For some time, the idea that law firms should be run like businesses has been accepted. While lawyers and law firms still benefit from the ideals that underpin the place our legal system has in our society, keeping a law firm’s doors open today requires a proper dose of business principles.
In attempting to apply these principles law firms are deficient in one particular respect. Their approach to management is relatively insular because ideas, perspectives and contrary views generally are harvested only from internal sources. Many managing partners, often not formally trained as businessmen, guide their law firms as best they know how, sometimes through imitation that gets sprinkled with a little common sense. As Kevin McKeown in Leadership Close Up accurately notes, being a lawyer does not guarantee the ability to lead.
Those same law firm leaders are elected or appointed by lawyers from within the firm, many of whom likewise are not formally schooled in matters of business. And although non-lawyer executive directors today are accepted more readily than ever before, a non-lawyer executive director typically serves at the pleasure of lawyers whose collective skill set weighs heavily towards the law. For an industry that frequently is admonished to “run like a business,” its bench strength in the business arts is light.
Methods to remedy this deficiency, some available now and others requiring industry reform, are worth thinking about. Some ideas include:
Accept the Idea of Executive Directors and Other Non Lawyer Contributors. Many firms have seen the value of executive directors but some circles remain wary. Notably, the State of Texas recently determined that law firms in Texas can’t give their non-lawyer business employees the title of “director.” Tim Corcoran, in his Blog post Bar Associations: Protecting Consumers or the Status Quo? criticized the Texas opinion and argues that it represents an anachronistic view towards the idea that law firms should run like a business. Is the Texas ruling simply a matter of semantics or does it represent a rejection of law firm progress towards business principles? Hopefully, the former. And no matter the title, hiring other skilled business people to aid in the law firm’s operations, pursuit of business and delivery of good service also makes sense.
Hire Outside Consultants When Approaching an Out of the Ordinary Course Initiative or Transaction. Appointing a real estate partner to find and negotiate a new 10-year office lease may provide short-term savings, but at a long-term cost. Using the experience and market knowledge of the best lease broker in your city may deliver a more sound business result. As was recently noted by Roger Hayse, lawyers that manage with the aid of outside perspectives delivered by experts or consultants tend to make more informed decisions.
Create a Plan for Law Firm Leader Business Training. Some law firm leaders have business experience, whether by training or through a previous endeavor. But many do not. Creating a plan to educate current and future leaders in business principles would be huge step towards institutionalizing a business-like commitment to management. To avoid a narrow-minded approach to management, the training should teach leaders to solicit and welcome outside views.
Add Outside Non-Lawyer Directors. Presently, this option generally is not available in the US. But industry reform in the United Kingdom has allowed UK law firms to appoint outside non-executive directors to their governing boards. According to data tracked since 2010, the firms that have added non-executive directors have, as a class, enjoyed revenue growth of over one-third better than firms that don’t have non-executive directors. The added outside perspective is credited for the improvement. Is similar reform in the US overdue?
Bring in Outside Investment. As shown by the UK experience; having a non-executive director could be helpful. Having an interested director whose interest is premised on his investment could drive a distinctly more business focus at a law firm. While outside investment into law firms is discussed from time to time in the US, the Canadian Bar Association’s recent endorsement of outside investment represents a far more significant commitment to changing the way things are done. The CBA’s decision has spawned a lot of comment, including some from the south. In the US, is this reform inevitable? Should it be?
Most people accept the idea that law firms should follow business principles and be managed like a business. It is easy to say, but harder to do. Is the legal industry doing all that it can to further the goal of having law firms run more like businesses? Are law firms, on the whole, ready?