As business organizations go, law firms are different because they can face greater stability challenges. Sure, law firms with iconic names seem to rock along year after year. But for every bedrock firm there are others that struggle to survive. And even some of the firms regarded for their steady state are like the proverbial duck bobbing on the pond-calm on the surface but furiously paddling underneath the waterline to stay unruffled.
No matter a firm’s size, or its current state of repose, all face the potential for future rough seas. Good management, basic blocking and tackling, and a strong culture contribute greatly to protecting a law firm from instability. Yet even firms with great fundamentals can be headed for struggle if vision is lacking.
Historically, warning signs precede a law firm’s crisis. Unfortunately for some firms, the signs go undetected until too late. Recognizing the “heads-up” early greatly aids law firms prepare for and combat the crisis that lurks.
While warning signs can take many forms, five common indicators worth watching for are:
Inadequate Succession Plans. The importance of succession at law firms is recognized. Some firms are wholly unprepared for the future because virtually nothing has been done. Without question, these firms face a cloudy future. Yet even firms that have dedicated some time to succession may suffer from an insidious case of overconfidence. A firm whose succession has received inadequate attention is highly susceptible to risk. An underdeveloped succession strategy can be as bad as no strategy at all. If your firm’s succession planning is lacking, take heed.
Reactive Operations. In today’s dynamic legal services market, well-prepared law firms are proactive towards client needs, market forces, and industry trends. These firms take nothing for granted and prepare for a future that will be ever changing. A firm that is comfortable with “business as usual” has taken a different approach and is at a disadvantage. As the industry moves further and faster, the reaction time for the complacent firm slows comparatively-it is positioned for an uncertain future. When you realize that your firm is reactive, not proactive, it may be time to worry.
Unclear Retirement Plans. As firms age, how are the old warriors going to ease into retirement? If a firm has no retirement strategy for its lawyers (whether 401(k)-like or traditional pension plan), the senior lawyers may be compelled to work long after their worth begins to wane. For multiple reasons, that is not healthy. Conversely, a firm’s pension plan may solve that problem, but the plan may be woefully underfunded. Either way, a firm without an effective handle on retirement for its lawyers should have concerns.
Non-rationalized Real Estate. A big expense for firms relates to its real estate obligations. More than a few firms have too much space in relation to productive lawyers. Unrationalized real estate puts significant pressure on a firm’s bottom line. For that reason, a firm whose real estate obligation exceeds its needs signals that all is not well. Noticing your firm’s real estate commitment being out-of-whack with its needs should set off alarm bells.
Growth or Non-growth That Follows No Plan. Firms grow, get smaller, or maintain their size with each passing year. Any firm whose size fluctuates uncontrollably has not adequately planned for its growth (or non-growth). A firm whose growth ebbs and flows without it being the result of a well-designed strategy is risking its future. Unguided growth is like a monkey with a gun.
To succeed long-term, law firm leaders must remain ever vigilant. Staying attuned to problems on the horizon is a hallmark of alert firms. Do your firm’s leaders have the vision to see what lies ahead and react?