Stifle Needed Law Firm Change. As professions go, lawyers often are identified as being among the most resistant to change. Experience has shown that compelling lawyers and law firms to innovate and think outside the box is best stimulated when year-to-year results have disappointed. On the other hand, when the money flows and times are good, internal support for transformative change drops-by a lot. If the prediction of a good 2017 proves true, needed change at many a law firm will become harder to implement and at too many law firms endemic problems will fester.

The suggestion from Bloomberg’s article that 2017 could be a positive year for law firms is nice to hear.   But too much should not be read into an outcome that will not reverse the distance the legal services market has traveled in the last ten years. Smart firms will heed the 2017 Peer Monitor Report and recommendations. Is your firm one of them?

 

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?

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