Law Firm Repositioning/Turnaround/Restructuring

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Barely a day goes by without seeing a news report, an article or a blog noting the struggles of a law firm or the legal services industry in general. A recent piece by Ron Friedman examines the possibility that more law firms will be eliminated. George Beaton’s The Rise and Rise of the NewLaw Business Model looks at the NewLaw business model and how it differs from the traditional BigLaw business model.  Besides providing an interesting study in contrasts, he notes the significant growth of Axiom and other adopters of the NewLaw business model.  Above the Law’s Joe Patrice provides his take on data suggesting that some work is moving away from Big Law. Many law firms are being impacted by this industry turbulence and come to the realization that the status quo is not sustainable. A law firm whose management recognizes that change in the marketplace requires change within is a law firm in transition.

When a law firm begins to show signs of transition, many thoughts about the best way to address change will run through the mind of leadership. Among any group of law firms, the stage of transition presented will vary depending on the severity of the market stress experienced and the time that such stress is recognized. Whenever a firm is in transition, some fundamental steps can be taken to help the process, and ease the pain of change.

The degree to which dramatic action is required largely depends on how early signs of transition is recognized. But no matter where in the continuum transition is first observed, certain basic steps will pave the way for developing a sound action plan.

When signs of transition surface, a wise leader does the following:
Continue Reading First Steps For Law Firm Management When Facing Transition

It’s common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.”– Franklin D. Roosevelt

Last Tuesday Part 1 of Law Firm Decline and Leadership Mistakes was published. In today’s post we look at the other two leadership errors that lead to decline.

Over-expansion

Imprudent growth may be the number one mistake law firm leaders make. There is a tremendous bias for numerical growth in our industry. Unfortunately, the growth in which we engage is often far from strategic, and about little more than becoming bigger.  As a result, most lateral expansion is not – in the long run — beneficial to the partners of the expanding firm.  Most growth changes the numbers, but adds little value.  Growth is expensive, tests culture, strains the limits of the management and leadership infrastructure and is just plain risky.

Counsel/Advice

  • Add institutional capacity only when existing capacity has been significantly and consistently utilized.  Until that threshold has been achieved, learn to use contract, temporary and outsourced solutions.
  • Restrict lateral growth to individuals or groups that meet strategic criteria, and have been documented to be accretive through objective analysis.  Increasingly, business that is thought to be “portable” is actually far from it.  Vet relationships.  Add laterals in a manner consistent with strategic direction of the firm.

Excessive Leverage

The general inclination in most law firms is to maximize immediate cash flow to owners while minimizing the amount of owner cash tied up in contributed capital.  The combination of these two often leads to operational stress, and — if extended too far, organizational failure. Edwin Reese has an excellent article here on law firm capital.

Counsel/Advice – Better to be safe than sorry.  We recommend that firms maintain a balance of contributed capital that is equal to 25-45% of annual owner compensation and that monthly distributions to owners be based on a distribution of 60-70% of projected annual income with the balance distributed at year-end.

Follow Basic Guidelines And Avoid Crisis
Continue Reading Part 2 – Law Firm Decline and Leadership Mistakes

“Bigger is better.” In recent years, many law firms have subscribed to that maxim to grow through office launches, mergers, or lateral acquisitions. Grabbing market share, adding substantive expertise, and establishing geographic relevance provided the justification for many an expansion plan. For some firms, growth appears to have been partly in response to the rapidly changing legal service landscape.  Edwin Reeser recently has written two thoughtful pieces presenting a contrary view to some popular notions that stoke the enthusiasm for growth.

Mr. Reeser’s articles note that law firm growth is not necessarily a winning strategy.   Indeed, for every benefit gained from an out of the ordinary course growth strategy, the bigger law firm assumes some corresponding risk. Only time will tell whether the financial benefits from expansion will outweigh the intangible risks. For that reason, it is a good idea to consider some of the by-products of an expansion plan before diving deep into the growth plan pool.

The Results of Growth Can Disappoint or Backfire. Bringing into your firm new people, new offices, and new expertise causes change. Change can be good, but it also can be unsettling. Moreover, all the promise justifying the growth can play out poorly.  Indeed, as Mr. Reeser wrote in 2012 in an excellent five part series for the San Francisco Daily Journal about the economics of lateral acquisitions, there is an equal chance that the lateral acquisition won’t take (to review the terrific five part series, go to Mr. Reeser’s website).  If this is the case, the cost of failure will be borne by the existing owners.   Trying to maintain credibility among your partners once an acquisition struggles or fails is not an easy task.  Beyond credibility, financial burdens caused by failed acquisitions can de-stabilize the firm.

The Excitement of Growth Can Become Addictive. Let’s face it; growing a law firm can be exciting. It really gets exciting if there is a series of
Continue Reading Growing Your Law Firm–Some Cautionary Thoughts

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. – Charles Darwin

These days, scarcely a week passes without news of another law firm in decline.  From high-profile names to less-known partnerships, the leaders of each face pivotal decisions. Some of these firms will restructure or otherwise embark on a turnaround strategy.  Others opt for merging with another group or offering themselves as an acquisition target in an effort to  avoid dissolution. In recent years we have seen far too many end in a messy liquidation.

Identifying The Path That Leads To Decline

The decline of a once vibrant partnership rarely has much to do with the quality of lawyers engaged in the practice.  And though the marketplace is certainly tumultuous, what is at the heart of survival and success for some, and the dire straits of a struggle to survive for others?

In his book Corporate Turnaround, Dan Bibeault identifies four key mistakes that lead to organizational decline. These mistakes, paraphrased to the legal profession are:

  • Failure to respond effectively to a changing competitive environment
  • Poor control over operations
  • Overexpansion
  • Operating with excessive financial leverage

Let’s look at each one a bit more closely.
Continue Reading Part 1 – Law Firm Decline and Leadership Mistakes

Big is better. Size Matters. We hear those statements all the time and in all contexts. More than a few law firms agree and have adopted growth plans in order to enhance their present status and prospects for the future. Many have grown through mergers, no doubt because management believed that growing existing practices, adding practices or expanding the firm’s geographic reach fit within the overall strategic plan. Some of those combinations seem successful; others have accomplished little while a few have proved disastrous.  As for many of the recently merged, the jury is still out. Only time will tell whether the combinations will work.

Growth through merger is one way to grow. But because a potential merger is not readily available all the time or desirable for some firms, many firms instead turn to lateral hiring to fulfill their strategic vision.

There are a lot of reasons lateral hiring proves to be a good alternative to merger. A firm trying to hire laterally can narrow its acquisition to the most productive attorneys and ignore attorneys that add little. Romancing the lateral may be easier because the hiring firm can more intensely court the potential lateral by focusing only on the lateral’s desires and aspirations. By directing the discussion with the lateral to the potential for an improved platform, access to a broader client base and better compensation, the likelihood of sealing the deal becomes a distinct possibility.

The thrill of the hunt aside, the hiring of a lateral attorney, even with a strong book of business, can bring some negatives. Specifically,
Continue Reading Law Firm Lateral Hiring–A Double Edged Sword

 I think there is a world market for maybe five computers. – – Thomas Watson, Chairman of IBM, 1943

Enough with Prognostication

More than enough has been written about the state of the legal profession. Forecasts vary from projections of a terminal change to the old law firm model (see two recent interesting examples), to more moderate assessments that foresee limited but still serious pain for most in the profession.

Rather than further the debate regarding the magnitude of pain that the industry is going to experience, we want to generate a dialogue centered on turning around a troubled law firm. Specifically, we are looking to discuss what can be done to move a law firm from being in danger of collapse to being a healthy organization pursuing its aspirations.

Unique Creatures

In the world of business types, there is a universe of difference between professional service organizations and other business enterprises. That difference is particularly profound when we start talking about planning and executing a turnaround strategy. Other businesses can restructure around products or service lines. With professional service firms the turnaround process starts with people and their commitment to the organization.

Commitment
Continue Reading Two Keys to a Successful Law Firm Turnaround/Restructure – Part 1

The reality for law firms is that layoffs, of both staff and lawyers, can become a necessity.  Many law firms facing transition arrive at the layoff decision early and for those firms the decision to part ways with certain personnel may represent an adjustment or fine-tuning. Other firms only resort to layoffs much later in the transition continuum, generally after performance has lagged for too long without action. Whether fine-tuning or something more dramatic, a layoff can be a significant event in the life of any law firm.

In theory, pulling the layoff trigger early is a no brainer. From a practical standpoint, however, the concern about potential fall out from the layoff decision causes many law firm managers to pause before cutting people loose.
Continue Reading Law Firm Layoffs-Brace for the Aftershocks

future and pastLaw firms can be in different stages of transition, ranging from facing a business altering decision all the way to requiring an orderly liquidation. One of the stages of transition frequently observed is when a law firm requires a repositioning. Such a law firm is not in trouble, is not staring down the threat of crisis and certainly does not need to develop and execute a liquidation/wind-down plan. Yet a firm in need of a repositioning cannot ignore the change occurring within its midst. If it does, the more serious and dire forms of transition may begin to surface with potentially devastating effects.

On the continuum of concern, clearly a law firm that may be in need of repositioning has more time to react than a firm in trouble; but procrastination is dangerous.

Recognizing the need for repositioning is the first step to staying away from the more serious forms of transition. With that said, here are a number of signs that your law firm is in need of a repositioning.Continue Reading Signs Your Law Firm is in Need of a Repositioning

The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.  — Steve Jobs

Welcome to our blog – Managing Law Firm Transition – Thoughts on Leading High Consequence Change.

There is no denying that the legal profession is in a tremendous state of flux. The press and blogosphere are rife with news.

Like most everyone else, we appreciate the news but news isn’t what this blog is going to be about. Our objective is to provide insights and generate dialogue that will be of value to law firms in transition.

To that end, we start with how we define a law firm in transition. There are firms that are:
Continue Reading What is a Law Firm in Transition