Well-run businesses, including law firms, stay abreast of changes in the marketplace by monitoring shifting client needs. Successful businesses track the initiatives of competitors and seek to secure the premium assets needed to compete. For law firms, that means keeping clients, getting new ones, and preserving the talent in the workforce.
There are many ways to achieve this, but for nearly all law firms it includes staying focused on the bottom line. If a law firm operates profitably, it can be more responsive to its client’s needs, it can respond to its competition, it can innovate where appropriate and necessary, and it can retain its most valuable attorneys. Call it “staying focused,” “being on top of things,” or “keeping your eye on the ball”—each speaks to operating as if nothing is assured. Yesterday’s success is no guarantee of tomorrow’s survival.
A successful law firm is a busy one. New clients are landed, matters are opened, and legal advice gets delivered. The success enjoyed may be traced to the principles that drove the firm’s formation, the drive of the lawyers that came together as a firm, or a little of both. A brisk practice might also be due to increasing client demand. Whatever the impetus for the good fortune, few law firm leaders are naïve enough to assume that present success is a guarantee of future prosperity.
But if the fleeting nature of success is recognized, why do some firms fail to sustain the momentum they worked so hard to build?
Sustaining a law firm’s success, or even just ensuring that a firm survives, is a challenge faced by every law firm—every day of every year. And wherever the significance of the task is understood, focused and dedicated leadership can act and plan in firm-sustaining ways. For some firms, however, finding a way to continue the good times escapes leadership’s attention. And a struggling firm is an unstable one, less and less able to sustain its reputation and market position and increasingly putting itself at great risk.
Four fundamental lessons, if followed, can reduce risk and improve a law firm’s chances of surviving.
First, positioning a firm to continue its success begins with the development of a plan that focuses not only on the present, but also on the future. For the plan to be effective, it must be one that can be followed. Second, even a plan that considers the future goes nowhere if the firm does not manage itself in a way that aligns with the plan. Third, it is essential that leadership never lose sight of the world in which the law firm exists, because that world will change. Fourth, the prospects for a firm and its future can never be divorced from the people that comprise its heart and soul. Their perspectives and varied capabilities are crucial if a law firm expects to carry on.
Prepare for the Future: Develop a Thoughtful Plan That Can Be Followed
While women and men are mortal, law firms (at least theoretically) can go on forever. In most instances, firm owners are too busy to think about making their organization immortal—or, its close cousin, passable from generation to generation. Day-to-day business, client demands, and getting back on the merry-go-round each January 1 are never-ending and daunting. The frenzied atmosphere dictated by the present can suck away the time and introspection needed to plan for continued success. While succumbing to a short-term outlook can be understandable, finding a way to swim against those headwaters is essential.
Whatever the reason for leadership’s fixation on the present, the consequences of not developing a plan that contemplates the future can be devastating. Many firms, once successful, contribute to their own ultimate demise by stagnating in the daily press of business and failing to plan ahead.
Bronson, Bronson & McKinnon LLP was a mid-sized California firm with its principal office in San Francisco. At a time when the market was consolidating through mergers and lateral hiring, BB&M continued to compete daily. While it cranked out its work and hustled after new business, it reportedly stood still when it came time to think about its future, unsure about the direction in which it needed to head. Ultimately, the apparent lack of a comprehensive strategy undermined firm performance and heightened anxiety, leading to defections and eventual closure.
Similarly, Ginsburg, Feldman & Bress reacted too slowly as the market changed during the late 1990s. Without an effective strategy for combating the spate of consolidation and growth, the firm gradually became unable to compete effectively. Like BB&M, it began to lose lawyers who had lost confidence in the platform, and it failed. In both instances, it appears that leadership’s shortcomings in cultivating the kind of vision necessary to move forward robbed the firm of an important ingredient necessary to deal with a turbulent market.
Pulling together a firm-sustaining plan is easier said than done. It requires a reflection that is best developed away from the hurly-burly of year’s end. It cannot be cobbled together quickly or while juggling other demands. It requires leadership’s separation from the day-to-day management of the firm in order to deliberate and reflect. Solitude makes it possible for leadership to identify core issues, challenges, and opportunities. For firm leadership, quiet time makes it possible to escape what is urgent and focus on the fundamentals of the firm’s past success and what can be done to secure the future.
Contrary to what may be conventional wisdom, having a strategic plan to guide a firm is not enough. A strategy must be accompanied by an execution plan congruent with objectives. To give such an execution plan the greatest chance of succeeding, easily tracked milestones should be established for periodic evaluation. An execution plan with articulated markers of progress provides context and purpose to the firm’s essential daily blocking and tackling. Solid benchmarks provide a roadmap for all concerned.
Periodically, firm leadership should reflect on the firm’s plans and test the continued relevance and applicability of its component parts. Staying on top of the plan, especially as the years pass and performance ebbs and flows, allows a firm to remain true to its culture while also allowing it to adjust as change inevitably occurs.
Help a Firm Endure: Position the Firm for Present Success While Thinking About the Future
Even the best plan is of little to no value if management and execution are given scant attention. A firm that takes the time to develop a strategy for prevailing must dedicate time, people, and other resources so that firm conduct is consistent with the plan. This requires assigning responsibilities, periodically assessing whether goals are being achieved, and committing financially to invest in continued success. Execution also involves withstanding internal or external pressure to stray from the plan for short-term reasons.
Making individuals accountable does not serve the firm well if individuals’ respective assignments act at cross-purposes. Without a common objective, success can be thwarted, or worse, chaos can result.
For example, San Francisco–based Graham & James pursued a strategy of becoming dominant in the burgeoning Pacific Rim legal market. Its strategy seemed sound, even audacious. Over time it grew, becoming a far-flung organization of thirty offices, virtually all of which were operated and managed parochially.
Largely autonomous offices with disparate responsibilities, goals, and financial targets contributed to the firm, but not cohesively. Although Graham & James’s strategic plan articulated a vision for the firm and its future, its organizational structure ultimately undermined its ability to pull it off. When times were good, the lack of a centralized directive seemed unimportant. But by the late 1990s, as the firm found itself trying to survive in a market depressed by economic forces beyond its control, the diverse interests, objectives, and cultures throughout the firm contributed to it being left without the ability to respond uniformly. Diverse performance expectations deprived the firm of a singular direction. In the end, the lack of union tested the confederacy of Graham & James leading to its failure.
A pressure frequently experienced in law firms is the demand for immediate financial rewards at the expense of investing in the future. In relation to long-term health, the importance of keeping a firm’s spending and debt levels in check has near-universal applicability. Borrowing today to satisfy short-term needs may be justified but doing so to satisfy short-term desires inflects an unnecessary and lingering detriment on the firm. A firm with too much debt will find it more difficult to create a successful future. Debt should be incurred for only the most strategically supportable reasons.
The importance of keeping financial leverage under control is matched by the critical need for sound performance management. To meet performance expectations, leadership must develop targets for firm revenues, production, realization, expense management, and other elements of performance.
Sound performance management is also relevant to the firm’s ability to stay the course in the future. Performance (and what it conveys about a firm’s current health) is a necessary building block for future health. When a firm’s performance is seen to be at variance with an agreed-upon plan, both present and future are jeopardized. Any variance must be evaluated and addressed. Remedial steps should focus on the present while one eye is kept on the future.
The story of what was once one of Minnesota’s oldest law firms, Doherty, Rumble & Butler, PA, illustrates the malady of a firm either failing to recognize or failing to adequately respond when performance metrics indicate substandard performance. As the firm’s metrics worsened while it was being buffeted by market consolidation driven by mergers and acquisitions, it failed to act before defections spelled its demise. Apparent inattention or indifference to the signals indicating poor present performance deprived the firm of corrective action.
Recognition skills are critical. Managing current performance with the future in mind will fail if leadership and management are not aware of red flags and warning signs. Internal leadership training and management development programs should be supplemented by outside education so the firm’s goal of managing its performance can be deftly executed. Without quality leadership and management skill training, the firm’s ability to timely realize, react, and resolve will be undermined.
Training and development also play a critical role in preparing a firm for the future. As good as today’s leadership and management may be, there is no guarantee that replacements will be as competent. Great future leaders and managers don’t just happen along. Essential to any plan of sustainability is a strong succession plan designed to replace capable leadership with steady hands as time passes.
Closely akin to leadership succession is the goal of client relationship succession. Making sure that key clients are either retained or replaced is critical to any firm intending to persevere.
Keep It All in Perspective: Understanding the Surrounding World
The practice of law is ever progressing. Today’s hot area may be ice cold in a few months or years. A cornerstone client may lose confidence in the firm, be acquired, or go out of business. Laws that dominate the firm’s attention on behalf of key clients and business segments may be amended, interpreted differently, or repealed, affecting opportunities with once-key clients.
The future will not remain static. Adapting to change is essential for survival. As incongruous as it may seem, preparing for the future includes a healthy dose of preparing for the unknown.
One firm that learned the hard way was Chicago’s Peterson & Ross LLC, a firm that had been in existence for over a hundred years. Despite attempts to reposition itself as a full-service firm, the firm was heavily concentrated in insurance defense and thus unable to respond adequately when the insurance-defense market cooled. The resulting financial pressure led to the loss of key partners and the firm’s ultimate closure.
Because it ignored the obvious risk of concentrating in a practice that made financial success challenging, Peterson & Ross was unable to weather insurance industry disruption and defections from key contributors. By 2003, it was unable to compete and was forced to close its doors.
A similar fate befell Houston’s Hutcheson & Grundy LLP, a highly regarded mid-size firm that had enjoyed success for fifty years. While peer firms were growing or combining with other firms, Hutcheson & Grundy could not decide whether it was going to do likewise or stick with the way the firm had always approached the practice of law—a style, it turned out, more suitable for times gone by. Factions advocating alternative approaches did not resolve the differences in favor of a single strategy. With no unanimity possible, the firm decided to close.
In many respects, Hutcheson & Grundy’s demise presents a case of a firm that lost perspective, and either was unable to recognize how the legal world was changing or failed to react to the changes. In either case, as the Houston legal market evolved and competitors took action, H&G didn’t respond.
The lifeblood of any firm and its prospects for the future are centered on clients. Today’s successful firm knows its clients and makes strategic decisions, such as adopting a growth initiative, with clients in mind. The reality is that clients’ needs, and desires change over time. A firm’s durability requires that the future plans of clients be understood.
That said, feeding off a client’s strategy and direction should be exercised in moderation, as the outcome for a firm can be either good or bad. The vagaries of client satisfaction and/or marketplace successes and failures can convert a long-term and seemingly secure relationship into one having a shorter horizon . . . or none at all.
Thinking about market trends in the industries served by a firm helps avoid a potential myopic or one-dimensional client-centered effort and fosters the kind of preparation and flexibility needed. Staying nimble as current needs and emerging trends cross paths is critical to enhancing the prospects of longevity.
The demise of Boston-based Testa, Hurwitz & Thibault LLP is a perfect example of a firm committing heavily to serving a narrow segment of the economy but not having the ability to recognize and adjust when that segment suffers. A casualty of the dotcom bust of the early millennium, TH&T had bet the farm on the hi-tech and venture capital markets.
Committing to a strategy is one thing, but TH&T failed either to adequately diversify so that it had a hedge should its market experience setbacks or accumulate sufficient capital to weather the storm. Perhaps even more fatal was that it neglected to adequately foresee or observe the collapse that was killing off clients and ravaging the tech industry. In no small part, failing to see the world around it prevented the firm from surviving the dot-com collapse.
A firm that does not keep a critical eye on, and then adjust to, client or industry trends is likely to flounder as competitors make the changes that the market demands. And while not everything done by a competitor is worth imitating, much can be learned by observing market trends and movements. Afforded that intelligence, a firm wanting to endure can adjust plans for the future as is appropriate.
The Past Depended on People: They Are No Less Important to the Present and Future
While common law firm organizational structures designed to limit owner liability suppose law firms to be “artificial persons,” most people that have worked in law firms would not view their employer as an inanimate object. The DNA of any firm is comprised of the collective beliefs, values, and aspirations of the people who show up for work each day. Personnel departures are inevitable, as are the additions that offset them. But at any point in time, it is the firm’s human resources that contribute to success or failure, and it is only through them that the firm will enjoy positive results and endure.
Fundamentally, the accomplishments a firm hopes to replicate can be traced back to the flesh and blood that walk the halls. Hire the right people initially and a firm has a decent shot at success. Growing the firm by hiring exceptional professionals and staff makes it more likely that the growth is a harbinger of future success as opposed to the disaster many firms experience.
The hiring discipline that made early success and growth possible is the same discipline that should continue. An uneven hiring philosophy should be avoided. Assembling lawyers and staff who share similar beliefs, values, and aspirations is essential. Straying from that basic precept undermines a firm and diminishes the possibility that the firm will endure.
This lesson often is learned when two firms combine and abandon their independence. The integration of two DNA streams—two cultures that don’t share beliefs, values, and aspirations—is what can make law firm merger so difficult. Indeed, many mergers that looked promising on paper ultimately failed because the inherent importance of an organization’s people was marginalized.
Consider the merger stories of Lord Day & Lord, Barrett Smith or Thelen LLP. Both mergers were headline-grabbing transactions in which credible practices were joined with an expectation that two plus two would equal five. In each case, characteristics of the combined firms proved incompatible, not the least of which was the unsuitability of the people who were forcibly joined together with little regard for whether they would mesh well. They did not—a reality that contributed to both mergers failing.
Even firms that hire the best and the brightest or can affect a people-focused compatible combination dare not believe that the people puzzle has been solved. Indeed, nothing is more unfortunate and unnecessary than to squander that good fortune by losing touch with the firm’s pulse. Knowing the feelings of the firm’s professionals and staff obviates drops in morale and losses of confidence in the firm or its leadership. Staying informed about how a firm’s employees feel prevents surprises and protects against lost productivity and profits and, in many cases, unwanted attrition.
Law firm health has a lot in common with your health or that of people you know. Good fortune may result in the best outcome possible without requiring care or hard work. But statistically, indifference to good health is not the optimal strategy to assuring its blessing.
History has shown that the vast majority of law firms that enjoy generational sustainability do so because they focus on achieving longevity rather than rely on hope or happenstance. They prepare with the future in mind, they combine goals for the present with a vision for the future, they strategically react to market changes that require a response while not being fooled by fads of the day, and they never lose sight of the “people business” law firms are. While these fundamentals are not hard to understand, they can be difficult to realize without the requisite commitment, resolve and effort. Almost any law firm can improve its chances for long-term health-keeping these four fundamentals in mind can go a long way to making it happen.