The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life. — Steve Jobs
Welcome to our blog – Managing Law Firm Transition – Thoughts on Leading High Consequence Change.
There is no denying that the legal profession is in a tremendous state of flux. The press and blogosphere are rife with news.
Like most everyone else, we appreciate the news but news isn’t what this blog is going to be about. Our objective is to provide insights and generate dialogue that will be of value to law firms in transition.
To that end, we start with how we define a law firm in transition. There are firms that are:
1. Facing a decision that addresses the fundamental way the firm has been doing business — Firms regularly face significant decisions-business altering decisions-that make them re-examine the way they do business, or the future of their business. Properly responding to the shrinkage of a practice, lawyer count or market evolution, adverse litigation, financial losses or growth opportunities are typical precipitators. These kinds of decisions, even though not motivated by the existence of crisis, the need for restructure or controlled liquidation, nonetheless should cause a firm to re-think its approach to the practice of law. A law firm in this position usually has the benefit of some time to make the right decision — but not unlimited time.
2. Needing to reposition/restructure — The need to reposition or restructure a law firm can arise from a number of developments. Repositioning or restructuring usually involves a firm being in a state of greater urgency than simply facing a business altering decision. The loss of significant clients, practice groups, offices, key lawyers, or a cost structure that has gotten out of balance with revenue can all signal the need to consider a repositioning or restructuring in order to turnaround the troubled firm. When this is the case, the clock is ticking — and decisions tend to become increasingly time sensitive and critical.
3. In crisis — Issues that will test survival take the discussion to a different level. Continued attrition, missing partner draws, declining profitability, and threatened or actual removal of borrowing ability are symptoms that signal crisis. In moments of crisis, managing the law firm understandably is traumatic. And time is of the essence.
4. Requiring an orderly liquidation — An unfortunate result of this market (and the most extreme of transitions) is the closing of a law firm. Firms in this position no longer have go-forward restructuring options. Often there are insufficient producing partners to cover the fixed costs and make continued operations viable. The only remaining option is an orderly liquidation that manages the claims against the firm, and minimizes disruption of lives. Choices made here are critical to a successful outcome.
The nature of the transitional decision faced by a law firm does not always fit nicely into one of the four categories described above.
At times more than one of the categories is presented; a law firm needing to reposition or restructure may, simultaneously, be in crisis. If repositioning or restructuring is realistic, it may avert the crisis.
In other instances, a law firm may initially believe it has time to re-think the way it practices, and adjust some of the fundamentals that underlie its business. But if the wrong decisions are made, it may soon find itself in crisis and needing a repositioning/restructuring lest it slip into requiring a controlled liquidation.
We all grow as a result of a good dialogue. What do you think of these four types of transition? What would you add? Modify?