Managing Law Firms in Transition

Managing Law Firms in Transition

Merger Madness-Five Reasons Your Merger Can Go Wrong

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

It almost seems like a broken record to hear about the popularity of law firm mergers.  Legal industry publications report on the latest mergers and hot market trends.  Indeed, just recently The American Lawyerreviewed the merger opportunities that abound for mid-size firms in its Mid-size Firm Leaders Awash in Big Law Merger Offers.

Despite the popularity of mergers among many firm leaders today, positive outcomes are not assured.  Mergers can fail-depending on how success is measured, the failure rate can exceed 50%.  Even a “successful” merger can be a disaster for some of the parties indirectly involved, like certain partners.  The recent headline Biglaw Lawsuit Drama: Partners Allege Merger Deprived Them of Their Moneyin Above the Lawrepresents anecdotal proof that mergers can go wrong, at least for some of those participating.

Of course, a bad merger for one participant may be a good one for another.  And the list of exact ways a deal might turn out poorly can be long if not endless. Nonetheless, it is possible to identify five circumstances that can lead a firm or some of its owners into a bad deal.

Five paths to unacceptable to a shaky outcome are:

The Marriage Partner is Less Than Forthcoming.  No business transaction is immune from a bad actor on the other side.  Even if outright fraud is not present, an agressive counterparty can use non-disclosure, obfuscation, or confusing nomenclature to extract a deal that a clearer understanding would reject. There can be a wide range of savvy among parties to a deal and it is possible your firm’s opposite possesses greater sophistication.  For that reason, it is a good idea to enlist experienced help, especially if differing levels of experience creates an uneven playing field.

Leadership Leads You into the Abyss.  Your law firm or you can end up in a bad place if your leadership negotiating the deal is ill equipped or too invested in a deal consummation outcome.  Because not all law firm leaders are created equal, the default of the managing partner driving the deal does not guarantee a good outcome.  At a minimum, a firm jumping into the fray should get its best deal lawyers on point. Better yet, hire outside counsel and financial advisors.  But even the best professionals can’t thwart leaders that want the merger too badly. Steps to guard against leaders in love are worth considering.

Business Premise Does Not Compute (2+2=3).  A merger should be the tactic to implement a well thought out business strategy. Consequently, the post-merger business case for the combined firm must not only be compelling, but it must be assessed before agreeing to the merger. Two firms made stronger through merger is the objective.  If that outcome is not apparent during the merger discussions, isn’t it worthwhile to question going forward? A merger that is not additive may not be worth doing.

The Firms Were Never Meant for Each Other.  Even if the business case for combining the two firms is compelling, the firms must be compatible on multiple levels.  Compatibility metrics like financial performance, compensation systems, client similarity, culture and operations must be measured.  If too many of the metrics do not align, it is wise to forego the merger opportunity and look for the next one. “A lack of compatibility” has been the epitaph on many merger headstones.  A critical examination of the “things that bind” is essential.

Salt Water Fish in a Fresh Water Pond.  A merger that hits all the markers for the two institutions getting married may be unsuitable for certain individual lawyers. Mergers inevitably create attrition when lawyers are forced into a new home. As the exciting news of the combination is announced, and the sales job gets rolled out, lawyers will look beyond the company line and take stock from their personal point of view.  For that reason, firms selling their mergers should view the deal through their lawyers’ eyes to realistically project attrition. Too much unanticipated attrition can be highly detrimental on many levels.

Before embarking on a path to merger, many of these five pitfalls can make a deal go wrong.  Will you think about these risks before going forward?

 

What is Your Law Firm Worth

Posted in Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, 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 firm 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 the conversation should begin.

Two Broad Considerations

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

  • 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 (and typically most valuable) 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?

Merger as a Law Firm Succession Plan-Five Steps to Getting it Done Correctly

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

Every year law firms of all sizes merge. For some of the smaller law firms merging, the decision to combine may have been driven by the need for an effective succession plan. In these cases in which long-time management is unenthused about the prospect of turning the keys over the next generation, merger can be pursued in lieu of the more traditional internal succession approach.

From the point of deciding to seek a succession plan merger to getting to the closing table, a lot of things must happen. Indeed, care is essential in any merger but especially when a succession plan merger is pursued. Mistakes along the way can make the plan impossible to achieve or result in the options available being less than desired. An undisciplined approach may yield no merger while leaving the firm weakened. To maximize the outcome in a succession plan merger strategy, there are at least five key considerations.

Establish Your Objectives.   As in any major transaction, a clear set of objectives should be established at the outset. If the succession plan merger is primarily designed to wrap up the smaller law firm’s affairs with dignity, then the approach will be far different than for mergers designed to “cash out” or to leverage the combination into the next achievement for a law firm steeped in a history of success. But if the objectives are not well understood from the beginning, pursuit of a merger will not only be haphazard but also potentially ineffective, or worse yet, harmful.

Objectively Assess Your Attractiveness.   Nothing can waste more time than being unrealistic about your firm’s attractiveness. Conversely, nothing will be more disappointing than to realize that your merger strategy undersold your value. To avoid missing the mark, hire an advisor experienced in law firm mergers that will provide an unbiased assessment of your place in the market. If the advisor concludes that no market exists for your firm, you clearly would want to know in order to avoid pursuing a fool’s errand. If a market exists, geography, legal strengths or specialties, size, financial performance and personnel will be relevant factors to developing a strategy.

Make Your Firm Look Good.   Many times, a home sells more quickly and at a higher price if it is “staged” to look more attractive. The same can be true if proposing to enter the merger market. Deferred maintenance needs to be remedied, lingering problems need to be addressed and contingent liabilities need to be resolved or at least contained. Presenting your firm in the best possible light, with professional assistance, can be very helpful to optimizing your results.

Develop a “Sale” Strategy. Law firms are best marketed discretely and without being on the market for too long. For that reason, it is essential that your advisor develop a strategy that presents your firm to good candidates without shoving a “for sale by owner” sign in the front yard. An unfocused marketing strategy can be counter-productive.  And a law firm marketed for too long will become market worn and perceived as rejected by the market.

Communicate Internally. The fact that your firm is seeking a merger partner should be closely contained. But because word has a way of leaking out, it is essential that an internal communication plan exist. A plan serves at least two objectives. First, it keeps key law firm contributors on board and minimizes their premature departures. Second, it can build support for the merger. But because pursuit of a succession plan merger is based on the conclusion that an internal succession plan is not desirable, any communication plan needs to be carefully developed.

A succession plan merger can be a useful strategy for law firms otherwise struggling with succession. Pursuing that strategy requires care and commitment. Has your firm considered a merger as a way to address its succession issues?

 

Law Firm Sale and Outside Perspective

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

The best way a mentor can prepare another leader is to expose him or her to other great people.    John Maxwell

Quality decision-making has a great deal to do with shaping the ultimate fate of all law firms.  Today’s post focuses on the value of today’s law firm leader engaging the insight and decision-making acumen of seasoned outside business professionals when considering the transition of their practice through a sale.

Think about it. When we engage in a personal activity that is important to us but for which our experience is lacking, we call on the services of a coach, mentor or guide.

  • On vacation, we often employ a guide to help insure we get the most out of the experience;
  • If you hike in an unknown area, you likely tap the knowledge and experience of one who knows the terrain;
  • An advisor is hired to assist with the creation and monitoring of our financial plan.
  • The guidance and direction of a fitness expert insures we get the most out of time invested in the gym, and ultimately realize objectives.

But what about the often new and unfamiliar challenges that come with the responsibilities of leading a law firm through its most critical transition? Unfortunately for most law firms, the senior members of the firm or the leadership body rely solely on their own judgment and relatively limited experience.

In virtually every other business arena, executive leadership has long recognized the value in tapping seasoned and diverse perspectives — especially when facing key decisions related to their organization’s future. That is why so many corporations have a board of directors dominated by professionals from outside their organization.

When you compare the difference in business leadership experience of the typical non-law firm with that of almost every law firm it is startling. And I would argue that the need for outside perspectives for law firms is even greater than other businesses.

Edward Drummond is a UK based executive search firm that recently released the results of a study of the top 100 UK law firms over the last four years. It is telling that this study reports that about a quarter of the UK top 100 use a non-firm member to assist with decision making; and that the firms that utilized this approach realized a growth rate of about a third more than other firms.

The author of the study suggests “To get someone in just for a few days a year often works well for both parties. Having someone with strong commercial experience – sometimes within the FTSE 100 – can really drive growth through commercial experience.”

Tapping the perspective and experience of outside advisors can help design a winning strategy, and accelerate a “leadership orientation” for the law firm management team. The risk is extremely low and the upside is limitless.

Is your firm considering a succession type transition ? Are these  decisions going to benefit from the wisdom of a seasoned business professional(s)?

Five Warning Signs That Your Law Firm is Headed for Uncertain Times

Posted in Law Firm Crisis, Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition, Law Firm Warning Signs

As business organizations go, law firms are different because they can face greater stability challenges.  Sure, law firms with iconic names seem to rock along year after year.  But for every bedrock firm there are others that struggle to survive.  And even some of the firms regarded for their steady state are like the proverbial duck bobbing on the pond-calm on the surface but furiously paddling underneath the waterline to stay unruffled.

No matter a firm’s size, or its current state of repose, all face the potential for future rough seas.  Good management, basic blocking and tackling, and a strong culture contribute greatly to protecting a law firm from instability.  Yet even firms with great fundamentals can be headed for struggle if vision is lacking.

Historically, warning signs precede a law firm’s crisis. Unfortunately for some firms, the signs go undetected until too late.  Recognizing the “heads-up” early greatly aids law firms prepare for and combat the crisis that lurks.

While warning signs can take many forms, five common indicators worth watching for are:

Inadequate Succession Plans.  The importance of succession at law firms is recognized.  Some firms are wholly unprepared for the future because virtually nothing has been done.  Without question, these firms face a cloudy future.  Yet even firms that have dedicated some time to succession may suffer from an insidious case of overconfidence.  A firm whose succession has received inadequate attention is highly susceptible to risk.  An underdeveloped succession strategy can be as bad as no strategy at all. If your firm’s succession planning is lacking, take heed.

Reactive Operations.  In today’s dynamic legal services market, well-prepared law firms are proactive towards client needs, market forces, and industry trends.  These firms take nothing for granted and prepare for a future that will be ever changing.  A firm that is comfortable with “business as usual” has taken a different approach and is at a disadvantage.  As the industry moves further and faster, the reaction time for the complacent firm slows comparatively-it is positioned for an uncertain future. When you realize that your firm is reactive, not proactive, it may be time to worry.

Unclear Retirement Plans. As firms age, how are the old warriors going to ease into retirement?  If a firm has no retirement strategy for its lawyers (whether 401(k)-like or traditional pension plan), the senior lawyers may be compelled to work long after their worth begins to wane.  For multiple reasons, that is not healthy. Conversely, a firm’s pension plan may solve that problem, but the plan may be woefully underfunded.  Either way, a firm without an effective handle on retirement for its lawyers should have concerns.

Non-rationalized Real Estate.  A big expense for firms relates to its real estate obligations.  More than a few firms have too much space in relation to productive lawyers.  Unrationalized real estate puts significant pressure on a firm’s bottom line.  For that reason, a firm whose real estate obligation exceeds its needs signals that all is not well. Noticing your firm’s real estate commitment being out-of-whack with its needs should set off alarm bells.

Growth or Non-growth That Follows No Plan.  Firms grow, get smaller, or maintain their size with each passing year.  Any firm whose size fluctuates uncontrollably has not adequately planned for its growth (or non-growth).  A firm whose growth ebbs and flows without it being the result of a well-designed strategy is risking its future. Unguided growth is like a monkey with a gun.

To succeed long-term, law firm leaders must remain ever vigilant.  Staying attuned to problems on the horizon is a hallmark of alert firms.  Do your firm’s leaders have the vision to see what lies ahead and react?

Part 2- Succession and Selling Your Law Practice

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

This is the second in a two part series addressing the idea of selling your law practice as part of a succession plan. Part one addressed
issues related to defining personal objectives, compliance with local bar rules, and practice valuation.

In this post we will look at three remaining considerations:

  • Finding a buyer,
  • Negotiating the transaction; and
  • Transitioning client relationships

Finding a buyer

There are a number of approaches to identifying the right buyer for your practice. At the outset we should emphasize that your local bar rules may influence your choice; so be certain to thoroughly explore them before proceeding.

Classic Advertising 

A simple advertisement in any of the bar journals or practice specific publications is a reasonably cost effective means of reaching potential targets. If you go down this road it pays to be aware that this is a bit of a shot-gun approach. Your plan will need to include an initial vetting process. Otherwise, depending on the size of your market and the practice you wish to sell, you could find yourself spending a lot of time fielding unproductive inquiries. The more targeted your advertising can be, the better.

Competitors Direct Approach

As is the case with most marketing efforts, the sooner you get face-to-face with a qualified target, the better. So your most fertile ground may be competitors, or those engaged in a complementary practice. Approaching these individuals or firms directly can expedite the process if interests and objectives are aligned. So some homework here can prove beneficial.

Search Firms

Just like in lateral attorney recruiting, search firms are a possible means of reaching potential buyers. Once again, you can streamline the process if you have clear objectives outlined.

Firm Members

Maybe the most overlooked and very frequently the best target for the sale of your practice is someone within your own firm. This greatly simplifies relationship transition.

Negotiating the Transaction

There a three keys to negotiating the transaction.

  • Valuing the practice in a fair and understandable manner.
  • Structuring a payout that is affordable for the buyer and acceptable to the seller and
  • Minimizing buyer risk through facilitating client retention

Like so many things, experience in negotiating these types of transactions is very valuable to both the buyer and seller. If you haven’t personally been involved in a law firm sale, get some experienced help.

Transitioning Client Relationships

The absolute key to making a sale transaction successful for both parties is the movement of client relationships to the new owner for the long term. A well thought out approach that begins with an introduction and eases the clients into working with the new owner is often most successful.

What are you doing to prepare for the ultimate transition of your practice?

Merging Your Small Law Firm into a Bigger One-Five Additional Things Smart Firms Think About

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

Law firm mergers happen-a lot.  While the mega mergers get the publicity, many mergers stay under the radar because they involve smaller firms being absorbed by larger firms. Whether for reasons of market dynamics, succession, or battling for growth, some smaller firms simply conclude that life will be better as part of a bigger shop.

A good merger requires basic compatibility, often around areas such as culture, financial metrics, operations, clients, and compensation.  If most of these things seem generally in sync, merger may be a good idea as long as there can be a meeting of the minds.  Theoretically, arms-length negotiations ensue with either firm free to step away from the table at any time.  Despite this apparent equality in the mating dance, however, many smaller firms do not appreciate how disadvantaged they are when considering merger with a larger firm.

As compared to small firms, large law firms have certain inherent advantages-two of which are obvious.  First, the larger firm’s operations typically are more complex than the smaller firm’s way of doing business.  Of the two, the larger firm will be more capable of understanding its counterpart’s operations than vice versa.  Second, the larger firm usually will have greater experience in mergers and acquisitions, likely having completed others prior to the time it sits down for the instant deal.  Other advantages for the larger firm, not always realized immediately, can creep into the process as it goes along

Because of these disadvantages, a smaller firm should do more than ascertain general compatibility or work hard to negotiate a good financial deal.  Rather, it should approach merger discussions with a curiosity that helps it:

Understand the Terminology.  The older and larger a law firm, the more likely it will have a language of its own that describes basic concepts.  The terminology may seem unintelligible, it may seem a little familiar, or it may match perfectly with concepts at the smaller firm.  But don’t assume that familiar sounding terms have a familiar meaning. Unless all the nomenclature is understood, key components of any proposed transaction will be missed, and post-closing life may be disappointing.

Check References.A lot of firms seeking to merge or acquire other firms have been doing similar transactions for a while.  If so, dig deep into the firm’s track record of integration, post-merger success and failure.  Calls to former partners for references on the other firm is simply good diligence. You’d be surprised at how much you learn.

Understand the Firm Policies.  No one would contemplate a merger without digging into the other firm’s constituent documents.  Don’t stop there.  A lot of what gets done in a firm is contained in its policies.  Many law firms use policies extensively as management tools-those tools can make day-to-day life very different from the glorious stories told while courting.  Understand the policies-they will provide a glimpse into future.

Understand the Firm Strategic Plan.  Read the larger firm’s strategic plan to be sure its strategy and tactics are clear-but also read between the lines.   Understanding a firm’s overall strategy helps you determine whether your smaller firm fits within the larger firm’s plan.  For example, if the larger firm’s strategy seeks to eliminate low margin practices, some smaller firm practices may not fit well.  Worse yet, if your prospective merger partner doesn’t have a strategic plan or it is old, the quality of management has to be questioned.

Compare the Values of Ownership.  No doubt your suitor is pouring over your data in an attempt to determine whether a merger will be a net benefit or burden.  You should do the same and not assume that just because it is bigger it is financially stronger.  You should assess the value of your equity pre-merger and post-merger.  How a delta in comparative net equity, and other financial disparities, is resolved may be the difference in doing the deal or not.

For the smaller firm, getting merger right is very important because a second chance is seldom given.  With so much at stake, what other factors should smart firms consider?

Succession and Selling Your Law Practice

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

If you practice law, there is one eventuality that should be added to that familiar duo of Death and Taxes. No one talks much about it, but it warrants the same attention to detail. The subject? The end of your practice. 

As is the case with its two more familiar rivals for attention, ignoring it will not prove wise. 

The fact is that this change will probably be the most significant professional transition of your career — the transition of one’s practice to someone else. Transition of this type is typically driven by:

  • Pursuit of another profession or passion
  • Relocation to a new city
  • An unforeseen health circumstance, or the most likely
  • Retirement

A critical part of practice (or firm) management is planning for the future. In its most productive form, strategic planning includes a deep-dive into both short-term and long-term possibilities. And this kind of planning can be the difference between a smooth and profitable transition, and one that resembles a disaster.

There are, needless to say, a number of issues to consider. And as is the case with respect to your personal taxes or the distribution of a personal estate, expert counsel can help you avoid pitfalls. leverage every asset, and end up with a successful transition.

Some of the most common issues include:

  • Defining personal objectives
  • Compliance with local bar rules
  • Practice valuation
  • Finding a buyer
  • Negotiating the transaction
  • Transitioning client relationships

In this post we’ll explore the first three issues; and we’ll tackle some ideas around the remaining three in the next post.

Defining Personal Objectives

This first and most important step sets the stage for the entire process. It outlines what constitutes success, and sets parameters that will facilitate decision-making. What must be accomplished, and in what time frame? Do you want to completely step away from the practice, or keep one foot in? Do you want the transition to be prompt, or take place over time? Those are but a few of the variables  that will dictate your strategy.

If you want to transition the practice over a period of years the literal sale of the practice is not an option; whereas a sale is an option in most states if you envision a complete separation from the practice.

Compliance With Bar Rules

The ABA provides for the sale of your practice as long as certain conditions are met.  Rule 1.17 sets forth the following conditions:

a) The seller ceases to engage in the private practice of law, or in the area of practice that has been sold, [in the geographic area] [in the jurisdiction] (a jurisdiction may elect either version) in which the practice has been conducted;

(b) The entire practice, or the entire area of practice, is sold to one or more lawyers or law firms;

(c) The seller gives written notice to each of the seller’s clients regarding:

(1) the proposed sale;

(2) the client’s right to retain other counsel or to take possession of the file; and

(3) the fact that the client’s consent to the transfer of the client’s files will be presumed if the client does not take any action or does not otherwise object within ninety (90) days of receipt of the notice.

If a client cannot be given notice, the representation of that client may be transferred to the purchaser only upon entry of an order so authorizing by a court having jurisdiction. The seller may disclose to the court in camera information relating to the representation only to the extent necessary to obtain an order authorizing the transfer of a file.

(d) The fees charged clients shall not be increased by reason of the sale.

Please note that not all states (including Texas, where we are based) follow Rule 1.17. So check your local bar rules before moving forward.

Practice Valuation

Whether you literally sell your practice or transition it to a new owner through another means, the practice needs to be valued for fiscal reasons.

Fundamentally this is a matter of determining anything being transferred that is relevant to the generation of future profits. Portions of the practice relevant to valuation include:

  • Hard assets
    • Furniture
    • Equipment
    • Property
  • Soft assets
    • Cash
    • Receivables
    • Work in process
  • Business systems/intellectual property
  • Goodwill
    • Existing clients
    • Former clients
    •  Referral sources of firm
  • Liabilities
    • Actual
    • Contingent

Even though each of the above items can have a significant impact on the valuation of the practice, the most difficult and critical valuation issue is that associated with the goodwill. What future revenue stream is really being transferred based on this often difficult concept?

Transitioning out of practice is best accomplished when handled as a process — one that begins long before the eve of the desired transition.

Avoiding Post Law Firm Merger Culture Wars-Six Things to Consider Before Getting Married

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

Law firm mergers have been in the news with combinations being announced seemingly every week.  So far in 2018, the many mergers closed have drawn the attention of the media and law firm leaders alike.  The rationale for any of the announced mergers depends on the specific transaction and the firms involved.  Whatever the reason, they all come with great hope.

Any decision to pursue a merger should be premised on an underlying strategy that is not the idea of merger itself.  This should be true for both firms in the deal. But even if the strategies are aligned, the melding of the two firms may not be a good idea if the firm’s two cultures are not compatible.  Indeed, many firm leaders that have experience with law firm merger view “merging with the right culture” a critical component to achieving success.

For firms thinking that merger may be in their future, the importance of culture cannot be discounted.  But in focusing on culture as part of merger discussions, what should a firm leader study?  How can the leader move beyond the aspirational goal of being compatible to examining things more concrete?  The answer can be found by looking at the following six areas of law firm life:

Business Principles vs. Professional Commitment.  Most sophisticated or advanced firms recognize the importance of operating as a business but beyond that unanimity there can be widely divergent approaches. A firm’s dedication to “operating as a business” may be tough to swallow for another firm that is more committed to adhering to “law as a profession” maxims. Forging a common fit may prove difficult.

Live to Work vs. Work to Live.  For some lawyers and their firms, making as much money as possible is the driving force for having their firm at all.  For another firm, that values a comfortable living while enjoying an equally satisfying quality of life, the outlook can be far different.  Joining two firms together with contrasting views on money and lifestyle can start out a marriage with a deep cultural divide.

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

Taking vs. Giving. There is no right or wrong answer to whether a firm should be civic, and profession minded or not. Nor is it wrong for a firm’s lawyers to only focus on client satisfaction. The law firm industry has more than enough room for firms of either bent.  That said, two firms at opposite ends of the non-monetary value spectrum might prefer to remain apart.

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

Solo/Silo vs. All-Hands-On-Deck.  A teaming atmosphere can be dramatically different from a place where being helpful is neither expected nor rewarded.  If a merger will bring together lawyers not on the same page about the concept of teamwork, inefficiencies and resentment will mount to the detriment of the merged firm.

The number of issues that can impact law firm merger success are many.  The financial fit may be right or wrong.  Client mix or market position are other variables that can be impactful.  But the importance of a cultural fit cannot be minimized.  If two firms thinking about combining are different in many of these six areas of day-to-day life, the two cultures may not be aligned.  If you were considering a merger and many of these day-to-day characteristics of the firms were not aligned, would you go forward?

What Does Partner Mean in Your Law Firm?

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

If you change partners every time it gets tough or you get a little dissatisfied, then I don’t think you get the richness that’s available in a long-term relationship.                   Jeff Bridges

Another year and more turmoil in the legal profession!

Although for some law firms the economy has led to marginally improved performance, for many (most?) the changing market for legal services continues to create serious challenges. And as firms continue to search for a path to sustained health, there will continue to be an unfortunate number of partner terminations and demotions.  In far too many cases the effected partner is surprised.

In a conversation with Larry, a successful lawyer that I once worked with, he asked, “In managing law firm performance, how do we manage performance cycles, while honoring a culture that values the individual?  We all talk about loyalty and being partners; but the concept of removal or demotion seems directly at odds with those bedrock concepts.”

Larry has put his finger on the heart of the issue – a pivotal point that, in my view, warrants discussion.  In pondering Larry’s observation, a fundamental question dawned on me —exactly what is a partner?

Unfortunately most law firms have not made partner a defined term, leaving it to individual and inconsistent interpretation.  Certainly many firms have defined characteristics necessary for promotion from associate to the partner ranks, and at what age you must retire from being a partner. But what I am talking about specifically is defining what it means to be a partner during the 30-40 years between these two points!

Let’s look at the spectrum of possibilities.  At one end you have the firm with high standards for conduct and performance, and little tolerance for variation from those standards.  At the other end we have the firm that operates with a philosophy of once-a-partner-always-a-partner, no matter the conduct or level of performance.  Obviously, there is a universe of options between these two extremes.

My point is not that there is a universally applicable combination of these factors that is right for every firm; but rather that it is essential that you define exactly what ‘partner’ means for your firm.  Defining expected conduct and performance would:

  • Dramatically improve the odds that the firm will achieve the collective aspirations of its partners; and,
  • Provide a fair means of assessing individual partners.

I believe the degree of a firm’s success will be directly tied to two issues that stem from defining what it means to be partner.

First, the longer you allow the lack of definition to exist, the more varied the conduct and performance of the Partners — over time, threatening the competitive position of the firm.

Second, once you have defined what partner means, the firm’s management must demonstrate the resolve to manage performance to that definition.  To not follow through violates a basic contract with the partners, undermines confidence in management, and threatens the long-term health of the organization.

The clear definition, communication and observation of what it means to be a partner will unify and strengthen a firm’s position in today’s turbulent market, and help maintain stability and strength in the pursuit of tomorrow’s goals.

Exactly how does your firm define Partner?

.