Managing Law Firms in Transition

Managing Law Firms in Transition

Merging Your Small Law Firm into a Bigger One-Five Additional Things Smart Firms Think About

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

Law firm mergers happen-a lot.  While the mega mergers get the publicity, many mergers stay under the radar because they involve smaller firms being absorbed by larger firms. Whether for reasons of market dynamics, succession, or battling for growth, some smaller firms simply conclude that life will be better as part of a bigger shop.

A good merger requires basic compatibility, often around areas such as culture, financial metrics, operations, clients, and compensation.  If most of these things seem generally in sync, merger may be a good idea as long as there can be a meeting of the minds.  Theoretically, arms-length negotiations ensue with either firm free to step away from the table at any time.  Despite this apparent equality in the mating dance, however, many smaller firms do not appreciate how disadvantaged they are when considering merger with a larger firm.

As compared to small firms, large law firms have certain inherent advantages-two of which are obvious.  First, the larger firm’s operations typically are more complex than the smaller firm’s way of doing business.  Of the two, the larger firm will be more capable of understanding its counterpart’s operations than vice versa.  Second, the larger firm usually will have greater experience in mergers and acquisitions, likely having completed others prior to the time it sits down for the instant deal.  Other advantages for the larger firm, not always realized immediately, can creep into the process as it goes along

Because of these disadvantages, a smaller firm should do more than ascertain general compatibility or work hard to negotiate a good financial deal.  Rather, it should approach merger discussions with a curiosity that helps it:

Understand the Terminology.  The older and larger a law firm, the more likely it will have a language of its own that describes basic concepts.  The terminology may seem unintelligible, it may seem a little familiar, or it may match perfectly with concepts at the smaller firm.  But don’t assume that familiar sounding terms have a familiar meaning. Unless all the nomenclature is understood, key components of any proposed transaction will be missed, and post-closing life may be disappointing.

Check References.A lot of firms seeking to merge or acquire other firms have been doing similar transactions for a while.  If so, dig deep into the firm’s track record of integration, post-merger success and failure.  Calls to former partners for references on the other firm is simply good diligence. You’d be surprised at how much you learn.

Understand the Firm Policies.  No one would contemplate a merger without digging into the other firm’s constituent documents.  Don’t stop there.  A lot of what gets done in a firm is contained in its policies.  Many law firms use policies extensively as management tools-those tools can make day-to-day life very different from the glorious stories told while courting.  Understand the policies-they will provide a glimpse into future.

Understand the Firm Strategic Plan.  Read the larger firm’s strategic plan to be sure its strategy and tactics are clear-but also read between the lines.   Understanding a firm’s overall strategy helps you determine whether your smaller firm fits within the larger firm’s plan.  For example, if the larger firm’s strategy seeks to eliminate low margin practices, some smaller firm practices may not fit well.  Worse yet, if your prospective merger partner doesn’t have a strategic plan or it is old, the quality of management has to be questioned.

Compare the Values of Ownership.  No doubt your suitor is pouring over your data in an attempt to determine whether a merger will be a net benefit or burden.  You should do the same and not assume that just because it is bigger it is financially stronger.  You should assess the value of your equity pre-merger and post-merger.  How a delta in comparative net equity, and other financial disparities, is resolved may be the difference in doing the deal or not.

For the smaller firm, getting merger right is very important because a second chance is seldom given.  With so much at stake, what other factors should smart firms consider?

Succession and Selling Your Law Practice

Posted in Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition, Uncategorized

If you practice law, there is one eventuality that should be added to that familiar duo of Death and Taxes. No one talks much about it, but it warrants the same attention to detail. The subject? The end of your practice. 

As is the case with its two more familiar rivals for attention, ignoring it will not prove wise. 

The fact is that this change will probably be the most significant professional transition of your career — the transition of one’s practice to someone else. Transition of this type is typically driven by:

  • Pursuit of another profession or passion
  • Relocation to a new city
  • An unforeseen health circumstance, or the most likely
  • Retirement

A critical part of practice (or firm) management is planning for the future. In its most productive form, strategic planning includes a deep-dive into both short-term and long-term possibilities. And this kind of planning can be the difference between a smooth and profitable transition, and one that resembles a disaster.

There are, needless to say, a number of issues to consider. And as is the case with respect to your personal taxes or the distribution of a personal estate, expert counsel can help you avoid pitfalls. leverage every asset, and end up with a successful transition.

Some of the most common issues include:

  • Defining personal objectives
  • Compliance with local bar rules
  • Practice valuation
  • Finding a buyer
  • Negotiating the transaction
  • Transitioning client relationships

In this post we’ll explore the first three issues; and we’ll tackle some ideas around the remaining three in the next post.

Defining Personal Objectives

This first and most important step sets the stage for the entire process. It outlines what constitutes success, and sets parameters that will facilitate decision-making. What must be accomplished, and in what time frame? Do you want to completely step away from the practice, or keep one foot in? Do you want the transition to be prompt, or take place over time? Those are but a few of the variables  that will dictate your strategy.

If you want to transition the practice over a period of years the literal sale of the practice is not an option; whereas a sale is an option in most states if you envision a complete separation from the practice.

Compliance With Bar Rules

The ABA provides for the sale of your practice as long as certain conditions are met.  Rule 1.17 sets forth the following conditions:

a) The seller ceases to engage in the private practice of law, or in the area of practice that has been sold, [in the geographic area] [in the jurisdiction] (a jurisdiction may elect either version) in which the practice has been conducted;

(b) The entire practice, or the entire area of practice, is sold to one or more lawyers or law firms;

(c) The seller gives written notice to each of the seller’s clients regarding:

(1) the proposed sale;

(2) the client’s right to retain other counsel or to take possession of the file; and

(3) the fact that the client’s consent to the transfer of the client’s files will be presumed if the client does not take any action or does not otherwise object within ninety (90) days of receipt of the notice.

If a client cannot be given notice, the representation of that client may be transferred to the purchaser only upon entry of an order so authorizing by a court having jurisdiction. The seller may disclose to the court in camera information relating to the representation only to the extent necessary to obtain an order authorizing the transfer of a file.

(d) The fees charged clients shall not be increased by reason of the sale.

Please note that not all states (including Texas, where we are based) follow Rule 1.17. So check your local bar rules before moving forward.

Practice Valuation

Whether you literally sell your practice or transition it to a new owner through another means, the practice needs to be valued for fiscal reasons.

Fundamentally this is a matter of determining anything being transferred that is relevant to the generation of future profits. Portions of the practice relevant to valuation include:

  • Hard assets
    • Furniture
    • Equipment
    • Property
  • Soft assets
    • Cash
    • Receivables
    • Work in process
  • Business systems/intellectual property
  • Goodwill
    • Existing clients
    • Former clients
    •  Referral sources of firm
  • Liabilities
    • Actual
    • Contingent

Even though each of the above items can have a significant impact on the valuation of the practice, the most difficult and critical valuation issue is that associated with the goodwill. What future revenue stream is really being transferred based on this often difficult concept?

Transitioning out of practice is best accomplished when handled as a process — one that begins long before the eve of the desired transition.

Avoiding Post Law Firm Merger Culture Wars-Six Things to Consider Before Getting Married

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Merger, Law Firm Transition

Law firm mergers have been in the news with combinations being announced seemingly every week.  So far in 2018, the many mergers closed have drawn the attention of the media and law firm leaders alike.  The rationale for any of the announced mergers depends on the specific transaction and the firms involved.  Whatever the reason, they all come with great hope.

Any decision to pursue a merger should be premised on an underlying strategy that is not the idea of merger itself.  This should be true for both firms in the deal. But even if the strategies are aligned, the melding of the two firms may not be a good idea if the firm’s two cultures are not compatible.  Indeed, many firm leaders that have experience with law firm merger view “merging with the right culture” a critical component to achieving success.

For firms thinking that merger may be in their future, the importance of culture cannot be discounted.  But in focusing on culture as part of merger discussions, what should a firm leader study?  How can the leader move beyond the aspirational goal of being compatible to examining things more concrete?  The answer can be found by looking at the following six areas of law firm life:

Business Principles vs. Professional Commitment.  Most sophisticated or advanced firms recognize the importance of operating as a business but beyond that unanimity there can be widely divergent approaches. A firm’s dedication to “operating as a business” may be tough to swallow for another firm that is more committed to adhering to “law as a profession” maxims. Forging a common fit may prove difficult.

Live to Work vs. Work to Live.  For some lawyers and their firms, making as much money as possible is the driving force for having their firm at all.  For another firm, that values a comfortable living while enjoying an equally satisfying quality of life, the outlook can be far different.  Joining two firms together with contrasting views on money and lifestyle can start out a marriage with a deep cultural divide.

Compensation Systems and Their Resulting Behaviors.  One firm’s approach to doling out compensation can be very different from the next firm.  A difference in two compensation systems can suggest a poor fit.  But the bad fit can go beyond the technical process of evaluating and rewarding performance.  Compensation systems inevitably encourage behavior.  Bringing together two groups of lawyers whose compensation system behavior could not be more different can compound an already formidable challenge.

Taking vs. Giving. There is no right or wrong answer to whether a firm should be civic, and profession minded or not. Nor is it wrong for a firm’s lawyers to only focus on client satisfaction. The law firm industry has more than enough room for firms of either bent.  That said, two firms at opposite ends of the non-monetary value spectrum might prefer to remain apart.

Hard-nosed vs. Touchy Feely.  How a firm’s people (professional and non-professional) are treated says a lot about a firm. Lawyers or other personnel currently at a “people place” may find life at a more cutthroat shop impossible to accept.  In any merger, the human resources equation is a big one and must be solved.

Solo/Silo vs. All-Hands-On-Deck.  A teaming atmosphere can be dramatically different from a place where being helpful is neither expected nor rewarded.  If a merger will bring together lawyers not on the same page about the concept of teamwork, inefficiencies and resentment will mount to the detriment of the merged firm.

The number of issues that can impact law firm merger success are many.  The financial fit may be right or wrong.  Client mix or market position are other variables that can be impactful.  But the importance of a cultural fit cannot be minimized.  If two firms thinking about combining are different in many of these six areas of day-to-day life, the two cultures may not be aligned.  If you were considering a merger and many of these day-to-day characteristics of the firms were not aligned, would you go forward?

What Does Partner Mean in Your Law Firm?

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

If you change partners every time it gets tough or you get a little dissatisfied, then I don’t think you get the richness that’s available in a long-term relationship.                   Jeff Bridges

Another year and more turmoil in the legal profession!

Although for some law firms the economy has led to marginally improved performance, for many (most?) the changing market for legal services continues to create serious challenges. And as firms continue to search for a path to sustained health, there will continue to be an unfortunate number of partner terminations and demotions.  In far too many cases the effected partner is surprised.

In a conversation with Larry, a successful lawyer that I once worked with, he asked, “In managing law firm performance, how do we manage performance cycles, while honoring a culture that values the individual?  We all talk about loyalty and being partners; but the concept of removal or demotion seems directly at odds with those bedrock concepts.”

Larry has put his finger on the heart of the issue – a pivotal point that, in my view, warrants discussion.  In pondering Larry’s observation, a fundamental question dawned on me —exactly what is a partner?

Unfortunately most law firms have not made partner a defined term, leaving it to individual and inconsistent interpretation.  Certainly many firms have defined characteristics necessary for promotion from associate to the partner ranks, and at what age you must retire from being a partner. But what I am talking about specifically is defining what it means to be a partner during the 30-40 years between these two points!

Let’s look at the spectrum of possibilities.  At one end you have the firm with high standards for conduct and performance, and little tolerance for variation from those standards.  At the other end we have the firm that operates with a philosophy of once-a-partner-always-a-partner, no matter the conduct or level of performance.  Obviously, there is a universe of options between these two extremes.

My point is not that there is a universally applicable combination of these factors that is right for every firm; but rather that it is essential that you define exactly what ‘partner’ means for your firm.  Defining expected conduct and performance would:

  • Dramatically improve the odds that the firm will achieve the collective aspirations of its partners; and,
  • Provide a fair means of assessing individual partners.

I believe the degree of a firm’s success will be directly tied to two issues that stem from defining what it means to be partner.

First, the longer you allow the lack of definition to exist, the more varied the conduct and performance of the Partners — over time, threatening the competitive position of the firm.

Second, once you have defined what partner means, the firm’s management must demonstrate the resolve to manage performance to that definition.  To not follow through violates a basic contract with the partners, undermines confidence in management, and threatens the long-term health of the organization.

The clear definition, communication and observation of what it means to be a partner will unify and strengthen a firm’s position in today’s turbulent market, and help maintain stability and strength in the pursuit of tomorrow’s goals.

Exactly how does your firm define Partner?

Getting a Bigger Piece of the Client Pie-Positioning Your Firm for More than a Sliver

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Transition

To control costs and improve legal service, more client legal work has been brought in-house in recent years.  As clients have achieved those twin goals, the proximity of readily available legal services to business decision makers has spawned greater institutional reliance on the captive legal departments.  The increased access to legal services for company business units has imposed more demand on the in-house solution.

Meeting that demand by piling more work on the already strained company lawyers is not always possible.  Whether a lack of capacity or missing expertise, the increased demand for legal services has resulted in an increased use of outside lawyers.  This turn of events signals a bit of good news for law firms.  Indeed, in the effort to contain their legal spend clients ironically may have cracked the door open a little for outside law firms.

How should law firms react?  Based on the recent Legal Tracker LDO Index/Benchmarking and Trends Reportby the Legal Executive Institute, “pumping up the hustle” alone will not suffice.  Instead, the report indicates that the selection of outside counsel can be influenced greatly by whether the outside law firm is “proactive.”  Being “proactive” means different things to different people, but lessons learned from in-house legal departments suggest that a proactive firm is in front on such matters as:

Pricing its Services. The pricing of legal work is a sophisticated proposition that involves more than reducing rates, delivering budgets, or capping fees.  Clients are looking for cost certainty while simultaneously positioning for desired outcomes.  By proactively approaching pricing with a client, a law firm sends the message that client value matters to the firm.  If proposed by the law firm, the pricing inevitably postures it and the client towards a financial arrangement that works for both. Reactively waiting for the client to dictate terms or set the agenda on pricing shows little initiative to the client, tends to lead to the firm’s financial disappointment, and sets the firm poorly for grabbing more work.

Working Efficiently. Among the things that clients like about their in-house legal departments is the efficient delivery of legal service.  In presenting itself to land a client’s available legal work, firms should understand from the client the ways the in-house services are efficient.  With that knowledge, a firm can strategically design its services to meet or exceed that efficiency.  By having a plan for efficiency, the firm can explain to the client how it will replicate if not improve on the performance the client has come to expect and enjoy.

Achieving Results. In many instances, the important client legal work will consist of matters the client is used to managing. For that kind of legal work, the client will have an expectation of results premised on in-house attorneys’ past performance.  Understanding the client’s past experience with its in-house team is useful intelligence when seeking to be hired.  Any law firm pitching this work should demonstrate its understanding of the client’s expectations and its plan to meet or beat past performance.  Having a conversation in which the client shares its requirements serves two purposes.  It shows the client the firm will listen, and it guides the firm towards a successful strategy.

Understanding the Business.  A hallmark of many in-house legal departments is their ability to understand a business unit’s needs, expectations and objectives.  That insight typically is earned over an extended period of time in which the company lawyer’s presence in the company culture inculcates a recognition of business imperatives.  An outside firm seeking to be engaged should strive to understand the client’s business issues just as they are understood by the in-house lawyers.  Just as importantly, by engaging deeply with the client about its business needs, the firm shows its commitment to furthering business objectives through legal service.

Based ontheLegal Executive Institutereport, the opportunity for firms to gain more legal work from clients with legal departments does not reflect client unhappiness with the path chosen. Rather, client satisfaction with its in-house solution is here to stay.  As your firm pursues the newly available opportunities, is it keeping that in mind?

Succession and Law Firm Merger – 5 Key Considerations

Posted in Law Firm Merger, Law Firm Succession, Law Firm Transition

First generation law firm leaders find themselves confronted by a classic “good news-bad-news reality.” The good news is that they are nearing the end of what for most has been a rewarding career. The bad? Most have no clear path of succession— for client relationships or leadership responsibilities.

There are a host of reasons; but the reality for most is an unplanned career dilemma — remain active long enough to develop and execute a succession plan, or go ahead and step away and put equity (not to mention legacy) at risk  post departure.

Faced with the dilemma, many law firm leaders find themselves entertaining a merger as a succession solution.

For those considering merger as a succession strategy, there are five compatibility issues to consider.

Culture

There is a lot of confusion about what culture really is. Simply put culture is what work life is like inside a firm day to day. What characterizes behaviors…what do conversations sound like…what topics and issues capture attention and imagination.

There is a strong correlation between a firm’s culture and what the firm most values. Not what it says about these things on the website or in recruiting materials; but where investments are made and stakes put in the ground. Eloquent copy describing a shared commitment to client service, community, collegiality, and collaboration are common. Too often there is a world of difference between what the website says and what the law firm is.

When entertaining a merger, combining with a firm with a compatible culture is essential to continued happiness and long-term retention of personnel at all levels.

Client profile compatibility

In addition to the obvious issue of legal conflicts of interest, compatibility of client/work profile is critical to executing a merger that will meet a firm’s succession goals.  The more dissimilar the profile of clients in terms of sophistication of work, size of client companies and the related rate structure, the more difficult it is to achieve an effective integration of the two firms. Amerger between a firm that represent large multinational companies on “bet the company” matters and a firm that does more routine work that yields a lower rate structure is problematic from the word “go,” no matter how much both parties want to believe otherwise.

Compensation system

Differences in the cornerstones of each firm’s compensationsystem — the degree of subjectivity in the system, the level of draws, the balance between draws and catch-up distributions, open vs. confidential, broad based participation in compensation setting vs. a small controlling body — all of these factors provide an opportunity for conflict. Finding a merger partner with similar compensation system values and function will help in achieving succession objectives.

Financial ambitions

Every firm is different in terms of financial performance and objectives. A lack of similarity in what is valued will yield dissatisfaction, a sense of us versus them and, over the long haul, a combination that will drive attrition from one side or the other.

Leadership style

Finally, the issue of compatible leadership is a critical consideration when a merger is considered as a solution to succession issues. A group of partners that have existed in an environment with a leader that routinely engaged partners, allowing them to actively participate in the decision making and policy-setting process will be unhappy in a new environment that doesn’t include such involvement.

A merger can be a solid, even dynamic solution to issues of succession; but a critical success factor is the honest evaluation of leadership styles on both sides of the equation.

Conclusion

The market for mergers remains very hot. Law firm leaders looking to merger as a succession solution will likely find a number of options. It is easy to be seduced by the perceived upside. Leaders who devote appropriate attention to these five factors will be much more likely to engage in combinations that survive the test of time…and deliver succession solutions for clients and firm personnel alike.

Succession Planning as Financial Planning: Five Critical Components

Posted in Law Firm Leadership, Law Firm Succession, Law Firm Transition

Succession planning is an important issue for many law firms, especially as the Boomers and Generation Xers age and the human resource pyramid becomes an irregular shaped box.  When you add in the assault on the industry from client competition, alternative service providers, and artificial intelligence, the necessity of doing succession right is more critical than ever.

With all that has been written and discussed about law firm succession planning it is no wonder that firms are focusing on the challenge more than ever.  Early attention to the issue, training the next generation of leaders and business generators, and consulting with clients are among the tools used to position firms for the future.  All those initiatives are important to tackling succession, but too often these “soft” steps don’t sufficiently address the financial aspects of succession.  For a succession plan to work, it must recognize and address financial issues.  In sum, a good succession plan is also a good financial plan.

Any succession plan necessarily involves financial considerations that touch on client transition, senior attorney compensation, dealing with owner equity, maintaining working capital, and controlling the annual succession cost.  Experience has shown that financial modeling is important in addressing these five fundamental components of law firm succession.  Specifically:

Transitioning and Institutionalizing Clients Requires Incentives.  On the law firm side of things, transitioning a senior attorney managed client to a junior attorney involves those two plus the firm.  Without creating incentives that motivate all three to see transition accomplished, the important objective is merely aspirational.  Finding a financial arrangement that encourages the senior attorney to let go and the junior attorney to latch on is critical.  Without such a financial arrangement, institutionalized and managed by the firm, failure in client transition is likely.

A Senior Attorney’s Compensation Glidepath Must Be Fair to Everyone.  As many senior attorneys get on in age, they slow down and their productivity wanes.  Cutting the senior attorney off at the knees at compensation time generally is no more effective than allowing that attorney to be continually overpaid.  A firm realistically addressing succession confronts the declining productivity phenomenon and finds a middle ground that appropriately balances recognition of historical contribution and current contribution with the reasonable financial expectations of the other generations.

Old Capital, New Capital and the Value of Existing Owners’ Interests Must Be Addressed.  Whether a firm is small or large, the value of an equity owner’s interest in the firm must be addressed as part of succession.  Even firms that have a well-defined retirement of capital scheme, it is important that the firm retain sufficient paid-in capital as senior attorneys leave.  For firms without an established way to return or retain paid-in capital, especially smaller ones, the advent of senior partner retirement presents the additional issue of whether the remaining owners must pay the looming retiree for the value of his or her equity interest.  Solving the capital issues typically is an important financial consideration.

Succession Must Provide Sufficient Working Capital for the Future.  The whole idea behind succession is to assure an enduring institution.  Keeping an eye on the go-forward working capital needs of the firm is a must when preparing for succession.  Succession obligations can’t be allowed to drain a firm of adequate working capital.  Any succession strategy must meet the working capital needs of the firm (and its remaining owners) going forward.

The Annual Succession Obligation Must be Regulated.  Closely aligned with the need for working capital is the necessity to regulate or cap the payment of succession obligations.  This most often comes into play with a return of capital or equity buy-out obligation created as part of a succession plan.  Even the best planned succession strategies can impose obligations that outstrip a firm’s ability to pay in down years.  Establishing a cap on some of the obligations preserves the firm so that it can pay all the obligations, even if some are delayed.

If pursued thoughtfully, succession planning involves a heavy dose of financial planning.  When your firm works on its succession planning, it is sufficiently focused on the financial issues?

 

Will Your Law Firm Survive?

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

I have been thinking a lot about the state of change within the legal profession, and wondering what the ultimate consequence will be for firms as the pace of change continues to accelerate. A few weeks ago, Altman Weil released their 2018 survey of law firms; the survey, its results and commentary are excellent. In reviewing the document, I was struck by the extraordinary risk that so many law firms are operating with — the risk of obsolescence.

A friend and highly regarded marketing and strategy consultant, Eric Fletcher, published an article titled, Don’t Look Now, But Things May Be About To Change, which is exactly on today’s point. His observations regarding Eastman Kodak, Blockbuster and typesetters can be extended to law firms–they will either adapt or go the way of the dinosaur.

There are three quotes from the Altman Weil survey that provide focus for this post.

Quote 1
“The overall demand for legal services (billable hours) has decreased in the aggregate since the recession, and all of the dynamics that affect hours available to traditional law firms clearly indicate a continuing downward trend. Commoditization, new technology tools and ‘non-traditional competition are all permanent changes to a post-recession market. Demand for law firm services will not return to pre- recession levels–ever.”

Change is constant and non-traditional service providers have seized on a lucrative niche in the legal arena, one that has not evolved with the efficiencies that technology and creativity bring to so many other professions. According to the survey only a little more than one-third of the 800 plus law firms surveyed are proactively engaged in activities that will drive innovative change.

Bites of the traditional legal marketplace pie are being devoured by new non-legal competitors. To survive, law firm leaders will embrace this reality and take appropriate action. The others will ultimately find one path or another to extinction.

Quote 2
“In 69% of law firms, partners resist most change efforts.”

This quote aligns interestingly with one-third of law firms not engaging in innovative ways to serve their market.

Lack of interest in change among law firm partners is driven by a variety of factors. Some partners are reaching the end of their careers, many are tired and don’t need to change to reach the finish line. Some haven’t accepted the necessity of change and others don’t know how to change.

Leaders of tomorrow’s successful law firms will have found a means of making innovation a normal part of their firm’s culture. They will budget, recruit and promote with adaptive change in mind.

Quote 3
“Equity partners are not busy enough in 51% of law firms.”

The challenge of unproductive partners is not a new one. What is new is the margin of operational error firms can afford in this marketplace. Partners who are habitually unproductive and are not seeking to change–create viability problems for their firms.

Successful firms will have a declining percentage of under-performing partners, and even fewer partners who are both underperforming and resistant to change. I believe in treating everyone with compassion; however, compassion must be coupled with a drive for institutional stability and survival.

Conclusion
Massive change is afoot. The most successful firms will take advantage of change and come out winners. The others will ultimately find their way to a growing heap of “former” firms.

Is it Time? Five Developments That Demand Action from Law Firm Leaders

Posted in Law Firm Crisis, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition, Law Firm Warning Signs

Running a law firm successfully is no easy task.  It is a multi-dimensional effort that requires leadership, discipline, vision, and some luck.  Getting all firm lawyers to row a boat in unison can be tough.  Even if some of the oars irregularly go into the water, progress is still possible.

When attentive leaders work hard to keep their firm headed in the right direction, unanticipated events are not part of their go-forward planning.  Why would they be?  But as history has shown, unforeseen watershed developments can occur that place firms in destabilizing states of transition.  When this occurs, it no longer is business as usual. Rather, leadership must recognize that the routine has given way to the unfamiliar.  When a firm leader is presented with such a defining moment, decisive action must be taken for the firm to find a safer place.

When transitional event arise, it is imperative that a firm act promptly and with resolve.  While such events can come in different forms, most fall into one of five categories.

Loss of a Foundational Leader.          Some firms are clearly identified with a single leader.  He or she contributes mightily to the firm’s success and despite others also furthering the collective goal, it is hard to imagine continued success when that leader is gone.  So, whether sudden retirement, illness, death, or a leader’s foray into public service, the loss of a foundational leader easily thrusts a firm into transition.  Business as usual will not be possible. Significant action out of the norm will be required.

Financial Setbacks.     Most firms experience an ebb and flow in their financial performance.  It can be expected as are the inevitable array of adjustments made to address the up and down.  But when a firm experiences a dramatic reduction in financial performance, especially if it represents evidence of a problematic trend, focused action is necessary.  Strong steps to arrest the financial setbacks and strategize for a recovery must happen.  Inattention or inadequate measures can spell the doom of a firm.

Excessive Attrition.     Blessed is the firm that avoids attrition.  Indeed, attrition at law firms is common and, within reason, can be helpful.  Not only can poor performers rotate out, but new blood can add to a vibrancy that law firms need.  When attrition grows to excessive levels, however, a firm can find itself adversely impacted by out of kilter overhead, loss of substantive skills, and declining morale.  When a firm experiences a rash of attrition, leadership must stem its continuation, identify the roots for its occurrence, and implement short-term and long-term remedies.

Loss of Vigor.  All law firms depend on a measure of enthusiasm to be successful.  Whether personnel are enjoying the teaming culture or exciting engagements, a law firm’s vibrancy through its people is a key component to its success.  When a law firm loses that energy, and simply goes through the motions in its day to day activity, something is wrong.  If not addressed, a firm can slide into irrelevance or indifference.  Leadership seeing intensity or potency drop should not accept such a state.  Action is required.

Collapse of Your Market.  Some law firms stake their success on being the very best at serving a particular niche of the legal market.  There is nothing wrong with a boutique strategy-it has resulted in success for a great many firms.  But sometimes business trends, legislative or regulatory changes, or client stumbles result in a firm losing its market.  Picture an environmental law firm when a government is cool to environmental concerns.  Whether expected or not, a loss of market means leadership should move beyond habitual planning and instead go a Defcon level of action.

When major unanticipated developments hit a law firm, leadership needs to step it up a notch.  In the face of challenges like the five discussed above, muddling through the customary approach to leadership simply won’t do.  Action, perhaps dramatic, is required.  Would your firm recognize these predicaments and take the initiatives needed?

Rethinking Law Firm Succession-Five Reasons to Focus Differently

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition

Law firm succession is a top of mind issue for today’s law firms.  Making sure one generation of leadership can hand the reins off to the next generation is a key concern.  Of course, it is not just having the right people in place to develop and execute sound strategies, but it also requires transitioning to capable client relationship getters and managers.

A recent report highlights industry developments and suggests that finding the right successors at law firms is more important than ever.  Altman Weil’s 2018 Law Firms in Transition Survey sees law firms at a crossroads.  The data and analysis suggests that law firm gains since the Great Recession of 2008 are being countered by new challenges and challengers different than a collapsing economy.  Instead, client competition, alternative service providers, and a growing array of technology-based solutions undermine more than ever the position of the traditional law firm in the legal service market.  Smart law firms, ones that will thrive in the future, will aggressively respond.

So how does law firm succession fit in with this challenge? In essence, succession today is not just a matter of training and selecting the next leaders and business developers in the mold of the lions that built the firm into what it is.  Rather, similarity to the past may have less utility than previously thought.  The next law firm successors should possess forward-looking perspectives that rival the results-oriented thinking of clients, alternative service providers, and emerging technology platforms.  The next leader’s focus on the future is essential because:

Traditional Demand for Legal Services is Likely to Decline Over Time.  With clients bringing legal services in house, turning to alternative service providers, and technology-based solutions gaining traction each day, the assault on traditional law firm services is sure to increase.  Demand for traditional legal services is likely to fall. Creative solutions will be needed from the law firm leaders of tomorrow.

Legal Services Will be More Commoditized.  Industry trends suggest that legal services are becoming more commoditized.  The more that happens, the less clients will be willing to pay for those services.  Firm leaders will need to either move away from commoditized work or make it more value and result oriented.

Non-Traditional Competitors are More Innovative and Client Centered.  The competition is scary because it typically is more innovative, and client centered than traditional law firms.  Law firms that survive and thrive will be committed to innovation and client centered results, just as the non-traditional competitors are.  Any new leader must think like an innovator and drive results that focus on client satisfaction.

The Old Business Model Needs More Than Tweaking.  Since the Great Recession many successful firms have tweaked the law firm business model to enjoy modest gains.  Forward-looking leaders will think beyond short-term solutions but will think about new business models that drive client results and satisfaction.  The future will require more than tweaking, it will require new approaches.

The Next Downturn is Coming. Since the downturn of 2008 the legal services industry has operated in an improving financial world.   Even as the economy has expanded, the results for law firms have been only tepid.  The decent results have come without facing the burden of another financial downturn.  Forward thinking leaders will be prepared for the inevitable next downturn.

If your current succession plan has not taken on the new mindset, it needs to be changed so your next leader is not just like your traditional leaders, excellent he or she may be.  Similarly, if new leadership has been installed recently, and consensus for the coronation was premised on the successor’s “fit” within the firm’s traditions or historical approach, serious thought should be given to the idea that another change is needed.  A continuation of the status quo, or a moderate change from the status quo, may leave the firm behind in what promises to be an ultra-competitive and unforgiving future.

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