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Managing and Growing a Law Firm, Part 3

In this final article in the series of three, I highlight the legal scene in Asia, the changes to the legal industry, and the different resources available to law firms for expansion. I also take a look to the future, and share key leadership qualities.

In my first article, I shared my thoughts about managing and growing a law firm and in the second article, I discussed the global legal industry and its challenges.

I have previously discussed why firms need to look to the future, as they cannot live in the past and will soon become irrelevant in this fast-paced, tech-savvy environment. Disruptors are already well established and eating away the market share of many firms. Artificial Intelligence (AI) is here to stay and will become more and more sophisticated. For example, standard contracts are now easily available from the internet and there are other solutions in the market to make the “bread and butter” legal services no longer the “black art”, which at one time nobody understood. And then there is the growth of the “in-house” legal departments eroding business lines.

Leadership for the Future

To future-proof themselves, law firm managing partners need to “lead” and not “manage”. I have encountered many managing partners who manage (and at times micro-manage) rather than lead. Some are good at managing but many miss the critical role of a managing partner, which is to lead, have a vision and to inspire and drive the partners to achieve that vision. Then there are those who are poor managers, the ones that micro-manage or those who are indecisive and are too involved with the detail to see the bigger picture, or simply do not have time to manage. All these recognisable conditions lead to inefficiencies and mismanagement, creating potential financial, retention and reputational risks for the business.

As I shared in the first article, I believe that the day-to-day management of a law firm should be left to business professionals who have the necessary skills and experience. Hiring people with this skill set at an appropriate level for the firm is key. Firms need to hire business professionals at the right level and not under-hire. I would caution that hiring at an inappropriate level (too junior or too senior) will lead to additional issues and may be a wasted investment.

In the commercial world, all well-led and well-managed corporates will have a chief financial officer, chief information officer, chief marketing officer, etc. These are professionals in their own rights, and contribute to the success of the business. Why then do law firms think that partners can run such functions in which they have no real expertise or experience? Part of this stems from a “cost” rather than an “investment” mentality. I think what is not appreciated is that partners are being taken away from their core competencies and thrust into something that they are not trained for. What is not accounted for in the Profit & Loss Account is these lost partner hours that could be better utilised in marketing and discharging work which ultimately adds to the bottom line.

In addition to having a sound professional support infrastructure, it is important for leaders of law firms to interact within the industry, attend relevant conferences, keep up-to-date with major changes in the market, and respond promptly to the changes that are taking place in the industry. Keeping up with the legal press is also a must.

Law firm leaders need to have a strategy and a “laser-like focus” on what they want to achieve, and have a formalised succession plan to ensure there is an ongoing legacy for future generations.

Staying Relevant

The key to relevancy is a vision, a stated purpose, an evolving strategy to move with the times, a laser-like focus on the ultimate goal, investment in a sound and professional support infrastructure. Bringing all these together requires a strong and decisive leader with an innovative and flexible mindset.

Being Inclusive

To achieve these goals, it is very important for the management of the firm to be inclusive and to seek the opinions and insights of the lawyers and the business professionals who can help shape the present and future of the firm. Having a sharing and open culture is also important, so that all employees know what the firm’s vision is, and what they are striving to achieve.

At the end of the day, the management of a firm is in a stewardship role. The priority of these stewards should be to lead the firm and make it better than it was when they were put in the leadership position. Having this mindset will help shape and create a legacy for future generations. I would also encourage management not to take a short-term view on all matters. In particular, longer-term investment strategies are required in this competitive environment, as the firms that take a short-term view are unlikely to survive. 

Modern Lawyers

We live in a new age of millennials who are entrepreneurs at heart and are very much plugged into the ‘gig economy’, Much like all of us in this new age, they want instant gratification. This group of young lawyers comprise the engine room of the 21st century law firm, and very much the future of the business. This is where I believe a disconnect occurs. The current leaders and managers in law firms are most likely middle-aged and “Gen X,” brought up in a different age and with different values which included working hard, being in the office 9 am to 9 pm, and coming up through the ranks with the ultimate goal of being a partner in a firm.

This is not necessarily the mindset of the modern lawyer, who has many more life and work choices than the previous generations. Law-firm management has to listen carefully to younger lawyers and take heed of their needs to make them productive and engaged, and to retain them in the business long-term. Opportunities to work flexibly and remotely are high on their list. This could mean flexible working parameters and strong and secure IT systems to ensure effective and productive remote working. If this is what it takes to make this generation more productive and create an attractive long-term career path for them, then firms need to respond appropriately to this changing world with both action and rewards.

Women of Law

Firms also need to address the ongoing issue of women leaving the profession. Law firms lose many talented women in which much investment has been made when they decide to have a family. Sadly, this talent is often lost for good. Firms should do a much better job of providing flexibility and alternative career paths, thus giving these women an opportunity to look after their families while also adding value to the business.

Concluding Thoughts

Let’s not forget that 20 years down the line, the millennials group will be leaders of the firm, and they will have a different set of issues to deal with which we can’t even begin to imagine. I think if the current leaders can forge a blueprint for flexibility, succession, and legacy, this will be ingrained in the DNA of the young lawyers and will bode well for future generations.

In conclusion, my three top tips:

  • Have a clear vision and purpose, set accountable milestones for these to be achieved, and be inclusive of all in the firm
  • Managing partners need to “lead” not “manage”. Leave the management and the execution of strategies to the business professionals
  • Build a firm for the future with innovation, the millennials, and women in mind.

Strategy on the Back of an Envelope

I’ve just participated in a two-week charity fundraising event, driving 40-year-old cars 5000 kilometres through the Australian outback to raise money for disadvantaged kids. The fleet consisted of 95 pre-1976 vehicles, no four-wheel drive, no engine modification allowed.

This event presented me with a useful metaphor for the business of legal practice. Nearly everyone made it despite himself or herself. About two percent of the field had a well-thought-out, well-executed strategy. The rest of us succeeded because our ability to get out of strife was a tiny bit better than our ability to get into it (sound familiar?).

So too law firms. Leaving aside the elite, how many firms really succeed as a direct result of a well-executed strategic plan? Not a lot, I suspect. In fact, between 1980 and 2007, it probably took effort not to succeed. To fail, one needed a dysfunctional partnership, a bad premises deal or a propensity to pay people way too much: these were pretty much the only ways to stuff it up. Oddly enough, some folk did manage the trifecta.

Times have clearly changed. Success doesn’t just happen by muddling through. Even small firms should invest in this list of must-haves:

  • A well-thought-out strategy – they know what they want to be and what they don’t want to be;
  • A leverage structure with a balance between relatively junior solicitors and senior solicitors – not all one or the other;
  • An understanding by all fee earners of ‘minimum acceptable contribution’;
  • A clear pricing strategy, regardless of methodology (fixed fees, hourly rates, scale, perceived value or whatever). The best performers keep all of these possibilities in their tool kits;
  • An understanding of cost of production;
  • A management structure with clear objectives and the support of partners;
  • Leadership as well as management;
  • Good financial housekeeping (price, WIP and debtor management).

My Edge colleagues and I have written, over the years, about all of the above. We continue to assist firms with pragmatic implementation.

For the benefit of those who are yet to invest in a robust strategy process, here’s a better-than-nothing, back-of-the-envelope approach to start the ball rolling.

Planning Is Key

In my experience, the best self-help first step in the practice-improvement process is planning. I am not talking about a multi-volume document brimming with colourful flow charts and management clichés. On the contrary, I am talking about a discussion that results in a one-page summary that tells every partner (or sole practitioner) where they are headed. The plan will guide those who have been delegated the responsibility of implementing it.

For this planning session, meet as a partnership (or with a key advisor if you are in sole practice) away from the firm, somewhere where participants won’t be distracted by staff or clients. Give each item full and frank consideration. Business plans in small firms are next to useless without consensus. Partners will simply agree in the meeting and then continue doing whatever the heck they want.

I recommend that the discussion revolve around the following decisions:

 

 

The Components

  • What type of work – refers to the type of matters the firm is seeking to offer. In considering this, look at those services that you offer now. Consider what you would like to stop doing – or to stop doing within five years. Having done this, consider what you do wish to be doing and add these offerings to the ones that you want to keep.
  • Partner numbers – refers to the number of equity partners. You may wish to include salaried partners here, but I usually put them into the “employed fee earner” section.
  • Gross fees – refers to the total fee billings of the practice (excluding disbursements).
  • Net profit per partner – refers to the desired profit per partner. When you are considering desired profit, remember that as a principal you should receive a reasonable pay for your time and effort, and a reasonable profit.
  • Employed fee earners – refers to the number of employed solicitors, associates, non-equity partners and paralegals. (Full-time equivalent, so someone may be 0.5 paralegal and 0.5 support.)
  • Support staff – refers to all support staff in full-time equivalents.
  • Space (sqm) – refers to the office space required. The average Australian firm uses about 25sqm per person (including public space like reception and meeting rooms). This is not ideal though. I suggest that you allow for about 18sqm/person. (We are told that best practice space utilisation is about 7sqm/person, but this requires significant cultural and operational change.)
  • IT commitments – refers to any foreseen expenditure on technology such as PMS, litigation support, marketing data base, etc.

The best way to approach these discussions is to fill out the actual numbers for this year, then do Year +5 first. Come back and do Year +1 next, then simply ‘join the dots’.

This is a start – a bit rough and ready but better than nothing.

By the way, our “Annual Variety B to B Bash” raised 2.25 million dollars for disadvantaged Aussie kids – admittedly despite most of us, not because of most of us.

Next year I’ll be one of the planners.