(This post previously appeared on January 15, 2015 and noted some of the similarities between marital divorce and one of the more extreme forms of law firm transition-breakup. As we reach the end of 2015, for some firms the joy of another year completed may be supplanted by the tension and stress that often accompanies a disappointing year. For law firms experiencing this form of transition at the end of 2015 or as 2016 begins, the lessons from the post Like Divorce, Law Firm Crisis is More Likely as the New Year Starts)
In his January 2015 Divorce Rush Dates Back to the Middle Ages, Frederik Pederson examines the annual spike in English divorces every January and traces the phenomenon back to the Middle Ages. His research into the records of medieval church courts is interesting and supports his thesis. Mr. Pederson’s article backs the view that whatever the century, the built-up strains in a marriage finally prompt action as January starts. Indeed, among some divorce lawyers in England, Mr. Pederson notes that the first Monday in January is known as Divorce Monday.
In some respects, law firms are like the institution of marriage. Many married couples reach their breaking point at year-end and flock to divorce lawyers as part of their Holiday hangover. January is a time when partners at law firms likewise are more likely to reach their breaking point. Financial pressures, the prospect of another year in a dead end relationship, infidelity (or disloyalty) and discord of personalities can describe equally the dynamics in a strained marriage and a teetering law firm. Feelings and frustrations that have been pent up for too long finally bubble to the surface and someone vital to the relationship says “no more.”
Of course, not all spouses that initiate divorce discussions or proceedings end their marriages. Counseling, a change of heart, or a promise to “do better” can buy more time or solve the discord. And in law firms, not every threat of departure, actual departure, financial disappointment or disagreement over a firm’s direction means a law firm is at its end. But just as the strains in a marriage arise from some pretty typical situations, crisis in a law firm at a year’s beginning often comes from common occurrences. Five scenarios described below are repeated every year and create law firms crisis.
Take Their Money-Take Their Leave. The year-end ritual of distributing profits, bonuses or otherwise sharing a firm’s financial performance is commonplace. Also common is the all-to-frequent event of departure after financial rewards are shared. Stretching the rewards out by making payments in installments can reduce a firm’s “grab and go” experience. But for many firms, the early New Year amounts to an extended “moving day.”
Where is the Rest of It? While some partners will bolt after getting their year-end money, some stay but respond to a firm’s disappointing distributions by expressing dissatisfaction loudly and repeatedly. Even if they have good reason to complain, constant grousing can undermine a firm even if remedial steps to improve performance are underway. When the talk in the halls is negative, crisis can follow.
As Productivity Trends Down, So Too Does Optimism and Morale. Most people want to be part of something that is exciting, vibrant and improving. Stagnation is bad enough but when productivity trends down optimism and morale can fall as well. A firm facing a downward productivity trend is in trouble.
Banking Bad. Firms that rely on banking lines of credit can experience year-end results that adversely affect its banking relationships. Covenants can be broken creating the uncomfortable meeting with the bank. Even if covenant compliance is not an issue, the prospects for the coming year may project a need for increased borrowing, potential for covenant stress or the need for future additional availability. Finally, recent financial performance may cause your bank to try to exit the relationship. A strained banking relationship places a firm in crisis.
Palace Coup. The jungle drums may sound after a bad year. Unfortunately, existing leadership can be deaf to the cacophony of sound heard by everyone else. More importantly, if the natives are restless it means that leadership and the rank and file are not on the same page. Crisis can ensue.
When the intensity of year-end lightens and the law firm books are closed, there is time to reflect. There also is time to look at the hard data that measures a law firm’s performance. Like in the case of unhappy spouses, at law firms it can be the time for a Perfect Storm. This January, are you ready to respond to the potential for crisis?