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Five Biggest Mistakes of Law Firm Leadership

From Accounting And Financial Planning For Law Firms 3/11 —

It is still early enough in the year and not everyone has completely abandoned their New Year’s resolutions.  Many may be wondering just what they were thinking when they resolved to lose 20 pounds, get along better with their in-laws and go to the gym daily but hope still springs intermittently about achieving those noteworthy goals.


One goal that I often hear from the senior leadership of law firms is that this year, they will do a better job of managing their firms. That despite the crush of their daily practice, despite the challenges of day to day management and the inevitable crisis they will devote more time to management and achieve better results!


Improved management is the holy grail of all law firm management second only to the client with multi-practice needs, a full treasury and an appreciation of excellent service that is expressed in the prompt payment of premium invoices.


Over the years I have observed many common mistakes that law firm management makes and would like to identify the five most common ones in my experience so that they may be recognized and avoided, so that all those better management resolutions that are out there are indeed fulfilled this year and not remade in 2012.


My candidates for the top five mistakes are:


  1. Pursuit of the perfect Business Strategy – Many firms are looking for the perfect strategy that will solve all their issues and address every concern ever expressed or identified by members of the firm.  This pursuit of the prefect strategy has lead firms to analyze and reanalyze their practices, their market and clients.


The pursuit of the perfect strategy has lead to countless internal meeting and many disagreements. The results are often times “flabby” and an overly broad and non-specific strategy statement that resembles nothing so much as motherhood and apple pie.


A strategy should provide investment guidance to a firm and its partners.  Strategy should not be a straightjacket nor a “Christmas Tree” where every partner or practice gets something.  In law firms, strategy is a blue print of where a firm will invest its limited resources.  Those resources consist of money and time.  By far, the most precious asset a law firm has is the time of its partners and senior administrative staff.


A good strategy will of course be based upon an analysis of the market, the identification of potential new practice areas and the strengths of the firm.  But in the end, a good strategy will identify those practice and geographic areas where the law firm will invest.  Because resources are limited and valuable those decisions need to be thoughtful and specific.


A strategy must also be flexible so that when an investment fails (and some certainly will) a firm can move on.  The pursuit of the perfect strategy may be an interesting intellectual exercise for lawyers (and it is certainly profitable for consultants) but in the end it is the execution of the strategy that counts and you can not execute a strategy that does not exist.


  1. Not Letting the Administrators administer – Many of the brightest, most hard working and dedicated people I know are law firm administrators.  Their hours are long, the demands on them many and the expectations of their contributions unclear.


The senior positions in law firms are occupied by successful business women and men who have grown-up in the profession and seen enormous change in technology, financial size, firm complexity and geographic footprint.


Many of these administrators are indeed respected contributors to their firms and have significant management authority.  However, in many firms the Managing Partner or the Executive or Management Committee plays far to great a role in the day to day operations of the firm.  I have worked at firms where the Managing Partner was intimately involved in the selection of the office supply vendor while a potential lateral partner waited for days to get an interview.


Law firms hire the best and then hobble them.  Some common mistakes include:


  • The Managing Partner “open door policy” in which any administrative staff member can go to the Managing Partner with a problem.  I am not advocating a policy where no staff member can ever speak to the Managing Partner; I find that policy both refreshing and a strong reinforcement of a firm culture.  The issue I have is that after hearing what the administrative staffer had to say many Managing Partners immediately begin to solve the problem.


The first thing I think a Managing Partner should ask is “have you spoken to the Administrator or supervisor”.  If the answer is no, the staffer should be referred back to them.  If yes, the Managing Partner should find out what the outcome of that interaction was.  Then in consultation with the Administrator a resolution should be arrived at and communicated back to the employee.


Senior administrative staff should be supported by the Managing Partner and while an Open Door is a good and valued tradition in many firms it should not undermine the overall management effectiveness of the firm’s administrators.


  • Lack of annual goals and quarterly reviews for Administrative Staff. All to often senior administrative staff function in a vacuum as to specific expectations of their performance.  Obviously all law firms want efficient, cost effective support services delivered to the firm’s clients and attorneys.  But what does that really mean?  The lack of specific goals such as; a 10 percent reduction in secretarial overtime, the on-time within budget conversion to a new telephone system or the opening/renovation of a branch office allow for ambiguity and rewarding (or punishing) the last task the administrator was responsible for.  Annual goals and periodic reviews would further enhance the ability of the excellent staff that firms have to succeed.


  1. 3.   Believing that law firms are fundamentally “different” than all other businesses – Well of course law firm are different, they are professional organizations regulated by strict statute and guided by a strong moral code with a long historical tradition.  The shareholders all work there and are responsible for generating the firm’s business.


All of these facts, while true do not exempt law firms from some fundamental best practices common in most business today.  These practices provide goals by which firm progress can be measured, individual contributions evaluated and performance rewarded.


The You Can’t Do That (“YCDT”) response is heard in many firms and is the natural consequence of the nature of the profession.  One of the biggest responsibilities that attorneys have is keeping overly enthusiastic clients out of trouble.  Some of the best ways of doing that is by slowing down the process, by questioning the approach, by saying “you can’t do that!”


Some common law firm “YCDT’s” include:


  • Revenue can not be budgeted, only expenses can be budgeted.
  • Individual case budgeting (alternative fees) can’t be done and is not profitable
  • Receivables can not be collected in a timely fashion (and it’s good to have large receivables so we can collect them when we need the cash) and only partners can collect those clients with receivables.
  • Fairly measure and report attorney, practice, region and office profitability. Or, that such reporting is disruptive, against the culture of the firm or unprofessional.
  • Differentiate the performance of individual associates during the calendar year, provide individual feedback about their performance and reward associates differently based upon their performance.


I believe that all of those statements are false and there are numerous law firms with proven budgeting, cash collection, profitability and performance management systems in place that support my position.  However, a complete discussion of them will require more space than the editors are prepared to give me this month and will have to wait for another time.

  1. The least communication is the best communication – I have worked with law firms for more than 25 years and found that unlike Gaul, law firms are divided into only two types.  There are those firms that communicate everything to their partners and those firms who distribute only the most cursory of data.  My experience is that the over communicators fair better than those firms who do not.


As noted above the partners are not only the means of production in the “factory” they are also the owners of the factory.  As such they are entitled to understand what is happening in their firm.  The distribution of quarterly reports that present almost no useful date does not fulfill that requirement.  Often the lack of information is misinterpreted as either bad news or that management is trying to hide something.


Financial reports should be monthly, brief and actionable.  Key performance metrics that support the achievement of the firm’s strategy should be central to the reports.  In addition to the monthly reports (best presented in a monthly partner meeting) there should be a report from the Managing partner on the state of the firm, progress against the budget and key strategic initiatives.


Monthly partner meetings should be more than just lunch, it presents firm management with the opportunity to broadly distribute news utilizing the same verbiage (there is no guarantee that everyone will hear the same thing but at least it was delivered with one voice), introduce proposed changes to firm policy, discuss business development opportunities and potential lateral candidates.  Monthly meetings can also be used for firm committees, individual departments and/or partners to discuss their activities, business development plans, recent cases or new clients.


The free flow of information builds trust, reinforces a firm’s culture and allows firm management to direct partner efforts.  Such opportunity should not be wasted.  When in doubt, over communicate, the firm will be the better for it.


  1. Tomorrow will be like yesterday – Albert Einstein famously said that “insanity is doing the same thing over and over and expecting different results”.  I believe a corollary to that is that the marketplace and environment for legal services will remain the same.


This thought process leads firms to believe that 2008 was just a bump in the road of continual increases in bill rates, associate salaries and partner profits.  That General Counsels will stop pressing for more efficient and cost effective ways to deliver legal services and that Judge Crater will soon return from his evening stroll.


I am not a seer but if I have learned anything during my consulting career it is that the legal profession is capable of and indeed has made enormous changes in the past and will be required to do so in the future.


Law firms will have to provide access to their services over the WEB.  They will have to address the question of office location (or even an office at all) for their professionals and administrative staff.  Tell me again why $40k clerical employees are located in prime center city locations when most corporations moved those positions to the far cheaper suburbs years ago.


The future belongs to the nimble, the quick of mind and those open to new ideas.  Hopefully this list will help you avoid some of the most common pitfalls so that you can better address the really hard questions that are coming in the near future.


As law firm management, it is your responsibility and a very big one it is.

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