Growth among law firms generates headlines. Legal publications report on a merger here, a planting of a law firm flag there and the lateral moves of significant practice groups. The thing about growth is that it is a planned exercise-an initiative that is a matter of choice based on strategy. The opposite of growth, a law firm’s forced closure, often garners headlines as well, like the closings of Dewey, Brobeck, Coudert and Howrey, to name a few. Yet many law firm closings go unreported or fall under the radar because they just aren’t that interesting. The unreported (or underreported) law firm closings are, like growth, a matter of choice-in their case usually undertaken when owners simply decide that closing the firm makes more sense than continuing the status quo. For those law firms, closing becomes their strategy.
Law firm closings by choice tend to be quiet affairs. This year alone, three established law firms in Dallas decided to either close entirely or leave the market in order to concentrate elsewhere. Barely a ripple was made or observed. In each instance, the firms chose to close or exit the market as a matter of choice unforced by unforeseen circumstances or crisis. In our experience, when closing becomes a law firm strategy, five things tend to determine whether the strategy is successful:
Discussion Among the Owners is Unemotional. Successful law firm closures by choice usually grow out of unemotional discussions among law firm owners about their firm’s future. Views are expressed and ideas are exchanged that ask about the law firm’s very existence. The reasons for the law firm’s formation, its historic successes and its recent frustrations and failures are all considered as the firm’s future gets questioned. Unlike law firm discussions that occur when departures or controversy stimulate animus or finger pointing, a discussion amongst owners seeking a “gut-check” about their future together tends to be more clear and rational.
Closing Experience. The closing of a law firm necessitates the resolution of many issues that are never faced by the law firm operating as a going concern. Having experience in closing a law firm or drawing on professional assistance specializing in closure is extremely valuable. A DIY approach risks taking critical steps out of sequence or missing important steps altogether. As odd as it may seem, most successful law firm closures are not a “first rodeo.”
Advance Planning. Law firm closing by choice usually involves careful consideration of all the ramifications that go with a closing decision. In those instances when a law firm has embarked on a closing strategy, it likely has time to plan its closing. The absence of crisis can allow the firm time to plan a closure that is both prompt and methodical.
An Impending Deadline Compels a Discussion and Then a Decision. Oftentimes, inertia causes a law firm and its owners to march along without considering whether a continuation is in everyone’s best interests. But when a significant business decision is presented, like entering into a new long-term office lease or appointing a new leader, the owners can take stock of the firm, their relationships with each other and individual desires. A watershed business decision creates a deadline and in many cases successful law firm closures grow out of one being presented.
There is Consensus About the Planned Wind-down. Nothing is worse than a law firm wind-down in which the owners are in disagreement about the objectives, the strategy and the person to be placed in charge. On the other hand, if the owners can be in agreement about how the firm will be wound down until it is dissolved and who is responsible for the plan’s execution, the wind-down can be effective and relatively painless. Obtaining consensus among ownership is not a given but hard work and dialogue can mediate differences of opinion. Even after the wind-down begins, a commitment to cooperate is vital if early consensus is to continue until dissolution is complete.
Each year, many firms face closure decisions, sometimes with little warning. All it takes is for a few owners to ask the fundamental questions about whether the firm should continue. Is your firm, as stable as it is, facing an important decision point about whether it should continue or close? If so, is it likely to respond in a way that would make its closure by choice a success?