As the business of law continues to change, emerging forces are moving the legal market forward and those firms that are willing to practice a new mantra will see continued success. Throughout history, Law Firms have held various operating mantras that when practiced would yield success of the Firm.
One such mantra, practiced from about the late 70’s on, is the “bigger is better” mantra which came to be because Law Firms had leverage-driven profit models. They hired numerous associates, worked them long hours, and the partners at the top of the pyramid made very high profits. We lived through the post-recession/large layoff legal climate. Now, most Law Firms are looking like a diamond vs. a pyramid. Clients have become insistent on not paying for the training of young associates and for the supervision of experienced lawyers.
Another preached mantra by the legal profession is “merge or die”. We are all aware of the many national and international Law Firm mergers that have failed miserably. Conversely, there are many small-to-medium sized Law Firm boutiques around the country that have their own unique “niche” and are thriving.
As we head into 2020 and beyond, what is the new operating mantra? To answer this question, we look at what is defining success in a Law Firm of today, distinguishing them from those that are struggling, regardless of size. In general, the Law Firms that are doing well are more apt to have a clearly defined strategic plan that the partners understand and support. This does not mean the dreaded, expensive, “collect dust on the shelf” plan which results in many people making ad hoc decisions each time challenges and opportunities arise. Rather, successful Firms have management with authority who execute a plan and make decisions that support the mission and values of the firm. Within this strategic plan, Law Firms that specifically change their strategic approach to lawyer staffing, efficiency of legal service delivery and pricing are consistently more likely to see increases in gross revenues, revenue per lawyer and profits per equity partner than those firms that have not embraced strategic change.
Many law firms still have no written strategic plan and accordingly have not furnished their managing partners a road map for the firm direction. These firms are at best standing still, but are usually going backwards. And, often, these firms are relying solely on “loyalty” to keep top producing partners and associates from jumping to better-positioned, more profitable firms.
One of the greatest impacts to a Law Firm’s success comes from a strategic change to lawyer staffing. In a national Law Firm Transition survey, 77% of Law Firms that changed their strategic approach to lawyer staffing reported an increase in Profits per equity partner, compared to 56% of Firms that had not made such a change – a 21 point difference.
Strategic Lawyer Staffing is based on a firm’s mission, values and client demand. Here are some examples of practices to evaluate when defining a new success mantra around strategic lawyer staffing:
- Hiring partners and associates who match the firm’s core values. You might hear this described as hiring “team players”. People who will foster and not damage the culture or reputation of the firm. My advice when guiding firms through merger discussions, acquiring new practice groups or opening offices in new geographic regions is to carefully assess the culture fit before digging through the dollars.
- Utilizing alternative staffing strategies such as:
- Part-time lawyers
- Contract lawyers
- Staff lawyers
- Outsourcing non-lawyer functions
- Creating a low-cost service center for back-office functions
- Appropriately using and managing a non-equity partner tier. This might be establishing an “up or out” policy.
- Effectively planning the retirement of Baby Boomer partners. This timing is not flexible. The lack of planning in this area results in lost revenue and client relationships, costs that could be devastating. Establish each senior partner’s intentions and timeline, address compensation issues and create a formal framework to achieve a smooth transition of clients and knowledge.
- Addressing overcapacity and under-productivity. Overcapacity and under-productivity is a real problem that dilutes profitability and compromises the law firm’s long term health. Adopt a policy based on performance. Stop hiring associates without critical analysis of future needs.
Other good strategic staffing practices include:
- Candidly assessing all of your personnel and investing in high-quality people delivering outstanding performance. This means all people hired intrinsically follow the core values as stated by the firm and are capable of performing their jobs well.
- The creation of an accountability chart to increase efficiency, accountability and foster team. You might see that fewer support staff are needed.
- Appropriately delegating to support the best and highest use from all people within a practice group.
Managing for the future. Firms will still have to hustle, be lean, be businesslike as well as understand and deliver client service and value to continue their success. Those Firms that have begun change efforts in the areas of pricing, staffing, and efficiency will outperform their peers as these are rational business responses to the trends before us.