While law firm change is scary, in today’s evolving legal services market the absence of change may be scarier.  Law firm leaders don’t need to read expert’s opinions about the quickly moving marketplace, they see it close-up as competitors proliferate and competition intensifies.  Simply standing still by relying on tried and true practices is not an effective response.  More is required to transform your law firm for a better future.

Too often the press of business and comfort with the routine leads law firms to roll the calendar over, adjust last year’s plan, and forge ahead.  But by taking a pause, law firm leadership can think about preparing for the future. If that introspection raises the concern that one’s firm is not sufficiently prepared for the years ahead, five steps should be taken to transform a firm for the future.

Perform a Firm Self-Assessment.      If you are considering the need to move your firm from Point A to Point B, it makes sense to understand what Point A looks like.  A holistic review of your firm is the obvious first step towards an effective transformation. What does your firm do well?  How are you perceived by your clients?  What does your firm’s financial performance show and what does that tell you?  What does individual attorney performance say about your firm’s culture.  Taking stock honestly and objectively allows a firm to understand itself so it can determine the change, if any, it needs to make.

Perform a Market Assessment.         Like performing an assessment of your firm, it also is critical to assess your firm’s marketplace. In your firm’s traditional market, what has been its sweet spots?  Similarly, what kinds of clients have fueled your firm’s past success?  Are there trends that have recently developed regarding your firm’s market position?  For example, are the firm’s client relationships waning, or becoming less profitable than they once were.  Does a macro view of that market in the firm’s greater eco-system suggest that the firm’s position is headed to less prominence or that its practice is becoming anachronistic?  A critical eye that examines your firm’s market presence and the market itself is essential when thinking about transformation.

Get out the Crystal Ball.         After having assembled a dossier about your firm and your market(s), a comparative analysis of both with a view to the future moves your firm further in this exercise.  Does that analysis suggest a need to restructure your firm to keep pace with a market that is already changing?  Has your firm fallen behind so that it must catch up to a market that has already changed?  The Crystal Ball really can get cloudy if the indications are that the market is likely to change, but its direction is still unclear.  Getting ahead of a market that is changing or likely to change is a difficult challenge.  But because complacency is not an option, thinking about the future and identifying objectives for the firm’s future is essential.

 Develop an Action Plan.       Law firm transformation grows from realizing that the status quomust, over time, give way to a new paradigm.  Once a new model is settled upon, a plan for getting to the new approach can take shape.  Like any attempted change, it has the greatest chance of being successful if the objective is clearly understood and specific steps for getting there are established.  Experience has shown that a plan’s effectiveness requires a known objective and action steps with measurable milestones on the way to full implementation.

Create a Realistic Timeline.   If specific steps towards a selected objective are identified through the development of an action plan, creating a realistic time-line for full implementation is the final step. Depending on where the objective falls on the continuum of change, the plan can be executed more quickly or phased in over a longer period of time.  But for transformation to work, the timeline for the action steps necessary to fulfilling the objective must be carefully laid out.

Today’s firms that intend to remain relevant in the future will transform themselves to keep pace with the shifting legal services market.  If your firm wants to be ready for the future, is it prepared to take action now?

 

The global consulting firm, McKinsey and Company, recently released a number of articles related to research they have done on transforming businesses. One in particular, Why your next transformation should be ‘all in’, resonated with me.

In summary, the article presents a persuasive argument suggesting“all in” transformations— initiatives that address both services (or products) delivered as well as how they are delivered are much more successful than piece-meal transformations.

Specifically, McKinsey attributes the majority of transformation-driven success to five primary initiatives, categorized in two areas:

  1. Performance
  • Productivity
  • Differentiation
  1. Portfolio
  • Resource allocation
  • M&A
  • Capital investment

Generally speaking, every business — including law firms — approaches the future in one of four ways:

  1. doing substantially what has always been done (standing still);
  2. Investing in performance related changes;
  3. investing in portfolio related improvements; or,
  4. investing in both performance and portfolio-based improvements.

What the Data Says

A multi-year McKinsey study of more than 2,000 of the world’s largest companies yields interesting insights into the relative results associated with each approach to addressing challenges and opportunities of the future. And the statistics associated with companies that operated in the middle third of their market is especially telling.

The Table below indicates the probability of a medium performing business moving into the top 20% of competitor set, depending on the strategy chosen.

Approach to Future Probability of Moving Into Top 20% of Competition
Remain static 4% probability
Focus on Transforming Performance 8%
Focus on Transforming Portfolio 11%
Transform both Performance & Portfolio 20%

The Clear Message

For law firm leaders, there are numerous take-aways. One that is impossible to miss is that middle (or worse) performing law firms examining options to turn-around their organization will avoid standing still — doing the same things the same way — and will embrace performance and portfolio-based improvement strategies.

One other item of note from the study is that industries that are in decline (many believe that the traditional law firm model is one) are at the most risk and are in the greatest need of a combined transformation strategy.

How is your law firm transforming?

 

For a lot of law firms, “business as usual” is like a favorite pair of shoes-they seem to fit and sure feel comfortable. When that is the case, falling back on usual practices continues as long as there is no pressure to change.  But once a watershed event occurs that shakes the foundations of management practices and strategies, it is not uncommon for leadership to rethink its way of doing things.

Unfortunately, if leadership awaits the advent of a significant departure, an unexpected drop in revenues, or some other unforeseen development before thinking about fundamental change, it may be too late. Smart leadership doesn’t wait for crisis-it prevents crisis by planning for change and acting proactively.

At the beginning of every year all law firms should consider whether past practices should be modified or replaced by new ideas and strategies.  Thinking about a firm reset, even if not ultimately implemented, is worthwhile.  A serious effort at rethinking a firm’s present and future protects against complacency, helps identify bad habits that can be eliminated, and keeps a firm’s strategy fresh.

Thinking about a reset is particularly important for any law firm that:

Has an Aging Leadership.  Strong leadership is the lifeblood of any successful law firm.  Because good leadership can be hard to find or develop, firms that are blessed with it tend not to rush to make changes.  Yet as time passes and leader continue in their role, a law firm can find its leadership aging out.  Whenever a firm’s leadership is getting on in years, it is time to examine a reset to assure good leadership continues.

Wonders About the Next Generation as Business Getters.  Closely connected to the leadership question when leaders grow old is the concern over sustained business generation.  Past comfort from having a steady group of business developers can become less so when senior lawyers responsible for key client relationships begin to slow down. Finding successors to manage long-time relationships or building a roster of business generators will be essential to continuing law firm success.  Forecasting the need to reset the origination team well in advance is something all law firms should consider often.

Suffers from Upside Down Demographics.  Much can concern a law firm if its demographics have become unfavorable over the years. Attrition through the loss of future talent and/or the inability to hire quality attorneys can leave a firm top heavy with little promise in the next generations.  If a firm’s demographics are upside down, a strategy rethink is a wise move.

Is Undifferentiated in the Market.  Meh. Is that the marketplace’s reaction to your firm?  By taking an objective look at your firm’s place in the market, it may become apparent that change is required.  If nothing differentiates your firm from other firms, a slide towards mediocrity may have occurred or is trending.  Making your firm stand out should be a constant focus.

Is Financially Uninspired.  There is no right answer to the question “how much money is enough?”  But firms that are stressed financially are always in need of a reset.  Fixing a financially challenged firm may mean cutting back on out of control overhead, spending money wisely on practice enhancing technology, or creating expectations for work ethic and business development.  Assessing your firm’s financial performance and asking tough questions can lead to a fundamental reset desperately needed.

Transformation from routine to exciting should be on every firm’s mind.  If mired in the past or uninspired present, a reset may be in order.  Will you take a look at your firm as 2020 approaches?

 

 

 

 I don’t know where we should take this company, but I do know that if I start with the right people, ask them the right questions, and engage them in vigorous debate, we will find a way to make this company great. Jim Collins

 

So many law firms — big and small — continue to struggle in this increasingly competitive marketplace.. This might lead you to believe that building an enduring firm is a complex undertaking.

I don’t think it is.

Certainly, if a firm has a dominant personality in need of having the ego stroked, or engaged in acts of self-aggrandizement, there can be challenges. And those challenges will give rise to workshops, white papers, seminars and retreats hoping to address the issues.

But if a firm sticks to the following, stability, balance and longevity are not only possible; they are easily within reach.

Here are three keys to building a law firm that will last for the long haul.

  • Gather the right people – When it comes to individuals working together, the equation is straightforward: the greater the degree of shared values and aspirations between lawyers, the greater the probability of survival. If members of the firm have a similar perspective on what is important they will find a way to work through the challenges. Firms that include partners with great variance in basic beliefs and ambitions face a high risk of failure.
  • Deliver quality client service – Nothing is more fundamental to a business remaining viable than the ability to satisfy clients. The strongest firms have an absolute, unwavering commitment to serving clients in a manner that the clients value and appreciate.

Client centered firms routinely seek opportunities to listen to their clients – about what the client values, and how the service of the firm measures up. Client interviews and surveys are effective means of receiving feedback.

Great firms seek innovative ways to instigate on-going conversations. Imprudent firms become aware of problems in service quality through the loss of client relationships.

  • Operate conservatively – Building a firm around conservative principles helps mitigate the risks that cause pressure for so many firms. It is often a simple trade off between low risk and immediate rewards. Focus on these areas:
    • Cost structure – maintain a low cost structure by:
      • not hiring personnel materially in advance of the need;
      • not taking down space materially in excess of needs; and,
      • avoiding shiny new space.
  • Debt – any level of debt carries a degree of risk. Prudent firms maintain low to no debt, including operating lines of credit;
  • Draws – maintaining draws at a modest level minimizes pressure on cash flow and helps keep your firm out of debt;
  • Capital – invest in your firm for the long haul. Adequate capital levels provide stability, and help keep debt low;
  • Rate of growth – aggressive, fast and imprudent growth may have caused more law firm failures than any other single factor. Adopt a strategic and measured approach to growth.

It is simple. To give your firm the greatest opportunity for stability and longevity, focus on having the right people, meeting the clients’ needs with quality service, and operating in a generally conservative manner.

Nothing spectacular. But as is so often the case, the seduction of the spectacular is difficult to resist.

What are your thoughts on leading a law firm in today’s transitional market? Is the conservative approach and the long view passé?

In an earlier blog, Law Partner Retirement in Place—Solving Won’t Work/Won’t Leave (Part One), we presented the vexing problem of having a partner that slows down workwise but still draws a full partnership share.  Unfortunately, this upsetting situation exists at more firms than are willing to admit. While eliminating the awkwardness the abuse represents can be one objective, excising the potentially significant and precedent setting financial hit is more important.

TacklingWon’t Work/Won’t Leaveseldom is easy, but it becomes especially difficult if it is not recognized until the offending owner has throttled back into a semi-retired routine all the while drawing a full partnership share. Smart firms deal with WW/WLprospectively while favorable negotiating power exists.  Dealing with the issue prospectively also minimizes the angst, turmoil and hurt feelings that can come from confronting the problem later.  But preventative medicine is not always possible.

Thus, dealing with WW/WLfalls into two stages: Advance Preparation and The Here and Now.

Advance Preparation. Before a firm’s partner population has reached the age to create theWW/WL problem, a firm should consider at least three measures to negate its risk, including:

Institutionalize Mandatory Retirement.  The idea of mandatory retirement, typically articulated in a firm’s constituent documents, may seem like a simple solution and for years many firms used it at least partially to avoid WW/WL. Yet mandatory retirement can implicate age discrimination issues that can morph into a bigger concern than the WW/WLchallenge.  For that reason, experienced employment law counsel must be involved if mandatory retirement is an avenue that is going to be pursued.

Institutionalize Relegation.  A firm can prospectively address WW/WL by adopting policies that will cause a partner to be converted to some other status if there is a consistent and prolonged drop off in performance.  For this to work, the firm should establish clearly understood criteria that if met will result in a change in status.  Ambiguity is the hobgoblin of this strategy so a carefully constructed and understood set of standards is essential.

Institutionalize Acceptable Behavior.  A firm’s culture can protect against WW/WLif such conduct within the firm is known to be unacceptable, unprofessional and unseemly.  As an initial matter, a strong firm work ethic is an essential ingredient to establishing an understanding that expecting a “free lunch” is unthinkable. With a strong work ethic being a part of a firm’s culture, having a partner take advantage of the firm by attempting WW/WL is much more unlikely.  If that culture does not already exist or it has not been tested, it will be aided by taking strong action (intervention, vote to expel) the first time a partner attempts to stay without giving a fair contribution. Once such action is taken, later attempts at WW/WLincreasingly will be unlikely.

The Here and Now.  Unfortunately, advance preparation is not always an option because it is not until a partner is uneconomically hanging around does leadership see the problem.  This can be a difficult situation, especially if the firm has not institutionalized mandatory retirement (subject to legal restrictions), or relegation.  In that circumstance, a firm typically has two options:

Intervention.  While its effectiveness can be uneven, an intervention with the older partner can cajole, shame or otherwise persuade him or her to end retirement-in-place.  Having the message delivered by a trusted long-time colleague or a respected member of the firm can help greatly.  But in all instances, the message delivered must be carefully calibrated to avoid igniting a war that nobody wants.  And depending on the situation, a financial easing may be the key to gaining a voluntary retirement and ending WW/WL. Moreover, ending the first attempt at WW/WL swiftly sets the needed precedent and hopefully institutionalizes acceptable behavior.

Vote.  A vote to expel the retired non-retired partner is the last resort.  By the time a vote to expel is considered, all efforts at persuasion should have been attempted.  Voting out a long-time colleague can be ugly, hurtful, destabilizing and unfortunately, sometimes ineffective.  But despite the downside, it may be the only option.  If carefully planned so that expulsion is successful, it sets a precedent at the firm that soon can become its part of its culture.

WW/WLis a problem for everybody except the person intending to cruise on the firm’s nickel indefinitely.  Recognition and action are required to avoid the practice becoming commonplace.  In the unenviable world of WW/WL, where is your firm?

The measure of intelligence is the ability to change – Einstein

 

 

Adapting to change – At first blush the need to adapt is so obvious there would seem to be no need to discuss it. Then we see firm after firm, small to large, fail because of a reluctance, unwillingness or sheer inability to adapt.

In our experience there are 4 steps to adapting:

  1. Acceptance
  2. Evaluation
  3. Planning
  4. Execution

Step 1 -Acceptance

It has been long understood that all species operate in an environment of constant change.  The same is true for business. There are two choices, adapt or die.

In slowly changing environments, like the legal market during most of its history; responding to change doesn’t need to be hurried. In an environment like the legal market of the last several years, where change is rapid and accelerating, the appropriate response must be developed with a sense of urgency.

So, if the constant nature of change is an absolute, why do so many firms fail to adapt. I suggest that it can only be one of two things, lack of understanding of the effect on their firm, or a lack of the knowledge/capability necessary to do anything about it.

Step 2 – Evaluating Impact

There are numerous ways in which change may impact a law firm;

  • New competitors – this might include new law firms as well as a growing list of non-traditional service providers
  • Changing methods of service delivery fueled in large part by innovations in technology and/or process
  • Shrinking demand for certain types of services
  • Increasing experience and expertise among clients, in particular General Counsel, who are utilizing their power of choice —  resulting in pricing pressure, and in some cases the loss of an important client

Law firms must regularly engage in an evaluation process that attempts to understand the specific nature and ultimate impact of the changes their firms are facing.

Step 3 – Planning for Adaptation

This step includes discussing options for how a firm will respond to the primary changes it is facing.  Often this is a difficult step because the plan will almost always include the reallocation of resources in a way that improves the odds of success. A third party participant in the process can be very helpful in maintaining a level of objectivity.

Step 4 – Execution of the Plan

As is so often the case, execution can be the point of failure. A firm can expend all the resources — time and money – and end up with a killer-strategy that addresses change and scopes new opportunities. But we’ve all seen great plans fall victim to the pressures of daily realities. The plan winds up collecting dust in a desk drawer.

Meanwhile, change continues its march.

Firms that beat the “desk-drawer” fate typically do three things well:

  • Set up “short fuse” milestones for the implementation of the change plan,
  • Include a process designed to build consensus, and
  • Put the right people in charge of driving the plan.

It all begins with a full acceptance that our choices are to adapt or die.

Are you adapting?

Although many law firms are enjoying increased demand, revenues and profitability, not all firms are so fortunate.  For the firms seeing a sustained slackening of demand, there is no shortage of ideas on how to combat the problem.   “Work harder,” “get out and hustle,” and “reconnect with your relationships,” are but a few of the solutions often heard.  In these transitional times, an introspective look at the basic law firm model can even occur.

Indeed, in taking stock of where they find themselves, more than a few law firm leaders may question the long-term vitality of the hourly rate model due to waning client interest in perpetuating its perceived inefficiencies. In the face of such questioning, some advisors recommend that firms respond with fixed fees or hybrid rate structures where some payment is conditioned on success. These creative ideas, however, are not for all firms.

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

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

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

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

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

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

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

 

 

 

How do you define greatness?

Is it prestige?

I was recently reading an article on the “Most Prestigious Law Firms In America.” Seeing Wachtell, Lipton, Rosen & Katz (“Wachtell”) as #2 on the list, it struck me that the firm seems to frequently be at or very near the top of Vault’s list. I did some digging and found that Wachtell has been either #1 or #2 on the list for each of the last 14 years, and during that stretch has been #1 10 times.

For those not familiar with Vault’s methodology in ranking, they seek input through an on-line survey from lawyers across the country. The only limitation in the process is that survey participants cannot vote for their own firm. This year more than 20,000 lawyers participated in the survey.

Is it profitability?

As I thought about how extraordinary Wachtell’s results have been, it occurred to me that in my book Law Firm Strategy (2005), I addressed Wachtell and their phenomenal economic performance. In the book I note that Wachtell has been in the top 5 “profits per equity partner” in the AMLAW 100 for all years 1986-2003. During that stretch they were #1 or #2 in all but 3 years.

Since then, the firm’s economic performance hasn’t declined. Based on a somewhat cursory review, it appears that the firm has been#1 in profits per partner every year since 1999.

Is it retention of partners?

Being a partner in the world’s most profitable law firm naturally draws the attention of law firms and search firms seeking talent. Quality partners do not tend to stay long in an environment that is not, in every sense of the word, professional.   High performing partners are “bought” almost every day.

Meanwhile, a 2018 interview with Daniel Neff, one of Wachtell’s co-chairs, speaks volumes about the Wachtell culture,“It’s not only that no partner has left the firm for a bigger paycheck. Neff, the Wachtell co-chair, maintains he hasn’t even dealt with a partner who has been made an offer and is considering leaving.”

What is the secret sauce that keeps this firm on top of an extraordinarily competitive marketplace?

The firm’s dominance certainly isn’t based on many of the benchmarks we typically use to signal dominance.

  • Geographic reach —the firm operates out of one office in New York.
  • Leverage —the firm operates with marginally more partners than associates and has one class of partner.
  • Compensation system —it is an old-fashioned lock-step system.
  • Size —Wachtell has fewer than 300 attorneys, a relatively small firm in today’s world

So, if not based on the measures we typically use, how do we explain this firm’s success?

There are no doubt a number of factors that have yielded such extraordinary and prolonged success; but what I believe is chief among them is focus.

The founding partners decided in the firm’s earliest days that they would do work that passed two tests:

  • the work had to be of significant consequence to their clients; and,
  • it had to be interesting to the partners

In the 50+ years of the firm’s existence it hasn’t wavered from that focus.  Wachtell has not been seduced by opportunities, or distracted by what the marketplace defined as “growth” or “greatness.”

As it relates to Wachtell’s recognition as a “prestigious firm,” I believe their focus on thetype of work has been the key. So frequently when reading about large scale matters of huge consequence, the firmis involved. Wachtell’s focus has, over time, established it in the minds of the marketplace as a go-to firm for the largest, most complex matters.

But, there are other factors that have contributed to their success.

From day one the partners committed to an ethic of hard work. They hired, trained and developed others who shared that commitment. When you combine consistent levels of high productivity with the type of rates that “bet the company” matters support, he result is market leading revenue.

Although earlier I inferred that the firm’s compensation system was likely not central to its success, it may in fact be a leading factor. The firm has never been subjected to the internal competition and division that results from a system based on quantitative performance in any area. Sure, there is an expectation that everyone will work hard; but what trumps everything is the uncompromising standard of excellence.

Your firm

The real point here isn’t about becoming the most prestigious or the most profitable. The point is that with focus and dedication to that focus all law firms can realize enduring success as they define it.  Without a Wachtell-like focus, time and money are diluted.

More on Wachtell Lipton

 In our recently published book, Decisions that Matter – Tales of Law Firm Leadership in Moments of Consequence, we dedicate a chapter to the Wachtell Lipton firm, you might find it interesting. The Wachtell story provides so many great lessons for all of us to consider.

Let’s face it, the hugely important issue of law firm succession has a lot to do with senior attorney retirement.  Recognizing that, more law firms have prepared for coming retirements by infusing new leadership, transferring existing client relationship responsibility, and coaching the next generations to be business developers. When succession is done right, a firm enjoys continued strength while orchestrating a seamless and gracious retirement of its senior attorneys.

The retirement of a senior attorney typically results in a significant change to the financial status quo.  It can mean a cessation of monetary rewards for the long-time contributor.  Or it can mean a limited and reduced financial payment, either lump sum or declining over a period of time, along with reduced or eliminated work expectations.

From a financial standpoint, the difference between being a fully recognized partner or a retired partner can be dramatic—less money to no money received.  For that reason, even when the appetite to work hard has long passed, some senior attorneys defer announcing their retirement and seek to prolong their partner status-hoping to extend indefinitely the receipt of full partner compensation.  This “retirement in place” can be a vexing problem for law firms.

How does a firm deal with the partner insisting on full partner benefits when by all measures he or she has already retired? Understanding and addressing this issue is examined best through assessing the depth of the problem (Part One) and considering the curative steps available (Part Two).

Part One-Assessing the Problem

 Retirement in place as a problem depends greatly on the firm, its culture, and leadership.  It can range from being barely a concern to representing a looming earthquake.  Five factors determine where your firm sits on the retirement in place crisis continuum.

The Partner with Power. Coaxing a partner to retire can be exponentially harder if he or she is willing to wield institutional power to stay. That power can come in the form of political status in the firm’s management hierarchy.  In some cases, power may not be political but based on charisma or personality.  Urging a powerful partner to retire can be a difficult proposition.

Documentation. What do the firm’s constituent documents say about forcing retirement?  If the firm’s applicable documents and policies are silent about a mandatory retirement age or requiring retirement after individual performance falls below some objective threshold, the firm may be left to the potentially unpleasant option of forcing retirement through ownership vote (but consider the voting power of the subject partner).  Forced retirement by vote is neither pleasant nor risk free.  And in some cases, a firm’s documentation may be unclear whether the unpleasant option even exists.

Have Book Will Travel. By definition, retirement in place is not much of a concern where the partner is productive from a working and business origination standpoint.  Yet some partners will leverage their book of business to cover for reduced activity as a working attorney.  Even the slowed down partner forced to retire could blow a hole in the firm’s succession plan by bolting for another firm with client relationships in tow.

Firm Culture. For the firm that has never had to address the partner who has retired in place, the first time the issue is tackled can send shock waves through the firm’s culture.  Although aged, the partner in question may be fixture at the firm, revered and loved by all.  A successful action plan that forces the retirement of the clinging icon may disquiet a harmonious place.  Even so, taking no action runs the risk of normalizing unwanted behavior that others may emulate later.

Time.  Like in the case of many situations, time is an important factor when addressing retirement in place.  If the problem has already manifest itself because one or more partners have already taken this approach, the firm’s challenge will be great.  But if retirement is a future risk, greater flexibility exists to prevent the problem from occurring.   Prevention can be far more effective than a fix.

These five factors impact a firm’s ability to solve retirement in place.    In Part Two to follow, the available solutions to retirement in place will be considered.

 

Let’s get real for a moment.

Most law firms are woefully unprepared for any significant economic downturn — let alone a prolonged, decrease in demand.

This is a startling reality; but here are a few undeniable facts:

  • Starting in 2008, during the “great recession,” the demand for legal services fell dramatically approaching 10% by 2011, and consequently so did productivity and profits for most law firms.
  • Since 2009, the U.S. economy has experienced the longest stretch of economic expansion in history. Earnings have improved and employment has fallen from 9.8% in January of 2010 to 3.7% last month.
  • But…demand for legal services has been relatively flat during the same period. A real increase in profitability has been hard to come by and law firms continue to fail.
  • Alternative service providers continue to eat up a growing percentage of the pie. Analysts say that ASPs currently consume more than $10 billion of the legal services market and that figure is growing at an annual rate of more than 10%.
  • In-house counsel are aggressively shifting work away from law firms while expressing concern that their outside counsel don’t listen and do not appear to be improving service levels or adapting to the new reality.

How has the profession responded?

With few exceptions, firms have ignored the messages the marketplace has been sending, and continue to operate in much the same way as before 2008. Profitability pressures are addressed by raising rates (an average of more than 50% since 2007), which has resulted in more work shifting in-house and a major decline in collected realization rates.

What is to come?

As Isaac Newton said “What goes up must come down.” Now in the 10thyear of economic expansion, the tide is going to turn. Many economistand other prognosticators see the next recession on the horizon, perhaps starting within the next year. Some experts expect the downturn to begin as early as the first quarter of 2020; and many expect it to last longer than the last recession.

What to do?

There are two things I recommend to all law firms:

  • aggressively work to get your total cost structure in line with demand for your services; and,
  • proactively engage with your clients to identify specific ways in which to improve your service.

Cost structure –– Most firms continue to be challenged with underperforming professionals. Virtually all law firm cost is directly related to the quantity of professionals employed. Law firms should seek to finally resolve chronic underperformance and eliminate related cost.

Client engagement –– In survey after survey clients say their law firms aren’t listening to them, don’t ask about their service levels and don’t innovate. While firms have chosen to ignore this feedback (we’ve heard lawyers suggest the clients have no way of knowing what is best for them), clients have chosen to move more and more work in-house. Institutional clients once thought to be loyal are seeking other solutions.

If we’re going to get serious about client service, it is long past time for law firm leaders  to ensure that they have a real process for listening to and collaborating directly with their clients. Where sincere, these conversations inevitably lead to identified means of improving service. These means will lead to ongoing dialogue and experimentation that results in improved satisfaction levels. (Perhaps, even a new breed of loyalty.)

The results of these efforts will be immediate. Clients who have been frustrated by the lack of law firm interest in their views will be delighted with the opportunity to be heard.

The clock is ticking, I hope your firm is preparing for the inevitable!