Although the final numbers are not in yet, 2018 has been touted as a good year for law firms. Based on various reports including the 2019 Citi-Hildebrandt Client Advisory, revenues were up, billing rate increases held, and client demand increased. These improvements are not shocking as law firm performance has been ascending in recent years.
Just because industry performance this past year was on the whole very good, not all law firms can look back on 2018 with such positive thoughts. Indeed, the overall industry uptick is pulled along by strong performances among the AmLaw 100, especially the top 25 firms. Performance among the second AmLaw 100 (or 101 to 200) generally was not as positive. Similarly, firms outside the second 100 did not, as a class, enjoy the kind of robust financial performance logged by the bigger firms. Specialty firms (obviously focused in the right specialty) were the exception among smaller firms.
If your firm was one that had, relatively speaking, a down year, then all this good news about the industry in general is small consolation. For leadership in those firms, what is to be done? In some cases, an average or even modestly down year should not be overly concerning. After all, law firm performance can run in cycles and a softer showing for 2018 may not be indicative of looming trouble. But if firm leadership can’t slough off 2018’s performance with “no worries,” it should consider addressing its real concerns in the following five ways:
Perform a Careful Analysis. A performance off the mark deserves a careful and unpanicked review. Determining the causes of a down year is step one to designing an effective response. As a start, compare 2018 performance data with prior years’ and then get behind the numbers for an explanation of what happened. Understanding top line and expense variations can be extremely helpful. The more information that can be gathered, tested, and understood, the more likely leadership can avoid acting on false positives.
Look for External Signs. Once a careful analysis respecting the 2018 performance is completed, consider external signs that help explain the 2018 outcome. A change in client fortunes, movement in the market heavily relied on, loss of key partners, or legislative, judicial, or executive branch course changes must be considered. Big picture items can be particularly important and may force a change to the firm’s direction or strategy.
Address Correctible Failings.Sometimes a down year comes about because talented people simply had a down year. Letting talent ride out a down cycle may be appropriate or directing that talent to change the approach to working may be the better alternative. Thankfully, poor performance among firm attorneys or firm segments can be corrected. A focus on fixing the misplayed 2018 can be a big step towards assuring an improved 2019 and beyond.
Excise Systemic Failings. Not all problems can be corrected. After a careful review, a firm may realize that certain components of the firm’s operations are irretrievably broken. A practice that has been legislated to irrelevance often should be eliminated. So too for a practice whose sole client has disappeared and either can’t be replaced, or its lawyers taught to retool. Painful as it may be, an elimination strategy may be the most appropriate step.
Redo Your Long-term Plan. Taking measures to remedy problems in the short-term is not enough. Each problem corrected may reappear unless long-term term consequences are considered, and an action plan is implemented. Anytime a firm falls off its intended performance, a review of long-term impact is essential. Studying how the most recent past will impact the firm’s future can lead to a change in long-term strategy.
As a new year starts, leadership’s action will play a large role in determining the 2019 outcome. If your firm did not perform up to expectations in 2018, now is the time to make sure it is not repeated. What is your firm doing to make 2019 a better year?