Law Practice Management Asked and Answered Blog

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June 2016

Jun 28, 2016


Law Firm Succession – What to do When No One is Interested in Equity Ownership

Question:

I am the owner of a fourteen attorney insurance defense practice in Baltimore. I started the firm twenty years ago after leaving behind my partnership in another firm. Of the other thirteen attorneys there are four non-equity partners and the rest are associates. I am sixty three years old and beginning to think about retirement and how I am going to transition out of the practice. Two of the non-equity partners are well seasoned attorneys, have major case responsibility, and have developed solid relationship with clients. I have discussed equity partnership vaguely with two non-equity partners but their interests seem lackluster and they have been non-committal. I would appreciate your thoughts and advice on what my next steps should be.

Response:

It sounds like your non-equity partners are on the fence as a result of the "vague" nature of your discussions. It is hard for non-equity partners or associates to commit to equity and taking on the risk of ownership when they don't know what the deal is. This is a scary proposition for them and they need detailed information so they can evaluate and make an informed decision. A vague discussion doesn't cut it. I suggest that you put together an equity partnership proposal that includes:

  1. Profit and loss statements for past the five years.
  2. Balances sheets for the past five years.
  3. A current accounts receivable and unbilled work in process report.
  4. Tax returns for the past five years.
  5. Malpractice insurance application.
  6. Building and other leases.
  7. Proposed Partnership Agreement
  8. Proposed Equity Partner Compensation Plan
  9. Planned date of admission
  10. Governance and management plan
  11. Ownership percentage being offered
  12. Capital contribution or buy-in requirement
Meet and discuss the proposal with your candidates, allow sufficient time for candidates to discuss with their families and advisors, and set a timeline for their decisions. I think you will see a different reaction. If they still are unable to commit your may have to begin thinking about an external strategy and looking around for merger candidates.

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John W. Olmstead, MBA, Ph.D, CMC

 
 

Jun 22, 2016


Law Firm Associate Satisfaction and Retention

Question:

I am the owner of a twenty attorney litigation firm in Seattle. The nineteen associates are all in the same tier or category and are paid a salary plus bonus. Their time with the firm ranges from one to fifteen years. I enjoy sole ownership but I realize that to continue to grow and prosper I must make some changes. I have recently lost several associates that I would have liked to have stayed with the firm. I am also getting stressed having all of the management responsibility since I currently make all of the decisions. Several associates have told me that the morale is low. I welcome your thoughts.

Response:

Compensation and benefits is one determinant as to whether associates are satisfied with employment at a firm. However, compensation and benefits is not enough to motivate and retain top performers. Law firms must help their associates invest in their careers and motivate and help them develop competencies and skills to enhance their productivity. With the downsizing, push for 2000+ annual billable hour push, etc., associates are skeptical about their futures and feel they have no power or ability to influence their careers. Associates want:

Here are a few thoughts:

  1. Share more information about the firm where you can – its plans for the future, where it is heading, it's strategic plan, etc.
  2. Improve and open up communications with associates.
  3. If there are other tiers such as senior associate, non-equity partner, equity partner – prepare and share with your associates documents that outline what it means to be a member in each tier and what performance and other factors are required to advance to each tier.
  4. Improve your review process and incorporate goal setting with each associate.
  5. Consider a management advisory committee or other committees where associates can participate in firm management.

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John W. Olmstead, MBA, Ph.D, CMC

Jun 15, 2016


Law Firm Performance Management – Managing Performance Reviews

Question:

Our firm is a 15 attorney firm in Kansas City, Missouri. I am a member of the management committee and our committee is charged with the responsibility of determining partner, associate, and staff compensation. Several years ago we switched to a competency based goal driven system for partners, associates, and staff. The system requires self-evaluations, peer evaluations for partners and associates, and self-evaluations. This requires extensive performance reviews, tracking, scheduling, and documentation. We are using Excel spreadsheets and MS Word documents and having a hard time managing all of this. Do you have any ideas?

Response:

With 15 attorneys you probably have close to 30 people in the firm. I would look into performance management software (performance appraisal software) to management the process. Typical features of performance management/appraisal software, depending on the vendor, include:

Some vendors offer cloud-based solutions and others offer install software solutions.

Just a few of the vendors include:

Some of these solutions can be pricey – so look into a solution is right-sized for your firm. I have firm's your size using solutions that are costing around $3000.00 per year.

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John W. Olmstead, MBA, Ph.D, CMC

 

Jun 07, 2016


Law Firm Executive Committee – Setting it Up

Question:

I am a partner in a twelve attorney firm in Downers Grove, Illinois. We have 8 partners and four associates. We are managed by committee of the hole – all partners are involved in all decisions. We have been considering moving to an executive committee. How do we set it up?

Response:

How you setup your executive committee will be key to the success of the management plan. How you setup and constitute your executive will be crucial. Selecting the right partners is paramount. How the partners are selected, who serves on the committee, how the committee operates, and other matters must be spelled out and communicated to all partners. Here are a few ideas:

  1. Consider a three member executive committee.
  2. Elect members to staggered three-year terms. On the initial election elect the individual with the most votes to a three- year term, the individual with the second most votes to a two-year term, and the individual with the least votes to a one- year term.
  3. Hold elections annually to fill vacancies for the upcoming year.
  4. Consider adopting a policy of requiring a partner whose term has expired to remain off the committee for one year before being able to run for another term.
  5. Incorporate procedures for removal of members by majority vote of the partners. Specify the voting requirements.
  6. Outline the decisions that are reserved for full partnership vote, decisions to be made by the executive committee, and decisions to be made by the office administrator.
  7. Develop a job description for the partnership, the executive committee, and the office administrator incorporating the above. 
  8. The committee should elect a chair annually, meet monthly with a prepared agenda, and have written published minutes or notes of what transpired at the meeting, action items to be taken, and who is responsible.
  9. The firm administrator should attend all meetings except when his or her performance is being discussed.

The key ingredient of a successful executive committee is that partners perceive the committee as competent, fair and without personal agendas, and that it gets things done in a timely and efficient manner. The process is as important as the outcome.

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John W. Olmstead, MBA, Ph.D, CMC

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