From Accounting and Financial Planning for Law Firms August 2014
Over the past year, SB2 Consultants has performed numerous Right Sourcing Business case analysis engagements for law firms located throughout the United States.
Right Sourcing is our moniker for the process of determining who, where and how key administrative services are provided to a law firms’ attorneys. Outsourcing is for Corporate America where most functions can be sent outside the company to a lower cost location and often outside the country.
Right Sourcing is for professional service firms where key administrative activities and institutional knowledge must remain within the firm while other administrative functions can be moved to other geographies within the United States.
The objectives of our Right Sourcing studies were twofold:
- To compare the cost of providing High Value Add (“HVA”) administrative support services such as Accounting and Finance, IT and H/R and Marketing support in a client firm’s headquarters location to lower cost location(s) within the United States.
- To benchmark the firm’s administrative support structure (i.e. the number of staff performing specific clerical functions such as secretarial support and word processing) against established industry norms to identify potential process re-engineering savings opportunities.
Our numerous studies documented what many management professionals and managing partners of law firms have thought for years. Law firms are inherently inefficient suppliers of administrative service.
In the past, this realization has resulted in most law firms above 100 to 150 attorneys to outsource many of their basic services. Mail, messenger, records and photocopy staff are now commonly supplied by a group of national and regional vendors.
However, one key service that is not supplied by any vendor and in most of our individual business case analysis proved to be one of the most inefficient services that law firms supplied was that of secretarial support.
Secretarial Compensation Rates are Surprisingly Uniform in Major Metropolitan Areas
Websites that track these things report that since the 2008 economic crisis more than 15,000 administrative employees have been terminated by law firms. There are no reliable breakdowns as to the number of secretaries within that number but I believe it is accurate to assume that the vast majority of the terminations were secretaries. However, even with that significant reduction in the number of secretaries few law firms’ secretarial support ratios exceed 3 or 4 attorneys to 1 secretary.
Our work also documented a surprising uniformity in secretarial compensation in law firm’s nationwide.
The chart below identifies (by city) the percent differential there is in base compensation between Denver at 100% (the city with the lowest average secretarial cost of $55,000) and San Francisco at 147% (the city with highest average secretarial cost at $81,000). These are base compensation figures only and do not include any amount for overtime or bonus payments. They also do not include the cost of benefits or allocation for overhead.
|Fourth Quartile||San Francisco||147%|
|Third Quartile||Los Angeles||140%|
|Second Quartile||Miami / Ft. Lauderdale||128%|
|Dallas/ Ft. Worth||118%|
As the chart documents, the difference between the top of the first and bottom of the third quartiles is about 15%. We found that the average legal secretary in our sample cities base compensation was $69,600 and the “all in” cost with benefits was over $90,000. In the first quartile cities the all in cost exceeds $100,000.
Our work also documented significant savings potential in the realignment of administrative support services in every geography and firm regardless of size.
- In a 500 attorney firm in Washington we identified more than $6.1mm in annual savings
- In a 550 attorney firm in San Francisco documented savings exceeded $4.3mm
- A 100 attorney firm in New York saved almost a million dollars.
Many firms have recognized the need to realign their secretarial support functions but question how to best achieve the results they want without undue disruption or a dilution of administrative support services.
Improved Service / Reduced Cost
When I was in high school there was a daily after school study hall located in the library. The school librarian (whom we assured each other had kept George Washington after class) insisted on absolute silence as the price of attendance. Her desired level of monistic silence was seldom achieved and periodically she would walk to the center of the room, turn left or right and throw that half of the study hall out. Silent or a chatterbox, it did not matter, you were out. I call this the Gracie T. Hoare methodology and by in large, it does not work.
Many law firms have pursued a similar methodology when they have attempted to reduce their secretarial complement. Downsizing decisions are based on perceptions not annual performance reviews or skill test results. Powerful partners with large books of business get single coverage even though they produce few actual documents. The hard working junior partners and associates who are producing the documents are lumped into shared arrangements or secretarial pools. This approach pleases no one, results in decreased service levels and negatively impacts the moral of the lawyers and the administrative staff.
These forced downsizing efforts also do not recognize the changing nature of the administrative support that attorneys need and want.
How Do You Get to 8 to 1?
To paraphrase the old joke you analyze, analyze, analyze. Our clients who are at or close to that ratio have done it through a thoughtful and deliberative process that:
- Defines the firm’s administrative support objectives
- Documents critical processing requirements and attorney needs
- Develops a skill set profile and “Best and Highest Use” matrix
- Designs new administrative support structure
- Pilot tests the new support structure, re-evaluates and modifies the support structure as required
- Implements support structure firm wide
- Monitors performance and continuously adjusts
The basis for any successful secretarial realignment effort begins with the leadership of the firm setting clear goals and objectives for the effort. Some firms set out to reduce costs and nothing more. While we understand that cost reduction is important (for some firms it may be critical) it is not incompatible with service level improvements or expansions. One of the more innovative trends we have seen is the introduction of “concierge” service providers to augment the support that secretaries provide to attorneys. These less highly skilled workers perform more clerical type functions (filing, reservations and time entry) leaving the more highly skilled secretaries to concentrate on more value added activities. Several firms have increased their support headcount and the service provided while reducing overall compensation expense through the introduction of concierge workers.
Central to the success of a secretarial realignment project is a in-depth understanding of what types of work and the volume of work that the secretaries are currently doing, what the attorneys want them to do and the individual skill sets of your secretaries. We have found that focus groups (attorneys and secretaries separately!) talking about what they do and what they want and the analysis of attorney time records are good data points to start at. The annual attorney evaluations of secretarial performance provide insight into individual skill levels and some firms have mandated skill testing to augment the information provided in the annual reviews.
Armed with the data on what the attorneys want, the secretarial skill levels and the amount of work that is being generated a new secretarial support secretarial structure can be designed. As noted above, the identification of less skill sensitive tasks will enable a firm to introduce concierge employees who can provide additional services at a reduced cost.
Implementation of the new secretarial support structure design is best done starting with a pilot area (practice, floor or office) which allows for close supervision, early identification and correction of design flaws and building support around the firm. Nothing boosts a projects acceptance like testimonials from secretaries and lawyers alike.
The firm-wide roll out following the pilot should include a heavy communications component, a great deal of management by walking around (so you can spot issues before they mushroom) and a formal evaluation and reporting mechanism so that you can document your hard won success.
Is achieving a 8 to 1 secretarial support ratio an easy undertaking? No it is not! It requires work, persistence and flexibility. But the rewards are significant and for some they be critical.