Law Practice Management Asked and Answered Blog

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February 2019

Feb 27, 2019


Law Firm Succession and Transition – All Three Partners Retiring at the Same Time

Question: 

Our firm is a personal injury plaintiff litigation firm in Denver, Colorado. I am one of three partners in the firm. We have one associate that has been with us for twelve years and three recent law grad associates with less than three years experience.  The three partners started the practice together over thirty years ago and we are all in our early sixties. Our lease expires in three years and we need to think about the future of the firm. All three of us are not ready to retire but none of us want to sign another lease. When we do retire we would want to retire at the same time. Do you have any suggestions?

Response: 

I believe your first step would be to agree on your timeline for the group’s phase-down and eventual exit from the practice. It sounds like three years, while it may not be the date that you want to exit from the practice it may be the date that you sell your partnership interests or begin the transition of your interests. Many firms that have other attorneys working in the firm prefer an internal succession strategy as opposed to an external strategy – selling or merging the practice. An internal strategy will depend upon:

I believe your second step is to reach a conclusion as to the above three questions. You may have to have some candid discussions with you associate to determine his or her interest level and his or her readiness to take over the practice. If you determine that your senior associate is your succession strategy you need to decide whether you are willing to start selling the associate shares sooner than later and admit the senior associate as a minority interest partner. As part of this partnership admission you would also execute an agreement for the purchase of additional shares over the next few years and upon your actual retirements. This way you get your associate committed and begin executing a transition plan focusing on additional legal and business skill development as well transitioning client and referral source relationships and firm management responsibilities.

If you determine that your senior associate is not your succession plan you will have to consider other options such as bringing in a seasoned lateral attorney that has the needed skills and desire to take over ownership of the firm, selling the firm to another firm, or merging the practice.

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

Feb 20, 2019


Law Firm Growth – Is Growth Always the Best Strategy

Question: 

I am the sole owner of a five-attorney litigation firm in Mesa, Arizona. I started the firm twelve years ago after leaving a large firm where I worked for a very large national firm in Phoenix. I was an income partner in that firm. For a few years I operated as  a solo with a legal assistant. Then I began adding associates and staff. Now we have me and four associates, a office manager/bookkeeper, two paralegals, and two legal assistants. Our annual gross fee revenues are around 1.2 million, the overhead is high, my net income is not all that much more than what I was making as a solo. My associates aren’t willing to put in the time to generate the billable hours that we need and then there is the time and stress of managing all of this. Is growth a good thing?

Response: 

Not always – depends upon your goals and your area of practice. If your area of practice is a low billable rate ($150-$175 per hour) practice area such as insurance defense or municipal law, it will be difficult to reach a desirable personal income level without associate attorney leverage. However, if you are in a practice area with bill rates of $300 to $500 per hour you may be able to attain the personal income levels that you desire without associate leverage and growth. It all depends upon your personal income goals, your ability to support and handle the work that you have, and your ability and desire to manage a group of attorneys.

Growth requires that you manage others as well as yourself. More office space is required – more overhead to support the additional people. Growth puts a strain on cash flow and requires additional working capital. A new set of skill sets (people skills) is now required.

Some Lawyers Never Develop the Skills Needed or Desire to Go to This Level and Firm Growth is Restricted as a Result.

I refer to this phase as Sole Owner Phase. I have client law firms in this phase than consist of an attorney owner, a handful of employed associates, paralegals, and staff. These firms may have 3 to 4 people or ten or more. I have sole owner law firms with over 100 employed attorneys and staff. I work with other sole owners that choose to remain solo (without other attorneys) and are quite successful. It all comes down to what you are comfortable with.

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

 

 

Feb 12, 2019


Law Firm Communications – Tools that Can be Used to Improve Communications

Question:

Our firm is a sixteen attorney personal injury insurance defense firm located in Dallas, Texas. I am a member on our three-person management committee. We have been experiencing associate attorney and staff turnover. Recently, we had all employees complete confidential surveys concerning their thoughts and feedback concerning the firm. One theme that was central to all was that the firm has poor communications with employees. I would like to hear your thoughts on what we need to do to improve.

Response: 

Obviously, more specifics would be helpful. Communication is a broad topic. Are they talking about mentoring, training, updates of what is going on in the firm, etc? However, here a a few best practices to think about:

  1. Find ways to improve communications with members, associates and staff.
  2. Use the appropriate communications vehicle for the task at hand. (Face-to-face, voice mail, e-mail, memo, etc.)
  3. When a few employees are not following policies, or causing difficulties – resist the temptation to send out a blanket e-mail to all – and have the courage to counsel and discipline the individual offender. The will improve the overall morale and attitude of others in the firm.
  4.  Hiring
    1. Terminate marginal people.
    2. Develop procedures to ensure that the firm is hiring from a pool of qualified
    3. Formulate formal hiring and firing policies.
    4. Insure that hiring’s and firings are documented in accordance with the firm policies.
  5. Updated employee handbook.
  6. Training
    1. More formal training and mentoring programs should be designed for staff and associates alike. In addition to typical legal and office topics, other topics should include skill training in:
      1. English language (staff)
      2. Communications
      3. Law firm economics generally (associates)
      4. Management
      5. Time management
      6. Time Keeping
      7. Marketing
      8. Client service
      9. Speaking and writing
  7. Communications and Policies
    1. Communications can always be improved, and the appropriate channels used for the appropriate situation. (e.g. individual face-to-face, staff meetings, telephone call, memo or email.)
    2. The firm should insure that it is delegating as much as it should. In particular,
      partner time spent on administrivia.
    3. People with growth potential should be placed where they have the greatest potential to grow.
    4. The staff should know what they are trying to accomplish.
  8. Employee handbooks should insure that the following policies are included:
    1. Relations with clients
    2. Objectivity
    3. Confidentiality
    4. Investments and other financial dealings with clients
    5. Outside work
    6. Overtime or bonus
    7. Salary review
    8. Insurance coverage
    9. Sick leave
    10. Continuing education and tuition reimbursements
    11. Time off to attend various training and professional functions
    12. Dues for professional and other organizations
    13. Allowable expenses and reimbursement procedures
    14. Involvement in civic and other community organizations
    15. Speeches, articles and books
  9. Staff members should be made aware of the firm policies and changes in policy.
  10. The firm should develop a procedure for feedback from the associates and staff to use to improve the knowledge and skills of all staff. (Internal survey, suggestion box, and other tools)
  11. The firm should conduct regularly scheduled frequent meetings.
  12. Attorney and staff errors should be handled in a way to improve performance and maintain respect for the firm. Not placing blame.

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

 

Feb 05, 2019


Law Firm Client Level vs Matter Level Client Origination Credit

Question: 

I am the owner of an eight-attorney insurance defense law firm in the greater Chicago area. All of the other attorneys in the firm are associates. They are currently paid a salary plus a bonus for billable hours that exceed certain thresholds. I am in the process of establishing a non-equity partner tier and for this tier I want to setup a different compensation system with the focus on collected revenues rather than billable hours. I will continue to pay non-equity partners a salary with a bonus for collected working attorney and responsible attorney fees for other timekeepers work over target threshold’s. I have given some thought to client origination of business but since we have a small universe of insurance company clients not sure how this would play out. I would appreciate your thoughts.

Response: 

I agree that at the non-equity partner level you should consider shifting the focus to collected revenues rather than billable hours. At the non-equity partner level it should be your goal for them to become managers of work (responsible attorneys) rather than just workers (working attorneys). Therefore, I believe that your compensation system should compensate the non-equity partners for their individual work (working attorney collections) as well encourage them to delegate and push work out to associates and paralegals (responsible attorney collections).

Client origination is the other variable that some firms include in their compensation programs. The general idea is that attorneys should be Finders, Minders, and Grinders. In an insurance defense firm it will be difficult for associates and non-equity partners to originate new clients at the client level.

The firm’s existing clients were probably all originated by you and there are probably a limited number of new client opportunities. While I believe your focus for non-equity partners should be on working attorney and responsible attorney collections, I think that it is important that you at least track business or client origination so that you measure your non-equity partners business development efforts and results. A better origination measure to track in your situation might be new matter origination rather than client origination. I suggest that you track, and not directly compensate, origination at the non-equity partner level. Track and reward via a salary increase or discretionary bonus instead.

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

 

 

 

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