Why Should Law Firms Consider Appointing a Board Advisor?

I have read several articles suggesting law firms should consider appointing independent board members to assist with governance and accountability, in a similar vein to corporations.

The objective of this article is to explore the value of the appointment of a “Board Advisor” whose role is to provide expert support and advice to the governing board, without the firm releasing ‘power’ to an outsider.

Governance v Accountability

Governance is guiding and steering an organization to meet its objectives which, hopefully, are oriented to benefiting not only its owners but all its stakeholders. It involves making strategic decisions and overseeing business operations.

Accountability is ensuring that management is held to account for performance and assuring shareholders/owners and other legitimate stakeholders are fully informed. It involves monitoring of performance and compliance with applicable statutes, regulations and codes.

The presence of non-executive directors or independent board members in organizations is influenced by the desire for better governance and the need for accountability.

The boards of corporations and public entities are typically comprised of non-executive directors (or, independent directors) to oversee the business and hold management accountable given that the shareholder community is separate and distant from the management of the business.

In contrast, smaller, privately held businesses and professional service firms tend to appoint board members who are also shareholders and/or managers within the enterprise and who are regarded as having the capability to both govern the business and ensure accountability.

In recent years, professional service firms have begun to explore new arrangements to improve their governance structure. For example, some of the Big 4 accounting firms have added independent directors to their governing bodies.

In admitting its first independent member in 2018, the Chairman and CEO of the U.S. KPMG board said “This enhancement to KPMG’s governance will challenge our conventional thinking and expose our firm and its leaders to a broader range of unique experiences and a fresh external perspective.” The implication is that independent directors are likely to enhance the quality of decisions and, potentially, business performance through their expertise. While they may be able to inspire or advocate for accountability, that is clearly not their primary responsibility as a minority on the board.

Law Firms

Law firms, which in the vast majority of cases are structured as partnerships, regard their internally elected Boards or Executive Committees as being responsible for management and accountable to their equity partners (owners). Equity partners usually have ultimate decision-making power over key policy and operational decisions (e.g. strategic plan, budget, partners and management appointments).

The growth and consolidation of the legal industry has produced firms of significant size. Many now have national reach and some are global in scale. And with embrace of scale, firms need to consider governance and accountability to ensure arrangements are fit for purpose.  As the late Ward Bower of Altman Weil put it “law firms…are arguably as accountable to their varied constituencies as are other businesses” and “outside directors can imbue the law firm’s governance with objective accountability”.

On the occasion of appointing an outside member to its Board in 2017, the US Chair of PwC explained that the goal was to get more diverse perspectives on its business and avoid groupthink.  He added that “We know corporate boards that lack diversity can develop groupthink as a result of shared biases and blind spots….”, seeming to imply that PwC’s move was to avoid a similar malaise.

Consultations with industry experts have revealed that the appointment of external advisors to provide guidance to law firm Boards/governing bodies has become increasingly prevalent in different geographies across the world. However, the practice has not been embraced in the United States.

In the U.S., Rule 5.4(d) of the ABA Model Rules seems to inhibit the appointment of external advisors in so far as it does not allow lawyers to practice in firms where non-lawyers own an interest, act as directors or officers or have the right to direct or control the professional judgement of a lawyer. While it appears that an outside lawyer could serve, that may not be attractive to firms that already consider that they have ample representation of lawyers and legal viewpoints internally.

To the extent non-lawyers do not have an ownership interest in the law firm and cannot direct or control lawyers (despite the fact that they would be in a minority they could also be denied voting powers) there is not an evident objection to their appointment.  However, to avoid any misconception that an appointee has any decision-making responsibility or any authority over lawyers, their engagement as a “Board Advisor” would be an appropriate solution. The responsibility of the Board Advisor is to advise, nothing more.

Role of Board Advisor

A Board Advisor is an individual who is entrusted by the board to provide expert advice with the objective of enhancing the capability and the effectiveness of the board to govern the firm.

External members of law firm governing bodies can indeed provide perspective and unbiased views on the strategy, management and operations of the firm that will improve decision-making and performance.

Here is a short-list of the ways Board Advisors might add value:

• Addressing external factors impacting business and profitability
• Alerting management to potential impacts of decisions including unintended consequences
• Questioning strategies and business as usual
• Acting as an advocate for change and highlighting the anxieties of stakeholders
• Facilitating discussion and resolution of issues over which there are conflicting views at the board or management level
• Presenting outside perspectives on important issues (based on business experience)
• Providing information on resources and solutions (leveraging networks/outside contacts)
• Acting as “coach” and a “trusted advisor” to leadership and stakeholders
• Illuminating blind spots and problem areas
• Allowing firm leaders/management to focus on business administration by facilitating firm initiatives (resource limitations are particularly present in smaller firms)
• Representing the firm’s commitment to quality, diversity and innovation

There has been an understandable reticence in the United States to add outside advisors to the board. Contributing factors include concerns over the professional rules or the notion that advice/input can be obtained through other means, such as via consultants, without prejudicing the firm’s independence.

However, there are ways of moving in this direction as illustrated by Reed Smith’s recent appointment of an Independent Strategic Advisory Board (“ISAB”) consisting of three leading business executives. The ISAB will report to the Global Managing Partner, join the Executive Committee roughly four times a year and work closely with senior management.

Benefits

The appointment of independent board members can afford significant benefits to law firms through enhancing decision-making and filling gaps in knowledge or capabilities in the governance group.

The presence of different perspectives increases the collective intelligence of the group. In his award-winning book “Rebel Ideas: the future of diverse thinking”, Matthew Syed makes the case that “harnessing the power of cognitive diversity is set to become a key source of competitive advantage…”.

In the same way that respect for diversity in the workforce has been heralded by clients of law firms, I believe that diversity in governance and an innovative mindset will also be viewed positively and generate brand value.

It is important to distinguish between a consultant and Board Advisor. Consultants are engaged by law firms to assist with the resolution of specific issues and assist with implementation. Typically, the engagements are project-based. In contrast, an advisor provides business expertise and specialist advice to enable others to make decisions based on an holistic view of the firm obtained through ongoing involvement with the firm’s business and management.

Choice of the right advisor can, and often does, generate considerable tangible (e.g. management time saved) and intangible (e.g. issue resolution/more effective decisions) benefits that far outweigh the Board Advisor’s fees.

As we emerge from the coronavirus pandemic, competition for clients and talent will continue to be fierce and it is incumbent on law firms to reassess their propositions and market perception. The very best hold lightly to existing arrangements, favoring new models of decision-making and service delivery, in pursuit of excellence.

Why Partner Integration Should Be On Your Agenda

Partner integration signifies that partners are working, both individually and as a group, in a manner that optimizes firm performance and is in consonance with their expectations.

Firm management is customarily occupied with monitoring the project pipeline, the productivity of professionals, client satisfaction, hiring the best professionals and winning and managing work. These are considered key contributors to a firm’s performance and success.  However, partner integration can be an element of even greater significance to a firm’s performance and cannot be neglected or taken for granted.

Any sub-optimal performance at the partner level can have a multiple effect on the performance of the firm. This is because partners inevitably assume some management responsibility, whether managing a practice area, overseeing a group of professionals, handling certain client relationships or developing services and new business.

Partners consider themselves “owners” in the firm and, at a minimum, feel they should have some influence on how the firm is governed and managed.  To the extent that is not achieved it can lead to dissatisfaction, a lack of motivation and even disruption, resulting in a significant, and often costly, distraction for firm management.

Do any of the following symptoms of a lack of integration sound familiar to you?

• complaints that a certain partner is not assuming his/her responsibilities or is not contributing sufficiently
• partners whose shortcomings (e.g. poor relationships with subordinates or lack of collaboration) are overlooked because they have good financials
• partners whose contributions are overlooked because their current financials are poor
• practice groups or business units operating autonomously and, perhaps, with distinct and even incompatible approaches
• lack of trust among partners reducing cooperation
• communication gaps between firm management and the partners at large, causing misunderstandings
• dissatisfaction with the fairness of the partner compensation system
• no effective performance evaluation process for partners (including feedback) leading to accommodations and misalignment
• partner promotion and advancement based on longevity rather than performance
• partner concerns as to lack of participation in decision-making
• controversial partner meetings without resolutions (disagreements allowed to fester)

Some of these situations may be overt (i.e. self-evident) while others may be covert (i.e. they exist but are not perceptible without specific questioning or analysis). All of them are examples of potential deficiencies in partner integration.

Where is your firm on the performance/integration map shown below?

Clearly performance and integration do not have unique definitions. They are a function of the values and objectives of a firm.  Their measurement is dependent on an evaluation of a series of characteristics, many of which are qualitative rather than quantitative.

For example, performance may not be based purely on revenue growth or levels of profit but also on levels of client satisfaction, growth in certain service areas or practices and retention rates of professionals and/or clients. Similarly, integration may include evaluation of such elements as time spent on partner issues, level of partner satisfaction, client feedback, level of cross-selling and partner turnover.

Can you plot your firm’s position based on your interpretation of the level of performance and integration?  Experiment doing this before reading on.

Let us now analyze the potential (common?) characteristics of firms in each quadrant of the map as indicated below.

Quadrant 1   LOWER PERFORMANCE/LOWER INTEGRATION

• Start-ups
• Group of disconnected partners
• Lack of management
• Unsuccessful merger (lack of trust/inability to change)

Risk: disruption, loss of partners/associates

Opportunity: improve financial returns, motivation and lifestyle 

Quadrant 2   HIGHER PERFORMANCE/LOWER INTEGRATION

• Star individuals/practices run separately
• Group of autonomous units – perform well individually but focused on own P&L
• Lack of governance

Risk: loss of stars and/or practices

Opportunity: collaboration/synergies/cross-selling/joint client development

 Quadrant 3   LOWER PERFORMANCE/HIGHER INTEGRATION

• Too nice – lots of “sticking together” but lack of drive/management discipline
• Tolerate non-performance

Risk: retention of performing partners, lack competitive advantage, lack of growth and retention of professionals

Opportunity: high growth opportunity and competitiveness

 Quadrant 4   HIGHER PERFORMANCE/HIGHER INTEGRATION

• Uniform practices and strong financials across the board
• Smooth working relationships and stable governance structure
• Healthy interactions and high degree of trust

Risk: low risk of partner issues or defection

Opportunity: focus on growth and development and market leadership.

Clearly Quadrant 4 is the place to be by maximizing opportunities and minimizing risks. There is no perfect firm and there is no such thing as zero risk, but moving toward the top right corner of the map should be on any firm’s agenda.

That move would consist of making adjustments to the firm’s structure, policies and procedures, its mode of management and partner expectations. These may be included in a Partner Integration Program (“PIP”) that could then evolve into an on-going process as the subject matter is fluid and requires monitoring.

A PIP may address the following, amongst other needs:

• Promotion – promoting the right people facilitates integration and avoids costly mistakes. Promotion based only on the need to retain expertise and certain competencies may not be appropriate and alternative career paths are an option.
• Training and orientation – alignment to strategy, provision of skills to progress and motivation to grow
• Partner performance expectations, measurement and feedback

An effective partnership does not mean that all partners need to contribute in the same way but rather that the individual strengths of a diverse set of partners are used to maximize the strength of the partnership as a whole.

• Partner compensation – a system that recognizes the relative contributions of partners and is seen to be fair
• Adequate governance structure, leadership and communication channels
• Strong cultural glue
• Incentives for collaboration

 A PIP will consist of the following phases:

• Define the components of partner integration to be measured
• Develop a plan to collect data and information for measurement

Remember that certain situations may be covert and therefore, to be complete, any diagnosis should include some form of consultation with the partners themselves (interviews, surveys, etc.). Such consultations should be conducted by persons independent of management so as to avoid conflicts and not constrain responses.

• Perform an evaluation of current status for each component
• Summarize findings and recommended actions for improvement
• Discussion and approval of action plan for implementation

Given that recommended actions will likely have a significant impact on partners’ roles and involvement with the firm, it is considered imperative that partners be consulted before any actions are approved. 

I would be delighted to explore further the idea of implementing a Partner Integration Program, (PIP) should it be of interest to you.

The Challenge Of Collaboration

Clients are facing increasingly complex demands posed by the rapid advance of technologies, the economic and regulatory environment, the geographic spread and dynamic change within their markets and disruptive events, such as the current pandemic. Worse, many firms are less collaborative than they think they are.

The theme of three articles published over the last year¹ was to address such client demands by taking a broader approach to business management, adopting an “integration agenda” and cultivating a collaborative environment. As a culmination to this theme, this article focuses on the challenge of generating internal collaboration.

It is a misnomer to think that collaboration is prevalent despite the fact than many lawyers, consultants and other professionals will relate that they do collaborate with each other. According to BTI² “50% of top legal decision makers see lack of collaboration as their primary law firm’s biggest weakness – and is the primary reason they limit the work they give to these firms.”

Collaboration is clearly an underutilized asset. However, it is hard work because it requires bilateral effort and the benefits are less tangible – there is no empirical way of measuring results as there is, for example, for sales or project management. Furthermore, it is human nature to believe in oneself and avoid the risks of involving others.

The figure below summarizes what inhibits collaboration:

According to an Acritas survey³, the biggest barrier to collaboration according to lawyers was “no incentive” (23% of responses). This inevitably reflects the fact that financial incentives are often geared to individual performance in generating and delivering work or individual contributions to business and professional development. Even rewards that are based on group results motivate a team to be productive but not necessarily collaborate with other teams.

Take the practice group leader of a large law firm, mentioned in one of my earlier articles, who explained that large multinational clients of the group were not significant clients of other practice areas. The reason given was that the partners of the group were focused on delivery in their own practice area – partially because that is what they were used to, but also because work volume was the main determinant of compensation.

Protection of client relationships is not something professionals will willingly admit as an obstacle to collaboration but they do perceive the introduction of others or the delegation to peers as a threat to the relationship they have with the client and their livelihood. While partners of a firm will pay lip service to the notion that all clients are “our clients”, the “my client” attitude is still present under the surface.  This is not to say that they are selfish or badly intended; it is human nature to want to retain client recognition and success.

Another motive for not collaborating is a perceived risk of service quality, whether it exists or not. Clearly if there is a true quality issue it should be communicated and discussed as it will always prejudice collaboration.

However, I remember identifying an important client of one jurisdiction of a law firm that was about to acquire a business in another jurisdiction and wondering why the client partner had not referred the opportunity to his counterpart in the other jurisdiction. When I directly questioned the client partner, he tried to avoid the subject, but, on my insistence, almost apologetically stated that he had doubts about the quality and caliber of the M&A team in that jurisdiction. I believe this was less about quality and more about trust due to lack of familiarity with the way the M&A team worked.

In his book “Range – Why Generalists Triumph in a Specialized World”, David Epstein recognizes that specialization is necessary and “facing kind problems, narrow specialization can be remarkably efficient.” He refers to more familiar problems in more certain environments. However, breadth of experience is invaluable in an uncertain world with a myriad of diverse issues and the only way to apply it is to collaborate with others – no one individual can tackle everything!

However, for those who prefer to focus on their specialist/technical capabilities or work autonomously, and feel that they are successful as such, “forced interaction and coerced collegiality”⁴ is a discomfort. This feeling is exacerbated when time is a scarce commodity, as it usually is, and collaboration is not considered practical.

Finally, consider a firm’s culture that has an overriding impact on the way people behave and interact. In the Acritas survey 22% of respondents considered the lack of a firm culture to be the top barrier to collaboration. One can interpret this to mean that firms do not have a clear identity or shared set of values that drive collective behavior or, alternatively, those have been defined but the governance and management of the firm do not reinforce them.

Let’s be clear, collaboration can only be achieved if professionals are willing to work together but such willingness is not enough. The organization needs to have the structure and put in place the motivating drivers to translate willingness into action.

Here are some tools to achieve collaboration:

The lack of a firm culture should be the first area of attention⁵. Establishing a common goal and adopting a one firm approach is a prerequisite for generating internal collaboration; otherwise, the effectiveness of all other actions is diminished. This requires effective communication so that people understand and see the benefits of collaboration and that they all participate in the process. Interaction between people has to be nurtured and so the message will need to be reinforced on an ongoing basis.

In the current context, collaboration does not refer to the contributions of non-billable time to such activities as business and client development, training professionals and firm administration, however positive and necessary they are. People need to understand that transformative collaboration means combining knowledge and expertise to provide an optimal outcome or solution for clients. But they have doubts:

• How do I identify the appropriate opportunities to join forces with others who have strengths that complement my own and what is the best approach?
• Who takes the initiative and will it be reciprocated?
• How do I avoid dilution of my portfolio?
• What is the impact on my performance and compensation?

Feedback and coaching at the individual level should be used to address these concerns and provide suggested approaches. They provide responses at a more personal level and which people may not want to address at firmwide or group meetings and trainings. It is through such conversations that professionals may be convinced that while collaboration can benefit many, it also breeds individual success and that any perceived risks of introducing colleagues to clients or working with them is lower than the risk of losing clients to the competition. Furthermore, professionals should be encouraged to be “first movers”; after all, it is much easier to receive a favor if you first give one.

A strong tool for giving impetus to collaboration is the recognition of positive results.  Success stories should be published and communicated and, as Blanchard and Johnson put it “catch people doing something right” and let everyone know!

While financial incentive should not be the primary driver of behavior it certainly influences it as previously illustrated. Acritas³ revealed that “Only 50% of lawyers say their firm includes collaboration in their compensation review. Yet, a full 70% of lawyers say they want collaboration included in how their compensation is set. Clearly, the willingness to collaborate is present.”

Counting for collaboration in the compensation system therefore is a must and I would refer the reader to publications by my Edge colleagues to obtain more ideas on evaluating and measuring collaboration⁶.

Once it has demonstrated the business case, cultivated a desire amongst professionals to work together and introduced financial incentives, what further actions can a firm adopt to induce collaboration?

The key is to build familiarity amongst individuals creating as many opportunities as possible for interaction. One of David Maister’s rules is that “groups don’t cooperate, people do.”⁷ His tenet is that it is the frequent interaction between individuals within groups that breeds trust and cooperation and attempts to get groups to cooperate without such individual interaction is doomed to failure.

Management should devise internal organizational strategies to facilitate positive interactions. These may include:

• the establishment of teams for the development of multidisciplinary or cross-jurisdictional solutions
• placing individuals in the same profit center or funded initiative so that they direct their efforts towards a common goal (e.g. industry groups, client development)
• investment in “cross fertilization” by rotating staff amongst groups and partners and exchange programs between offices and practices
• using training programs and firm meetings to reunite a diversity of individuals and allow them to exchange views and their collective experience

Evidently an organization requires high-level talent to deliver quality solutions and be competitive. However, the real power of an organization is not in the “range” of each individual but rather in the ability to enable those individuals to work together and allow their collective skills and experience to benefit the organization and its clients.

Invite your team to collaborate and persuade them to take the initiative. It is a learning process and there will be stumbles, but persistence and belief in collaboration will result in happier clients, more business and more successful careers.

¹ Why taking a broad approach drives optimal performance (February.24, 2020)
Gain competitive advantage by implementing a broader approach (May 24, 2020)
Integration or disintegration, that is the question (October 28, 2020)
Published on the dates shown and accessible on Edge website (www.edge.ai)
² BTI’s Law Firms with the Best Collaboration 2017 (BTI Consulting)
³ Thomson Reuters – Legal Executive Institute: article by Jen Dezso (VP Acritas US) including results of Acritas survey on Stellar Performance 2019 of law firms
⁴ “Think and Do” by Douglas Richardson, Edge International Review (April, 2012)
⁵ “Edge “Cultural Assessment” is a proprietary tool that addresses the topic of culture (see www.edge.ai)
⁶ Edge insights (see www.edge.ai) including articles on “Collaboration and Compensation (Parts 1 and 2) published in May, 2019
⁷ Managing the Professional Service Firm – David Maister

Integration Or Disintegration, That Is The Question

The objective here is not to be alarmist or suggest that there is a binary choice between life or death, as in Shakespeare’s allusion. It is, however, meant to draw attention to the need for continuous focus on what keeps a professional services firm, and more particularly a partnership, ticking and successful, namely the integration and collective behavior of its partners.

Integration means that partners are working in the same direction towards a shared goal, that that they are aligned in managing their teams and representing the firm and that their capabilities, knowledge, experience and relationships complement each other.

Disintegration is a danger when there are conflicting priorities amongst the partners and divergent opinions about the way business should be conducted and individualistic rather than collective behavior becomes prevalent. The partners or groups of partners become isolated and unhappy and the firm may become a composite of fiefdoms rather than a homogenous unit.

The current reality of disruption with rapid changes in demand and supply chains is challenging leaders and management in the corporate world. In a partnership such challenges are often magnified by the fact that partners consider themselves co-owners of the business, desire to have a say in how business is conducted and wish to share the benefits.

While overseeing the quality of work, client relations, finances, talent, business development and efficient operations, management needs to be attuned to the concerns, motivation and behavior of partners that, untreated, might be detrimental to the achievement of goals in all those areas. Just as a relationship of a married couple needs to be managed so does a partnership, except that in the latter case the marriage counsellor has to deal with multiple people!

Clearly management deals with partner issues on a daily basis and often this means putting out fires and/or spending a great deal of time in managing people’s expectations or explaining why a certain decision makes sense. Issues will always arise but would it not be more efficient to have integration as a permanent item on the agenda knowing that it will require continuous action as the firm grows and changes and as its partners’ careers advance and ambitions change?

Conditions that might indicate the need for greater integration efforts include:

• partner grievances or departures
• extensive partner discussions on strategy, structure or processes
• incompatibility between partners
• doubts raised by partners about contributions of others
• reduced partner performance or motivation
• unsuccessful lateral integration
• reduced retention rates of attorneys
• individual v institutional behavior
• offices or practice groups working autonomously
• different approaches to service delivery and client management
• little or no sharing of information
• “my clients” attitude prevails rather than “our clients”
• partner compensation system not perceived as fair
• complaints of excessive centralization or lack of flexibility
• inconsistent quality of service perceived by clients

These conditions might not have been a common trait but as a firm grows, the partner ranks grow, the number of offices/practices grow and the firm adapts to market conditions, they may develop quickly. If they are not isolated and become a pattern, management needs to evaluate the causes and adopt a remedial action plan.

As suggested earlier, it is preferable that this be done on an ongoing basis taking the temperature of the organization and the status of the partnership on a regular basis and adjusting accordingly – what we might call the integration “agenda”.

The integration agenda should aim to ensure:

a) Partners are “supporting sponsors”

The alignment of partners with the vision and strategy of the firm and their consistent adherence to common and agreed-upon principles is key to leading the firm in the right direction. They should all be supporting sponsors of the firm’s direction and communicate a consistent message in that regard. Partners are largely the face of the firm to clients and its professionals and their behavior weighs heavily on the way the firm is perceived.

b) Strategy drives structure

Whatever the message for integration, if a firm’s structure drives behaviors that are not aligned to that strategy, it will not succeed. As the Harvard Business Review once stated “leaders can no longer afford to follow the common practice of letting structure drive strategy”.

A crude example: if two offices of a firm are organized as two business units with their own local management and the partners in each office are compensated largely based on the results of their own office, a strategy of sharing resources and cross-selling might be prejudiced or, at a minimum, not incentivized.

c) A collaborative environment

Collaboration generates internal synergies (e.g. sharing talent and knowledge) and external benefits (e.g. client development) while allowing partners to feel more connected to each other, reduce their levels of stress (hopefully!) and enjoy more work freedom. Incentives and support for collaboration that reflects a more institutional approach to conducting business are to be encouraged. This is by no means inconsistent with an entrepreneurial approach to business or rewarding individuals for extraordinary performance.

It is not uncommon to find firms consisting of different groups or individuals that are somewhat autonomous, take different approaches to service delivery and client development and work largely in isolation from others (the “composite of fiefdoms” mentioned earlier). This is rarely a pre-meditated or deliberate action but rather derives from different cultures and work habits (resulting from previous experience in other organizations) and behaviors driven by the firm’s governance and partner compensation system (i.e. what is my decision-making authority and how is my compensation determined).

To be an “integrated” firm, a firm that is effective in providing solutions for clients and is efficient in its use of resources, it is imperative to create a unified culture and adopt governance and compensation models that motivate a one firm approach. Consequently, principles that typically underpin integration may be summarized under three headings:

Governance

• the governance and decision-making structure be clear and understandable
• the management structure reflects diversity of practices and offices, but with all decisions aligned to the firm’s strategy and to the best interests of the firm as a whole
• the governance structure reflects the importance of practice and industry groups as natural integrators across offices and jurisdictions
• authority and policies for decision-making be delegated as appropriate to avoid shackling the organization while allowing for risk mitigation
• Committees and task forces with appropriate partner representation deal with ongoing issues (e.g. Compensation Committee, Talent Management) and specific projects (e.g. Strategy Review, Remote Working), respectively
• a partner communication structure that allows partners to be continually informed and feel they are being consulted on issues of relevance to the business

Partner Compensation

• the compensation system provides clarity on expectations of contributions from partners and aligns compensation with such contributions
• adopt the right mix of compensation criteria to motivate and reward both behavior that drives the firm strategy (revenues, originations) as well as collaborative behavior that encourages teamwork and partner investment in the growth of the pie, rather than a struggle for a larger share (cross-selling, training initiatives)
• couple the collection of objective data with subjective inquiries to adequately measure partner contributions and allow for appropriate discretion in applying compensation criteria to promote fair and equitable results
• consistent partner feedback process

Leadership

• build and support a culture with a shared mission, joint long-term goals and shared risks and rewards
• align structure to strategy, clarify roles and responsibilities and enforce accountability
• promote transparency and open communication and be inclusive
• build trust and confidence facilitating interaction between partners and creating a healthy dose of interdependence amongst them

Firms can easily lose the focus on integration, an intangible asset, while they are busy dealing with the tangible issues of day to day operations, developing business, serving clients and controlling finances. It is better to manage integration than recover from disintegration.

A Fresh Look At Law Firm Valuation

The legal industry has consolidated slowly over the years, but this process will be accelerated by the impacts of the current crisis, its economic effects, and the operational changes it drives. Some practice areas will flourish, and others will be negatively impacted. Some firms will need to bolster infrastructure (technology, remote working), requiring investment, while others will have excess infrastructure (office space, back office) that can accommodate growth.

Adopting the right strategy and taking decisive actions at this time are key to optimizing the future of the firm and protecting the interests of its clients and its people. Not only does the current crisis warrant such attention, but it provides a case for change that would not be politically viable during normal economic conditions.   Additionally, there are now very few firms in the fortunate position to be able to rely on organic growth to ensure a successful future.

Most firms will evaluate how to restructure their business, particularly in the light of future financial perspectives. Partners of firms will also be evaluating their own individual status and professional goals. Considerations by firms will include:

• Acquisition Strategies – enhancing competitive advantage by luring laterals or acquiring competitors (referenced in “Planning for Recovery: 7 Strategies for Opportunistic Law Firms” authored by N. Jarrett-Kerr) or merging with another firm
• Succession Strategies – maintaining the financial health and strength of the firm through the transfer of ownership to younger partners and/or retirement of founding partners
• Consolidation Strategies – selling the firm to take advantage of the brand and investment resources of the bigger firm as well as a means of realizing goodwill and to allow older partners to depart (assuming the firm is in reasonable shape)

Such changes will involve valuation issues, be it the valuation of firms or shares in them. While traditional methodologies of valuation may be used as comparative benchmarks, they do not necessarily focus on the real value involved in any transaction.

• Capitalization rate/multiple of earnings: it is difficult to justify these methodologies due to the absence of a real market/market information on deals between law firms and the differing circumstances of each transaction. Why, as is often touted, should the value be between 1-3 years of profits and, even if it is, how do you arrive at the value within that range?
• Discounted economic income or discounted cash flow: it is similarly difficult to determine a discount rate to apply to future earnings/cash flow. Any increase of the cost of capital based on risk (the “risk premium”) is prone to be subjective.

To illustrate this conundrum, consider a few situations.

Acquisition

In an acquisition the acquirer will pay for net assets as well as any goodwill since the seller will relinquish control and management of its business, even though its partners may continue to participate in the acquiring firm. The value of goodwill, if any, will depend on the added value an acquirer foresees.

An acquirer is unlikely to want to pay much just for an increase in size of business represented by the summation of its revenues with those of the seller (i.e. 2+1=3) unless that results in a significant increase in profit per equity partner. The latter may arise for several reasons:

• leverage is increased and the increase in the number of equity partners is disproportionately less than the increase in projected income
• reduction in infrastructure and support costs (i.e. economies of scale)
• profit margins of the seller are significantly higher than those of the acquirer and its profit per equity partner exceeds the perceived market compensation for their peers

Note that any value judgements here are based on projections of the acquiring firm’s position post-acquisition and not on the economic income projections of the seller or a multiple of its earnings.

Acquirers are more likely to pay for value in the form of incremental revenue flows and/or the cost avoided by having to develop business (i.e. acquiring a new practice area, a new geographic region or a new client base). This arises where there is a strong synergy between the business of the acquirer and the seller, manifested by

• enhanced service offerings for the captive client base
• accelerated ability to compete in new markets
• complementary capabilities and intellectual capital

The value of goodwill could be significant and again does not necessarily bear a direct relation to the previous or projected earnings of the seller. A seller may argue that their business was developed over years and significant investments were made but, if that is not perceived to generate any value to the acquirer, there is no use in applying traditional valuation methods to determine sales value.

Clearly the degree of certainty that incremental revenues/avoided costs will be realized impacts the value attributed to them. Factors that will influence the outcomes include

• retention of seller’s client base and the predictability of future revenue from it
• maintenance of key partners/attorneys and referral sources of seller
• characteristics of seller:
  • brand reputation and profile
  • nature of relationships (institutional or transactional)
  • susceptibility of business to economic/market changes
  • diversification of clients and practice portfolio
  • level and durability of institutional knowledge and intellectual property

In summary, there are multiple factors at play in determining the value of a firm. Tangible assets are quantifiable but the value of intangible assets, or goodwill, will depend more on the projected post-acquisition dynamic than merely on the ability of a seller to generate earnings in its own right. 

Merger

In the case of a genuine merger, where two or more firms are contributing their resources and net assets to a new merged firm for mutual benefit, the concept is different. Generally speaking, each firm, and its equity partners, will assume responsibility for the realization of pre-merger assets and payment of liabilities and any resolution of pending items will be the subject of the merger agreement. The same applies to settlements with partners who will not join the merged entity.

The initial allocation of shares/equity participation and the partner compensation system of the new merged firm will regulate profit sharing.  Together they should represent fairly the relative value contributed by the parties at the time of the merger and in the future, as well as protecting against dilution. Financial projections of the new merged firm and simulation of participations will be a key part of this process. In essence, the “goodwill” pre-merger is being translated into future profits to be distributed equitably amongst partners.

Restructuring of Partnership

Usually there are rules or methodologies in place to govern incoming and outgoing partners, the transfer of their shares and profit sharing. In any case, in contrast to acquisition by an outside party, the partners are familiar with the business and any added value to continuing partners will be based less on synergies and more on the retention of clients and referral sources, as well as the profits  “liberated” by retiring partners.

As shown, valuation is not a simple mathematical exercise and values will vary in accordance with the type of transaction, the characteristics/profile of all interested parties and the value perceived by those acquiring an interest in a firm. Traditional valuation methods, such as multiple of earnings or discounted cash flows, can be used as benchmarks or as a reference point for sellers to establish an asking price for a firm or their shares, but they have limitations. A customized approach analyzing the different elements involved is necessary.

Those in acquisition mode will be searching for value at the most economic price possible. However, they will be avidly calculating the value that any acquisition target can bring to the firm.

A seller, with the luxury of time, can always optimize its own business and organization to enhance its value but, finding a buyer that would find most value in its attributes should be a priority. Offering the buyer greater certainty of increased economic income by, for example, agreeing to a period during which certain key partners remain and clients are transitioned, adds even further value.

A planned transition of ownership also adds value in an internal restructuring. Unless there are extenuating circumstances or disputes, a phase-out of retiring partners, over a period of time, should diminish any disruption of the client base and management of the firm as well as lessen the immediate financial burden on continuing or incoming partners.

In summary, entrepreneurial firms should forget how things were traditionally done in the legal sector or in their firm and should consider how a radical restructuring strategy might benefit the firm, its clients and its people and what smart plans can be deployed to  evaluate how value can be optimized.

Law Firm Resilience in a Crisis: Practical Guidance for Action (A Four-Part Series)

Introduction

It hasn’t taken long for the statement that “We live in unprecedented times” to become a universal cliché – Covid-19 and the resulting financial crisis is impacting all businesses far and wide and it will certainly get worse before it gets better.

As consultants who work in the legal industry, located in multiple countries and continents and already building up a stock of real-life, often hands-on, experience of this uniquely challenging period, the Edge International team have an opportunity to observe, compare and consolidate what we see across the legal world.

Our “Law Firm Resilience in a Crisis” series of papers is the output of that process. For four weeks in April and May, 2020, we identified a number of topics that were at the top of the crisis agenda for legal leaders and we reported on these one by one. Due to their popularity, and for the convenience of our readers, we have now gathered these four articles together into one report. Part I focuses on Financial Resilience, Part II on Operational Resilience, Part III on Commercial and Client Resilience, and Part IV on People Resilience.

Edge International colleagues have also kicked-off a companion thread on “Remote Working” in the legal industry, and we will regularly cross-refer between these streams.

PART I. Financial Resilience

Financial Resilience in Context

Financial actions, even in the midst of such a fast-moving and impossible-to-predict crisis, should not be taken in isolation. There is a serious risk that apparently obvious corrective action on the financial dimension can have damaging consequences in other areas of the business, undermining confidence or the firm’s ability to compete or recover. Financial decisions need to be made more quickly than perhaps at any previous time in your firm’s history, but they need to be made in context and in line with a clear strategy and direction.

The need of the hour is strong and decisive leadership. Leaders need a “laser-like focus” on the direction they wish to set, and a clear strategy to navigate these troubled waters. The current situation is akin to being at war and leaders need to assemble a small group of experts that can provide strong direction and respond very rapidly to developing events and emerging information. In the current environment, the law firm cannot be run by consensus as it would in normal circumstances.

The key is not to panic, be resilient and rest assured in the knowledge that we can get through this. When we emerge from these troubled times the world will be different, generating new opportunities – many of which we cannot foresee at the moment. Whilst it may not seem to be the right time to be thinking about the future, the actions taken during this period will determine your future. So be Bold!

Business Continuity Planning

A word about business continuity planning. We will return to this topic in upcoming papers, but it has been a massive focus for many of you over recent weeks, and it would be wrong to dive into any discussion of resilience without addressing a few points on business continuity.

Many firms have probably thought about creating a business continuity plan (BCP), or reviewing and testing a dusty old BCP, in the recent past and have put it off in the “too difficult” box. Well, guess what? It’s here now and unfortunately many businesses are ill-prepared for the crisis we are enduring. If there is a lesson that can be learned from this unfortunate situation it is that a good, up-to-date BCP is like your most fundamental insurance policy and a must in all businesses.

Once the crisis is over, and before the next one emerges (and there will be a next one), we would urge you all to get the necessary expert advice and put in place a BCP suitable for your firm. As importantly, now is not the time to neatly pack away your BCP, thinking that it is only there for dealing with an immediate, very short-term and short-lived moment of crisis. A good BCP will help guide you through the next three to six months; your business continuity will be tested and could be permanently damaged as we move forward into the next stage of the crisis.

If there are three BCP learnings that we can take away from what we have seen already, we would highlight the following – each of which has a financial implication:

• All-round IT robustness, especially Internet connectivity, accessibility and bandwidth (in all your home and remote working locations and not just in your offices), is key to legal businesses in the 2020s.
• Laptops and remote working access on other devices for all staff is the new norm. The cost of this is far less than the cost of the disruption to your business. The best-managed firms had it in place already, the next best were able to roll it out quickly; but many others are still struggling to get the whole firm connected and working as well as they did in the office.
• The job now is to develop, enhance and fix the bugs in that hastily assembled remote connectivity; that will continue to exercise minds and stimulate innovative responses through April, May and into the summer. Without going crazy buying every remote working tool you ever heard of, this effort will rightly be a spending priority amidst a period of cost-cutting.

Financial Resilience Priorities

At this time, firms have to refocus their financial objectives and priorities. Resilience is the key. Pulling the firm through the immediate lock-down, economic crash and wildly fluctuating uncertainty is the first financial resilience goal. Reshaping the firm’s financials for the recession that has already begun is the second goal. Preparing the firm to recover as quickly as possible and thrive as conditions begin to improve is the third. These goals are achieved through:

• Protecting cashflows
• Managing costs
• Coordinating financial strategy with staff, clients and banks
• Building confidence and morale
• Looking for opportunity and embracing change; restructuring the business for the recovery, whenever it comes, and for the post-crisis future

We outline below some very basic steps in building financial resilience in these times.

Monitor Cashflow Daily

• “Cash is King” – This saying is true at all times, but especially in our current situation.
• Establish what your existing cash balances are.
• Create a detailed daily cash report to monitor the movements of cash in and out of your cheque and savings accounts. Don’t forget to include credit and debit cards.
• Add to the daily cash report all known inflows and outflows of cash on a weekly basis for the next four to eight weeks. Install a clearly communicated policy of ‘no surprises’ and insist that the central finance team is aware of all potential outgoings.
• This gives you a picture of your immediate cash needs for the very short-term future, particularly direct outlays (e.g., rent, partner draws, wages, supplies, etc.).
• All discretionary costs should be frozen until you can assess the situation and decide the costs are relevant to the current situation in your jurisdiction.
• The daily cash report does not need to be perfect, It is just a document to assist you in managing cash – with a wide-ranging diagnosis of the health of the cash in the business.

Bill, Accelerate Cash Collection and Accounts Receivable

• Professionals are generally reluctant to talk with their clients about fees, billing and collections. In times like these it is much more difficult.
• Now is not time to be shy. The survival and health of your business is based on the amount of cash you collect and the speed with which you collect it, so pick up the phone and ask for amounts due to you to be paid. A phone call is far more powerful than an email; it is “personal”, you can empathise with the client and strike a deal with them.
• Invoice for everything that you can bill for. Remember, your bills today are the source of cash flow in a few weeks’ time. If you don’t invoice, you cannot attempt to collect in a few weeks.
• You may consider doing deals in terms of discounts or instalment payments, or defer part of the outstanding fees; indeed, these steps may be essential to achieve any cash collection from some clients in financial difficulty. The key right now is to maximise your cash.
• On future deals, if you can get paid partially upfront you should consider this. When taking on new work, insist that already outstanding bills are paid before you begin work.

Manage Your Costs

• This may seem a very obvious statement, but costs should not be cut indiscriminately – there should be a strategy in place.
• Direct costs such as rent and staff costs cannot be cut easily, but there should be a strategy for this – perhaps a rental reduction agreed with, or deferment from, the landlord. Consider re-negotiating a new long-term lease with the landlord. Consider also cutting or deferring staff salaries and partner draws. This will focus the mind of partners that cash is vital and will put more urgency behind the cash collection effort.
• Freeze hiring. Use redeployment and share underutilized resources between teams and departments to address gaps.
• Consider the “Pyramid cut” if job cuts or furloughs are required. Look at your organisation structure as a pyramid, so when you shrink the organisation you cut a portion of each level equally; e.g., the business to shrink by 20% top to bottom. If the leverage in your pyramid is not competitive, consider adjusting it at this time. It is no use just cutting trainees and support staff as this will not be effective and the cost saved may not be significant enough. Remember that business will come back in time, and in the short term you will be scrapping for as big a share of a shrinking market as possible, so be strategic in what you cut by keeping an eye to the future.
• Now is the time to seriously consider addressing your non-performing businesses lines, lawyers, support staff and part-timers that do not add to the business in this crisis. Areas and roles that you were struggling to entirely justify pre-crisis cannot be ‘carried’ through this period without damaging your firm. This needs to be done strategically with an eye to what business may come back at the end of this critical period.
• It is important that the people that are retained are paid fairly as you need to maintain morale, especially when people are isolated and working remotely.
• Variable and discretionary costs should be assessed and anything which is not required (i.e. “nice to have”) should be frozen or cut. Identify your biggest suppliers and have a conversation with each one about reductions in service or cost or deferred payment terms.
• Close your premises if you are not using them, paying close attention to ensuring that running costs do not continue. If you have upcoming real estate lease breaks, this may be the time to decide to cut your square footage. Most law firms are already sitting on office space that is poorly utilized – especially those still working in cellular layout – and every prediction about the world post-2020 suggests there will be a dramatically reduced need for as much white-collar office space. Make your move now if you can.
• Do not cut your business development costs drastically; this is a mistake made by many organisations, as it’s an easy target. This category is distinct from general firm marketing and brand promotion, the “business as usual” activity which will not cut through in this climate. The investment in BD should be very focused and tailored on specific topics which are on top of clients’ minds currently, and on the practice areas where there is the best chance of winning new business and improving market share. Most importantly, all non-digital BD and marketing spend (e.g., events, face-to-face networking, travel) can, of course, be frozen in the short to medium term.

Build Your Cash Reserves & Credit Lines

• Building a cash reserve is now more important than ever. In an ideal situation, you should have sufficient cash in the bank to survive four to six months based on your reduced cost structures.
• If you are entering this uniquely challenging period with low or no cash reserves, your focus should be on managing your finances to maintain your cash position, and not to allow bank debt to spiral. Your target is to avoid cumulative months of net negative cashflow, and plan to achieve net positive flows as fast as you can when there are signs of improvement. This may be the time to consider partner capital calls in order to address a structural imbalance between borrowing and equity.
• Remember that you may need to build redundancy costs into your estimations. In general, most significant cost reduction actions will have a lag time before cash outgoings reduce (examples are notice periods and dilapidations on real estate).
• Speak to your banks and get a credit line (revolving overdraft/credit facility); if you can, avoid term loans that you have to service every month, as this creates cashflow pressure.
• Many governments are providing support to businesses and employees, especially to SMEs; tap into these as much as you can, especially where employee-support packages allow you to furlough but retain staff on payroll and governments are supporting low-interest bank lending.
• Once you secure the credit line/government aid, use these as the principal sources of cash as the interest on this financing is cheap. Keep any actual cash reserves as intact as possible as your reserve fund for when you have no further credit sources to turn to.

Forecast & Budget

• Reassess your budget for the year by doing a rigorous profit and cash forecast. This should be reassessed monthly until the end of the year.
• Be clear with staff about 2020 financial year targets: in a period of extreme uncertainty and with gaps appearing in your fee-earning resources, now is not the time to be rigidly insisting that personal or team targets, set in a different world, are met. How do you re-set realistic, achievable objectives? Be seen to support the achievement of the best possible performance, not trying to drive it from ‘the top’.
• The budget for the following financial year should be prepared with an eye to recovery.
• Ensure managers and partners understand that all expenditure budgets are effectively ‘unbudgeted spend’ and require additional, just-in-time review and approval. Prioritize spending requests rigorously and request clear return on investment and payback period assessments. This is the time to put some extra priority on actions that will bring in work or improve cashflow in the short term.

Six Takeaways

• Don’t panic: You can get through this. The legal industry, and your firm, has faced major crises and recessionary periods before, and will again.
• React logically with a strategy. Do not “knee jerk” or “react emotionally”
• Lead from the front: Communicate, Communicate, Communicate
• Plan for the future. The way we do business currently will not be the way of the future. Invest in technology and ensure you build financial resilience in the business for the future. Rethink the shape and scale of each of your practice areas, sectors and geographical locations: the next few years will not look like the last few years.
• Invest in and have a robust IT infrastructure and BCP for future crises. The future of legal practice was already digital and that future is now here; eliminate paper, wet signatures and actions that rely solely on face-to-face interaction.
• Most importantly focus on how you can service your clients through this difficult time and how your actions help you to retain or gain a well-earned “seat at the table” as their trusted advisor.

PART II. Operational Resilience

While the financial impact of a crisis is what immediately grabs the attention, operational adjustments are essential for business continuity and to compete in the new market reality. By “operations,” we mean the organization and support of the workforce to serve internal and external client needs effectively.

Operational Resilience Priorities

The top priority is to ensure that workflows and business processes are not interrupted. Where disruption cannot be avoided, leadership needs to adapt previous processes rapidly and definitively to meet the challenge; we have recently seen this in practice in firms which moved quickly to an entirely virtual and digital operating model.

The second priority is to provide the means and resources to operate efficiently during the crisis. The ranking of executive-agenda issues and items of expenditure will almost certainly need to shift for the duration of the crisis and possibly beyond.

Considering how operations should be restructured to serve the market post-crisis, and planning the investments necessary, is the third goal. These are key to sustained operational resilience.

The goals are achieved through:

• Effective and proactive leadership and streamlined decision-making processes
• Supporting mechanisms for people
• Robust communications – more regular, transparent
• Adapting infrastructure and allocation of resources
• Embracing change with a positive attitude

We elaborate below on five actions that can enable achievement of these goals.

• Crisis Management Team
  • Put in place a process for strong and decisive leadership that can set priorities for the organization and take calculated decisions based on information available.
  • Assemble a multidisciplinary team of experts (e.g., from Finance, Technology, Operations, Human Resources, Communications) that “meet” more regularly and both provide strong direction and respond very rapidly to developing events and emerging information (the “Crisis Management Team” or “Response Team”).
  • Unlike normal circumstances, it is not possible to gather all facts to make a pondered decision in a crisis. The uncertainties do not allow this to occur in an adequate time frame. Certain risks are inevitable to avoid the greater risk of inaction.
  • It is incumbent on senior leadership to break from a decision-making model based around iterative consultation and reporting and delegate authority for an accelerated response where appropriate.
• Supporting Mechanisms
  • The safety of your people, both physically and psychologically, is not just a moral responsibility but a key to maintaining stability and productivity. Furthermore, people need assistance and tools to be able to adapt to new realities.
  • Provide guidance in a simple straightforward format as to how people can maintain their well-being and continue to perform their functions, especially working remotely and connecting virtually with clients. Issue a list of “go to” people for different subject areas, with their contact details.
  • Establish an on-line information hub, or resource centre, including FAQs. This is a repository for the orientation, resources and materials (e.g., “how to” and “what to” questions) that people may consult at any time. These FAQs must be regularly updated to respond to the changing nature of the crisis and how it is being managed.
  • Engage with clients to understand their concerns, how they may be supported and how the firm is capacitated to continue serving them during the crisis. (We will comment more on client relationships in Part 3 of this series.)
  • Support the best possible performance that can be expected of professionals in the changed scenario (may vary significantly by practice group) and do not insist on pre-crisis goals that may no longer be attainable (e.g., billable hours, fee targets); doing so will always undermine leadership’s credibility amongst professionals. Also, provide orientation on how best to use any “down time” (e.g., on-line training, updating precedents, reconnecting with previous clients and contacts, etc).
• Communications
  • Communication is leadership’s strongest tool to build confidence and morale and, as a result, assure collaboration across the organization and with clients and other stakeholders.
  • Create a plan and stick with it. Communications need to be frequent and consistent, and must address questions and concerns of the audience. Transparency and setting the right tone are key to effective communications; after all, the objective is not only to inform but also to calm fears, generate confidence and sustain morale.
• Staffing Needs
  • Redeploy and make the best use of talent. While rightsizing may be necessary, and we indicated in Part One how cutting of staff needs to be strategic, do not over-prune so that you prejudice the ability to gear up post-crisis. Look for the opportunity to reallocate staff from a practice area with depleted business to one that is busier.
  • Similar to reviewing practice-area loads, evaluate geographic spread (where appropriate) and how offices and groups might best share resources or work on a more integrated basis.
  • Consider the overall legal staffing mix and opportunities to delegate aggressively to maintain productivity while, of course, assuring that service quality will not suffer.
  • Take advantage of the crisis to rethink support-staff needs. This is not only a question of quantities and types/level of experience but also an opportunity to present challenges to promising talent.
• Infrastructure and Supply Chain
  • Take the necessary steps (which will depend on the level of preparedness) to enable fluent remote working capability, empowering the technology experts to engage with outside vendors for the essential, appropriate solutions (devices, internet connectivity, collaborative platforms).
  • While moving quickly to assure business continuity, there should be enough oversight to determine that key risks such as security of data, business interruption through loss of internet connectivity and compliance with data privacy requirements are managed. This could well entail obtaining a second opinion on the capability of systems and applications to be adopted.
  • Develop practical training sessions and resources to enable the use of new technologies and educate all users. Now is the time to focus on providing assistance and tools and not just on procedural matters.
  • Engage with suppliers and determine how best to modify service delivery and service terms. Remember that these entities are facing their own challenges and will be keen to either maintain business or promote opportunities.
  • Apart from technology service providers, pay attention to logistics (e.g., physical delivery of documents and materials to a more distributed population, travel arrangements) and consider outsourcing options, even if interim, to eliminate bottlenecks.

The Bottom Line

During a crisis period, do utilize the power of the “team” and coherent engagement with all stakeholders (workforce, clients, suppliers). Do not expect the processes, priorities, performance metrics or governance solutions that worked just weeks before, pre-crisis, to see you through this new normal; be agile and prepared to adapt very rapidly across your business.

Whilst responding smartly to the immediate demands of the crisis, never lose sight of your – now altered – roadmap; ensure you consider how to restructure and invest for tomorrow.

PART III. Commercial and Client Resilience

As the three Edge International authors of this paper are based in Europe, Asia and the Americas respectively, we aim to synthesise our experience and observations of different legal markets that are also at slightly different points in the evolving Covid-19 crisis. As with the previous papers, we wanted to foreground practical actions that law firm leaders can use in their firms. In this case we have posed and responded to ten core questions many firms are asking themselves as they grapple with a uniquely challenging crisis; we want the paper to serve as a quick self-assessment checklist. Our ten questions fall under three themes: client relationships, business development in a digital and virtual world, and commercial strategies.

Resilience and Client Relationships

1. How are you supporting your clients?
   This will be one of multiple places where you read someone preach the message that, in times like these, you have to put clients first. But what does that mean in a practical sense? In our view, the critical challenge is that clients need to see how you are supporting them through what will be as tough a period – probably tougher – for many of them as it will be for you. The future loyalty of your clients as the economy recovers will be dependent on how you behaved during the crisis. That involves investigating and understanding the biggest issues and concerns your client has, and tailoring your communications, offers of assistance, updates and terms and conditions to those issues and concerns. They should be specific for your largest, most important clients and as tailored as you can make them to groups of clients in sectors, regions, etc. Your support might include some leeway on pricing, billing or collections, although that should obviously be carefully considered in the light of your own financial position.
   
2. Are you getting through to your clients?
   The latest Covid-19 crisis has yielded a barrage of the kind of broadcasting updates and generic statements from a range of companies that we have become used to around any economic or legislative event (including, early on, a stream of bland reassurances that it was ‘business as usual at Firm X’) – except on an even bigger scale. This blizzard of ‘noise’ on social media and coming into Inboxes is impossible to navigate or consume. Your clients want, based on your insight gained from (1) above, personalized, tailored and value-adding communications. Calls are great and many clients are much easier to get hold of right now. Emails or messages should stand out, and personalization (i.e., coming from a name they know, not a corporate or marketing mailbox) is key to getting that done.
   
3. Which services and practices are you promoting?
   For almost all firms, there needs to be a rapid re-prioritizing of which practice areas and services should be marketed and highlighted to clients. Within the space of a month, the markets have flipped; in many cases, that has meant a sudden drop in corporate and real estate transactions, a boom in interest in labour and restructuring law, a refocus onto different clauses in commercial contracts, and a spike in wills and estates work. The exact pattern differs between jurisdictions and firms. At the same time, corporate legal departments will be trying to keep their own teams busy, and restricting further the flow of certain types of work out to external counsel. The overall rule holds true, though: firms need to pivot to ensure clients are presented with the firm’s credentials in areas they may not have used in the past. Client-relationship partners will often need to communicate the services of practice areas they don’t work in and know less about. Cross-firm collaboration at this point is critical.

Resilient Business Development in a Digital and Virtual World

4. Have you rewritten your marketing and business development plan?
   If not, you need to to so, and quickly. Much of the activity you had planned – events, networking, secondments, training programs – has been blown out of the water by lockdown. It will probably take a long time for this kind of ‘business as usual,’ in-person marketing to regain its full effectiveness, assuming it ever does. For many firms, you will be looking to cut costs for a period and marketing will be in your sights. However, cut too far and you risk competitors getting close to your clients and your firm becoming invisible at a critical time. We recommend that you review and rewrite the plan you had, probably reducing overall spending but re-prioritizing ruthlessly. Ensure those practices that are most buoyant in this economy get profile and are highly visible online and in your communications. Rank higher the investments of time and money that can provide a faster payback period and short-term return on investment. In particular, ensure that your digital impact is really effective – at a time when the only way for prospects and clients to stay informed is digital, you have to be at the top of your game.
   
5. What are your partners and lawyers doing with their time?
   OK, in a crisis situation many senior lawyers will be very busy; their particular practice area may be booming, they may be covering for furloughed colleagues, they may be asked to step up as part of your emergency team. In the Covid-19 lockdown, most lawyers, however, are working from home and have reduced levels of new work, no travel time eating into their day and no in-person networking duties. We talked about personalized, regular contact with clients above, and that is where a chunk of this available time should be redeployed: video calls, ‘virtual coffees’ (or drinks, later in the day – we have seen some nice Zoom ‘home bar’ backgrounds!), quick check-in messages on social media. In addition, this is the time to fully engage your senior lawyers, some of whom haven’t really embraced or become comfortable online before now, in posting and sharing their insights on social platforms and in articles. Quality and tone are important; do ensure you have enough marketing resources to edit, coordinate and help promote these efforts.
   
6. Is your digital delivery of client services good enough?
   For most firms in the current crisis digital delivery of legal services to clients will, by now, be in place and working. A few months back many law firms would not have responded ‘Yes’ if asked whether their interaction with clients was almost entirely digital but, right now (including via Zoom, Teams, WhatsApp et al), almost all would. However, clients will not be tolerant for lots of glitchy, taped-together digital processes; in their dealings with other professionals and service providers they will be exposed to some very slick models indeed. Soon, they will expect you to be just as good. And this is one thing extremely unlikely to revert when we return from lockdown – streamlined, painless, reliable and ideally paperless legal services will be a badge of a quality law firm. So, we suggest you continue to evolve and develop your digital services over the coming months. Do not assume you should scrape through to the time when you can get back to everyone in an office with piles of paper and clients happy to travel distances to come and visit.
   
7. How does a new client find you?
   This is critical for private client work, but still a big factor for B2B services; in a world which is now even more reliant on internet searches, social media and online directories and recommendations, you need to be very certain how visible your firm is in these media. Does your online presence and Google ranking do justice to the quality and expertise of each of your practices – most especially those which you need to drive the firm’s performance over the next year? If not, this needs fixing; many firms will acknowledge that they haven’t paid as much attention to their search engine optimization (SEO), pay per click (PPC) and social media performance as they could have until now.

Commercial Strategies for Resilience

1. Do you have the commercial data you need to make quick decisions in a crisis?
   This is a major area of research and development for us at Edge International, and we believe there is a case for most firms reviewing and overhauling their production of management information (MI) without the catalyst of a crisis. But a crisis certainly exacerbates this issue, especially one where we have such high levels of uncertainty, a very sudden stalling in key markets and the breakdown of in-person collaboration and supervision. Providing real-time information feeds to partners, team and department leaders and leadership are incredibly important, but also structured and packaged MI on a weekly, rather than the conventional monthly, frequency could be critical. We emphasized the need to track cash metrics obsessively in our first paper, but equally important is the tracking of pipeline and new activity: weekly trend reports that show how proposals/quotations, new matters and time recorded are progressing are critical to providing the firm with the lead indicators it needs to plan its next steps.
   
2. Do you need to provide free or discounted advice?
   This is too big a question to answer in one paragraph of a short paper, but it is one that would definitely make the ‘Top 10 Most Frequently Asked Questions’ from law firm partners right now. Many existing clients and potential new clients have short, urgent questions in the current crisis; typically, these are about providing latest updates on government crisis support or on one legal issue, and sometimes they involve a bit of interpretation. Clients are often cash-strapped, laying off staff and cutting costs. So there is understandable pressure on lawyers to provide a quick piece of free-of-charge advice. This is easiest to justify in the case of loyal, ongoing clients who are continuing to provide instructions – it is a statement of support from the firm in return. For new clients, it could help lure in more substantive new work, but we encourage firms to find ways to link the provision of this initial advice beyond simple information updates to some commitment by the client. This could be in the form of a new advisory retainer service that will run through for a fixed period, with some initial free or discounted hours.
   
3. Should you ask for money upfront for new work?
   Some readers will respond by saying ‘we already do’ and where you have managed to embed this practice universally, well done! For most firms, such requests are harder to achieve but we do believe it is a sensible practice to apply wherever you can in a crisis and recessionary period, where many clients face an uncertain immediate future and firms themselves need to manage their cash positions with great care. For existing clients, do ask them to pay outstanding invoices before you begin a new piece of work. And where you feel it is necessary to offer debtors deferrals or instalments of their outstanding invoices, do ensure you link this action specifically to your support for clients during this difficult period.
   
   Our final checklist point brings us neatly back to the first question: How do you demonstrate that you are all about supporting your clients through this crisis? That is the right point to wrap up Part 3 of the series.

PART IV. People Resilience

In Part IV, we look at “People Resilience” a) during lockdown, b) during transition out of the current crisis and c) during the ‘new normal’ – i.e., what will make for a resilient workforce post-crisis.

A) Resilience During Lockdown

Firms are now several weeks into lockdown and many countries are looking at easing restrictions or have already started to ease restrictions. While lockdown is still in place, we would recommend that firms focus on the following:

1. Staying close to your people
   There is a danger that employees will start to feel isolated as the lockdown continues. This applies equally to lawyers and to support staff. We are seeing some law firms keeping very close to their workforce so that their people feel highly supported during lockdown. Other law firms are not doing enough. Staying close to your people means checking in with them regularly; line managers should be checking in with their reports at least once a week. Contact should be maintained with furloughed staff, as well as with those working through the lockdown.
   
2. Working to keep up team morale
   The novelty of working from home is wearing thin, or wearing off, for many. It becomes harder to keep up team spirit the longer lockdown drags on. Some law firms are finding novel ways to keep up team spirit – virtual team drinks, virtual team coffee breaks, team or office quizzes, competitions, dress-up days, bake-offs etc. Regular scheduled team meetings and touch points are also crucial, to keep up morale as well as to establish a credible source of information in a period of rumours and “fake news.”
   
3. Asking the right questions in your regular one-to-ones with team members
   In a normal operating environment, prior to the current crisis, much interaction will have taken place with your team members on a casual or impromptu basis. As this is now not possible it is more important than ever to have regular scheduled one-on-one meetings with your team members. Whilst it is inevitable that the focus of these meetings be on work matters, make sure that you additionally use your regular one to ones to find out what is going on with team members on a personal front. Team members face a range of challenges during lockdown: lockdown and isolation can be anxiety provoking; there are challenges around childcare and the difficulty of working parents home-schooling their children or otherwise looking after young children; people are experiencing the loss of loved ones or the passing of extended family, friends or acquaintances. Ask open questions to find out what is impacting your workforce, listen to what is going on and be supportive.
   
   Some things to listen out for:
   
   • Is the team member living on his or her own? Does he or she seem isolated?
   
   • Are you sensing that the team member is having difficulty coping?
   
   • Does the team member have some other vulnerability that you should know about?
   
   • Is the team member juggling childcare duties with a partner? If so, are both working and having to split childcare? Does the team member’s workload need to be altered to take account of this?
   
   • Is the team member a single parent who has full responsibility for home schooling or otherwise looking after a child or children? Does he / she have any support?
   
   • Has the team member experienced a bereavement? Have they lost close family or friends?
   
   • Does the team member have elderly parents who are in isolation? Are they local or at a distance? Does the team member have other vulnerable dependents?
   
   • Is the home-working environment and equipment suitable; is it helping, or hindering, your team member?
   
   Depending on the response to some of these questions, think about what additional support the firm might be able to give. Is it appropriate to offer to involve HR? Is that a necessity? Does your firm offer external counseling or other external support?
4. Remember that the support you show now will be remembered later.
   This is a time to build loyalty – and equally a time your workforce will remember if you don’t show support. Few people are likely to be looking to move firms during the crisis but failing to show support now may well be reflected in attrition figures post-crisis.

B) Resilience During Transition

The transition out of lockdown will probably last for months. It is simply too early to accurately predict the duration or phasing, which will vary from country to country, and perhaps from region to region within a country.

Some firms may well take their eye off the ball during transition when it comes to staying close to their workforce. There will be a temptation to focus on the operational aspects of the transition and to ramp up business development to the exclusion or partial exclusion of focusing on your workforce.

Our recommendation is that law firms continue to do everything we’ve suggested above during the transition out of lockdown. Additionally, it is important to remember that any transition can be deeply unsettling, so keep a particular eye out for any dip in performance from any of your employees or for any of your employees who seem to be struggling to cope.

Firms will have to take a clear stance on what a responsible employer should be expecting and encouraging as lockdown gradually eases. Health authorities and governments are likely to continue to stress that where work can be done from home it should be, and we expect that white-collar industries such as legal services fall into this category. Law firms need to examine how best they demonstrate their responsibility for employees, clients and communities. It is possible that society will regard the firms who continue home working for an extended period as the most agile and well-managed corporate citizens.

For the many firms who have had to take decisive action on staff costs in response to the first phase of the crisis – including furloughs, pay cuts, reduced working weeks – unwinding these actions as the lockdown eases and government support is withdrawn is going to be one of the most difficult and risky management challenges of recent years. If the economy and workloads continue to be depressed, potentially long after lockdown ends, reversing these actions will be hard to justify financially. At the same time, there will be intense pressure to get people back to work. Redundancies and hard financial decisions are inevitably going to follow in some cases and steering firms through these choppy waters is a subject we will return to soon.

It is also our view that the workforce is at a point where its craving some good news and some direction as to what the firm will look like when the lockdown has ended – this gives some hope to the employees and something to look forward to. Psychologically it is the proverbial “light at the end of the tunnel”. It is key that management exudes positive messages about the future through its communications. We would re-iterate that the old adage of “communication, communication, communication” is vital at this time.

C) Resilience Post-Lockdown – What Is Going to Be the “New Normal”?

We have no doubt that in the short/medium term there will not be a full return to pre-crisis ‘normal’. Most law firm employees have experienced working from home full time for several months and have seen how it can be both effective and productive. Those firms that have previously resisted flexible working will find it much harder or impossible to do so, post crisis. It is inevitable, in our view, that the pre-crisis ‘normal’ will be replaced by a ‘new normal’ and that seems to be the assumption of many firms that we are speaking to.

As indicated above, we are firmly of the view that those firms that rapidly figure out and communicate a new working model will gain a competitive advantage in terms of attraction of talent and retention of talent.

Here are some provisional thoughts about what ‘new normal’ might look like:

1. Work from Home (WFH) Is Here to Stay, to a Greater or Lesser Extent
   The genie is out of the bottle on home working. It will be hard to deny a reasonable measure of flexible working for those that request it post-crisis. Not everyone will want to work from home, but some undoubtedly will, and this will be hard to resist.
   
   We very much doubt that most firms will suddenly move to a predominantly home-working model. As pointed out above, the novelty of working from home is already wearing off for many employees. Human beings are social animals and require social contact to a greater or lesser extent. We think it is likely that a variety of agile working models will evolve, with working from home one or two days per week becoming common practice.
   
2. Some employees will want to work mostly from home.
   The savvy employer might be wise to accommodate some employees who want to work primarily from home. Some of the best lawyers might have individual reasons for working from a remote location – e.g., having a partner who has a job that ties them to that location. Those firms that are able to accommodate such employees, including new home-worker hires, will be more attractive employers and therefore better able to build a resilient workforce.
   
3. The Green Agenda favours less office-based working.
   There is an obvious environmental argument in favour of having more of your workforce spending a greater percentage of its time working from home. An environmentally aware workforce is likely to be attracted to an employer that allows people to spend a significant percentage of its time working at home, avoiding excessive commuting and reducing the high energy costs of surplus office accommodation.
   
4. Video communications will need to become more professional.
   Video meetings are likely to become increasingly the norm – at least for significant interactions. The new normal will seamlessly incorporate virtual/remote meeting attendees alongside in-person attendees. Firms have for many years spent large amounts of money upgrading their offices to look highly professional – and similarly spent large amounts of money on branding, websites, etc. It seems inevitable that video communication will become more professionalised – and that the days of employees presenting themselves to clients at a wonky angle in front of their kids’ nursery school art are probably numbered. We would suggest that law firms might need to invest in ensuring their employees have super-fast and reliable broadband at home, that they speak to clients using a green screen with firm-branded background, and that they are trained in how to conduct multi-party video meetings effectively.
   
5. Flexible resourcing will continue to develop alongside flexible working.
   One of the harshest business lessons of the 2020 crisis has been the dramatic speed at which some legal practice areas have stalled, leaving firms with an almost immediate mismatch between workload and resources/costs. Economic conditions suggest this disparity is now settling in for a long stay.
   
   Firms have, in some jurisdictions, been able to turn to government support to furlough staff in the short-term. Others have reached for cuts in pay and drawings, reduced working weeks and, sadly, lay-offs to deal with the rapid threat to profitability.
   
   In an era of contract-attorney companies, alternative legal-service providers, fee-sharing freelance-lawyer models and the gig economy, this cliff-edge experience is leading firms to reconsider a resourcing model that is so reliant on permanent, full-time employed staff, located in expensive city-center offices. We have heard most of the Big Four accountants announce their strategic switch to a more flexible resourcing model in recent years, able to cope much better with swings in demand and economic shock (or opportunity). Law firms now need to start to develop plans for similar changes.
   
6. ‘New Normal’ law firms will rethink how they occupy and configure office space.
   There will inevitably be pressure, not least from the CFO or COO, to reduce office space. Such pressure will be unsurprising when offices are currently empty, and there is only a very gradual return to office working as we transition out of lockdown, and yet law firms are continuing to function and to service their clients.
   
   Retaining a resilient workforce in ‘new normal’ will require some smart thinking about the best configuration of office space. For sure, there is likely to be movement towards more open plan and unallocated (hot-desking) workspaces in firms that have previously resisted open plan working. But designing the ‘new normal’ office will require some serious thought about:
   
   • how much total office space is required for your workforce?
   • how much breakout space is required and in what configuration?
   • how do you configure your office, including all meeting rooms, if video communication becomes the norm in terms of client communication?
   
7. Firms that forget that humans need physical interaction will lose out.
   Some firms that we speak to are talking about conducting future partner meetings entirely remotely. Firms that have offices spread internationally are talking about the end of international travel. We would caution against attempting or expecting an extreme swing to entirely electronic communication. Humans are wired for physical interaction and video interaction is not the same as in-person chemistry, in particular when meeting people for the first time and developing a relationship. We believe that firms that rely purely on electronic communication will fare less well than firms that strike a balance between electronic and physical communication. In other contexts (e.g., interactions between world leaders) there have been vivid examples of how much can be achieved when people meet face to face. Law firms, in our view, will abandon physical interaction and connectivity at their peril.

Key Takeaways

• Regular contact with your teams and individual team members is key and this should be cascaded through the entire organization
• Psychological / professional support for employees who need assistance should be readily available
• Management should communicate clearly on a regular basis
• Management should be drawing up plans for the ‘new normal’ so that they can put these in motion once the governments ease restrictions
• Consider how the new WFH plans will impact winning and transacting assignments from clients

Note: All four of the articles in this series can be found individually at https://www.edge.ai/category/articles/crisis-management-business-continuity-planning/. We will return to the subject of resilience in the context of crisis again over the coming months. In the meantime, the Edge International team would love to hear your comments and are ready to field questions about any aspect of assuring law firm resilience in times of crisis.

Gain Competitive Advantage by Implementing a Broader Approach

When writing the article “Why Taking a Broader Approach Drives Optimal Performance” in late February, for the March issue of Edge International Communiqué, the current crisis was not on my mind. That article referred to “the lost opportunities resulting from not thinking more broadly” in a non-crisis environment. The crisis has exponentially increased the sense of urgency needed to readdress how to conduct business and drive necessary change.

In normal circumstances it is often difficult to effect change even though circumstances may warrant it. People are comfortable with the way they do things and there does not appear to be any downside to business as usual. Even if they are open to consider the business case for change, the time and effort to gain acceptance and manage the change is usually significant.

A crisis, however unfavorable in its impacts, creates favorable conditions for change – people feel the pain and can be more easily persuaded that the status quo is intolerable. So firm management should be bold in taking advantage of the opportunity.

What does taking a broader approach entail, and how does it benefit the firm?

Here are four areas for consideration.

A Broader Approach to Business Solutions

Diversification of service offerings is a key strategy in a fast-changing world – in the same way as diversification of an investment portfolio is designed to maximize returns while protecting against market fluctuations.

In a crisis, your clients are looking to you for solutions that are crucial to their business rather than part of the normal decision-making process. They value your insights more highly and are willing to remunerate them proportionately.

This does not apply only to larger full-service firms. Boutique firms need to expand their market penetration or find different ways of serving their clients. A menu of options might include:

• Geographical expansion
• Serving other industries or sectors
• Tailoring service to different types of client (e.g., domestic/international, large/small, public/private, corporations/individuals)
• Re-engineering service options and delivery to better serve client needs, thus building competitive advantage

The risk for firms relying on practice expertise in one or two areas for a large part of their business is that it will limit growth in terms of size and/or profitability for multiple reasons:

• Existing services become commoditized and can be more economically performed through different business models (e.g., outsourced on-line legal platforms)
• Competitive price pressures
• Some existing services may be directed at a declining industry or sector
• Practitioners with specialist skills may not see the need to diversify their offerings

A Broader Approach to Professional Development

Leveraging resources to respond to increasingly sophisticated client needs in a changing work environment requires more than legal expertise. It is time to redefine a holistic program for professional development that increases the “range” of each professional. This does require investment but the payback will be invaluable through:

• client satisfaction
• talent motivation and retention
• ability to leverage resources at a lower cost level
• increased productivity

Consider whether the following are provided in determining what might be included in such a program:

• broad exposure to different ways of working and addressing issues (e.g., professionals working for different partners/managers, in different practice or industry groups, on different types of project)
• strong mentoring and on-the-job training
• skills for working effectively in an increasingly virtual environment (i.e., use of technology and remote working)
• development of soft skills (communication, task/project management, etc.)

Increasing Collaboration and Teamwork

Collaboration and teamwork are essential to a broader approach. It is time to consider

• policies and criteria for allocating resources to projects and managing the process to ensure that the composition of teams is optimized; and
• performance evaluation criteria, including the bases for a firm’s compensation systems that drive collaboration and teamwork.

It is also time to question whether:

• the organizational culture and management style foster collaboration;
• the firm’s strategic approach envisages bringing the best team to the table for each matter; and
• the performance expectations and compensation criteria include elements that incentivize collaboration and the achievement of team goals.

Many talented professionals are productive and successful in their own right but, to the extent that they work individually or in small groups, the real potential of the organization is not realized. Lack of teamwork means that professionals dedicate time to tasks that could be done better and more cost-effectively by others, while at the same time not allowing others to benefit from their unique and relevant skills and expertise. To be clear, this is often not a result of a lack of desire on the part of individuals to collaborate, but a lack of an organizational structure that promotes collaboration.

Firms are uniting their people more than ever to discuss how best to adjust practices and move forward. Seize this moment to further entrench collaboration and teamwork as a key to success.

A Broader Approach to Client Outreach and Business Development

It is imperative to think more broadly about client relationships and to ensure that there is outreach to clients, not only to show you care but to provide value. Client expectations are changing rapidly, becoming multi-faceted and increasingly dependent not just on the proficiency of an experienced partner but on the quality and agility of the organization.

The following are examples of how to usefully expand outreach:

• obtain feedback at an institutional level about the relationships with clients, how they can be improved and, most importantly, how they can be expanded
• engage with clients on pricing arrangements to ensure they are balanced and fair – clients are under pressure and this is an opportunity to both show your concern for them while at the same time protecting the firm’s long-term profitability
• presenting timely and relevant credentials in areas that the client has not used in the past (cross-practice approach)
• using digital service-delivery mechanisms enabled by new technologies to both enhance the client experience and reduce costs (e.g., communication and collaboration platforms, case management software, eSignature applications, use of extranets)

There is often a sense of comfort that clients are content with a firm’s services and that any issues are resolved through a partner’s close relationship with the client. That is narrow and dangerous thinking, particularly at a time of disruption.

Similarly, in the development of new clients and new business, reliance on “business as usual,” in-person marketing is insufficient. In a world that is now even more reliant on internet searches, social media and online directories and recommendations, presence in these media is essential to maintaining visibility.

Do not be overtaken by events and the changing scenario – act now to adopt a broader approach. Prepare for the future that circumstances have thrust upon you.

Law Firm Resilience in a Crisis: Part Four – People Resilience

The “Law Firm Resilience in a Crisis” series

Previous papers in this series have focused on Financial Resilience, Operational Resilience and Client and Commercial Resilience. In this paper we turn our focus to People Resilience. We look at People Resilience during lockdown, during transition out of the current crisis and finally we look at ‘new normal’ – i.e., what will make for a resilient workforce post-crisis.

People Resilience

Resilience during Lockdown

Firms are now several weeks into lockdown and many countries are looking at easing restrictions or have already started to ease restrictions. While lockdown is still in place, we would recommend that firms focus on the following:

1. Staying close to your people
   There is a danger that employees will start to feel isolated as the lockdown continues. This applies equally to lawyers and to support staff. We are seeing some law firms keeping very close to their workforce so that their people feel highly supported during lockdown. Other law firms are not doing enough. Staying close to your people means checking in with them regularly; line managers should be checking in with their reports at least once a week. Contact should be maintained with furloughed staff, as well as with those working through the lockdown.
2. Working on keeping up team morale
   The novelty of working from home is wearing thin, or wearing off, for many. It becomes harder to keep up team spirit the longer lockdown drags on. Some law firms are finding novel ways to keep up team spirit – virtual team drinks, virtual team coffee breaks, team or office quizzes, competitions, dress-up days, bake-offs etc. Regular scheduled team meetings and touch points are also crucial, to keep up morale as well as to establish a credible source of information in a period of rumours and “fake news.”
3. Asking the right questions in your regular one-to-ones with team members
   In a normal operating environment, prior to the current crisis, much interaction will have taken place with your team members on a casual or impromptu basis. As this is now not possible it is more important than ever to have regular scheduled one-on-one meetings with your team members. Whilst it is inevitable that the focus of these meetings be on work matters, make sure that you additionally use your regular one to ones to find out what is going on with team members on a personal front. Team members face a range of challenges during lockdown: lockdown and isolation can be anxiety provoking; there are challenges around childcare and the difficulty of working parents home-schooling their children or otherwise looking after young children; people are experiencing the loss of loved ones or the passing of extended family, friends or acquaintances. Ask open questions to find out what is impacting your workforce, listen to what is going on and be supportive.
   
   Some things to listen out for:
   
   • Is the team member living on his or her own? Does he or she seem isolated?
   • Are you sensing that the team member is having difficulty coping?
   • Does the team member have some other vulnerability that you should know about?
   • Is the team member juggling childcare duties with a partner? If so, are both working and having to split childcare? Does the team member’s workload need to be altered to take account of this?
   • Is the team member a single parent who has full responsibility for home schooling or otherwise looking after a child or children? Does he / she have any support?
   • Has the team member experienced a bereavement? Have they lost close family or friends?
   • Does the team member have elderly parents who are in isolation? Are they local or at a distance? Does the team member have other vulnerable dependents?
   • Is the home-working environment and equipment suitable; is it helping, or hindering, your team member?
     
     Depending on the response to some of these questions, think about what additional support the firm might be able to give. Is it appropriate to offer to involve HR? Is that a necessity? Does your firm offer external counseling or other external support?
4. Remembering that the support you show now will be remembered later
   This is a time to build loyalty – and equally a time your workforce will remember if you don’t show support. Few people are likely to be looking to move firms during the crisis but failing to show support now may well be reflected in attrition figures post-crisis.

Resilience during Transition

The transition out of lockdown will probably last for months. It is simply too early to accurately predict the duration or phasing, which will vary from country to country, and perhaps from region to region within a country.

Some firms may well take their eye off the ball during transition when it comes to staying close to their workforce. There will be a temptation to focus on the operational aspects of the transition and to ramp up business development to the exclusion or partial exclusion of focusing on your workforce.

Our recommendation is that law firms continue to do everything we’ve suggested above during the transition out of lockdown. Additionally, it is important to remember that any transition can be deeply unsettling, so keep a particular eye out for any dip in performance from any of your employees or for any of your employees who seem to be struggling to cope.

Firms will have to take a clear stance on what a responsible employer should be expecting and encouraging as lockdown gradually eases. Health authorities and governments are likely to continue to stress that where work can be done from home it should be, and we expect that white-collar industries such as legal services fall into this category. Law firms need to examine how best they demonstrate their responsibility for employees, clients and communities. It is possible that society will regard the firms who continue home working for an extended period as the most agile and well-managed corporate citizens.

For the many firms who have had to take decisive action on staff costs in response to the first phase of the crisis – including furloughs, pay cuts, reduced working weeks – unwinding these actions as the lockdown eases and government support is withdrawn is going to be one of the most difficult and risky management challenges of recent years. If the economy and workloads continue to be depressed, potentially long after lockdown ends, reversing these actions will be hard to justify financially. At the same time, there will be intense pressure to get people back to work. Redundancies and hard financial decisions are inevitably going to follow in some cases and steering firms through these choppy waters is a subject we will return to soon.

It is also our view that the workforce is at a point where its craving some good news and some direction as to what the firm will look like when the lockdown has ended – this gives some hope to the employees and something to look forward to. Psychologically it is the proverbial “light at the end of the tunnel”. It is key that management exudes positive messages about the future through its communications. We would re-iterate that the old adage of “communication, communication, communication” is vital at this time.

Resilience post lockdown – what’s going to be the ‘new normal’?

We have no doubt that in the short/medium term there will not be a full return to pre-crisis ‘normal’. Most law firm employees have experienced working from home full time for several months and have seen how it can be both effective and productive. Those firms that have previously resisted flexible working will find it much harder or impossible to do so, post crisis. It is inevitable, in our view, that the pre-crisis ‘normal’ will be replaced by a ‘new normal’ and that seems to be the assumption of many firms that we are speaking to.

As indicated above, we are firmly of the view that those firms that rapidly figure out and communicate a new working model will gain a competitive advantage in terms of attraction of talent and retention of talent.

Here are some provisional thoughts about what ‘new normal’ might look like:

1. WFH is here to stay, to a great or less extent
   The genie is out of the bottle on home working. It will be hard to deny a reasonable measure of flexible working for those that request it post-crisis. Not everyone will want to work from home, but some undoubtedly will, and this will be hard to resist.
   
   We very much doubt that most firms will suddenly move to a predominantly home-working model. As pointed out above, the novelty of working from home is already wearing off for many employees. Human beings are social animals and require social contact to a greater or lesser extent. We think it is likely that a variety of agile working models will evolve, with working from home one or two days per week becoming common practice.
2. Some employees will want to work mostly from home
   The savvy employer might be wise to accommodate some employees who want to work primarily from home. Some of the best lawyers might have individual reasons for working from a remote location – e.g., having a partner who has a job that ties them to that location. Those firms that are able to accommodate such employees, including new home-worker hires, will be more attractive employers and therefore better able to build a resilient workforce.
3. The green agenda favours less office-based working
   There is an obvious environmental argument in favour of having more of your workforce spending a greater percentage of its time working from home. An environmentally aware workforce is likely to be attracted to an employer that allows people to spend a significant percentage of its time working at home, avoiding excessive commuting and reducing the high energy costs of surplus office accommodation.
4. Video communications will need to become more professional
   Video meetings are likely to become increasingly the norm – at least for significant interactions. The new normal will seamlessly incorporate virtual/remote meeting attendees alongside in-person attendees. Firms have for many years spent large amounts of money upgrading their offices to look highly professional – and similarly spent large amounts of money on branding, websites, etc. It seems inevitable that video communication will become more professionalised – and that the days of employees presenting themselves to clients at a wonky angle in front of their kids’ nursery school art are probably numbered. We would suggest that law firms might need to invest in ensuring their employees have super-fast and reliable broadband at home, that they speak to clients using a green screen with firm-branded background, and that they are trained in how to conduct multi-party video meetings effectively.
5. Flexible resourcing will continue to develop alongside flexible working
   One of the harshest business lessons of the 2020 crisis has been the dramatic speed at which some legal practice areas have stalled, leaving firms with an almost immediate mismatch between workload and resources/costs. Economic conditions suggest this disparity is now settling in for a long stay.
   
   Firms have, in some jurisdictions, been able to turn to government support to furlough staff in the short-term. Others have reached for cuts in pay and drawings, reduced working weeks and, sadly, lay-offs to deal with the rapid threat to profitability.
   
   In an era of contract-attorney companies, alternative legal-service providers, fee-sharing freelance-lawyer models and the gig economy, this cliff-edge experience is leading firms to reconsider a resourcing model that is so reliant on permanent, full-time employed staff, located in expensive city-center offices. We have heard most of the Big Four accountants announce their strategic switch to a more flexible resourcing model in recent years, able to cope much better with swings in demand and economic shock (or opportunity). Law firms now need to start to develop plans for similar changes.
6. ‘New normal’ law firms will rethink how they occupy and configure office space
   There will inevitably be pressure, not least from the CFO or COO, to reduce office space. Such pressure will be unsurprising when offices are currently empty, and there is only a very gradual return to office working as we transition out of lockdown, and yet law firms are continuing to function and to service their clients.
   
   Retaining a resilient workforce in ‘new normal’ will require some smart thinking about the best configuration of office space. For sure, there is likely to be movement towards more open plan and unallocated (hot-desking) workspaces in firms that have previously resisted open plan working. But designing the ‘new normal’ office will require some serious thought about:
   • how much total office space is required for your workforce?
   • how much breakout space is required and in what configuration?
   • how do you configure your office, including all meeting rooms, if video communication becomes the norm in terms of client communication?
7. Firms that forget that humans need physical interaction will lose out
   Some firms that we speak to are talking about conducting future partner meetings entirely remotely. Firms that have offices spread internationally are talking about the end of international travel. We would caution against attempting or expecting an extreme swing to entirely electronic communication. Humans are wired for physical interaction and video interaction is not the same as in-person chemistry, in particular when meeting people for the first time and developing a relationship. We believe that firms that rely purely on electronic communication will fare less well than firms that strike a balance between electronic and physical communication. In other contexts (e.g., interactions between world leaders) there have been vivid examples of how much can be achieved when people meet face to face. Law firms, in our view, will abandon physical interaction and connectivity at their peril.

Key Takeaways

• Regular contact with your teams and individual team members is key and this should be cascaded through the entire organization
• Psychological / professional support for employees who need assistance should be readily available
• Management should communicate clearly on a regular basis
• Management should be drawing up plans for the ‘new normal’ so that they can put these in motion once the governments ease restrictions
• Consider how the new WFH plans will impact winning and transacting assignments from clients

This is the fourth in our series of perspectives on law firm resilience in times of crisis, all published within the last month. The three previous articles are still very recent and relevant to law firm leaders and can be found at https://www.edge.ai/category/articles/crisis-management-business-continuity-planning/ . The Edge International team would love to hear your comments and are ready to field questions about the people perspective or any of aspect of assuring law firm resilience in times of crisis. Our contact details are below. We will return to the subject of resilience in the context of crisis again over the coming months.

Law Firm Resilience in a Crisis: Part Three – Commercial and Client Resilience

The “Law Firm Resilience in a Crisis” series

This short paper is the third in our series addressing law firm responses to crisis. The underlying theme unifying all of these pieces is the need to balance fast-tracked, short-term decisions and actions with an emphasis on medium-term recovery and resilience. Having begun with an examination of financial resilience in part one, and then turned to operational resilience in part two, we are now focusing on commercial and client resilience.

All three pieces on Law Firm Resilience in a Crisis have been gathered together in one place on our website: You may wish to bookmark that tab for easy reference.

Commercial and Client Resilience

As the three Edge International authors of this paper are based in Europe, Asia and the Americas respectively, we aim to synthesise our experience and observations of different legal markets that are also at slightly different points in the evolving Covid-19 crisis. As with the previous papers, we wanted to foreground practical actions that law firm leaders can use in their firms. In this case we have posed and responded to ten core questions many firms are asking themselves as they grapple with a uniquely challenging crisis; we want the paper to serve as a quick self-assessment checklist. Our ten questions fall under three themes: client relationships, business development in a digital and virtual world, and commercial strategies.

Resilience and Client Relationships

1. How are you supporting your clients?

This will be one of multiple places where you read someone preach the message that, in times like these, you have to put clients first. But what does that mean in a practical sense? In our view, the critical challenge is that clients need to see how you are supporting them through what will be as tough a period – probably tougher – for many of them as it will be for you. The future loyalty of your clients as the economy recovers will be dependent on how you behaved during the crisis. That involves investigating and understanding the biggest issues and concerns your client has, and tailoring your communications, offers of assistance, updates and terms and conditions to those issues and concerns. They should be specific for your largest, most important clients and as tailored as you can make them to groups of clients in sectors, regions, etc. Your support might include some leeway on pricing, billing or collections, although that should obviously be carefully considered in the light of your own financial position.

2. Are you getting through to your clients?

The latest Covid-19 crisis has yielded a barrage of the kind of broadcasting updates and generic statements from a range of companies that we have become used to around any economic or legislative event (including, early on, a stream of bland reassurances that it was ‘business as usual at Firm X’) – except on an even bigger scale. This blizzard of ‘noise’ on social media and coming into Inboxes is impossible to navigate or consume. Your clients want, based on your insight gained from (1) above, personalized, tailored and value-adding communications. Calls are great and many clients are much easier to get hold of right now. Emails or messages should stand out, and personalization (i.e., coming from a name they know, not a corporate or marketing mailbox) is key to getting that done.

3. Which services and practices are you promoting?

For almost all firms, there needs to be a rapid re-prioritizing of which practice areas and services should be marketed and highlighted to clients. Within the space of a month, the markets have flipped; in many cases, that has meant a sudden drop in corporate and real estate transactions, a boom in interest in labour and restructuring law, a refocus onto different clauses in commercial contracts, and a spike in wills and estates work. The exact pattern differs between jurisdictions and firms. At the same time, corporate legal departments will be trying to keep their own teams busy, and restricting further the flow of certain types of work out to external counsel. The overall rule holds true, though: firms need to pivot to ensure clients are presented with the firm’s credentials in areas they may not have used in the past. Client-relationship partners will often need to communicate the services of practice areas they don’t work in and know less about. Cross-firm collaboration at this point is critical.

Resilient business development in a digital and virtual world

4. Have you rewritten your marketing and business development plan?

If not, you need to to so, and quickly. Much of the activity you had planned – events, networking, secondments, training programs – has been blown out of the water by lockdown. It will probably take a long time for this kind of ‘business as usual,’ in-person marketing to regain its full effectiveness, assuming it ever does. For many firms, you will be looking to cut costs for a period and marketing will be in your sights. However, cut too far and you risk competitors getting close to your clients and your firm becoming invisible at a critical time. We recommend that you review and rewrite the plan you had, probably reducing overall spending but re-prioritizing ruthlessly. Ensure those practices that are most buoyant in this economy get profile and are highly visible online and in your communications. Rank higher the investments of time and money that can provide a faster payback period and short-term return on investment. In particular, ensure that your digital impact is really effective – at a time when the only way for prospects and clients to stay informed is digital, you have to be at the top of your game.

5. What are your partners and lawyers doing with their time?

OK, in a crisis situation many senior lawyers will be very busy; their particular practice area may be booming, they may be covering for furloughed colleagues, they may be asked to step up as part of your emergency team. In the Covid-19 lockdown, most lawyers, however, are working from home and have reduced levels of new work, no travel time eating into their day and no in-person networking duties. We talked about personalized, regular contact with clients above, and that is where a chunk of this available time should be redeployed: video calls, ‘virtual coffees’ (or drinks, later in the day – we have seen some nice Zoom ‘home bar’ backgrounds!), quick check-in messages on social media. In addition, this is the time to fully engage your senior lawyers, some of whom haven’t really embraced or become comfortable online before now, in posting and sharing their insights on social platforms and in articles. Quality and tone are important; do ensure you have enough marketing resources to edit, coordinate and help promote these efforts.

6. Is your digital delivery of client services good enough?

For most firms in the current crisis digital delivery of legal services to clients will, by now, be in place and working. A few months back many law firms would not have responded ‘Yes’ if asked whether their interaction with clients was almost entirely digital but, right now (including via Zoom, Teams, WhatsApp et al), almost all would. However, clients will not be tolerant for lots of glitchy, taped-together digital processes; in their dealings with other professionals and service providers they will be exposed to some very slick models indeed. Soon, they will expect you to be just as good. And this is one thing extremely unlikely to revert when we return from lockdown – streamlined, painless, reliable and ideally paperless legal services will be a badge of a quality law firm. So, we suggest you continue to evolve and develop your digital services over the coming months. Do not assume you should scrape through to the time when you can get back to everyone in an office with piles of paper and clients happy to travel distances to come and visit.

7. How does a new client find you?

This is critical for private client work, but still a big factor for B2B services; in a world which is now even more reliant on internet searches, social media and online directories and recommendations, you need to be very certain how visible your firm is in these media. Does your online presence and Google ranking do justice to the quality and expertise of each of your practices – most especially those which you need to drive the firm’s performance over the next year? If not, this needs fixing; many firms will acknowledge that they haven’t paid as much attention to their search engine optimization (SEO), pay per click (PPC) and social media performance as they could have until now.

Commercial strategies for resilience

8. Do you have the commercial data you need to make quick decisions in a crisis?

This is a major area of research and development for us at Edge International, and we believe there is a case for most firms reviewing and overhauling their production of management information (MI) without the catalyst of a crisis. But a crisis certainly exacerbates this issue, especially one where we have such high levels of uncertainty, a very sudden stalling in key markets and the breakdown of in-person collaboration and supervision. Providing real-time information feeds to partners, team and department leaders and leadership are incredibly important, but also structured and packaged MI on a weekly, rather than the conventional monthly, frequency could be critical. We emphasized the need to track cash metrics obsessively in our first paper, but equally important is the tracking of pipeline and new activity: weekly trend reports that show how proposals/quotations, new matters and time recorded are progressing are critical to providing the firm with the lead indicators it needs to plan its next steps.

9. Do you need to provide free or discounted advice?

This is too big a question to answer in one paragraph of a short paper, but it is one that would definitely make the ‘Top 10 Most Frequently Asked Questions’ from law firm partners right now. Many existing clients and potential new clients have short, urgent questions in the current crisis; typically, these are about providing latest updates on government crisis support or on one legal issue, and sometimes they involve a bit of interpretation. Clients are often cash-strapped, laying off staff and cutting costs. So there is understandable pressure on lawyers to provide a quick piece of free-of-charge advice. This is easiest to justify in the case of loyal, ongoing clients who are continuing to provide instructions – it is a statement of support from the firm in return. For new clients, it could help lure in more substantive new work, but we encourage firms to find ways to link the provision of this initial advice beyond simple information updates to some commitment by the client. This could be in the form of a new advisory retainer service that will run through for a fixed period, with some initial free or discounted hours.

10. Should you ask for money upfront for new work?

Some readers will respond by saying ‘we already do’ and where you have managed to embed this practice universally, well done! For most firms, such requests are harder to achieve but we do believe it is a sensible practice to apply wherever you can in a crisis and recessionary period, where many clients face an uncertain immediate future and firms themselves need to manage their cash positions with great care. For existing clients, do ask them to pay outstanding invoices before you begin a new piece of work. And where you feel it is necessary to offer debtors deferrals or instalments of their outstanding invoices, do ensure you link this action specifically to your support for clients during this difficult period.

Our final checklist point brings us neatly back to the first question: How do you demonstrate that you are all about supporting your clients through this crisis? That is the right point to wrap up Part 3 of the series. We hope you have found this article valuable and that it gets used and shared in your firm.

We are really interested in hearing your thoughts and experiences, and we are ready to discuss other ways in which we can help in this challenging period. Do feel free to contact us – our details are below.

Law Firm Resilience in a Crisis: Part Two – Operational Resilience

In our paper of April 6, 2020, we introduced this series which is aimed at identifying and addressing topics that are at the top of the agenda for legal leaders during the current crisis. That paper was focused on Financial Resilience. In this paper we turn our focus to Operational Resilience.

Operational Resilience

Operational Resilience Priorities

While the financial impact of a crisis is what immediately grabs the attention, operational adjustments are essential for business continuity and to compete in the new market reality. By “operations,” we mean the organization and support of the workforce to serve internal and external client needs effectively.

The top priority is to ensure that workflows and business processes are not interrupted. Where disruption cannot be avoided, leadership needs to adapt previous processes rapidly and definitively to meet the challenge; we have recently seen this in practice in firms which moved quickly to an entirely virtual and digital operating model.

The second priority is to provide the means and resources to operate efficiently during the crisis. The ranking of executive-agenda issues and items of expenditure will almost certainly need to shift for the duration of the crisis and possibly beyond.

Considering how operations should be restructured to serve the market post-crisis, and planning the investments necessary, is the third goal. These are key to sustained operational resilience.

The goals are achieved through:

• Effective and proactive leadership and streamlined decision-making processes
• Supporting mechanisms for people
• Robust communications – more regular, transparent
• Adapting infrastructure and allocation of resources
• Embracing change with a positive attitude

We elaborate below on five actions that can enable achievement of these goals.

Crisis management team

• Put in place a process for strong and decisive leadership that can set priorities for the organization and take calculated decisions based on information available.
• Assemble a multidisciplinary team of experts (e.g., from Finance, Technology, Operations, Human Resources, Communications) that “meet” more regularly and both provide strong direction and respond very rapidly to developing events and emerging information (the “Crisis Management Team” or “Response Team”).
• Unlike normal circumstances, it is not possible to gather all facts to make a pondered decision in a crisis. The uncertainties do not allow this to occur in an adequate time frame. Certain risks are inevitable to avoid the greater risk of inaction.
• It is incumbent on senior leadership to break from a decision-making model based around iterative consultation and reporting and delegate authority for an accelerated response where appropriate.

Supporting mechanisms

• The safety of your people, both physically and psychologically, is not just a moral responsibility but a key to maintaining stability and productivity. Furthermore, people need assistance and tools to be able to adapt to new realities.
• Provide guidance in a simple straightforward format as to how people can maintain their well-being and continue to perform their functions, especially working remotely and connecting virtually with clients. Issue a list of “go to” people for different subject areas, with their contact details.
• Establish an on-line information hub, or resource centre, including FAQs. This is a repository for the orientation, resources and materials (e.g., “how to” and “what to” questions) that people may consult at any time. These FAQs must be regularly updated to respond to the changing nature of the crisis and how it is being managed.
• Engage with clients to understand their concerns, how they may be supported and how the firm is capacitated to continue serving them during the crisis. (We will comment more on client relationships in Part 3 of this series.)
• Support the best possible performance that can be expected of professionals in the changed scenario (may vary significantly by practice group) and do not insist on pre-crisis goals that may no longer be attainable (e.g., billable hours, fee targets); doing so will always undermine leadership’s credibility amongst professionals. Also, provide orientation on how best to use any “down time” (e.g., on-line training, updating precedents, reconnecting with previous clients and contacts, etc).

Communications

• Communication is leadership’s strongest tool to build confidence and morale and, as a result, assure collaboration across the organization and with clients and other stakeholders.
• Create a plan and stick with it. Communications need to be frequent and consistent, and must address questions and concerns of the audience. Transparency and setting the right tone are key to effective communications; after all, the objective is not only to inform but also to calm fears, generate confidence and sustain morale.

Staffing needs

• Redeploy and make the best use of talent. While rightsizing may be necessary, and we indicated in Part One how cutting of staff needs to be strategic, do not over-prune so that you prejudice the ability to gear up post-crisis. Look for the opportunity to reallocate staff from a practice area with depleted business to one that is busier.
• Similar to reviewing practice-area loads, evaluate geographic spread (where appropriate) and how offices and groups might best share resources or work on a more integrated basis.
• Consider the overall legal staffing mix and opportunities to delegate aggressively to maintain productivity while, of course, assuring that service quality will not suffer.
• Take advantage of the crisis to rethink support-staff needs. This is not only a question of quantities and types/level of experience but also an opportunity to present challenges to promising talent.

Infrastructure and supply chain

• Take the necessary steps (which will depend on the level of preparedness) to enable fluent remote working capability, empowering the technology experts to engage with outside vendors for the essential, appropriate solutions (devices, internet connectivity, collaborative platforms).
• While moving quickly to assure business continuity, there should be enough oversight to determine that key risks such as security of data, business interruption through loss of internet connectivity and compliance with data privacy requirements are managed. This could well entail obtaining a second opinion on the capability of systems and applications to be adopted.
• Develop practical training sessions and resources to enable the use of new technologies and educate all users. Now is the time to focus on providing assistance and tools and not just on procedural matters.
• Engage with suppliers and determine how best to modify service delivery and service terms. Remember that these entities are facing their own challenges and will be keen to either maintain business or promote opportunities.
• Apart from technology service providers, pay attention to logistics (e.g., physical delivery of documents and materials to a more distributed population, travel arrangements) and consider outsourcing options, even if interim, to eliminate bottlenecks.

The Bottom Line

During a crisis period, do utilize the power of the “team” and coherent engagement with all stakeholders (workforce, clients, suppliers). Do not expect the processes, priorities, performance metrics or governance solutions that worked just weeks before, pre-crisis, to see you through this new normal; be agile and prepared to adapt very rapidly across your business.

Whilst responding smartly to the immediate demands of the crisis, never lose sight of your – now altered – roadmap; ensure you consider how to restructure and invest for tomorrow.