We must find time to stop and thank the people who make a difference in our lives.”

John F. Kennedy

Believing one has something to contribute to a conversation requires a measurable degree of nerve. To aspire to actually instigate on-going dialogue is downright presumptuous.

Yet, a few months ago that was the goal as we launched this blog.

Truthfully, we did not expect to enjoy it as much as we have. And we have you to thank for that.

We began with believing that there are few conversations more critical to our industry today than those focusing on managing a law firm (or an individual practice) in transition. We believe a handful of principles and practices make it possible to emerge from even the most disruptive market poised for stability. That’s why we invest time here each week.

We haven’t reached the success level of Seth Godin’s blog and its 4 million readers, but we feel great about and thank the readers from  five of the seven continents  that we have connected with. (Apparently the people in Antarctica and Africa are not wrestling with law firm transition.)

Thank you to the readers in 49 states that have read or commented on our blog.  We are still trying to find a way to connect with those interested in law firm transition issues in Hawaii.

We will continue to examine issues and deliver ideas and perspectives on how law firms address the high-consequence change of today’s market.

As it was a few months ago, the goal is to instigate conversations. And to that end, we welcome your input related to issues you would like us to address.

Thank you for joining in.

Roger Hayse and Andy Jillson

 

What successes or challenges can we expect for law firms in 2014?  Writers like Dimitra Kessenides and Jennifer Smith recently have written that 2014 may be a challenging year for law firms.  But as reported just this week, including by Jennifer Smith, the 2014 Outlook from Citi Private Bank and Hildebrandt Consulting projects law firm profits to go up by five percent.

While decidedly different prognostications, neither may be wrong.  Some firms likely will enjoy an upward tick, while others will continue to struggle through transition.  For most law firms facing transition in 2014, resolution of any challenge will not be a life or death matter.   But for some, the tests they face could cause a default in their bank financing. For such a firm, its troubled law firm loan will require a workout, a circumstance it probably never anticipated facing.

From the bank’s perspective, getting the workout right can save a valuable business relationship or reduce the risk of loss. Getting it wrong, and the bank can find itself a party in a Dewey like world-a place few bankers want to visit. The increased risk profile spawned by a law firm’s setbacks demands careful attention by the bank and compels it to understand the ins and outs of working out a troubled law firm loan.

FUNDAMENTALS

Law Firm Loan Basics-Good Times. Law firms can be great customers for banks. A law firm’s needs can be many: working capital loans, equipment financing, depository services, trust department services, and capital loans for partners. The relationship that evolves from these needs can spawn further relationships – introduction to attorneys and staff who have personal banking needs; introduction to law firm clients that have business banking needs. As long as the bank/law firm relationship is a smooth one, it can prove to be a long lasting and lucrative partnership.

Law Firm Loan Basics-Not So Good Times. When a law firm’s loan with the bank exhibits signs of tension or trouble, it is imperative that the bank gives the matter its immediate attention. Indeed, because a law firm’s asset value is in its attorneys that can resign at any time, a loan workout with a law firm is challenging. For most banks, the fundamental objective of getting paid is coupled with a desire to see the law firm smooth out its bumps in the road so that the law firm remains a good customer going forward. In other cases however, the circumstances may have advanced to where there is little hope that the relationship will continue, and the focus of the bank is directed solely to getting paid. Whatever point on the workout continuum the law firm falls, there are certain basic steps the bank should take when facing a law firm loan workout. These steps work regardless of the severity of the situation, and position the bank so it can obtain the best result possible.

PRELIMINARY STEPS

Getting a Sense of the Situation. As is the case in any workout, take a snapshot of the situation from 50,000 feet so that you get a sense of the overall situation. You’ll dig into the details later, but you will want to start your preparations by viewing the entire landscape, especially since law firms can be fragile institutions. Determining the situational overview allows you to know if the problem is manageable, and whether it is a problem for others. No doubt it is a problem for your law firm borrower, but there can be others, whether contractually bound or not, that may have an interest in seeing the loan workout succeed. You’ll want to know the identity of those parties and understand their motivations. Performing this preliminary assessment will provide needed context as you go forward.

Understanding The Sources of Recovery-Obligors. No workout should go long without determining all available sources of recovery. Obviously, the law firm borrower is a source, but you may have guarantees from various partners or affiliates. Few law firms are general partnerships anymore, but look at the nature of the business organization to see if additional parties may be liable as a matter of law.

Understanding the Sources of Recovery-Collateral. What collateral do you hold? Is there collateral from the other parties that are liable, whether they be guarantors or otherwise? Do your collateral documents give you a security interest in the borrower’s “unfinished business”-the underlying profit in the client work in process?

Enlisting Professional Help. Your preliminary steps will guide you in the wisdom of bringing in outside professional help. In performing the preliminary steps, you already may have enlisted the assistance of outside advisors such as attorneys, financial advisors and accountants. If not, however, unless the situation with the law firm is completely benign, a call to your outside advisors is warranted. With their assistance, the bank should decide on its ultimate objective. Once the objective is established, your team can work together to develop a comprehensive plan designed to achieve the bank’s objective, including alternative paths to implementation depending on the array of responses from the law firm.

What steps do you think are most critical in getting a good start on a troubled law firm loan workout?

Next week we’ll cover Part Two of this three part series on The Bank Workout of the Troubled Law Firm Loan.

 

 

Note:  This is Part Two of a blog that was originally published as a guest blog on Kevin McKeown‘s Blog Leadership Close Up.  We wrote At the Edge–Avoiding the Fall to revisit a success story of a law firm dealing with transition and emerging stronger from a near crisis and how the lessons learned then have meaning today.

 

That Was Then. What About Today’s Changes?

Some basics never change.

The keys to surviving turbulent market shifts are the same today as in our real-life case — recognition, leadership and communication. However, one reality has changed the equation.

Social media has turned the old model of who controls timing and content of a message on its ear.

For law firm leaders dealing with issues of transition, this change means the time to recognize an issue and develop a solution is drastically compressed. The slightest hint of crisis today can spread through your organization; become the trending topic in other firms, and the fodder for tomorrow’s blog headlines.

Brian Dalton in a recent Above the Law post describes why the astute leader must use the new media as a communication asset, implementing the use of blogs, micro-blogs and other social media tools as a critical part of any communication plan.(See the 8,000+ blogs of LXBN.) We believe strategic blogging will:

Give “voice” to the firm’s proactive approach to transition, underscoring visionary leadership in the eyes of clients, other important business audiences and the legal marketplace.;

Drive the tone and content of conversation around a firm’s transition, minimizing the impact of the rumor mill; and,

Micro-blogging tools such as Twitter provide for real-time two-way communication with internal as well as external audiences.

Social media will be a part of the communication around any visible law firm transition. The only decision left to law firm leaders is the degree to which it will be used to the advantage of the transition plan.

Virtually every day in our work we see firms facing crisis. For some, the very existence of the firm hangs in the balance. And though the specifics may differ from case to case, transition is inevitable. The only question is how painful or successful might the impending transition be.

How is your firm adapting to change? What do you believe are the keys to a successful law firm transition?

 

 

We originally posted this blog on Kevin McKeown‘s blog Leadership Close Up.  Kevin has been a tremendous resource for us and has guided us greatly as we work at delivering meaningful content about the legal industry and the significant changes it faces.

Some words simply lose impact over time.

Change is such a word. But the inadequacy of language does not lessen the disruptive nature of shifting cornerstones.

As described so well by Abe Krash, this is what we’re experiencing in the legal industry.

Headlines are full of stories about law firms losing lawyers. Noam Schreiber was brilliantly quoted in a recent Bloomberg piece by Megan McArdle:

“Stable” is not the way anyone would describe a legal career today. In the past decade, twelve major firms with more than 1,000 partners between them have collapsed entirely. The surviving lawyers live in fear of suffering a similar fate, driving them to ever-more humiliating lengths to edge out rivals for business…

We feel the turbulence. The talk of alternative models and a new normal does little to address the daily challenges faced by many law firm leaders.

In our experience with law firms, what is most helpful when turbulence looms is to be able to recognize the coming storm in time, and decisively, effectively respond.

Firms of all sizes, in all geographies are struggling to find balance, some are restructuring, others shoring up through mergers, and in some cases, shutting the doors. But today’s struggle with transition is nothing new.

Leading Through A Burgeoning Storm – A Case Study

From two different perspectives inside the same firm, one of us in management and one of us as a working lawyer, we experienced a law firm in crisis, saw it survive and stabilize, and ultimately grow from 50 lawyers in one office into an Am Law 100 firm with a nationwide reach.

It was the early 1980’s, and the firm had enjoyed over thirty years of financial and professional success. This stemmed largely from a dominant institutional client, C. W. Murchison Sr. , whose corporate, real estate and litigation work fueled the firm.

But with little forewarning, the institutional client collapsed. As if on cue to further compound the dilemma, the firm’s Texas based economy fell, as reflected in this timeline of the 80’s financial crisis.

With little time to prepare, the firm’s business base had disappeared. The search was on for a way to survive

Three Keys To The Law Firm Successful Transition

Every decision bore significant consequence – for the firm, individual lawyers and non-legal staff. The idea of change took on real-life meaning. Yet, from the edge of abyss, we experienced a rise to a stature none of us imagined. Here are what we believe to be the keys to that successful transition.

1. Recognition. With the irreversible disappearance of the firm’s institutional client, coupled with recession, management concluded that reliance on our old business model was foolish. This enabled us to dare to innovate. Hindsight being 20/20, this seems an obvious conclusion; however, real-time change often obscures the ability to acknowledge even the obvious, and act decisively. Management’s swift problem recognition was vitally important, but so too was the speed with which it acted.

2. Leadership. Our firm was fortunate to have extraordinary leadership in the midst of this crisis. A visionary strategic plan created a new framework for growth –- organic, lateral and via merger – designed to diversify practice offerings and geographic reach. This executable strategy provided answers and direction; and though another plan might have been better, time was of the essence. Perfection had to yield to speed. Transparent and visionary leadership inspired confidence, presenting a plan that lawyers could rally around.

3. Communication. In the midst of change, as Eric Fletcher describes communication is life-blood. Translating vision and tactics is an on-going task. So, the firm’s leadership constantly touted the plan, articulated problems, acknowledged challenges, and welcomed input. Walking the halls, collaborative meetings, lunches, dinners – the nuts and bolts of communication provided the grease that made the transition gears move. Visible and transparent progress created a groundswell of support. Simultaneously, management was communicating to external audiences. Clients, strategic business leadership and the entire legal community heard of the firm’s new vision, the opportunity and the excitement that laterals and other firms would experience by joining.

Thanks to these three tenets, new clients, new colleagues and new offices arrived. Success bred continued growth and more success. And the firm became an enviable model.

This lengthy post will continue tomorrow.

 

I originally posted this blog as a guest of the Cordell Parvin Blog. Cordell is a great guy who has a terrific practice as a a tremendously successful career and business development coach to lawyers. Thank you Cordell.

_____________________________________________________________________

 

 

Wow – where does time go? It seems like yesterday that my good friend Cordell Parvin and I were doing strategic planning for his Construction Law Practice Group.

It was actually  1997 – 16 years ago. We were grappling with thebusiness of law — how to grow a practice.

A few things have changed.

Cordell built one of the most successful Construction Law practices in the U.S., and led a dynamic group; in time, he left the firm to pursue his real passion — helping other lawyers become successful at business development.

For a decade the legal profession enjoyed tremendous economic success.

Then we hit the wall in 2008.

Never have meaningful conversations about what it will take to build and sustain a successful practice been more critical. And my approach is much the same as it was with Cordell 16 years ago.

 

The Strategic Foundation

Strategic planning begins with an assessment of the forces that will impact the profession. Although there are numerous influences, I believe three key drivers will shape our industry in 2014, and beyond:

  1. Technology – The impact of technology on the time and ways in which legal services will be delivered is astounding.  Many believe technological innovation will play a greater role inshaping the future of the profession than any other factor;
  2. New competitors – The landscape is changing daily, and includes service sources that bare no resemblance to the conventional law firm. Axiom, Legal Zoom, Virtual Law Firms,For Profit Legal Kiosk, Free Legal Centers and Legal Process Outsourcing firms introduce new pricing pressures and shifting expectations with respect to how legal services are offered.
  3. Supply and demand – There is a growing disparity between the number of law school graduates and the availability of traditional law jobs. According to this analysis, there has been a steady decline in the percentage of law grads finding work as lawyers — falling from 87% in 1988 to 65% in 2011. Projectionssuggest the number of graduates will outstrip traditional law firm jobs 440,000 to 220,000 in the next decade. This imbalance will accelerate rapidly growing price pressure.

How Should Lawyers and Firms Prepare?

I believe the key is to navigating the changing landscape is to focus on 5 critical areas:

  • The right people – In his terrific book, Good To Great, Jim Collins says great organizations have “the right people on the bus.”  Great firms focus on attracting and keeping the right people, and inviting the wrong ones to exit…quickly;
  • Client connectivity – Staying in touch with your clients and really understanding their needs as their options increase.  Client interviews are a great tool. They must be accompanied by processes for service delivery and accountability;
  • Training and development – As the rate of change accelerates, so does the need for training, orientation and integration.  New technologies and processes will demand new competencies. The organizations that account for this will rise to the top;
  • The reality and role of Social Media – Resist if you will, but the science of communication is not what it used to be. It is impossible to overstate the impact social media is having. It is the means by which a growing percentage of the world expects to gain relevant information. To presume that this will not have dramatic impact in our industry is to deny what is already occurring;
  • Leadership – In the midst of rapid change nothing is more central to success than stable, visionary and trusted leadership. Great firms identify, train and nurture leaders that can analyze and instigate appropriate responses to market realities.

It is the law firm leader (whether that be the head of Wachtell, DLA Piper or the solo lawyer), who must have a means of scanning the environment, assessing the prospective impact on the enterprise and creating a vision for the path forward.

The challenge, as described by Lisa Friedman and Herman Gyr, “Often, key leaders or team members don’t see the whole system in the same way—each sees a different portion of the overall pThey generally do not have a shared view of the full range of forces impacting their business…”

In order to succeed in 2014 and beyond individual lawyers and law firms must have a keen ear to the ground. The mega-trends that shake the cornerstones of the marketplace at large almost always impact our industry. Success demands awareness, and strategic response.

And I believe strategic response begins with the ability to see the entire landscape – the big picture; and to have clearly defined cornerstones – shared aspirations – that provide the framework for responding to change.

What is your firm doing to prepare for the future?

Nothing is scarier to a law firm than to find itself facing a “run on the bank.” It can begin with one or two “key” departures, is compounded by panic, and followed by more departures.

Few firms are immune. As Debra Weiss noted in her Is the Law Firm Pyramid Collapsing? Big Law is Aging with More Partners than Associates, law firms are aging and strategies to avert the consequences may cause valuable partners to “leave the firm, leading to a Heller-Howrey-Dewey-type run on the bank.” The risk is even greater for the struggling law firm trying to calm the troops after experiencing a steady diet of bad news, declining economics and unanticipated departures. Add to those shaky dynamics the inability to execute on a saving merger or other transaction, and it becomes critical to find a finger big enough to plug the dike.

Stemming the tide in order to achieve some semblance of stability is a matter of survival. Arrest the run, and the firm may survive. Fail to staunch the flow, and demise is a certainty.

The good news is that when a run shows signs of beginning, a few swift and decisive actions on the part of management can have dramatic and universal value.

Communicate With Your People. Management needs to constantly communicate with the people that matter. In many instances, that could mean most of your personnel, but it at minimum it means talking to your foundation for the future — the lawyers that remain a part of your firm. Leaders that communicate connote control of the situation. Management holed up in its bunker attempting to adjust the dials will not instill confidence, and cannot lead.

Enlist Major Players In the Defense of the Firm. Reach out to the major players in the firm and develop a transition plan that draws on their thoughts. Leaders know it is impossible to accommodate everyone’s list of Top 10 Priorities, but inclusion and collaboration are essential to success.

Eliminate Departure Incentives. If partners are leaving because they have a financial incentive to do so, take a hard look at whether those incentives can be eliminated or suspended. Paying back capital as partners leave may be the firm’s obligation, but it may also be gasoline on a fire.

Communicate With the Bank, Landlords and Other Important Third Parties. These folks are, in effect, your partners, too. You can be certain they will hear about your situation. Be proactive. Control the message. Maintaining good relations with these third parties can prove critical as you go through the process.

Triage. In some cases you may not be able to address every issue at once. Like an emergency room physician treating injuries in a disaster, rank the critical issues and address them. Reserve the lesser issues for a more stable day and time.

Nothing causes a sense of panic more than a “run on the bank.” With a plan in place, and with an informed and collaborative team — inside the law firm and among outside parties vested in your success — firm management will be in a position to lead. Survival demands it.

In your firm’s past, have you averted a “run on the bank?”  What action was critical to stopping the panic?

 

 

A smart merger of two law firms requires careful study about compatibility. Fits between two law firms seldom are perfect. But if the cultures, financial metrics, clients and compensation systems generally are in sync, the opportunity for a successful merger exists. While one of these merger variables actually may be strained, harmony among the others may be sufficient to make the marriage worthwhile.

Even with compatible variables, the operational signatures of the two firms still must be blended. As noted in Resolving Law Firm Transition by Merger—Important Compatibility Issues for Management’s Consideration, the lack of operational compatibility on the effective date of the merger does not necessarily spell doom. Knowing about the existence of the “round pegs,” and the location of the “square holes,” allows the two firms to come together and blend operations into one. Whether the operational differences are in the form of differing fiscal years, technology systems, lawyer support concepts and levels of non-lawyer involvement in everyday life, most can be resolved.

Bottom line, operational challenges are fixable. Indeed, the project to unify operations can be an excellent way to fix “deferred maintenance,” gain collective “buy-in” for the merger or implement “best practices.” Handled correctly, the task of bringing together two operations can create excitement and enthusiasm.

Making the most of any challenge presented by disparate operations is easiest if these steps are followed:

Joint Effort. Start by creating a transition committee that will be responsible for bringing the operations together.  Its roster should be pulled from both firms with lawyers (both leaders and non-leadership), administrative staff, and technical staff. After the committee identifies its priorities, it should seek input from the rank and file.  An inclusive committee has a broader perspective and heightens the likelihood that good ideas are heard. Moreover, the joint transition committee increases the chance for buy-in since both “firms” are represented in the development of the final plan.

Plan and Timeline. Nothing can be more important to operational unification than developing a plan. But no plan has much chance of success if it is not developed after reviewing and understanding the operational landscape of the two firms. Since a good plan is one that seeks to achieve the merged firm’s objectives and has an end date in mind, the plan should include a timeline with reasonable but challenging milestones.

Communication. When the transition committee is formed, its mandate, the task undertaken and the time for implementation should be disclosed.  Upon the plan being finally developed and ready for implementation, it should be explained so attorneys and staff know what to expect and when. The communication should be informative, thorough and if possible, exciting.

Practices, Best Practices and Better Practices.  Just because the dominant firm “has always done it this way” does not mean that its practices should be continued. From two ways of doing business a “best practice” might be found or a third, and improved approach, might be discovered. If components of both firms’ operations are uninspiring, consideration should be given to finding and adopting an innovative approach not in use at either firm.

Money.  Few plans are afforded an unlimited budget. Due to the added cost of making out-of-schedule changes, operational compatibility may have to wait until a time when regularly scheduled systems upgrades were planned. Excessive spending solely to achieve a unified operation is not only unwise but usually unnecessary. If waiting to implement a new system is financially beneficial, deciding in favor of a deferred roll-out can make sense and be effective if everyone is aware of the plan and its timing. In most instances, the explanation is appreciated and accepted.

Post merger, some combinations struggle as efforts are made to bring operations together. No doubt merging the operations of two firms can be a daunting, but it is a challenge that can be met if operational unification is planned and by a cross section of both firms.

What has been your experience and what lessons have you learned?

 

 

It is the neglect of timely repair that makes rebuilding necessary.

Richard Whitely

Planning the Successful Turnaround of a Troubled Law Firm

NOTE: This is the fifth and final part in this series on Turning Around the Troubled Law Firm, See Part 1, 2, 3 and 4 .  This post is really the second half of part 4 and for it to make sense please read the first couple paragraphs of the Part 4 here for the introduction.

 

Spectrum of Underperformance

3. Seize control of cash flow. The further you move to the left on the Spectrum of Underperformance, the more urgent the need to get a handle on cash flow. To do this, have a frank discussion with your bankers about the pressing issues. Deliver one clear message: that you intend to manage your turnaround in a way that protects your bankers’ interests. Propose a schedule for constant communication designed to keep them apprised of each step in the turnaround process. A good relationship with bankers is a prerequisite to a successful outcome.

4. Develop a detailed turnaround strategy. It is impossible to generalize about the specifics of a turnaround strategy. Each situation is unique. This is where experienced professional assistance may prove invaluable. There are, however, cornerstones for a successful turnaround strategy.

a.Develop a means for eliminating the principal drivers of underperformance. This often means eliminating underperforming parts of the firm including space, people and perks.

b. Design a communication program. Communication will never be more important than when you are trying to work out a problem. Communicate early, often, honestly and with confidence and hope.

c. Identify the basis for renewal. Every firm has core strengths. Identify yours. Investing here is the path to institutional renewal, and the key to building new and meaningful momentum. This often combines identifying what you are going to invest in and what you are going to eliminate.

d. Map out an execution plan. Whatever your plan for a turnaround, it has action steps that must be assigned to responsible parties. The leader’s role is to determine what the plan is, assign responsibility and hold those individuals accountable.

e. Select a leader who can lead the turnaround. Perhaps the most unpopular question in a turnaround is that of leadership. The difficult truth is that law firms, generally, become troubled as a result of how they are led (or more often not led). Translation: if the current leadership has led the firm into the current predicament, the question begs, can they be effective in leading the turnaround?

Timing

It is rarely too late to turn around an underperforming organization, but remember, there is a direct correlation between how quickly you act and the probability of success. Great leaders identify weakness early and act quickly to eliminate it.

Do you know of law firms that have been successful in a turnaround effort?

 

A law firm considering a merger has a lot to think about.  Evaluating the differing cultures, financial metrics and compensation systems is a must. Merging two law firms without vetting the client fit is not only unwise, but it also is not likely to end well. Yet, finding an acceptable match in the two law firms’ clients is not a quest for perfection. It is a case of avoiding disaster that places at risk important client relationships that have taken a long time to develop. As reported by Robert Denney, approximately 50% of law firm mergers fail, so it behooves law firm leaders to understand the clients a merger will bring together. When significant trouble appears pre-merger, wise counsel favors a “steer clear.”

At least two purposes are served by engaging in an in-depth review of client compatibility. Obviously, it prevents the occurrence of a highly combustible combination. The second purpose served is no less important. The client compatibility exercise will present, front and center, the ability of two separate firms having different loyalties being able to work together on the toughest of issues. After all, clients are like a firm’s children. Criticism from an outsider may not go down well. But if difficult decisions are addressed with tact and a long-term view, two firms can come together with promise for the future.

Legal or Ethical Conflict. The easiest indicator of a bad fit is if diligence reveals that each firm represents a party to litigation or other matter than creates an ethical conflict that cannot be waived. Depending on the importance of the respective clients to the to-be-merged firm, an attempt may be made to withdraw from the relationship so that the merger may go forward. Many times, this is easier said than done as not only can feelings get hurt, but a “Hot Potato” withdrawal can end up being ineffective. And even if a waiver is ethically possible, the manner in which one is pursued can demonstrate a lack of fit between firms.

Issue Conflict. Some firms stake out a position regarding the type of client they consistently will represent. For example, a real estate firm may commit to representing only developers, or a labor law firm decides it will only represent management. Considering a merger with a firm that “sits on the opposite side of the table” will be problematic. Surmounting that problem may depend on the relative size of the conflicting practices or a willingness to sacrifice one firm’s practice in favor of the merger.

Business Conflict. In contrast to firms with issue conflicts, firms too much alike can have business conflicts. Two firms may represent clients that compete head to head in the marketplace. Convincing a client that hiring its competitor’s lawyers may not be an easy sell. Moreover, a business conflict may seem resolved by an abstract conversation with a client only to prove unresolvable when actual facts and conduct are involved. All clients demand loyalty and any perceived lack of loyalty may only arise when real life circumstances are presented. Finally, in many instances, the existence of a business conflict will ultimately lead to other conflicts.

Vision. If one firm’s vision or plans for the future involve pursuing initiatives that don’t fit well with the other firm’s client base, care in pursuing the merger is imperative. A firm committed to becoming the leading SEC controversy firm in a market can experience difficulty in explaining that vision to a merger partner that covets its close relationship with that regulatory body.

Clients are the lifeblood of any firm so a cursory review of potential client conflicts is not adequate. Moreover, apparent acquiescence by a merger partner during the courting and closing phase does not mean the potential conflicts will go away or be forgotten. A merger partner looking for “any port in the storm” may remain quiet for fear of killing the merger, only to raise concerns post closing.

The existence of legal conflicts is most often cited as the basis for calling off mergers. No doubt, that is a compelling reason. But other conflicts that trace themselves to a client base can be just as important.

How many of these other conflicts have you seen as insurmountable?

 

Nations, like stars, are entitled to eclipse. All is well, provided the light returns and the eclipse does not become endless night. Dawn and resurrection are synonymous. The reappearance of the light is the same as the survival of the soul.

Victor Hugo

This is the fourth part in this series on Turning Around the Troubled Law Firm, See Part 1, 2 and 3.

Planning the Turnaround

The first and most important step in turning around any organization is recognizing that a turnaround is necessary. That said, lip service to the trouble will, of course, accomplish nothing. No matter how long your firm has been underperforming, and without respect to where the firm sits on the Spectrum of Underperformance (illustrated below), an actionable plan is essential. Your plan must address two specific objectives:

1. Drive institutional renewal — restoring confidence and stability. The Kaye Scholer story exemplifies such a turnaround (see “A Successful Turnaround”). Where restoration of confidence isn’t possible and the organization faces dissolution, objective number two becomes job one.

2. Avoid a bankruptcy filing at any cost, short of violating your duty to partners or creditors. No one wins in a bankruptcy; lawyers and non-lawyers are displaced, clients are inconvenienced, the community and profession suffer and, to my knowledge law firms — unlike corporate entities — never survive long after a bankruptcy filing. The stories of  Howrey and Dewey and a recent Chapter 11 filing by the much smaller Sadler law firm in Houston, demonstrate what can happen in the wake of bankruptcy.

Keys To Executing the TurnaroundSpectrum of Underperformance

Once you’ve decided to right the ship, four steps are critical to a successful turnaround.

1. Determine whether you need outside professional help. Generally speaking, the further left you are on the Spectrum of Underperformance, the greater the need for assistance. If you find your firm on the far left, consider a combination of turnaround consulting support and bankruptcy counsel. If you’re somewhere on the right side of the Spectrum, turnaround expertise may be all you need.

2. Identify the cause(s)of underperformance. It is essential to understand what precipitated the troubled condition in order to effectively address change. Although every firm is unique, some likely causes of underperformance include:

a. A poor strategy (or none at all)

Most law firms do not have a well thought out strategy. Many have no strategy at all. According to this issue of Managing Partner Forum almost 60% of law firms have no formal strategic plan. In the best case, the consequence of no strategy is a lack of institutional alignment, causing waste and a declining competitive position.

b. Growth

Ironically, the way a firm grows frequently ends up threatening its future. Bigger does not automatically equate to better. Non-strategic growth taxes an organization in at least two ways. First, it calls for an increased need for leadership and management– and the typical law firm is not in a position to deliver either As a result, you have a growing firm that is under-lead and under-managed.  Second, growth often causes resource deprivation; specifically resources dedicated to anything not tied to client service will threaten competitive advantage.

c. Poor accountability

The independent autonomous nature of most lawyers often results in an absence of systems and processes within law firms–including those intended to hold individuals accountable for performance. At times the lack of accountability is driven by the absence of articulated standards. At other times it is the result of a failure to maintain a system that monitors expected-to-actual performance.

d. Management complacency

Mark it down– the longer a firm has been underperforming the greater the degree of complacency. If leadership is attentive to performance and routinely takes steps to address it, the firm is not likely to become a troubled organization.

e. Poor client feedback systems

To some degree, the root cause for many troubled/underperforming firms is a loss of client focus. When the focus of a law firm shifts from client service to any other target, whether growth, technology, image, or profitability–the effect is underperformance. On the other hand, making a proactive investment to acquire quality feedback from clients can pay off in terms of client satisfaction and loyalty.

f. Poor market feedback systems

To succeed, a firm must be constantly aware of evolving market demands, and adjust accordingly. With the rapidly increasing number and types of new competitors in the legal arena, the ability to monitor consequential change has never been greater.

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OK — Long enough–we will continue with the end of this series next week on 12/17. Between now and then –Do you know of a law firm that has successfully made the transition from seriously troubled to health? If so let me know.