In a time of increased competition among law firms, a firm’s positive news, developments or performance always seems welcome. Peer recognition for the firm is nice. Likewise, having clients show confidence in the firm by hiring it again and again naturally is a boost of confidence. And climbing revenues and profitability is almost always viewed as a barometer of success.
But not all indicia of positive financial performance means a law firm is doing well or headed in the right direction. For performance data to be truly positive it should be indicative of advancing a firm’s values, culture and strategy. While it may be hard to imagine that more money can ever be a bad thing; if it comes at a cost to values and culture or causes a diversion from a well-considered strategy, it may be a dubious marker of success. Simply put, some financial success may not always be probative of the success a law firm seeks or needs.
When a firm enjoys a bell weather year financially it should look at that performance a little deeper. The proper perspective is to not just assume that a good financial outcome is the true measure of progress. Indeed, an uptick in revenues or profitability may mask substandard performance when tested against a firm’s values, culture and strategy. If you are incredulous about such a proposition, ask yourself how many times have you read about a law firm that closes while its last managing partner states, “we just finished our best year ever.”
That being the case, strong financial performance should be understood with the following thoughts in mind:
It May Be an Aberration. Some financial aberrations or one-time events are easy to spot. A significant bump in revenue and/or profitability may not be repeatable-at least anytime soon. If the spike in partner profits came because departures leave fewer shares to be divided, the concern over attrition may take priority over congrats for the extra money spread around. Collecting a large but old receivable or contingent fee may say nothing about your firm’s current direction. Patting oneself on the back may be unjustified. Equally concerning, complacency can ensue.
Is Performance Aligned with the Firm’s Values? Strong financial performance may or may not measure whether the firm is doing a good job standing strong about its values or being true to its culture. A firm deeply committed to teaming and building an institutional client base should not be overly swayed from a boost in revenues caused by laterals that can’t seem to un-silo their practices. The firm may still like the revenue created, but it cannot be sanguine that the uptick signals a faithful adherence to its values and culture. A firm should test the results to see if they are consistent with the long-term needs of the firm.
It Can Lead to Rewarding Contrary Conduct. Whenever a firm’s strong financial performance is attributable to the efforts of a few, there is a natural tendency to laud or reward that effort. But with humans being humans, the motivation to emulate the latest “stars” may yield more of the same behavior. As long as the original conduct was consistent with the firm’s values, culture and strategy, all will be good. But if that is not the case, the firm should beware. A firm should understand the nature of financial success before rewarding those responsible.
It Can Change Your Firm’s Values, Culture and Strategy. Repeatable strong financial performance can be a beautiful thing. But if it consistently is contrary to the long-held values, culture and strategy, it likely will forge those things in a new direction. That is not to say that the values, culture and strategy were right in the first place or unchangeable, but awareness of the change should stimulate an introspective look at where the firm is headed. If ownership is happy with that direction, fine. But if not, action will be required. Consistent performance not in sync with stated values, understood culture or adopted strategy should be discussed and evaluated. If the firm’s direction is to change, it must be done willingly.
Popping the champagne because of great financial success is always fun. But smart leadership looks beyond the bottom line results to see where their firm is headed. When your firm has enjoyed its “up” years, has it looked at its performance critically?