Law firm growth is a popular strategy or tactic among law firms seeking to compete in today’s ultra competitive legal services market. Growth often is achieved through mergers, practice group acquisitions and lateral hiring. And in some cases, the growth initiatives result in new offices being opened in markets previously not served. New offices create excitement and usually generate visions of success on account of expected synergies, anticipated new opportunities and the adding of a roster of respected lawyers. Over time however, the excitement can wane and in some cases is replaced with the realization that the new office is more of a burden than a benefit. The malady is not confined to new offices-long standing offices can become burdensome over time as well.
Fixing the problem office, whether traceable to financial performance or other issue(s), is critical to the health of the firm at large. Substandard financial performance can not only undermine the larger firm’s bottom line, but it can foment morale and cultural issues system wide. Finances aside, problems with practice quality risk a firm’s reputation and must be addressed to avoid tarnishing the brand. Inconsistent cultures can likewise be disconcerting. Whatever the basis for the problem, prompt action is required.
Unfortunately, not all problems associated with a distant office can be solved easily. When the solution is too complicated, requires the investment of too much capital or is too formidable due to market dynamics in the city the office calls home, the drastic option of office closure is presented. But the better approach may be to “spin off” the office and depart the market. If law firm leadership finds itself dealing with a struggling office that does not seem to be easily fixed, the following thoughts are worth considering:
A Spin Off Should be Done for the Right Reasons. Just because a distant office struggles does not mean that it should be closed. Hard work and basic blocking and tackling can correct many a problem. But if substandard financial performance appears uncorrectable, strategic incompatibility exists, or the culture is not in harmony with the rest of the firm, finding a new home for the office may be a good alternative.
One Man’s Trash is Another Man’s Treasure. While not all spin offs need to be described so pejoratively, the point is that just because an office is not valuable to one firm does not mean it won’t have great value to another firm. A large firm deciding to spin off an office can often find suitors for the office if it tries. Alternatively, sometimes the smaller office is a good candidate to become a stand-alone law firm. In any event, a struggling office may just need to be put in a position to succeed and a new home may be the right solution.
Timing is Important. Ignoring the opportunity to affect a timely spin off can subject a smaller office to eventual defections, terminations and an inability to recruit. A crippled office will end up being unattractive and leave the larger firm with many headaches, including unwanted lingering liabilities.
For Clients and Personnel, It May Be the Best Thing. A planned and controlled disassociation may be far better for clients and personnel than a painful stream of departures, defections and terminations. With foresight and planning, the transition of an existing office to a new firm or the creation of a stand-alone firm can be seamless for clients and personnel. Not only are their interests supported, but also the remaining firm can lessen its malpractice risk and liabilities typically associated with closure.
Once Divested, the Leadership Can Focus on the Firm’s Future. An office that is incompatible to the firm as a whole takes a lot of leadership’s time and energy and detracts from the efforts to run the rest of the firm. Once disassociation occurs, however, time previously spent on the now departed office can be dedicated to implementing the strategic objectives of the firm as a whole. By being able to focus on a unified strategy implemented in a consistent way, the firm optimizes its prospects for the future. And by eliminating the incompatible competing interests presented by the troubled office, leadership’s message about the firm’s direction not only becomes more consistent, but more credible.
For many firms, a poorly performing office is ignored, bolstered with additional investment or closed. Yet in some cases, a spin off may be a preferable alternative. If your firm has a struggling office, would a spin off be a possible solution?