Law Practice Management Asked and Answered Blog

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May 2019

May 15, 2019


Challenges in Law Firms that are Family Businesses

Question: 

I am a partner in a husband/wife owned law firm in Seattle, Washington. We have four other associate lawyers in the firm. One of these lawyers is our son and the other is the daughter of my wife’s (who is my partner) brother. We have four staff members of which one is also a family member. We are a general practice firm and we have been in operation for ten years. While the firm has done well over the years we have had our challenges. Office problems seen to follow us home and both staff employees and non-family attorneys are alienated. We have been experiencing turnover of both staff and attorneys. What should we being doing different?

Response: 

I have seen family practices go both ways – successful and not so successful due to the conflict and drama that can exit in family practices if they are not setup and managed properly.  A few of the challenges and issues that can arise in family owned law firms include:

Family practices must first start by recognizing that there are three social systems at play – the family, the law firm business, and overlap of the two. Unless boundaries and rules are established there will be conflict and tension. Family roles and roles in the law firm should be be developed. Here are a few guidelines that family practices should consider adopting:

  1. Develop family and law firm charters – sort of like job descriptions – that outlines roles and responsibilities in the family and the law firm.
  2. Establish criteria for who in the family can join the firm.
  3. Determine education and experience requirements for joining the firm.
  4. Determine how titles of family members in the law firm will be determined.
  5. Determine how job performance will be evaluated.
  6. Determine consequences for inadequate performance.
  7. Determine how compensation will be determined.
  8. Leave law firm business at the law firm – don’t bring it home.

Here is a link to an earlier blog in re children of partners who are attorneys working in law firms.

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

 

May 07, 2019


Law Firm Succession Planning in a Fourteen Attorney Firm – Internal vs External Strategy

Question:

I am the managing partner in a fourteen attorney firm in Austin, Texas. Our firm represents hospitals in their defense against malpractice claims. We have four equity partners, six non-equity partners, and four associates. The four equity partners started the firm thirty years ago and we are all in our late fifties and early sixties. We plan on working another eight years and then plan on retiring approximately at the same time. We may remain on as Of Counsel. Of our six non-equity partners, five are in their early and late sixties. We are considering making one an equity partner in the near future. Our associates are all recent law graduates that we hired right out of law school and all have been with the firm less than five years. What is our best succession strategy – merger or growing our own future partners?

Response: 

Most firms, and I agree with this, prefer an internal strategy and would like to grow their own and leave a legacy of the firm. Mergers can be fraught with problems and are often not successful. Depending on the size of the other firm, many firms are not willing to provide any compensation for practice goodwill beyond the compensation and benefit package. It sounds like you have had your independence for thirty years and you may not be comfortable giving that up and working in a merged firm environment for eight years.

However, a merger is often easier. You have a challenge on your hands since you have to replace four partners and only have one possible future equity-partner candidate on deck. In part it will depend upon the age and the experience of the one non-equity partner. Is he even willing to step-up to equity, invest in the firm, and buyout your interests? My experience these days is that a lot of non-equity partners are saying “no” to equity. With your type of clients you probably need at least three or four seasoned partners in order to convey to the clients that you have adequate “bench strength”. When the four of you retire unless you can build up the bench strength the firm will be also lacking leadership and firm management experience.

You have five years in which to build up your talent pool. You will have to first see if you can recruit and bring in some lateral talent – attorneys in their forties with fifteen to twenty years experience. Look for attorneys that want to be more than just worker-bees – that want to have future equity interest in a firm. If this strategy works out, begin bringing them into equity as soon as possible to ensure that the commitment is there by having them buy shares upon admission. Begin client and management transition no later than three years prior to your retirements.

If you are not able to bulk-up your talent pool or you have no one interested in equity ownership, then you will have to consider a merger strategy. I would begin a merger search three years prior to your retirements.

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

May 01, 2019


Law Firm Associate Bonuses – Problems Measuring Flat Fee Work Working Attorney Fee Allocations

Question: 

Our firm is a four-attorney estate planning firm in Rochester, New York. We are a general practice firm and we handle a lot of estate planning work and estate administration as well. While some of our work is handled on a time bill basis a lot of our work is handled on a flat fee basis. Recently we switched our time billing system from a desktop-based system to a cloud-based system and we having trouble getting the reporting that we need out of the system. We do keep time on flat fee cases. Our bonus system is based on working attorney fee collections and the new system does not allocate fees correctly for flat fee cases when multiple attorneys and or paralegals work on a matter. Any suggestions?

Response: 

I have heard this complaint from many firms using both desktop and cloud-based billing systems. However, it does seem that cloud-based systems are lacking in the level of reporting that desktop-based systems have. Here is what some firms have or are doing:

  1. Working with the software vendor to determine what the issue is – is it your procedures or is it the software. In some situations, fee allocations are effected by the manner in which payments are entered when partial fee payments are made, whether such payments are first deposited in the trust account and then later applied after all time has been billed and adjusted, etc.
  2. If the issue is lack of software reporting capability try to get the software company to add this function to the software.
  3. Manually making the allocations in a spreadsheet for flat fees cases when all else fails.
  4. Changing the bonus system and basing bonuses on responsible attorney collections rather than working attorney collections. Many personal injury plaintiff firms that don’t keep time-sheets take use this approach. This approach works best if the attorneys primarily work on their own matters. One advantage of this approach is that it encourages delegation and discourages hoarding of work.

When evaluating these newer cloud-based billing systems don’t just look at the bells and whistles – determine your reporting needs and insure that the software meets these needs.

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

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