Managing Law Firms in Transition

Managing Law Firms in Transition

Law Firm Merger-A Way to Solve the Succession Dilemma

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

For many law firms, succession to the next generation presents a formidable and daunting challenge.  Leadership may have been too busy to plan ahead for succession.  Turnover at the firm may have dealt a blow to the goal of grooming someone to step in as the next leader.  Sometimes the next generation’s business development abilities may not match the historical performance of the baby boomers now looking to kick back. And even if a thoroughly designed succession plan exists, the competitive legal market may now render it suspect or obsolete.

Unfortunately for law firms, in particular smaller ones, at some point succession can’t wait.  A solution is needed and the luxury of implementing a plan over the coming years is unrealistic.

Law firm merger can provide the perfect solution.  Although many reported mergers are explained as being done to further a larger law firm strategy, merger can serve many purposes.  As a succession tool, merger has proven effective when the option of turning the keys over to the next generation isn’t possible.  These “succession mergers” make sense for a number of reasons.

A firm facing succession often finds the following issues resolved by merger:

Leadership Vacuum.  For some firms, a future generation of leaders just never developed.  Law firm leadership at such firms face the uninviting prospect of turning the reins over to unqualified or uninspiring junior partners.  A merger into a firm with strong leadership can solve that problem.

Continuity.  Existing leadership may be concerned that a traditional succession plan (not involving merger) may not go well, and their firm may stumble and eventually wither away.  The problem with succession is that there are no “do-overs.”  Combining with a larger firm that enjoys a measure of stability may reduce numerous risks and promise continuity.  And that continuity may mean, at least in the mind of the firm’s founders, that the firm lives on.

Post-merger Opportunity.  Even if there is some confidence in the leadership readiness of the smaller firm’s lawyers, baby boomer leadership may believe that a new and larger firm will provide better opportunities for their people for whom fondness remains.    Leadership turning over the reins knowing that they have provided greater opportunities to their people may feel more content.

Good-bye Worry.  It is an overstatement to say that a merger removes worry for the former leaders of the absorbed firm.  But a well-negotiated merger with a strong firm certainly can provide some sense of security to law firm leaders that have fought the good fight for so long without an end in sight.  Leadership in the merged firm will take over the headaches that have long consumed boomer leadership ready to retire.

Benefits.  The merged firm may have a personnel benefit regime that is more generous for the absorbed law firm’s people, including former leadership, than the benefits currently extant at the smaller law firm.  And even if the benefits of both firms are generally similar, the merger still may make a lot of sense.  It is inescapable that a law firm that closes due to a lack of succession planning will not continue to provide its people with benefits they have come to expect.

Although a smaller firm’s leadership may be motivated to merge in order to solve its succession issues, it is not as if the acquiring firm does not benefit.  The existence of firms with succession issues presents to larger firms a market opportunity they may not otherwise have.  In addition to gaining access to skilled lawyers, new clients, and perhaps a new and desired market, the gains for the larger firm from market intelligence and credibility may exceed any that could be obtained by hiring a lateral or two to a de novo office.

These considerations already have been enough to propel some firms into merger.  What about your firm?

 

 

Merger and the Underperforming Law Firm

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

As firms consider their strategic position , a number of law firms are finding themselves underperforming relative to peer firms. For some, it is deja vu…for the second, third or fourth consecutive year.

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

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

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

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

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

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

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

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

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

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

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

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

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

Achieving Stability and Longevity for Your Law Firm-Five Fundamentals

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

Almost daily, lawyers come together and open new law firms.  High expectations accompany such births.  With owners committing to work hard, promising to exercise given and acquired skills, and counting on a little (but not too much) luck, the newly created institution teases with the prospect of success.

The positive vibes at inception may be tempered when reverberations from the occasional law firm closing resound.  But law firms can close for any number of reasons.  The ending of a firm by its owners may simply be desired, planned out, and then executed.  In other cases, a firm’s demise can result from factors never intended, frequently unanticipated, and often bemoaned.  Whatever the reason, a closing law firm’s record will be starkly different from the law firm that gets passed from one generation to the next.

With intentions among law firm founders not much different at the time of creation, what explains the dissimilar outcomes?  Why do some law firms last while others seem to blow away in the wind?  One word: focus.  A firm’s ability to enjoy stability and longevity, and avoid a premature end, frequently turns on leadership’s ability to focus on five key fundamentals.

Shared Aspirations.  Whether a firm is getting started, is seeking to grow, or is somewhere else on the continuum of law firm life, long-term success depends on shared aspirations among its owners.  Shared ideas about the values held dear and objectives sought creates a commonality of purpose.  When agreement about goals and the reasons to be practicing law together is shared, owners will be on the “same page” and stability and success becomes more likely.  For that reason, leadership should constantly assess the mood and outlook of its owners to test the continued uniformity of their aspirations.  When aspirations seem to be fracturing, leadership’s focus and corrective action is required.

Planning.  A focus on planning is essential.  Only through commitment to planning can the shared aspirations of a firm be realized.  But planning is not easy.  It requires time, discipline, and vision.  By focusing on planning, leadership can initiate strategies that help achieve articulated objectives.  Through planning the firm can adjust its blueprint for the future as needed and identify individual performance expectations for the firm’s attorneys.  A focused firm reviews its plans frequently, can assess the firm’s performance against the plan, and adjust its plan as it and the market evolves.

Leadership.  Almost all successful firms enjoy high quality leadership.  Leadership at law firms is a complex brew of ingredients including knowledge, personality, persuasiveness, vision, trust and support.  Effective leadership not only strives to earn the owners’ trust and respect but works hard to preserve it once gained.  Quality leadership pursues the firms articulated goals, follows through on promises and enlists others in the firm in meeting the firm’s objectives.  A firm’s focus on maintaining high quality leadership is essential.  But focusing on present leadership is not enough.  A firm committed to its future will work hard on identifying the firm’s future leaders and paving the way for their seamless succession.

Communication.  An important ingredient in law firm stability and longevity is communication-it is the multi-dimensional key to connecting, understanding, and fostering inclusiveness.  In a time of client and lawyer mobility, good communication protects a firm from potential instability.  Both external and internal communication should be a part of a firm’s focus.  But communication is not simply a one-way exercise.  Focused leadership listens carefully to its clients, its people, and its industry to make informed decisions.  Understanding what clients are thinking, and what the rank and file is feeling, is critical to building a stable service model that can evolve over time.

Awareness.  A stable firm that has enjoyed a good run is one that understands its place in the law firm industry, can see trends emerging, and understands the challenges ahead.  In sum, a stable firm is dedicated to understanding the world around it and its place in that world.  That awareness will be displayed by a deep curiosity in the prospects for clients, progress in the industry, competitors’ actions, and professional service firm best practices.   A law firm that keeps its head on a swivel seizes opportunity, avoids surprises, and solidifies its foundation while other firms struggle.

Giving these five elements frequent attention is a sure way to improve your firm’s chance at stability and longevity.  In this day when the stakes are high, is there any reason to not give your firm that needed focus?

 

Merger and Operating Cost

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

If your law firm is considering a merger, it is a perfect time to evaluate the operating cost associated with the combined organizations.

Mergers are risky transactions. Having operating costs in line will decrease pressure on the new entity.

Although all costs should be evaluated, we will focus on three areas in this post. Two represent areas where you should be able to realize a reduction in expenses (space and people), and one is an area where you should plan for a budget increase (business development/advertising).

Office Space

The cost associated with housing a law firm is typically one of the two largest expenses for firms. There are, of course, two key drivers in this discussion — the amount of space, and the cost per square foot.

On the first count, in recent years firms have found ways to decrease the amount of space required. Some of the efficiencies offered by technology combined with less spacious partner offices are among the big factors here. Reports suggest that over the last decade or so benchmarks for space have dropped from 900 square feet per lawyer to closer to 600.

But what about the cost per square foot? Thanks to landlords, this one is out of our control — right? Or is it?

There continues to be what I suggest is a false perception that firms need to be located in the very areas where rates tend to be highest. The inclination remains to lease space in the heart of the central business district, or the hottest new area of town in the newest building.

While many law firm leaders tend to view the cost of premium space as the price of doing business, the increasing reality is that this space is of little to no relevance to virtually any client.

As you begin planning for the combination of your firm with another, look hard at how you can realize some space efficiencies as part of the transaction.

People

The second area of significant cost for law firms is the direct and indirect cost associated with attorneys, paralegals and staff. In virtually every law firm combination, there are redundancies in one or more of these areas.

As you plan for the integration of the two firms each of these human resource areas should be evaluated for redundancy, improved efficiency, and effective client service and support. When two firms become one, the goal is to end up with the strongest organization possible. This means reassuring the best and weeding out the weakest.

Keep your eye on two periods, the “time of transition”, and the long term. Personnel needs are greatest during the transition period.

People decisions are difficult, and critically important. An open and honest approach to assessing the needs of the new firm will serve you well.

Leveraging the transaction

An area that you should consider making additional investment is market awareness. The quickest way to leverage the value of a merger is to ensure that existing, former and prospective clients know of the new capabilities resulting from the transaction.

This awareness comes about through a well-planned communication initiative. The project starts with the development of a clear and concise message, which reflects the enhanced value created by the merger.

The delivery of the message will vary by situation; but generally your plan should include, face-to-face meetings with key clients, direct mail, electronic communiques, and announcements in relevant professional publications.

Have you engaged in a thorough review of the cost structures as you plan for your merger? Do you have a well designed communication plan to let the relevant sectors of the marketplace in on the increased value you now represent?

 

 

Law Firm Merger Checklist Item-Culture

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

The spring of 2018 has produced a spate of large law firm mergers.  Despite this noticeable activity, the interest in mergers is not something new-over 600 mergers and acquisitions have closed since 2007.  Based on the tactic’s popularity among firm leaders seeking a competitive edge, we can expect more mergers in the future.

For law firm combinations to make sense, however, a lot of things need to fall into place.  Financial considerations are hugely important to any combination.  Not surprisingly, firm leadership tends to focus on financial issues to assure that any deal proves accretive.

Factors that assess the compatibility of two firms also receives a lot of attention.  Client, practice, and strategic compatibility must be considered to avoid painful and ill-fitting combinations.  Yet when it comes to thinking about compatibility, the most important compatibility test is whether the cultures of the two firms mesh.

For the firm thinking that “merger” may be in its future, the importance of culture can’t be discounted.  But what does “culture” mean?”  “Culture” can be a lofty word that requires specifics to be more than aspirational.   Based on our experience, getting past platitudes and understanding the cultural fit between two law firms is aided by examining six areas of day-to-day law firm life:

Law as a Business.  Today, most firms acknowledge the importance of operating as a business but beyond that unanimity there can be widely divergent views about what that means.  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 approach.  Understanding where the two firms stand on the business/profession continuum is important.

Financial Objectives.  For some lawyers and their firms, making as much money as possible is the only important driver.  Another firm may value a comfortable living while enjoying an equally satisfying quality of life.  Forging a union between two firms at distant ends of the spectrum could be intolerable for both parties.  The financial objectives of firms can say a lot about their cultures.  Comparing those objectives is important in finding the right match.

Compensation System Driven Behavior.  One firm’s approach to compensation can be very different from the next firm.  The incongruity of two compensation systems obviously may 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 behavior is widely different can compound an already formidable integration challenge.  Understanding how lawyers from different firms behave is one key to determining whether cultures align.

Non-monetary Values.  All firms make decisions respecting the non-monetary values they find important. There is no right or wrong answer to whether a firm should be civic oriented and/or committed to bar activities.  The law firm industry has more than enough room for firms of varied persuasions.  That said, two firms at opposite ends of the non-monetary value spectrum might prefer to remain apart.

Valuing People.  How a firm’s people (professional and non-professional) are treated says a lot about a firm.  Organizations often thrive when their work-forces enjoy their place of work.  Lawyers or other personnel at a “people place” may find life at a more cutthroat shop demeaning or otherwise unfulfilling.  Conversely, personnel used to a strict bottom-line mentality may feel unchallenged in a softer environment.  In any merger, the human resources equation must be solved.

Collaboration.  The teaming atmosphere at one firm can be dramatically different from a place where being collaborative 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.  A culture of collaboration will not likely fit well in a culture where Lone Rangers are lauded.

In any merger, the importance of a cultural fit cannot be shrugged off.  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 merger is being considered and many of these day-to-day characteristics don’t match well, would it be wise to go forward?

Do More Than 83% of Law Firm Mergers Fail?

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

This Forbes article references a KPMG study which indicated that 83% of mergers fail to yield a favorable return to stockholders while a separate A. T. Kearney study determined that mergers overall yield a negative return to owners. The KPMG study indicated that nearly 70% of business combinations are negative to neutral in terms of value created.

These studies look at business combinations in general and may not have included any law firms. But, if you were to guess, do you believe law firm leaders have a better track record in creating net positive value through mergers than career business professionals?

I would guess not.

With the torrid pace of law firm mergers, the question is what will it take to improve the probability of success for law firms.

Based on our experience, the two most critical factors in order to realize a merger’s highest value are:

  • choosing the right merger partner; and,
  • developing and executing a high-quality integration plan

Both topics are critical; however, the focus of this post is integration, and what is required for successful integration when firms combine.

Six keys to successful integration

  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 leadershipdecision 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 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 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.

 

Four Important Elements to Getting Law Firm Merger Right

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

Already 2018 has proven to be a time for law firm merger.  Since the beginning of the year we have been treated to a constant series of announcements about law firms combining. And although law firm mergers have been part of the landscape for years, the increase in law firm mergers shows its growing popularity as a tool of growth.

Generally, until the merger itself is announced little is publicized about a law firm’s merger activity. Even in the instances in which a law firm’s interest in a merger is leaked before the merger is a done deal, details about the merger mechanics are scant. The leaked news usually only stokes a rumor and a closed deal may or may not result.

For firms that have not done a merger the question often asked is “when thinking about merger, what is important?” While the genesis for each transaction is unique (as are the negotiations), virtually all mergers involve four important elements that are interrelated and build on each other. Addressed well and a merger is positioned for success. Performed poorly and a merger’s prospects are suspect. The four important elements are:

Pursuing Merger for Sound Strategic Reasons. The reasons behind a firm’s decision to pursue a merger can be many. Some firms need a rescue; others see a need for additional capabilities or have a desire to enter a new and critical market. A frequent reason to merge is one premised on the combination adding market share not easily gained through organic growth. As the Boomer generation reaches retirement, merger also can be a useful tactic to address leadership or succession issues. Whatever the impetus, the decision to consider merger should be one premised on meeting a strategic initiative identified through thoughtful and critical analysis.

Establishing Your Requirements. In thinking about merger, it is essential that the criteria for a merger be clearly identified before seeking out a potential merger partner. Only once the criteria are established should a firm purse candidates-all the while remaining faithful to its criteria. Whether acting opportunistically or methodically, staying true to the criteria protects a firm from letting the thrill of the conquest dictate its tactics. It also provides the foundation for the discipline needed to walk away from a bad deal that momentum would have you close otherwise. Understood criteria and discipline prevent emotional or irrational decisions. They should not be compromised.

Finding a Match that is Compatible. For firms approaching merger correctly, a thorough diligence process provides guidance on firm compatibility. In focusing on this element, a firm should consider whether it and its prospect are compatible on matters of culture, finances, compensation systems, clients and operations. Also key is the fit of leadership styles and the potential for evolving to a leadership team that will be accepted by people in the unified firm. Ideas on succession and vision should be compared to further confirm the fit.

Post-closing Focus. While it is essential that the integration and assimilation of the two firms be planned before the merger is finalized, also essential are an attention to detail and a dedication to bringing together disparate groups post-merger. Everything from forging a singular culture to creating systems, processes and procedures to gauge, motivate and reward the new firm’s valued behaviors.   Hard work post-closing is not only important to avoiding crisis during the honeymoon period, but it also is important to the care and feeding of the next generation of performers and leaders.

Doing the right merger and finding the right partner takes work. It does not come about by happenstance but requires an unyielding focus at critical points along the way. Has your merger experience shown you other important steps?

 

How Do You Define the Value of a Law Firm? Thoughts for the firm considering an ownership transition.

Posted in Law Firm Succession, Law Firm Transition

What is your law firm worth?

This question is paramount when the owners of a firm consider the possibilities related to a merger, a succession plan involving existing members, or the outright sale of an established practice.

There are variations by state as to what can and cannot be sold as part of transitioning of ownership of a law practice; and even given the existence of suggested formulas for valuation, when it comes to estimating the value of a given practice, there are often more questions than answers. But in order for a transition to be successful for all involved, it is essential to have a solid idea of what a firm is worth.

To this end, in our experience, here is where successful conversations begin.

Two Broad Considerations

In the typical law firm transition there are two separate areas, each of which represents distinct value:

  • Tangible assets – this is in many ways the easy part of the conversation. Examples include furniture, equipment, cash, investments, receivables, and work in process; and then there is,
  • Good will — this amounts to the equity of the law firm’s name that will be transferred to the new owners, and often represents the significantly more difficult piece of the valuation process.

In the simplest terms, good will is the value associated with the firm’s ability, to generate future income under the newly constituted ownership. That future income generating capability absolutely has economic value; in many cases it may represent the most significant piece of the valuation puzzle.

Think about it. If you could purchase an investment — say an annuity that would guarantee a payment of $2,500 per year for 10 years, what would you pay? $15,000, $18,000 maybe 20,000? The same principle is true in the purchase of a business. The projected future income has value in the context of a present-day transaction.

Unfortunately, the future profits associated with a law firm are not as certain as a guaranteed annuity. Although a firm’s reputation may be outstanding, and the historical revenues may have generated an impressive level of profitability, the continuation of those profits depend on clients choosing to continue to be served by the new firm following a transition in ownership.

Notwithstanding the above uncertainty there are means of estimating future gross revenue and net profit associated with a firm that yield an approximation of the firm’s potential value.  The use of revenue and profit multiples can provide a rough idea of value. That approximation requires further refinement in order to account for the risk associated with projections of future revenue associated with a particular practice.

For Your Consideration

What we are discussing here is what many in the marketplace refer to as the value of a law firm’s brand and the job of valuing that brand is clearly more art than science.  There are more challenges associated with valuing a law firm than most other business types. But these challenges should not get in the way of a focused effort to approximate the value of a firm before beginning a process that will result in a transition to new owners.

What efforts have been made to estimate your firm’s value?

Law Firm Succession: Addressing the Most Important Issue

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

After years of success (by any number of measures), more than a few firm founders (or later generation leaders) confront succession.  Some of them are simply ready to step back and enjoy life-turning their worries over to the next generation has great appeal.  Others are driven by unanticipated developments-illness or family circumstances compel them to move away from the practice sooner than intended.  Whatever the motivation, succession is a watershed event that requires careful planning, attention to detail, and comfort in the persons or firm that succeeds to what has been built.

When talk turns to law firm succession, there are some commonly identified considerations.  Are the founders really willing to let go?  Are their successors up to the task?  Do the founders have confidence in their successors?  Do the younger partners have the drive and passion to carry on the firm’s good work. Can the younger partners develop business like their mentors?  Will the firm, in one form or another, survive?

Despite the variety of factors that arise in the succession analysis, eventually all of them funnel down to one issue: money.  Simply put, for succession to work financial considerations must be understood, addressed and resolved.  Without sound economics in place, execution of any succession plan will be difficult.  But by focusing on the following five financial issues, a succession plan with good fundamentals is possible:

Understand and Address the Founders’ Financial Expectations.  Unless a firm’s founders are uncommonly altruistic, their visions of succession will include the receipt of some form of financial benefit.  Founders’ expectations can include the return of all contributed capital, payment for the value of their equity, and a little something for the firm’s goodwill.  Some founders may also be thinking about continuing to work on a modified basis in return for “reasonable” compensation.  Until their financial expectations are understood, met or modified, little progress is possible.

Understand and Address the Successors’ Financial Expectations.  The flip side of the coin is the anointed successors’ financial expectations.  Just like the founders, the successors will have financial expectations.  As in the case of the founders, if the successors’ expectations can’t be met or modified, the successors’ interest in seeing the succession through may disappear.   Lest indentured servitude become an option, the successors’ financial expectations must be understood and addressed.

Understand the Firm’s Financial Capacity to Assist and Regulate its Commitment.  In most instances, any financial benefit or recovery to the founders will come, at least in part, from the firm.  Founders with high financial expectations may find their appetite outsized when compared to the firm’s capacity.  Burdening a firm so that the founders are satisfied almost always leaves the successors unsatisfied.  Post succession, the firm becomes theirs but only if they want it.  A proposal that burdens a firm may lose successor support.  If so, a succession plan quickly may morph into a liquidation plan.

Understand that Succession Economics is a Zero-Sum Game.  Like settled litigation, a hallmark of a good succession plan is that it leaves founders and successors a little bit happy and a little bit sad.  Compromise is often required to find a middle ground between the founders’ and successors’ respective expectations.  There is a limit to what founders, successors, and the firm can afford.  A little recognition that succession is not a blank check can help greatly. 

Align the Economics with a Realistic Time Horizon.  As the financial expectations of the founders and successors gain clarity, the firm’s capacity to assist typically becomes crucial.  The economics of any agreement of the parties usually requires a contribution by the firm that extends beyond one year.  Finding the right period of time to deliver the disparate financial expectations is an essential component in most realistic succession plans. Too short a period can strain the firm.  Too long a period can discourage the successors.  The time horizon should be, as Goldilocks once said, “just right.”

Law firm succession involves important considerations.  Despite the myriad of issues, financial considerations almost always prove to be the most important.  As your firm addresses succession, is it focused on the economics?

 

 

HERE TODAY. GONE TOMORROW. WHAT CAN BE DONE TO SLOW THE LAW FIRM CHURN?

Posted in Law Firm Growth, Law Firm Transition

This is the second in a two-part series addressing one of the most costly and destabilizing realities of a law firm – the seemingly perpetual movement of lawyers from one firm to the next.

The first post on the subject  took a look at why and how to improve the lateral hiring process.  Today we turn our attention to an area that poses significant challenges — the integration side of the equation.

For purposes of our conversation, let’s assume that your firm has done all that can be done to ensure each individual and/or group tendered a lateral offer meets a strategic need and fits the culture of the firm.

Now comes the difficult part of growth by acquisition: devoting the time,  resources, and attention necessary to make each addition a successful one.  Where do we begin?

Once hired, statistics indicate that the quality of integration is the most significant factor in determining the success of the new relationship. This fact is supported by findings from a Major, Lindsay & Africa partner satisfaction survey which suggests that:

  1. Successful integration is the best indicator of lateral satisfaction;
  2. Given a demonstrated willingness on the part of partners to change firms, “…a firm’s failure to integrate a lateral partner often results in the partner moving yet again within several years.”

Put simply, quality integration is key to positive ROI in growth by acquisition.

How does a firm improve the integration process and experience?

To get the discussion started, let’s look at critical activity that should be incorporated  during a lateral hire’s first year with a focus on three important junctures:: pre-start; first day; and first year.

Pre-Start Activities

  • Leadership must create an enterprise wide understanding of and enthusiastic commitment to integration as a firm competency. This should include confidence in the the due diligence process as well as a grass roots belief that any lateral strengthens the firm’s strategic pursuits.
  • Engage a diverse group of existing firm personnel in the integration of every lateral hire. By diverse I mean (depending on the size and make-up of the firm) people from different offices, practice groups and strata of the organization; partner, associate, senior member, and administrative staff members.  The broader the connection to firm personnel — the stronger the connection to the firm and its culture — the better understanding new laterals have of how things operate, how to get things done, the stronger the bond.
  • As part of the offer process, document in detail all material expectations the lateral has of the firm and its support. Also detail specifically the firm’s expectations of the lateral including firm role, clients expected to transfer and level of personal work efforts. Cautionary note: experience suggests that word-of-mouth doesn’t get it done. Write it down.
  • Develop and agree to a plan that accurately maps the transition of the lateral into the firm. Again – talking about it rarely works. Write it down — with specifics as to the ramp-up of the candidate’s practice.

Start Date

  1. There is one and only one start date. It is a wonderful and often overlooked opportunity to make a lasting impression on the new addition. Day One should present the best possible snapshot of the firm’s culture. The lateral should be warmly and enthusiastically greeted. There is much written about the various components of quality orientation programs which I won’t repeat here. Suffice to say, you’re investing significantly in on-boarding a lateral; plan appropriately, and take the time to make the experience reflective of the investment.
  2. Assign a single point-person as primary contact and connection for integration purposes.
  3. Introduce the integration team. (If your firm does not have an integration team, the formation of such a group should be added to your pre-start activities.)

First Year

  • Create some buzz, make clients of the firm and clients of the lateral aware of the move and the new capabilities brought to each. Make the general market aware.
  • Regularly and openly monitor the practice integration plan, and directly discuss any slippage. Regular quarterly checks are essential. In the case of a situation that isn’t developing as expected, the first quarterly check will reveal a lot. If the practice is failing to develop as planned it should be abundantly clear by the 6 month mark and the firm should actively address options…including a strategy for smooth separation, should the trend continue.
  • Don’t forget to integrate other members of the group (secretaries, paralegals etc.)
  • Don’t forget to integrate spouse and family if applicable. To the extent the firm has spouse or family events, these are wonderful opportunities to strengthen intangible but nonetheless valuable bonds between the new hire and the firm.

This is not rocket science. You can no doubt add to this list of integration activities. But it does require some attention to detail. What would you add to the list of activities? Given the significant investment firms make in growth by acquisition, what else might we do to maximize the investment?

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