What Makes Law Firms Succeed or Fail?

Volume 40 Number 1

By

About the Author

Cynthia Thomas is the founder of PLMC & Associates, a management consulting firm for small and midsize law firms, and is a member of the editorial board of Law Practice magazine. She was also a firm administrator for law firms in Los Angeles and San Francisco.

Law Practice Magazine | January/February 2014 | The Management IssueSuccess is a relative word. It can be defined as “accomplishing an aim or purpose,” or “having obtained something desired or intended.” Failure likewise has a number of meanings, most of which we would prefer not to contemplate.

Despite numerous case studies, no one has discovered the magic formula that determines if a law firm will succeed. There are, however, certain factors that can predict the probabilities of success and failure.

In an attempt to identify some of these factors and to assist lawyers in creating or maintaining a successful law practice, I recently interviewed several practice management advisors on what they believe makes law firms successful—or what makes them fail. At the request of the Law Practice editorial board, I contacted a number of people who assist other lawyers in managing their practices more effectively while working at various bar organizations. Judith Equels (JE) is the director of the Florida Bar’s Law Office Management Assistance Service. Similarly, Katherine Suchocki (KS) is the director of Law Practice Management for the New York State Bar Association. I also connected with Erik Mazzone (EM), the director of the Center for Practice Management at the North Carolina Bar Association, and with Catherine Sanders Reach (CSR), who directs the Law Practice Management and Technology Program at the Chicago Bar Association. Finally, Karen Mackay (KM) shared her insights. She is the president of the consultancy Phoenix Legal Inc., where she focuses on leadership and strategy execution.

As each interviewee has specific areas of expertise, some decided to only answer questions in which they believed they could provide valuable insights. Nonetheless, we thank them all for their knowledge and participation.

LP: How would you define a successful law firm?

JE: A successful law firm strives to achieve an acceptable balance of the work the partners want, working with the people they need and like, for an amount of compensation that makes all the time and effort worthwhile.

KS: A successful law firm is a group that leverages its strengths, invests in its employees and always follows up to meet its clients’ expectations.

LP: Technically it’s not the firm that succeeds, but the firm leaders. What are some characteristics of successful leaders in law firms?

JE: A number of attributes are desirable. A successful leader is one who keeps up to date with not only law firm management best practices, but also has studied the history of law firm successes and failures. He or she aggressively recruits lawyers who can ultimately complement the management skill sets of the partnership; that is, a good leader is not tempted to “hire in his or her own image.” Successful leaders are willing to identify and groom potential successors. And another important factor is that they have earned the trust of the other partners.

KM: I would identify four different factors: intellectual horsepower, credibility as a lawyer, firm-mindedness and outstanding communication skills.

EM: One thing you commonly hear is that highly regarded law firm leaders are praised for their vision. For my money, though, the crucial characteristic would be the ability to execute.

CSR: I would add that a successful firm leader leads by example; he or she is the antithesis of “Do as I say, not as I do.” Such a leader allows the team to have autonomy but provides an overall vision and, importantly, links all activities back to the firm’s goals and mission.

KS: We should always bear in mind that leaders and managers are not necessarily one and the same. Leaders are not working alone; they are working with others and helping to instill a vision. The key is to keep lines of communication open, set expectations and have the flexibility to know when you should go in another direction. As a leader you have to value those working for you. If you don’t, it shows.

LP: What are some mistakes law firm leaders tend to make?

JE: First, top-down management. This leads to making decisions that affect people and operations without verifying business and workflow processes with subordinates who are directly responsible for those processes. Second, running with the pack, or “monkey see, monkey do” behavior. While it is important to observe trends and learn about what other firms are doing, careful study must be done before deciding whether a best practice will actually fit with the culture and strategic plan of one’s own firm.

EM: The major fault I’d identify is that firm leaders often underreact to market changes.

CSR: I have witnessed three common behaviors, namely: risk avoidance to the point of stagnation; focusing on profit to the detriment of investing in people, processes and improvements; and top-down management with little or no cross-firm input.

KS: William Pollard once warned, “The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” Advances in technology have significantly changed the practice of law and workflow, not only for law firms but for businesses in general. The right technology can help even the smallest firms compete in a crowded marketplace. One of the mistakes law firm leaders tend to make is failing to embrace new developments. The other is relying too much on technology to solve all problems.

LP: Leaders must provide for succession planning. How would you suggest a law firm leader develop a succession plan?

JE: Succession planning for many law firms often is a function of (1) the planning effort itself—that is, admitting that one day you must be replaced; (2) available funding; and (3) firm size. Firm leadership must ask several important questions. Are the partners willing or able to give up some profit to devote to grooming successors? What will be the roles of transitioning partners, including both the senior partners and the up-and-coming lawyers? How will the firm provide management training for new leaders? Finally, how will the firm compensate transitioning senior lawyers?

KM: This is a big topic and difficult to sum up in a few words. I would consider appealing to ego and identity, then legacy and mentoring. By first appealing to ego and identity, the leader can have a heart-to-heart conversation that is all about the person—what he or she has accomplished and contributed, and what others in the firm think of this person. First focus on the person both intellectually and emotionally. Then, when the person feels valued and respected, you can move on to the younger lawyers that this person has come to know and respect—how they might be helped to make their mark, as he or she no doubt once had to do. Finally, in appealing to legacy, the leader can discuss how this person has contributed to the firm and, indeed, perhaps been a giant on whose shoulders the next generation will succeed.

CSR: First, focus on priorities. What would need to happen if the firm leader (or leaders) were indisposed immediately? Create a checklist. Who would take over active matters? Who would notify clients? Who would make sure bills were paid? Bar associations often have great resources to help think through succession planning, from sudden emergencies to planned shutdowns.

KS: In my view it starts with hiring the right employees and staff, and fostering their growth. You have to value your employees. High employee turnover is no way to start a succession plan. You have to build from the ground up. If there are issues with firm management and employee turnover, you have to work on those issues first before starting a succession plan. A firm is only as good as the people who work there.

LP: We all know what it’s like be in a negative work environment. How should a firm’s leader define or create firm culture?

JE: This is a tough question. Is the firm leader a first-generation leader of the firm or the leader in a legacy firm? The approach to preserving or changing the culture depends on the age, size, location, practice areas and current strategic plan—or the absence of one—of the firm. If the firm is led by a first-generation leader, the culture is defined by the original set of owners, their practice areas and the firms where the owners may have worked in the past (i.e., their baggage). In legacy firms, new leaders must choose which aspects of the firm’s culture should survive, and they also have an opportunity to at least attempt to imprint their own stamp on the firm’s culture. Some aspects of culture should be acquired, and others shed. This will ultimately preserve the firm’s viability and overall livelihood. Culture affects the firm’s ability to recruit and to keep the attorneys and staff it needs to maintain optimal operations, good clients and growth plans. That goal is always in the hands of the current body of firm ownership.

KM: I would say that leaders should build consensus around a short set of core values, ones that are clearly defined, and about which the partnership is prepared to hold its members accountable. Leaders need to define and communicate, and to make values an integral part of every conversation. Values guide our individual behaviors, and collective behavior creates culture.

EM: To the extent that a firm’s leader can define or create firm culture—and I would argue that that extent tends to be overestimated—the single most powerful thing he or she can do is to get the right people on the bus, as Jim Collins would say. Hire well.

CSR: Another point to make is that culture is harder to change than to create. It is also not necessarily in the hands of firm leadership. Nonetheless, leadership can offer a positive working environment and insist its members live by the Golden Rule.

KS: Communication, employee appreciation and long-range planning are key to firm culture. Well-chosen words can inspire staff. As mentioned earlier, as a leader you have to value those working for you. When you don’t, everyone knows. Your firm culture is only as strong as you make it. You would be amazed at how people go out of their way for you because they know you appreciate them and value their work. To get buy-in from others, you need to make staff feel empowered in the process, so they feel personally vested in the project or initiative. When someone feels that they are personally having an impact on something, they will work to see it through.

LP: Do you believe law firms should change their business model and operate more like corporate businesses?

JE: The practice of law is a profession, and yes, law firms are also a business. But law firms are much like a three-headed monster. They must comply with (1) state and federal business regulations; (2) state bar requirements, rules and ethics opinions; and (3) clients’ needs. All professional services businesses must acknowledge similar constraints. Many law firms have decided, to their peril, to hire professional staff whose experience is outside of the legal marketplace, and do not have training in legal ethics or the professional liability aspects of serving clients. Some firms have promoted lawyers to management roles who have poor—or no—management skills. A law firm can be run like a business but only up to a point. A law firm is not a chain department store. “Returns” on poor product can be devastating to a client’s fortunes, life or limb. The chapters of the Association of Legal Administrators need to do more in offering ethics training for administrative staff that is state-specific. State bars can help their members by offering ethics training that is geared toward law office administrative support staff personnel.

EM: I would argue that law firms need to be more like corporations. They should disaggregate law firm partnership to separate the ownership stake from the active management of the firm. It’s hard for an organization run by committee to agree on a strategic vision for the future, let alone execute that vision.

KS: I think many firms are already operating as businesses or following the business model when it comes to human resources, technology and day-to-day operations.

LP: Many law school graduates are starting their own practices after graduation without any formal business management training. Do you believe law schools should offer or require law firm business management courses?

JE: Yes! It is sad that it took a recession and poor hiring numbers to motivate decision makers into seeing the sense of law practice or law office management training coursework in the law school curriculum. At the urging of the ABA—and, granted, some law schools by their own volition—more law schools are offering law practice management and law office management training. However, this training is not just for those students who believe they will have no other option but to open a solo or small-firm law practice. Every law student needs this training, whether they plan to work in government, corporate or the private sector. A law office in any of these settings is, after all, a law office! All law school graduates need to know about basic law office management business and workflow processes. Let me quote from a July 19, 2013, Am Law Daily article entitled “How—and Why—the Lawyer Bubble Keeps Growing”: “Even allowing for attrition by retirement, death, and other reasons, the BLS [Bureau of Labor Statistics] now estimates that there will be 235,000 openings for lawyers, judges and related workers through 2020—23,500 a year. Last year alone, law schools graduated 46,000 new attorneys.”

KM: Law schools should teach the law, but the practice of law has changed and some law schools need to catch up. Young lawyers who set out on their own especially are woefully unprepared for the reality of practice. Whether it is the job of law schools, bar association volunteer mentors or professional liability insurers, the basics of the business of law are a reality, not an option. Young entrepreneurial lawyers may start out with great ideas and professional courage, but the devil is in the details and getting practice management right from the beginning will serve them well.

EM: I see very little downside to offering a course or courses in firm management and financial planning. On the other hand, offering a smattering of these courses is a wholly inadequate response to the crisis facing many new law graduates today. Law schools need to be honest and clear-eyed about the careers their graduates are likely to embark upon and provide them the education they need to succeed. Those needs will vary from school to school. A small, highly regarded law school may produce fairly few graduates who require firm management classes, while a large, less highly regarded school may need to do much more to prepare their graduates than just offering a token class.

CSR: Yes, I like the idea of such courses, in some fashion. I think that a law school could help facilitate its new graduates with business management skills by working with the local or state bar association, or a local business school (or other program) if the school does not have the expertise on hand to adequately provide this type of curriculum.

LP: In business corporations the clients belong to the company. Whereas, historically, in law firms the clients belong to the partner who acquired them, and when a partner leaves the firm, he takes his clients with him. Do you believe that clients should be clients of the law firm?

JE: Yes. However, I disagree with the premise of the question. A client may follow a particular lawyer, but that client is always a client of the firm—if for no other reason than the client signed the representation agreement with the firm, not any individual lawyer. After all, it is the firm’s professional liability insurance policy that provides some guarantee of recourse should the work product or representation be defective in some way.

EM: I likewise believe this is the wrong question. There is no “should” about this topic in my opinion. Clients get to decide whether to leave with a departing attorney or stay with the original firm. They’ll go or stay as they believe (rightly or wrongly) benefits them. Both the departing attorney and the original firm would be wise to build systems and cultivate relationships to best position themselves to keep clients from leaving.

KS: It really depends on the type of client, the matter and the staffing. If a partner leaves, it is presumed a few associates and support staff will be leaving as well.

LP: How do you propose a firm move away from the “eat-what-you-kill” model?

JE: Often, an eat-what-you-kill compensation system is adopted as the path of least resistance. A bit more effort and a firm can implement a compensation plan that rewards effort, origination and firm management. An eat-what-you-kill compensation system is devastating to firm management and growth. It kills specialization, associate recruiting and management, and succession planning. Not to mention that it requires a tremendous amount of extra bookkeeping (i.e., because of keeping a “columnar” set of accounting records).

EM: You can move away from it by coming up with a compelling strategic vision for firm marketing and administration, and executing that vision so well that the partners will conclude that their prospects will not be brighter someplace else.

KS: The key, in my mind, is for firms to have partnership agreements and operating agreements in place to escape this eat-what-you-kill mentality.

LP: Thank you all for participating. Are there any final suggestions for having a successful law firm?

JE: Law firm leadership must be willing to sacrifice some profits to compensate partners for their time in planning, marketing, recruiting, mentoring, training and managing the day-to-day affairs of the firm. You do get what you reward, because with volunteer management, you get what you pay for.

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