It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. – Charles Darwin


These days, scarcely a week passes without news of another law firm in decline.  From high-profile names to less-known partnerships, the leaders of each face pivotal decisions. Some of these firms will restructure or otherwise embark on a turnaround strategy.  Others opt for merging with another group or offering themselves as an acquisition target in an effort to  avoid dissolution. In recent years we have seen far too many end in a messy liquidation.

Identifying The Path That Leads To Decline

The decline of a once vibrant partnership rarely has much to do with the quality of lawyers engaged in the practice.  And though the marketplace is certainly tumultuous, what is at the heart of survival and success for some, and the dire straits of a struggle to survive for others?

In his book Corporate Turnaround, Dan Bibeault identifies four key mistakes that lead to organizational decline. These mistakes, paraphrased to the legal profession are:

  • Failure to respond effectively to a changing competitive environment
  • Poor control over operations
  • Overexpansion
  • Operating with excessive financial leverage

Let’s look at each one a bit more closely.

Failure to respond to change effectively

Every leader knows that the only constant in business is change.  And no one need tell the leader of a law firm that our industry is changing at breakneck speed.  Specifics of the changes virtually every firm leader must contend with include:

  • Increasing mobility and declining loyalty of attorneys
  • Client imposed pressure on pricing
  • Non-traditional competitors and alternative service providers
  • Technology’s role in driving certain lines of service to commodity status
  • Consolidation

Counsel/Advice – Effective law firm leadership establishes a formal mechanism through which change is routinely addressed. These mechanisms identify emerging changes to the business of law, and collaboratively craft appropriate responses.

Control over operations

Operational challenges are varied, and abound.  If the leaders of a firm are continually surprised to find threats to profitability and stability, the firm is well on its way to a potentially painful transition process.  On the other hand, keeping an eye out for these early warning signs can result in averting crisis:

  • Loss of a significant client relationship resulting from continued service delivery issues, or the departure of a key partner
  • Firm-threatening malpractice claims resulting from failure to engage in client problem management
  • Shortage of working capital resulting from continuing cash flow deficits.
  • Excess capacity in terms of space and people resulting from failure to manage attrition of clients and or lawyers

Counsel/Advice – Leadership must establish control mechanisms that spot these (and any evolving) early warning signs. These mechanisms may include:

  • Operating and capital budgets
  • Client feedback systems
  • Attorney and non-attorney review systems such as 360 reviews that register building frustration

Part 2 of this post will follow next Tuesday.

What might law firm leaders be doing today, to better predict where firms end up in the coming months and years?