The Coronavirus is causing broad-based law firm disruption.  Reports of law firms reducing draws, decreasing salaries, furloughing or laying off of lawyers and staff, and modifying summer associate programs appear daily.  Besides creating concern for health and well-being, the pandemic presents real and substantial challenges for law firms.  All firms will feel it, and some will struggle for their existence.

Overcoming crisis in a law firm is a time for leadership.  When we consider leadership, we often associate it with a single individual.  Washington, Lincoln, FDR and Churchill evoke thoughts about big lives in big moments.  But these legends did not succeed alone.  Other people helped.  In law firm crisis, the same should be true.

Great leadership in a time of law firm crisis draws upon other talented people to protect and preserve the firm.  Tapping others to help is prudent because crisis can be all consuming, far too much for a single person to handle alone.  Besides helping avoid “too little time for too much to do,” creating a team to tackle crisis allows a firm to draw on diverse talents necessary to solving a crisis.  Creating a crisis team allows a law firm leader to avoid being overwhelmed and direct needed skills to critical tasks.

Expanding the crisis team helps in another way.  With added involvement, the task of getting “buy-in” to a survival strategy is easier.  If more people have ownership in the solution, it is more likely that the firm can count on their support and commitment to sell others on the chosen path forward.

In crisis, a talented team can help leadership succeed.

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.

The phrase “extraordinary times” is an understatement when it comes to describing these days as each of us is forced to focus on new ways to achieve personal and business survival. As law firms attempt to envision a path through this crisis, a new working relationship with vendors should be considered as part of the solution.

When thinking about communicating with your vendors, there are two general approaches our clients are taking.

  • Some are proactively starting conversations, discussing if and to what extent vendors are willing to cooperate with a program that defers some or all payments.
  • Others are merely submitting reduced payments with a statement describing the firm’s intent to catch-up.

The approach taken is based, in part, on the firm’s projected liquidity challenges, and on a vendor by vendor basis.

A vendor or creditor that deserves special attention is the firm’s banker. We recommend a face-to-face visit (these days this means Zoom, Skype or some video conferencing platform). Not only is your banker a potential source of additional funding, but they typically have some form of a security interest in firm assets. Best to engage your banker early in a dialogue around where you are, how the future looks, and how you can work together to ensure a profitable long-term relationship.

For those interested in a conversation about leading during crisis, we’re providing a no-cost 30-minute consultations as long as our schedules permit. Send us a note to either email address below:

Roger Hayse – Rhayse@HayseLLC.Com or

Andrew Jillson – Ajillson@HayseLLC.Com

For more of what we have written on this topic click here.

Stay safe!

A law firm in crisis is in a different world—a world in which leadership must learn to adapt.  It is a place that requires thinking differently, acting decisively, and making choices count.  In battling crisis mistakes inevitably happen, but successful crisis leaders keep the number and magnitude small.  A law firm leader flexes brain muscles not recently used or never known to exist.

Leading in crisis fundamentally requires two things.  First, a capable crisis leader immediately determines the roots of the problem.  Not uncommonly, the crux of the problem is not limited to one issue.  Multiple setbacks may have occurred, whether all at once or sequentially, to upend business as usual.  A good crisis leader is not fooled by tangential oddities, irrelevant anomalies or fixated on global causes.  Rather, a good crisis leader eliminates the noise and focuses on the fundamental business problem(s) that turn the firm’s practice on its head.

Second, once the problem is diagnosed, the next step is finding a solution.  By understanding the challenge, a leader can identify a fix.  A misdiagnosed culprit can lead to an ineffectual remedy and compound the crisis.  Turning to others in the law firm’s orbit when crafting a strategy can help. Feedback, perspectives and ideas from colleagues can avert leader tunnel vision, contribute to a holistic solution and widen recovery strategy buy-in.

Identifying the problem and creating a plan to solve it are high priority duties for a law firm leader facing crisis. Bypassing these two critical steps can doom a law firm confronting crisis.

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 law firm leadership in crisis or the fundamentals of confronting crisis, visit our blogsite Managing Law Firm Transition at law firm leadership or confronting crisis.

The vast majority of law firms are already or in the throes of or are about to experience a marked decrease in revenue, whether to closed courts, stalled transactions, or simply because clients are pulling back and paying more slowly.

For a very small minority of law firms declining cash balances aren’t a problem thanks to a strong contributed capital position. But, these are few, and far between.

For everyone else, improving the cash position will be necessary to weather this storm. To strengthen liquidity, we recommend the following six steps:

  1. Establish a rolling 60-day cash forecast and monitor performance to it every day.
  2. Evaluate existing credit facilities to determine what funding is available to you.
  3. Initiate conversations with your bank related to increasing or extending credit.
  4. Determine what if any funding will be available to the firm from the government’s stimulus package.
  5. Slow vendor payment in all possible cases and contact major vendors (landlords) to gain their support for partial payment deferrals.
  6. Immediately consider decreasing the level of partner (shareholder) draws.

In our experience, there are strategic processes and conversations around each of these ideas that will accelerate solutions which will ease pressure, reduce stress, and help provide stability. And we are committed to providing help.

If you would like to explore your best options, we’re providing a no-cost 30-minute consultations for as long as our schedules permit. Send us a note to either email address below, and we will respond as soon as we can.

Roger Hayse – Rhayse@HayseLLC.Com or

Andrew Jillson – Ajillson@HayseLLC.Com

For more of what we have written on this topic click here.

Stay safe!

 

Thoughts on Navigating a Law Firm (Coronavirus) Crisis – continued.

Experience tells us that crisis in law firms can happen fast.  Once presented, its consequences can race past leadership’s ability to effectively respond and leave a firm reeling.  Whereas crisis traditionally caused by lawyer departure, client loss or revenue decline has often been predictable or foreseeable, today’s law firm crisis by pandemic was, for the most part, unexpected.  Whatever its genesis, to overcome crisis leadership must communicate clearly and credibly.

Communicating in crisis must be prompt but also thoughtful.  Finding a quick solution to crisis is critically important but a “ready, shoot, aim” approach to navigating a firm’s way out will almost always prove harmful.  A firm’s people will rely on every word said so creating a sound solution first before deeply substantive messaging is essential.  If a plan has not yet gelled, a communication that says a comprehensive plan is in the works is better than touting a half-baked plan that subsequently falls apart.  Crisis seldom allows for “do-overs.”

Once deciding on a solution, telling and selling the path back to stability must be consistent and believable.  Disparate messages delivered by uncertain and confused spokespersons will do more harm than good.  It will destroy leadership’s credibility.  And, because credibility is so vital in crisis, nothing is more important than consistent and truthful messaging.

The breadth of law firms experiencing crisis due to the coronavirus is, by every measure, unprecedented.  For firms feeling the pandemic’s impact, beating crisis presents a multi-level challenge.  In meeting that challenge, the role of communication should not be overlooked.  It is enormously important.

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

These are exceptional times for all of law firms. Staying safe and assuring good health is of paramount concern.  But for all but a few firms, these times also will test leadership as it seeks firm stability in uncharted waters.

In crisis,  leadership must  be seen and heard,  manage cash flow/liquidity prudently, and confront tough personnel decisions. The soon to be passed stimulus bill could be  of substantial value to  law firms fighting to survive.

For the last 15 years, our firm has served law firms in transition, in many cases firms facing crisis. In a series of perspectives to be published until normalcy returns, we will share our experience, provide guidance and give direction.

Our series  will address:

  • Leading a Law Firm During Crisis
  • Managing Law Firm Liquidity
  • Communicating During Crisis
  • The 2020 Stimulus Package and its Role in Law Firm Survival

Our insights will be  available widely, including through our blogsite, website, Twitter and Linkedin. You can guarantee receipt of the series  by registering here.

If our perspectives stimulate your thinking further or raise questions, don’t hesitate to contact us for a free 30 minute conversation at either:

Roger Hayse – Rhayse@HayseLLC.Com or

Andrew Jillson – Ajillson@HayseLLC.Com

Stay safe!

Recent years have been good for law firms of all kinds and sizes.  But good days can’t last forever.  Whether the next downturn hurting law firms gets traced to a world-wide virus, political disruption, or just a plain old recession, it doesn’t really matter. What matters for law firms having to ride the looming bumpy road is whether they can respond when the inevitable downturn hits.

In any downturn cycle, there are law firms that are winners, survivors and, unfortunately, losers.  Where your law firm ultimately finds itself in that spectrum does not reflect on its innate goodness, quality of work, or dedication to the finest tenets of the profession.  Rather, winners, survivors and losers experience different consequences because they are positioned for a path not anticipated.  Making that path a favorable one depends not just on their existing profiles, but also on the way they prepare those profiles for an uncertain future.

Based on past experiences, five things will play a big part in deciding your firm’s fate:

Financial Strength.     The foundation for surviving any downturn is financial strength.  A firm whose current success is built on strong financial principles, solid attorney productivity, and reward systems that motivate positive performance should do well in good times, but also in a downturn.  Conversely, a firm whose financial strength is based more on recent infusions of talent through lateral hires or mergers may be less strong than seemed.  Because financial strength is so important in any recession, understanding your firm’s financial ecosystem is critical.

Operational Flexibility.          In any downturn, cash flow can become constricted, so preserving liquidity by eliminating discretionary items, unproductive people, and excess real estate can be important.  While cutting back on some of these items can be achievable to a degree, paring back on long-term liabilities like real estate leases may prove more challenging.  This can be particularly true for a firm that has recently grown with the addition of multiple offices and the incurrence of long-term obligations.  For the firm facing potential inadequate operational flexibility, a review of its long-term commitments is an important first step.

Culture.           As the Great Recession showed, firms that survived owed no small thanks to solid and cohesive cultures in which key contributors stayed calm by taking long-term views.  Shaky cultures, especially ones built primarily on compensation or aggressive growth, heightened the risk of failure.  When challenges arise in the next recession, will your firm’s culture stimulate votes in favor of firm or self?  Assessing the kind of culture present at your firm is useful when thinking about the next downturn.

Leadership.     Steady and experienced leadership is an important element to surviving a downturn.  Does your firm have respected and trusted leaders who have exhibited sound judgment?  Or are your leadership young, inexperienced and/or untested in crisis?  The profile of your firm’s leadership says a lot about how it may fare in the next recession.  Working with green leadership today to build experience, demonstrate sound judgment and instill trust and confidence is an important step before crisis erupts.

Preparation.   No matter how your firm’s financial strength, operational flexibility, culture or leadership stack up, preparing now while things are good is critical for conquering the next recession.  Because there is always room to improve, shoring up these four elements is essential while other eyes at the firm remain fixed on the good times.  By preparing now, it will be far easier to confront recession when it comes.

Where your firm sits today and where leadership takes it prior to the next downturn will help decide your firm’s future. Firms whose profiles are suspect and not improved prior to the next recession have a future directed towards struggle if not disaster.  Other firms, blessed with solid profiles or vigilant about improving them, likely will not only survive but may be positioned for opportunity.  As you enjoy your current success, have you thought about where on the spectrum your firm will fall in the next recession?

Don’t waste your time trying to control the uncontrollable, or trying to solve the unsolvable, or think about what could have been. Instead, think about what you can control and solve the problem you can solve with the wisdom you have gained from both your victories and your defeats in the past.  – David Mahoney – Author

 

Now is a good time for all firms to conduct a quick self-assessment. Here are 5 areas that, if carefully examined, combine to provide an accurate preview of what the future has in store for your firm.

1. Turnover, any unexpected turnover is a sign of potential trouble. Law firm leaders should regularly (monthly) monitor turnover levels with a process that quickly identifies any material uptick. Rapid change is destabilizing, even when there is an excellent business explanation. When spotted, decisive action in one form or another is likely in order.  What does your turnover pattern look like over the past 36-months?

2. Dissatisfaction, this metric is a key indicator of business risk. A growing number of law firms find significant management value in systematically monitoring the satisfaction of their lawyer and non-lawyer employee base. And with good reason,  growing dissatisfaction is an indicator of future tourble. Do you have growing dissatisfaction in your firm?

3. Falling profitability, can quickly lead to stress for any business. I am not a believer in the Profits Per Partner (PPP) metric as a be-all-end-all; but if your law firm is paying progressively less for the same performance, it is at risk.

There are a numer indicators of declining profitability besides the exalted PPP metric. These include:

  • Falling productivity
  • Loss of a key client(s)
  • Increased aging of payables
  • Increased aging of receivables
  • Falling client billing

How is your firm’s profitability holding up?

4. Debt, an increased use for operations is a clear sign of stress.  Most law firms use some amount of debt, whether to smooth out collections cycles with a line of credit, or to finance growth and fixed asset purchases.  Any firm increasing its use of debt to cover basic operating obligation has embarked on a treacherous path.

5. Litigation, of any type,  against the firm can be enough to create problems for a law firm. Monitoring the frequency and size of claims against the firm is a must. If your firm has seen an uptick in claims activity, careful examination by leadership is essential.

The thing about organizational risk is that the sooner potential trouble is identified the greater the probability that a viable solution can be identified and implemented. The more serious the trouble, the greater the need for outside support which can bring an unbiased perspective.

Is your law firm at risk????

According to many law firm leaders, having a good law firm culture is a key to sustainability.  Not infrequently leaders attribute their firm’s culture for the success enjoyed.  When new mergers are announced or reviewed, the importance of compatible cultures gets top recognition.  And when law firms fail, the impact of a dysfunctional culture reaps its share of the blame.  So, the importance of culture is consistently acknowledged.  But what makes a law firm’s culture “good?”

A “good” culture can be difficult to define.  Like Justice Potter Stewart’s “I know when I see it” test of one observable fact, law firm culture means different things to different people.

A firm with a good culture need not subscribe to a particular business philosophy.  Indeed, firms with good cultures fall across a broad spectrum of business fundamentals and strategies.  For example, despite thoughts by some to the contrary, an “eat what you kill” firm can have good culture.  Conversely, a “share and share-alike” firm can have a challenging one.

Even with this seeming lack of clarity, because the quality of a firm’s culture matters to its well-being, periodically assessing it is an excellent practice that all firms should adopt.  And as 2020 begins, there is no better time to give it the attention it deserves by performing a culture audit.

A culture audit assesses a firm’s performance in five non-financial areas.  Although non-financial in focus, an audit identifies cultural disconnects that can be addressed before they fester and impact a firm’s stability.

A firm performing a culture audit reviews its connectivity in the following five areas:

Aspirations. Common aspirations for the firm and its owners are extremely helpful to a firm’s culture.  By “being on the same page,” owners are more likely to have similar goals and ideas about the future.  For that reason, an audit starts with determining if the firm’s owners share the same ideals, objectives, and philosophies.  If they do not, a firm’s culture could be out of sync.  Taking steps to align aspirations can help eliminate harmful dysfunction.

Trust.  Do the firm’s owners trust leadership and each other? It is easy to understand that a lack of trust can undermine culture.  Using the audit to determine the level of trust within the firm is essential.  If the audit uncovers questions about trust, a deeper dive into the root causes of the mistrust is necessary.  Once known, the difficult challenge of restoring trust is the next but essential step.

Understanding. Is there a common understanding about the firm’s intended path to achieve widely shared goals?  A firm whose tactics are understood has a better chance of a positive culture.  On the other hand, if there is confusion about the firm’s plan for reaching its intended goals, the seeds for a difficult culture may have been sown. Remedying any misunderstanding about the firm’s direction is an important step to improving a firm’s culture.

Consistency. Does a firm act inconsistently towards its owners and its approach to business?  A firm that acts consistently is more likely to be both trusted and understood.  In contrast, a firm whose decision making is inconsistent and unpredictable can find itself struggling. Using the audit to learn the perspective of the firm’s owners respecting its consistency can provide a vitally important piece of information.

Communication.  It is not surprising that most firms with positive cultures communicate well with their people.  Because good communication is a “two-way street,” if done well good communication helps leadership build trust while keeping it informed about the mood of the firm. All components that impact a firm’s culture are aided by the existence of good communication.  Thus, shortcomings in communication revealed by the audit signal the need for improvement so that the firm’s culture avoids undue stress.

As much as culture seems “touchy feely” and thus not worthy of focused attention in this increasingly data driven world, nothing could be further from the truth.  An audit may reveal surprising information that is best known sooner rather than later.  As 2020 begins, will you take the time to assess your firm’s culture?

 

Law firms and the economy

Many or even most law firms are coming off their best year ever. It may be a time to celebrate, but I continue to think about the inevitable bursting of the bubble. Yesterday I was catching up on some long-overdue reading and came across this Forbes article by Mark Cohen. The Cohen article is excellent and makes a case that the next economic downturn is likely to be very disruptive for many law firms. A falling economy will undoubtedly result in a decrease in demand for legal services, and most law firms are ill prepared.

Timing

Rational professionals all agree that a downturn is coming, the unknown is when we will see it. There are two fundamental approaches, prepare now or wait and see what happens. I am reminded of the fact that:

  • Many people first join a gym, stop smoking or start eating better right after their first heart attack,
  • Others, buy new tires after a flat on the expressway,
  • Couples often agree to counseling after a divorce filing and
  • Too many law firm leaders begin taking corrective action once their firm begins experiencing the loss of key lawyers or clients.

Get lean

Prudent leaders recognize that now is the time to start getting lean. As most know, the two drivers of law firm financial cost management are people and space. The current market is strong for addressing an excess of both of these today; it won’t always be so.

Forward-looking law firm leaders are focused today on preparing their firms for tomorrow. Is yours?