Crisis Management Plan on an office desk and papers.

Law firm crisis typically brings financial pressure.  Reduced demand, slow-paying clients, and now due obligations incurred in better times are but a few of the hallmarks of crisis.  As bad as these things can be, the strain can intensify quickly when the firm’s lender expresses concern.  Because a lender’s involvement can dictate the outcome, any impacted law firm leader should observe three fundamentals.

First, having a thorough knowledge of the loan documents is essential.  Thinking you know your firm’s bank obligations from memory can be a serious error.  A law firm leader (or professional advisor) must read and intimately understand all loan documents and associated firm/lender communications.  Exacting details about representations, warranties, events of default, collateral granted, reporting obligations, lender diligence, potential holes to the lender under the loan (whether intrinsic in the loan structure or due to lender inattention) must become etched in leadership’s mind.

Second, understanding the loan is not enough. Context is very important.  The loan package must be understood in the context of the firm’s past and anticipated business performance.  A soon to be requested loan advance critically needed looks drastically different to a lender during times of loan compliance, looming default, or existing default. Relationship context is equally important. Knowing your firm’s and bank’s past history together is a vital component to any workout, as is your firm’s stature in the bank’s big picture and its portfolio of outstanding loans with others.

Third, credibility with your bank is a precious commodity-one that hopefully remains in supply.  In crisis, a trusting banker can be a valuable asset.  Conversely, a skeptical or distrusting banker can make life hard.  So, when crisis hits, a law firm should realistically assess how it is perceived.  If too much history has passed and the relationship is frayed, rebuilding trust by replacing leadership or hiring recognized professional assistance should be considered.

When crisis hits, lurking lenders can amp up its gravity.  Adhering to these three fundamentals can make a difference.

If these thoughts prompt interest in additional discussion, we are offering private, confidential, and free 30-minute discussion sessions from 3:00-5:00 (CST) Tuesdays and Thursdays. To reserve a slot, send an email to either of the below:

ajillson@haysellc.com  or

rhayse@haysellc.com

To read more on leading through law firm crisis, visit Managing Law Firm Transition.

 

“If you throw a frog in a pot of boiling water, it will hop right out. But if you put that frog in a pot of tepid water and slowly warm it, the frog doesn’t figure out what is going on until it’s too late…” Stephenie Meyer

 

Much like the boiling frog, if a law firm’s partners don’t recognize that the water is heating up — and not in a good way — they too may face a painful demise.

For some law firms COVID-19 has resulted in an immediate and apparent crisis; for others (e.g., bankruptcy and employment law firms) business has rarely been better.

Thousands of firms find themselves somewhere in between, considering what the damage associated with the virus will have on their firms.

Here are three specific areas that should be examined and routinely monitored in order to accurately assess what the future holds.

  1. Client satisfaction and stability– Any significant decrease in the depth of relationships with key clients, or the loss of any material number of clients is reason for heightened attention. The percentage of revenue associated with key clients, as well as the quantity of clients served should be closely monitored. Too many eggs in one or two baskets is a warning sign.
  2. Personnel unrest or discontent– A negative shift in the way lawyers and staff feel about the firm is reason for further study and concern.
  3. Economic stress– declining financial performance is an indication of a firm that must take steps to strengthen operations or face the prospects of serious challenges to its survival. As obvious as this may seem, it is puzzling how often firm leadership manages to ignore economic issues. Several indicators to watch include:
    • Falling revenue per attorney
    • Declining productivity
    • Failure to meet monthly budgets
    • Slower turnaround on payables and receivables
    • Decreased partner distributions
    • Increased reliance on debt

All of the above are signs of a potentially unstable platform. In the end, the impact of financial decline is the decreasing ability to pay partners fairly for their contributions to the firm. As partners make less and less for the same work, dissatisfaction will be followed by departures.

In summary, the sooner potential challenges to law firm stability are identified, the more probable damage can be limited and long-term fixes can be implemented.

If these thoughts prompt interest in additional discussion, we are offering private, confidential, and free 30-minute discussion sessions from 3:00-5:00 (CST) Tuesdays and Thursdays. To reserve a slot, send an email to either of the below:

RHayse@HayseLLC.Com or

AJillson@HayseLLC.Com

To read more on leading through law firm crisis, visit ManagingLawFirmTransition.com.

Covid-19 has impacted virtually all law firms.  A few firms have benefitted, some have suffered catastrophe, while the bulk of firms fall somewhere in the middle and forge ahead as best they can.

Whether leadership for this third group is plugging a leaky dike or simply boosting morale, the focus on short-term survival is a common concern.  As scary as present circumstances may seem, however, Covid-19’s impact will continue throughout the rest of 2020.  Fortunately, two things about the present landscape may help firms get through the year intact.

First, law firms battling now are bound to face significant challenges later when hoped for performance falls short at year-end.  End of year disappointment is difficult to overcome if its surprise leaves little time to react. Because firms now are attuned to their Covid-19 predicament,  year-end planning should and can begin immediately.  With over 6 months to go, leadership can strategically and tactically get ahead of the anticipated performance shortfall likely to occur.

Second, your challenged firm is not alone.  The competition likely is facing similar obstacles to normalcy, meaning that attorney defection may be more controllable.  Showing your talent that a plan exists for maintaining stability and stimulating future success may convince your valued lawyers to stay.  This may be the year “the grass is greener” pitch may not resonate.

Even with the havoc wrought by the pandemic, effective planning for year-end and keeping talent are two things that can still be achieved.

If these thoughts on leadership in crisis prompts additional thinking, don’t hesitate to reach out to us for a brief no obligation conversation at either:

ajillson@haysellc.com  or

rhayse@haysellc.com

To read more on leading through law firm crisis, visit ManagingLawFirmTransition.com

Three points in a law firm’s development will demonstrate the degree to which law firm owners share common values and aspirations:

  • when the compensation system is under scrutiny,
  • when it is time to commit to a new lease, and
  • in an hour of crisis.

Typically, when a firm is formed, two, three or maybe a handful of individuals gravitate to one another, and realize they share some combination of values, dreams, and aspirations, and decide to partner in pursuit of the future they envision. 

Time brings changes — in market and working conditions, and in individuals. Priorities shift. What was once important becomes less critical. The greater the divide, the more the relationship is stressed. 

The emergence of a crisis will inevitably highlight the shift, and often test the viability of the current partnership.

When shifts that come somewhat naturally with time are exacerbated by something unforeseen — like COVID 19 — the challenges related to stability compound. 

What is the keys to managing through crisis?

Immediate Actions

As part of managing crisis, a firm must first develop a liquidity plan. This is to ensure the economic flexibility necessary to survive the short-term. Along the way it will become increasingly clear what direction the firm should take in the longer-term.

Though no one really enjoys conversations that focus on disagreements and differences, a conversation today will help with one of two eventualities: it will facilitate a discussion around clarifying shared aspirations; or, it will expedite a conclusion that dissolution or restructuring is a better answer for the majority of those involved.

To the extent members of a firm conclude that their aspirations have shifted to a point that it no longer makes sense to practice together, it is prudent to execute the separation in a way that causes the least pain and disruption.

An impartial third party can shape a process that is collegial and effective.

What is the degree to which you and your partners are still on the same page? Does your firm have the experience to really test the degree of continuing shared aspirations?

Regardless of degree, Covid-19’s impact on law firms is near universal.  Some firms have been impacted so severely that crisis is their reality.  Confronted with a do or die situation, strong leadership fights to bring back normalcy.  Failure can mean disaster.

Leaders used to positive law firm performance can find themselves uncertain about their new role. In the face of uncertainty, focused leadership takes the typical steps of receivable management, cost-cutting, personnel decisions, and morale boosting.  Unfortunately, the natural focus on survival can cause a firm to make two mistakes that compound crisis.

One common mistake seems silly to mention but for the fact that it happens too frequently.  Leaders naturally focused on the looming danger can forget about the day-to-day, month-to-month blocking and tackling that was routine pre-crisis.  A considered pursuit of the firm’s long-term plan, recruiting, civic involvement, and professional development is important even when the crisis seems all-consuming.  If leadership is overwhelmed, get help (internal or external).

The second mistake involves the firm’s lawyers at large.  Unused to crisis or the circumstances, many lose confidence in their ability to develop business.  Uncertainty, embarrassment, or not knowing what to say about the firm can paralyze normally aggressive marketers.  Business development must continue, if not increase, and a strategy designed to overcome the situational discomfort felt by many.  Business development in the shadow of crisis requires unique skills-make sure your lawyers have them.

Too much to do with too little time can explain a myopic focus on crisis.  Make sure you dedicate adequate resources, so it doesn’t happen to your firm.

If these thoughts on communication in crisis prompts additional thinking, don’t hesitate to reach out to us for a brief no obligation conversation at either:

ajillson@haysellc.com  or

rhayse@haysellc.com

The economic turmoil driven by the coronavirus has impacted virtually every law firm — some more significantly than others. Unfortunately, the pain has only begun for many. The demand for many transaction related practices is likely to be off for an extended period, and though most expect demand for litigation services to be steady, the ability of the court system to support the pre-virus level of activity is questionable. In addition, funding litigation may prove to be a challenge in the near term for many litigants.

As law firm leaders seek insights to developing strategies for this reality, I recommend a report from McKinsey and Company, published a few days ago. The report — COVID-19: Implications for law firms, includes valuable perspetives.

What to do—

Although it is difficult to predict the actual decline in demand, firms can control how they respond to the decline. The following thoughts may provide some relief as your firm works on developing responsive strategies for the long term.

Realization. Virtually every firm can improve time-entry, billing and collection processes. Improvement in these areas can soften the impact of the decline in demand. The current crisis provides an opportunity to get everyone on-board with strengthening performance in these areas.

Client communication. If your firm does not have a proactive client communication/interview process, now is the time to implement one. It doesnt have to be sophisticated; but it does need to include direct communication between the client and either a firm leader or one of the attorneys principally responsible for the relationship. A robust client communication strategy includes both, and provides insight into possible opportunities while deepening the existing relationship.

Internal communication.  During any crisis, visible leadership that communicates frequently and directly is key to maintaining stability and preventing a run on the bank. Wise leaders find a way to strike a proper balance between reality and optimism. Transparency and vision are keys to maintaining the firms trust.

Labor reallocation. For multi-practice firms, aggressive reallocation of personnel to areas of greater demand is a difficult but realistic option. Billing rates may need to be adjusted and some time may need to be written-off; but to the extent firm talent can be moved from slow areas to those in greater demand it should be explored.

If these thoughts prompt interest in additional discussion, we are offering private, confidential, and free 30-minute discussion sessions from 3:00-5:00 (CST) Tuesdays and Thursdays. To reserve a slot, send an email to either of the below:

RHayse@HayseLLC.Com or

AJillson@HayseLLC.Com

To read more on leading through law firm crisis, visit ManagingLawFirmTransition.com.

The COVID-19 pandemic has had an enormous impact on businesses world-wide. Law firms have been no exception. A relative handful of firms are enjoying an increase in demand for their services. For these firms, primary challenges relate to maintaining a safe work environment.
For many firms, however, the business disruption includes a decline in work to an unknown degree for an unknown duration.
Many of those firms find themselves in crisis.
At a time when a sense of community means helping each other, Hayse LLC is pleased to share a historical perspective on conquering law firm crisis in its Leading in the Face of Law Firm Crisis: An Experiential Guidebook for Our Times.  Click on this Link for a complimentary copy.
We hope you find it helpful.
Hayse LLC is a national law firm advisory, providing financial, operational and strategic counsel in law firm restructuring, mergers, compensation, succession planning, and other pivotal transitional issues.
For more information about Hayse LLC and its services for law firms in transition, contact Roger Hayse  or Andy Jillson.

Covid-19’s harmful impact on some law firms shows in reduced client demand, delayed or reduced receivable realization, and production inefficiency.  While those consequences may be understandable in light of the pandemic, third parties that expect fulfillment of promises and obligations may not be totally sympathetic.  Some grace may be extended, but it is neither assured nor certain to be long-lasting.  If the firm’s struggles are not remedied quickly, a firm can find itself in serious trouble.

Faced with the unanticipated crisis, law firms must move quickly but wisely.  Almost always the essence of the challenge can be traced to financial pressure.  For that reason, job No. 1 often involves developing a financial plan that confronts the crisis.  The financial plan has importance on multiple levels.  For one, it acts to correct the problems that undermine the performance of the firm.  On another level, a sound financial plan that can be believed instills confidence within the firm and without.  A logical financial solution can reduce internal worry and help relieve pressure from third parties questioning the firm’s future.

Good leadership also avoids straying from tried and true behaviors.  Rather, building the crisis solution plan around core competencies-things that have held the firm in good stead in the past-is the wise thing to do.  By playing to its strengths, a firm seeking to recover from setbacks can use its experience with past success to calibrate its performance through the restructuring period.  Foundational conduct by familiar people will produce understood and trusted data that can guide leadership in overcoming crisis.

Managing crisis is helped if these two fundamentals are observed

If these thoughts prompt interest in additional discussion, we are offering private, confidential, and free 30-minute discussion sessions from 3:00-5:00 (CST) Tuesdays and Thursdays. To reserve a slot, send an email to either of the below:

ajillson@haysellc.com  or

rhayse@haysellc.com

To read more on leading through law firm crisis, visit Managing Law Firm Transition.

 

As law firms (and businesses generally) confront the growing financial challenges associated with the Covid-19 crisis, a plan for an escalating response is necessary. The appropriate answer for a particular law firm will depend on its current and projected condition and its culture, but consider the following as you develop your plan.

Government assistance – If you haven’t already, consider one of the assistance programs available through the federal government, including the SBA.

Banker – Engage your firm’s banker in a dialogue regarding your credit facilities and the potential for expanding them.

Vendors – The entire business supply chain needs to work together to weather this economic threat. Proactive discussions with firm vendors can provide relief as everyone concerned works toward getting to the other side.

Bonuses and distributions – Most personal budgets are structured around a regular paycheck. Develop a plan that protects the regularity of this cash flow, while deferring bonuses and other distributions.

Temporary compensation reductions – As the threat to jobs and even firm viability grows, temporary compensation reductions should be considered. How to balance potential cuts across a diverse pay scale will depend significantly on firm culture.

Infusion of capital – As external funding sources are depleted, and other cost reductions fall short of providing needed relief, firm owners in highly stable organizations may consider additional capital contributions.

Voluntary LOA – Some individuals can afford and would prefer a “break” from the demands of their careers. Soliciting optional leaves can be a source of additional cost reduction.

Forced reduced schedules – As conditions worsen, forced reduced schedules and compensation can be considered.

RIF – Permanent reductions in personnel are painful but necessary steps to take for firms running out of options for firm survival.

Informal restructuring – When it appears that none of the above will yield sufficient relief, the firm’s creditors (banks, landlords, and others) should be approached with a plan to restructure the firm’s obligations as a means of avoiding a formal (bankruptcy) restructuring.

Formal restructuring – Finally, when all else appears to be ineffective, a firm can consider a restructuring through the bankruptcy courts.

Liquidation – If it is determined that the firm is not likely to survive, a plan for liquidation should be adopted to minimize the disruption to individuals and clients.

If these thoughts prompt interest in additional discussion, we are offering private, confidential, and free 30-minute discussion sessions from 3:00-5:00 (CST) Tuesdays and Thursdays. To reserve a slot, send an email to either of the below:

RHayse@HayseLLC.Com or

AJillson@HayseLLC.Com

To read more on leading through law firm crisis, visit ManagingLawFirmTransition.com.

Covid-19 and its implications for law firm stability is being experienced industry-wide.  The fallout has many firms in full-on crisis.  Reduced draws, layoffs or furloughs, expense reduction, stimulus loans have become an all too common part of the survival mix.  Resorting to these tools can help little if strong leadership fails to rise to the challenge.

Law firms are people centric organizations that rely on attorney performance and loyalty to succeed.  Keeping a firm’s people focused on their work and believing in the future is an important goal at any time, but especially when crisis abounds.  Morale becomes critical if a firm’s rank and file are to believe all will be well and a path to normalcy exists.  A firm leader that not only frequently explains the plan but shows the resolve to make it work can greatly boost morale.  Simply put, a leader in crisis must be visible.

Holing up in your management bunker directing the firm’s response is the antithesis of leadership visibility.  While focus on the crisis plan is fundamental, remaining shuttered is unhelpful.  Attention to the task must be coupled with frequent and visibility centric communications to the troops.  In this time of Covid-19 and forced isolation, things like video conferencing provides essential visibility and allows leadership to impart its message.

Visibility does a number of positive things.  First, it demonstrates a leader’s confidence.  Only confident leaders’ step into the lion’s den.  Second, a confident leader instills confidence in others.  Confidence is contagious.  Third, with visibility comes interaction and information.  Facts learned allows leadership’s time-sensitive adjustments to the crisis plan.

Under any circumstance, solving law firm crisis requires leadership’s visibility.  Law firms functioning remotely are no exception.

If these thoughts on communication in crisis prompts additional thinking, don’t hesitate to reach out to us for a brief no obligation conversation at either:

ajillson@haysellc.com  or

rhayse@haysellc.com