Law Practice Management Asked and Answered Blog

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Apr 04, 2017

Law Firm Retreats – Including Key Staff Members

Question: 

I am a partner in a forty-five lawyer firm in Memphis and a member on the firm’s executive committee. We are planning on having a two-day planning retreat in June of this year. We have had these retreats every year for the past six years. Past retreats have only included attorneys. This year we are considering including staff members. We would appreciate your thoughts as to whether this is a good idea.

Response: 

A firm invites all key staff to a retreat when they can play a major role in identifying problems and developing solutions. A firm retreat is an excellent forum if the partners or management have determined that individuals at different levels within the firm are having communication problems – for example – where communication is inadequate between:

Having these individuals participate in solving their own communication problems at the retreat usually produces better results than those obtained when the partners hand down orders that may not deal with the real issues. Staff participation can help identify problems and can involve more firm members after the retreat in the implementation of solutions – improved buyin.

As a rule, it is very productive to include individuals from nonprofessional or non management levels at a retreat when they are eager to be involved in problem solving efforts on a day to day basis.

A retreat solely for partners at the senior level is conducted to review firm progress and to deal specifically with financial, compensation, conflict between partners, growth planning, business development, or unique problems with staff members.

Some firm hold separate meetings for each level of staff in addition to combined meetings with attorneys.

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

Mar 29, 2017

Improving Law Firm Profitability

Question: 

I am the managing partner of a six lawyer general practice firm in Chicago. We have four partners and two associates and have been in practice for twenty years. While we are holding our own and doing okay financially we would like to do better. The partners have never earned more than $175,000 – some years not even that. What can we do to improve profitability?

Response: 

Profitability can be increased by increasing revenue, decreasing expense, or increasing leverage – ratio of associates to partners. Most law firms do not have an expense problem – they have a revenue problem. Profitability improvement programs tend to be more successful when they concentrate on improving profits through increased revenue versus programs than focus on reducing expenses. A program that focuses on increasing revenue such as increasing billable hours, raising billing rates, and improving realization rates will yield better results. Programs that focus on expense reduction often do not yield satisfactory results in the long-term.

Improvement in leverage usually can only be achieved as part of a long-term program. Sudden sizeable increased in the number of associates may prove to be counterproductive if there is not sufficient client work to keep associates busy. Another option would be to reduce the number of partners  through retirement and other options must be carefully planned and I am sure is not an option that your firm is looking for.

I suggest that you review your expenses to insure that they are in line and if they are not make reductions that make sense. Then focus on the revenue side of the equation. Review your client base, practice areas, billing rates, flat fee rates, billable hours being worked by your partners and associates, and realization rates. Then identify problem areas and chart out a course of action.

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

 

Mar 21, 2017

Retaining Valued Associate Attorneys – Conducting Exit Interviews

Question: 

Our firm is a fourteen attorney law firm in San Diego, California. We handle business transactions and litigation for business firms in the area. I am a member of the firm’s three-member executive committee. We have been experiencing associate attorney turnover for the past two years and don’t know whether it is due to more opportunities in the job market as the economy has improved or whether we have internal issues. We would appreciate your thoughts on the matter.

Response:

I suggest that in the future you conduct structured face-to-face exit interviews when associates resign their positions. You may want to even interview associates by phone that recently resigned and left the firm. Exit interviews can provide an opportunity to find out how you can retain your valued associates. Departing lawyers that are willing to be open regarding their experience with your firm can provide valuable feedback and information as to how your firm is viewed by your associates, why your associates are leaving, and what the firm can do to resolve issues and improve retention.

I suggest that you conduct either face-to-face or telephone interviews or as a last resort written confidential voluntary questionnaire. Questions might include:

  1. What influenced your decision to join the firm?
  2. Has the firm met your expectations? Describe?
  3. Were your work assignments aligned with your personal and professional goals and interests?
  4. Did you find your work assignments interesting and challenging?
  5. Were there particular individuals who had a substantial impact on the quality of your experience here? How did they impact your experience?
  6. Did you receive timely and quality feedback regarding your performance?
  7. What experiences did you find the most positive?
  8. Least positive?
  9. Is there anything that the firm could have done to improve your experience here?
  10. Were you satisfied with your compensation and benefits?
  11. Why did you decide to leave the firm?
  12. What factors influenced your choice of the new firm that you joined?
  13. Other issues or recommendations that you feel would be helpful for the firm to know.

After you have solicited feedback via exit interviews it is critical that you look into any issues reported, determine whether there is merit, and take appropriate actions that can be taken to resolve issues and improve retention.

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

Mar 14, 2017

Sixteen Characteristics of a Successful Contingency Fee Law Firm – A Guide for New Managing Partners

Question:

I am a newly appointed managing partner for an eighteen attorney law firm in Dayton, Ohio. We are a employment law litigation firm that represents plaintiffs on a contingency fee basis. We have been in business for five years and we are facing severe cash flow and profitability challenges primarily due to lackluster contingency fee outcomes. Do you have any guidelines or suggestions as to what we should be aiming for?

Response:

In general I find that successful contingency fee law firms are:

  1. Sustainable over the long term
  2. Are disciplined, have order and common vision, and manage the firm like a business.
  3. Have long-term talented people that are passionate and team players.
  4. Organized and have structure.
  5. Have the right people on the bus and in the right seats.
  6. Meet on a structured basis.
  7. Have a long-range plan.
  8. Have a budget.
  9. Have fee goals for each producer.
  10. Have a marketing plan.
  11. Are consistently profitable.
  12. Have solid cash flow.
  13. Use metrics to manage the firm.
  14. Are financially stable.
  15. Have a succession plan.
  16. Are diversified – both practice areas and case portfolio.

I would use this as sort of an initial performance checklist. You may need to examine your case portfolio and your contingency fee case risk profile and look for ways to diversify your case mix.

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

 

 

Mar 10, 2017

Law Firm Merger – Are We a Suitable Candidate

Question: 

Our firm is a two partner firm in Columbus, Ohio. We have two staff members. There are no other attorneys in the firm. We have been in practice together for seventeen years. I am sixty two and my partner is in his fifties. My practice is limited to intellectual property and my partner’s practice is limited to medical malpractice defense. Recently, as a result of lack of coverage, our unwillingness to hire associate attorneys, and our frustrations with dealing with management issues we have decided that we would like to merge with a larger firm. However, we are concerned that our numbers may not be satisfactory. Our five year averages are as follows:

Since we split the pot evenly we each made $130,000 on average.

With these numbers are we a suitable candidate or are we just whistling in the wind? We would appreciate your thoughts.

Response: 

Obviously these are not great numbers. Depending on firm size and type of practice – most firms (small firms) are looking for revenue per lawyer in the range of $360,000 and up. Many firms are looking for books of business that will keep the candidate and an associate busy – $750,000 plus.

However, law firms are also looking for new sources of business (clients) and lawyer talent. There are firms out there that have the work and need help with the work and might be interested in your talent and skills as well as the clients that you could bring in. You may not be able to join the firm as an equity partner but may be able to join as a non-equity partner. (Depends on firm size) Due to the very different practice areas that each of you have you may not find opportunities in the same firm.

I encourage you to look around, start your search, and see what happens.

I have seen many situations similar to yours that have resulted in successful mergers and lateral or Of Counsel positions.

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

 

Feb 28, 2017

Personal Injury Law Firm TV Advertising – Prerequisites to Launching a Program

Question: 

I am the owner of a plaintiff personal injury law firm in Arlington, Texas. I have three associate attorneys, six non-lawyer case managers, and three other staff members. Our marketing consists of our yellow pages program and our website. I am considering TV advertising and I would appreciate your thoughts concerning venturing into this arena.

Response: 

This is a big step. TV advertising does work for personal injury plaintiff firms and can take your firm to the next level if you can afford it and are willing to stay the course. A few years ago the managing partner of a a very successful personal injury plaintiff firm stated to me “if I could only afford to do one marketing thing it would be TV advertising.” You can’t dabble with advertising – you must invest for the long haul and have the proper infrastructure in place to process new client inquiries, book appointments, and handle new client intake appointments. If this foundation is not laid you should not invest in a TV advertising program. Here are a few thoughts and observations:

  1. Establish your advertising goals and objectives.
  2. Retain a top notch media consulting firm with law firm expertise.
  3. Establish an advertising budget for at least six months – one year is better.
  4. Secure adequate capital to finance your advertising budget.
  5. Be prepared for borrow money.
  6. Develop your operational infrastructure. This consist of everything from your advertising tracking database, case management system, website, call center/telephone system, call scripts, documented intake process and procedures, dedicated intake call operators, designated people to take in new cases, and case evaluation protocols.
  7. Have a process in place to handle and respond to new case calls after hours and on weekends including attorneys on call able to meet with prospective clients during these times.

We have all seen personal injury plaintiff firms that dabble in TV advertising – on TV today and off-air tomorrow. They spent a lot of money and were hoping for immediate gratification. When after running ads for a month or two and they have few or no new cases they concluded that TV advertising does not work. The truth is they were not prepared to stay in the game long enough. This does not work.

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

 

Feb 21, 2017

Law Firm Equity Partnership/Admission Requirements

Question: 

Our firm is a sixteen-attorney business law firm in Cleveland, Ohio – six equity partners and ten associates. We the equity partners have been discussing putting in place an associate attorney career advancement program and outlining equity partner admission requirements. Can you share your thoughts on what we should be considering and how we should get started.

Response: 

You might want to consider developing a competency model. Rather than using a timeline – how long an associate has been with the firm – base career advancement to senior associate, non-equity partner, and equity partner upon achievement of competencies at various levels. These include:

Examples of core competencies might be legal excellence, client orientation, leadership, career commitment, etc.

In addition to competencies typically required to be  a Level Three attorney equity membership has additional requirements and obligations. For example:

  1. Equity owners will be sharing in the risk and reward of ownership and will invest their time and capital in the firm. They will have a firm-first orientation and they will share the vision and core values of other equity owners in the firm.
  2. Equity owners must add value to the firm. They must not just be good worker bees – they must pay for themselves, cover their cost and their share of the firm overhead, and generate enough work to keep other attorneys busy.
  3. Equity owners must be client finder, minders, and grinders.
  4. Equity owners must act like owners of small businesses.
  5. Equity owners must contribute to management and marketing of the firm.
  6. Equity owners must mentor younger attorneys.
  7. Equity owners must follow firm policies, system, and procedures – no lone rangers.
  8. Equity owners should contribute capital and sign for the office lease, firm credit line, and share in other financial obligations of the firm.
  9. Finally, future equity owners must be good marriage partners considering the other equity partners in the firm.

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

 

 

Feb 14, 2017

Law Firms Moving to the Cloud

Question: 

Our firm is a twelve-attorney business litigation firm in Sacramento, California. I am one of three members on our technology committee. Our IT infrastructure consists of an in-house Microsoft file server, a separate Microsoft Exchange e-mail server, document management as well as time billing and accounting software. Our documents are stored locally and managed by the locally installed document management software. Several of our partners have talked with other firms that are operating totally in the cloud. We would appreciate your thoughts on whether moving to the cloud is something that we should consider?

Response: 

It would be interesting to know the size of firms that your partners have been talking with. I am seeing many solo and very small firms operating completely in the cloud using cloud-based time and billing applications such as Clio, Rocket Matter, and QuickBooks online with their e-mail hosted using Microsoft Office 365. Some are using products such as DropBox and Microsoft One Drive to store their documents in the cloud. These billing applications do not provide the functionality and reporting that larger firms require and as a result larger firms are still using systems that firms have been using for years. Some firms that are using these systems are having them hosted in the cloud. These firms have no premises file servers. All of their data is hosted in the cloud – applications, documents, and e-mail. (Note this is different that cloud-based applications).

Firm’s your size are taking a more cautious approach to moving to the cloud. Many firms have large investments in their existing hardware and software and also have concerns about security and confidentiality issues. While it is tempting to look to the cloud as our savior from constant hardware and software upgrades as well as IT providers, moving to the cloud should not be explored without doing your homework.

Personally, I believe that in many cases the cloud may be more secure than the security that exists in many law firms on premises systems. Law firms and law departments are increasingly adopting the cloud. Fifty-six percent of the Am Law 200 firms polled in the Partnership Perspectives Survey use some form of cloud computing and 47 percent of those polled in the 2016 ITLA/InsideLegal Technology Purchasing Survey predicted that over a quarter of their firm’s software and service offerings could be cloud-based in the next one to three years. Sixty-one percent of small firms polled in the ILTA survey said that over half of their firm’s software could be cloud-based in the next one to three years.

Here are my thoughts and suggestions:

  1. Don’t rush off without doing due diligence on the application or hosting vendor. Checkout their security both while your data is in transit and at rest on their computers. Read all their whitepapers and contracts. Check references.
  2. Be careful of implmenting existing billing and accounting cloud-based applications. You may be going backwards until these systems mature and incorporate many of the features and reporting needed by larger firms.
  3. Don’t go with the new kid on the block. Insure that you go with a vendor that has staying power in the market.
  4. Take baby-steps – you might want to start with:
    1. Having your e-mail hosted.
    2. Later – implement a cloud-based document managment system.
    3. Later – have your existing billing and accounting applications hosted with a cloud provider.
  5. See where the time-billing and accounting cloud-based applications are in a few years and whether you should consider moving to such a system.

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

 

 

 

Feb 07, 2017

Law Firm Partner Compensation – Collaborative Team Practice

Question: 

Our firm is a 25 attorney firm based in San Antonio, Texas. We have 15 equity partners. We are equal partners and have equal ownership interests. Our partners are paid based upon ownership shares. Thus, each are paid the same. The system has worked well for us for many years and has supported our team-based collaborative culture. However, we are having issues with non-productive partners and some of the productive partners feel that the compensation system is no longer fair.  Some of the partners have suggested that we more to a formulaic system. Other partners in the firm feel that such as system would destroy the collaborative culture that we have built. We would appreciate your thoughts.

Response: 

I agree that the compensation system must shift to a system that rewards performance and overall contribution to the firm and yet preserve the culture that you have built over the years. I think that a pure formulaic system would shift your culture to a “lone ranger” culture with everyone out for themselves. I believe that for your firm a subjective or a hybrid system incorporating quantitative and qualitative performance factors would be the best approach.

In order to implement such a system you will need to set up a compensation committee that will made partner compensation decisions. I suggest a three member committee elected by the partners on three-year staggered terms. The committee will determine and publish performance factors that will be considered, conduct annual face-to-face performance evaluations, approve each partner’s annual personal goal plan for the following year, and make their partner compensation recommendation to the partnership regarding the upcoming year salary and bonus for the year ending year.

The partnership agreement or other compensation policy document should specify the procedure and what happens when the partnership does not approve the recommendation of the compensation committee or when a partner requests reconsideration.

A system such as this requires more time and work but usually yields better results, especially in a team-based collaborative practice. More and more larger firms are using subjective or hybrid systems.

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

Jan 31, 2017

Law Firm Administrator Competencies – Searching for a First-Time Legal Administrator

Question:

Our firm is a twelve attorney business litigation firm in Springfield, Illinois. I am a member of our three member management committee and I have been charged with helping the firm find and hire our first legal administrator. This will be our first experience. While we have a bookkeeper that handles our billing and accounting the rest of the firm’s management matters are handled by the management committee. We believe that we have reached a size where we need help with managing the day-to-day operations of the firm. What sort of skill set and type of person should we be looking for?

Response:

The starting point is to have some heart to heart discussions internally to make sure all the partners are on the same page regarding the role the firm is looking for an administrator to play? Is the firm willing to delegate authority with responsibility and let the administrator really manage the business side of the practice (a true administrator) or is the firm looking for more of a lower level office manager? This will dictate the skill set and type of person that you should be looking for. I suggest that you develop a job description for the position listing not only the duties but the authority levels as well and have every partner in the firm sign off on it.

An excellent resource in the Association of Legal Administrators (ALA) which is the professional trade association for legal administrators. They have published a document listing 56 competencies in the following five categories:

Click here to download the above document.

ALA also has some helpful areas on their website for a law firm looking for an administrator including articles on evaluating your firm’s needs, – the candidate search process, and defining the role of the administrator.

Many firms burn through their first administrator quickly and end up having to try again with another person or two. First time failure if often the result of not determining up front and having the partners agree regarding the role, expectations, and authority level of the administrator.

Do your homework and you will increase the change of success with your first administrator.

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

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