Law Practice Management Asked and Answered Blog

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Apr 06, 2011

Law Firm Succession – Transitioning and Grooming the Next Generation

Question:

I have a general practice firm in Southern Missouri. I am the sole owner and I am 64 years old. There are three associates in the firm and four staff members. I have recently been giving some thought to my future, what to do with the practice, and how to salvage any sweat equity or value from the practice when I am ready to retire. The problem is that I love my work and really want to work forever. Suggestions?

Response:

Succession and exit questions are a hot topic in law firms of all sizes today. I find that in small firms it is not unusual for partners and owners to want to work as long as they can. In fact, in approximately 75%-80% of the firms that I am working with this is the case. Many attorneys enjoy their work and obtain great fulfillment from the work that they do.

The key is to start early and develop a transition strategy and plan. In your situation since you, health permitting, want to practice as long as you can, a sale of your practice is not really your best option. I would think that you need to focus on grooming your associates and gradually, over a phased basis, transitioning interests to them. Get a feel for the value of the practice, put together a firm financial profile and a quality proposal, dress up your financials, and sit down with you associates and discuss your ideas and plans with them. Determine their state of readiness. If they are not interested – keep your succession plans in mind when hiring others and screen for new hires that have an interest in owning a law firm.

As you look toward grooming the next generation keep in mind that you must find ways to get your associates invested in ownership both financially and emotionally. They need to believe that they are part of the firm and that down the road that it is in their best interest to someday own your firm rather than start their own. This will mean gradually giving up some control. You can't have it both ways.

Click here for our blog on succession/exit strategies

Click here for articles on other topics

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

Mar 29, 2011

Marketing a Personal Injury Plaintiff Practice

Question:

I am a partner in a five attorney PI plaintiff law firm in Central Kentucky. We have three partners and two associates in the firm. We are first generation. Our practice is focused 100% on PI plaintiff cases. While we focus on all types and sizes of PI cases we are not a high volume advertising PI practice. Our practice has been built upon our successes and referrals from past clients and other lawyers. We have never done much in the way of other forms of marketing and advertising other than a small yellow page ad and a Martindale Hubbell listing. We are finding it harder to obtain a sufficient quantity of quality cases as a result of increased competition from the advertising PI firms, statutory changes, tight fisted insurance company claim managers, etc. We believe that we may need to being doing more to market our practice. What are your suggestions?

Response:

We are hearing similiar stories from our PI plaintiff law firm clients across the U.S. Case counts are down, quality of cases are not what they used to be, competition is fierce, and cases are getting harder to settle. The strategy is different from a firm that wants to build a high volume practice (build a factory) from a firm that desires to build a reputation-based practice. In essence you need to determine whether you want to build a high volume practice (a factory) or continue with a high quality reputation-based practice. Assuming that you want to continue your reputation-based practice here are a few suggestions:

  1. Develop a long range strategic business plan – 10 pages or less
  2. Enhance and broaden the firm-wide marketing program to increase market awareness (referral sources and potential clients) and generate new client business. Review ROI from the firm’s marketing expenditures. Consider increasing marketing budget to 5%-10% of fee revenue.
  3. Develop the firm’s marketing infrastructure to include:

–    Adequate budget
–    First Rate Web Site
–    Appropriate directory listings
–    Inside Marketing Coordinator
–    Relationship Management Database
–    Capability Materials
–    E-News Letters via Service
–    Articles
–    Testimonials
–     Public Relations
–     Accountability by all attorneys and staff

4.    Develop a program for increasing the firm’s exposure to the newer younger generation non-PI and solo attorneys and small firms.

5.    Provide excellent client service

6.   Keep your yellow page ad for now but reduce investment

7.  Understand the power of PR in Trial Strategy.

8. Develop a formal lead tracking process and invest in resources

9. Organize to maximize contact with potential clients.

Click here for our blog on marketing

Click here for our published articles

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

Mar 22, 2011

Considering Merging or Joining Another Law Firm: What Should I Look For?

Question:

I am a solo practioner in Southern Missouri. I have been in practice for 20 years. I have a very successful practice with an excellent client base. I have three paralegals that I am able to keep busy. I have recently been thinking about whether I should consider joining another law firm. What should I be thinking about and what should I be looking for?

Response:

I believe that the key question is – can a law firm offer its lawyers a measure of value independent of the skills, talents, and contributions of its partners? The answer can only be answered by recalling the advantages that the best law firms have over sole practitioners or groups of lawyers who share overhead and nothing more. These advantages include the following:

Just because a law firm holds itself out to be a firm does not mean that the advantages listed above exist in that specific law firm. If not – you might be better off staying solo.

Click here for our blog on partnership topics

Click here for our published articles

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

Mar 15, 2011

Does Law Firm Partner Compensation Make a Difference in Motivation and Actual Performance

Question:

We are a 21 attorney firm in San Francisco. Recently we have been considering overhauling our partner compensation in order to foster leadership and more of a team environment. Currently many of our partners are operating and functioning as if they are in separate law firms rather than part of a firm. What are your thoughts?

Response:

With thinner profit margins firms can no longer carry unproductive partners. Law firms are demanding more from their partners and asking everyone to think outside the box to help the firm innovate for the future and obtain/retain a competitive advantage.

This has renewed discussion and debate on the topic of partner compensation and in particular whether compensation can make a difference in motivation, actual performance, and contribution.

We are receiving many more inquiries from firms looking to overhaul and redesign their partner compensation systems. Based upon these inquiries we believe that many firms are expecting miracles from their compensation systems and are asking and expecting more than they will ever be able to accomplish. They are not just seeking to align pay with performance – but have far higher expectations. For example:

Expecting a compensation system to perform miracles such as these may be expecting more than any system can deliver.

Compensation does not drive behavior – it maintains the status quo. It serves as a reinforcing agent. Motivation requires leadership which can have a greater impact upon a firm than anything else.

An effective compensation system serves as a strong messaging and reinforcement agent that helps you obtain and retain top partner talent and helps align their goals and activities with the strategies and goals of the firm.

A well designed compensation system should provide:

While you must get partner compensation right in order to acquire and retain top partner talent as well as reward performance and reinforce desired behaviors, the starting point is hiring and retaining the right people to begin with. Jim Collins in his book Good to Great sums it up well with the following comment: “get the right people on the bus, the wrong people off the bus, and the right people in the right seats. People are not your most important asset. The right people are.”

“Your compensation system should not be designed to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there. Your compensation system should support that effort.

I believe that the following three pronged approach is needed to strategically manage and motivate partner talent in your firm:

  1. Get Maverick and Unproductive Partners off the Bus (Deal with Problem Partners)
  2. Get the Right People on the Bus and in the Right Seats (Hire Right and Retain)
  3. Insure that the Partner Compensation is Reinforcing the Right Behaviors, Rewarding the Right People and Keeping the Right People on the Bus

Click here for our blog on compensation

 

Click here for our published articles

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

Mar 09, 2011

Optimal Time to Hire Additional Lawyers and Staff

Question:

We have 14 attorneys in our firm and we are located in Indianapolis. A couple of weeks ago in a partner meeting we discussed hiring an additional associate attorney or two. A couple of our partners are concerned whether we have ample work on day one to keep an associate busy. Is there an optimal time to hire additional lawyers?

Response:

I believe that it is important for firms to remember that they are competing in two markets – a market for clients and a market for talent. Firms must be competitive in both areas and sometimes there is not direct alignment. In other words – you may identify an excellent attorney or staff candidate sooner than you may have wanted to hire someone. What then? Will it pay for itself?

Many years ago when I worked in a law firm the managing partner came to me and said – “are you free for lunch today – I want us to interview a lawyer that is interested in a position with our firm.” I responded – “I didn’t know we were looking to hire anyone.” The managing partner responded “I am always looking for good talent and am willing to made an investment when I see quality talent – my motto is hire and retain quality talent – and market harder if we must to generate the revenue to pay the overhead – the money will come.”

Obviously cash flow and financial concerns must be taken into considerations. However, many law firms are sometimes too cautious and timid when it comes to make investments – and investment in top notch talent is one of the best investments that law firms can make.

Successful firms maintain surplus talent. When other firms are cutting attorneys and staff to cut costs, they go in the opposite direction. They cultivate serious talent with the capacity to grow new business. We will see this as law firms rebound from the recession.

Click here for our blog on HR Related Topics

 

Click here for our published articles

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

Mar 01, 2011

What Makes an Effective Law Firm Managing Partner or Administrator?

Question:

I was just elected as our firm’s managing partner. I will still maintain a full client practice as well. We have a total of 14 attorneys, nine of which are partners. I will be the firm’s first managing partner. Previously we all weighed in on every single decision. While I have been a practicing attorney for twenty years I have no prior management experience in law firms or elsewhere. What skills will I need to develope to be effective in this job?

Response:

Congratulations on your new role! Effective law firm managing partners:

  1. Ask – what needs to be done.
  2. Ask – what is right for the firm.
  3. Develop and implement action plans.
  4. Take responsibility for their decisions.
  5. Take responsibility to communicating.
  6. Focus on opportunities rather than problems.
  7. Run productive meetings.
  8. Think and say we rather than I.
  9. Are “Firm First” focused rather than Lone Rangers “Me First” focused.
  10. Know that you have to spend money to make money and encourges the firm to invest in the firm’s future.

The first two practices will provide you with the knowledge and insight about the firm that you will need. The next four will help you convert knoweldge into action. The next four will ensure that the whole firm is responsible and accountable.

Early on, as you transition into your managing partner role, you and the firm should formulate a constitution (governance plan) for the firm which outlines roles and decision-making rules for the partnership, your position, and other management or administrative positions in the firm. In order for this new structure to be successful you and the firm must:

  1. Stop talking about the firm’s future destination, and start thinking about the rules that all firm members will have to live by in order to get there; and
  2. Confirm that firm members are, in fact, prepared to be held accountable and live by these rules.

Rome was not build in a day. Your new structure and role will take take time. Be patient and it will all come together.

Click here for our blog on governance

Click here for my article on leadership

 

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

Feb 23, 2011

Times are Tough – How Are Other Small Firms Doing?

Question:

I am a partner in an 8 attorney firm in the Chicago suburbs. Our firm has started having discussions about what we need to be doing differently. This is huge for us – one meeting a year is our typical meeting frequency and then only to discuss how we are going to cut the pie. How have other firms done during the recession? What are you seeing?

Response:

In general small firms in the midwest have fared pretty well during the recession. Last year some firms had the best year ever while others experienced flat or 10% revenue declines. Small firms that had the biggest problems were those that had issues before the recession or were in problem practice areas. Big law firms have had to face unique challenges.

Small firms that have weathered the storm and fared the best were those that:

I believe that law firms that fail to focus their practices, set goals, measure accomplishments, and foster accountability will fall short and not meet their financial objectives. Law firms that fail to plan are planning to fail.

Law firms as well as solo practices need to begin focusing their firms and practices, setting firm and individual production goals, measure accomplishment and implementing systems to instill accountability from all members of the team – attorneys and staff alike.

Consider using budgeting which is a tool that can be used to measure goal attainment and how well the firm is doing.

What gets measured is what gets done.

Click here for our blog on law firm strategy

Click here for my article on creating strategic (business) plans.

 

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

Feb 17, 2011

Starting a Virtual Online Practice

Question:

I am a partner with an 8 attorney firm in central Illinois. Last week I attended the Illinois State Bar Association web-cast that you and others presented on Building and Managing the Virtual Law Firm. I thought the program was excellent. I do have a couple of questions.

  1. I can see how such an approach might make sense for a solo – but why would a 8 attorney firm with a brick and mortar office that has been in practice for 20 years consider such a delivery model?
  2. How would we go about it?

Response:

If your firm has a sufficient volume of work, does not have a need or desire to capture more commodity type legal work that it is either not doing at all now or is losing to lower priced competitors (law firms or content providers), or does not have a need or desire to extend its reach geographically a virtual delivery model make not make sense. However, if your strategic (business plan) requires you to extend your geographic reach or be competitive in a commodity practice area supplementing your brick and mortar practice with a virtual delivery model might warrant consideration.  Also consider that the younger generation that is growing up using the internet to shop, bank, and pay taxes may appreciate and or expect such an option. As we mentioned during the session certain practice areas are more appropriate than others. I have some firms your size that are supplementing their brick and mortar practices with on-line delivery models just to service one practice area that they could not effectively deliver in the traditional manner. Keep in mind the value curve that we discussed during the session.

During the session I illustrated a continuum and we discussed the difference between virtual practices (doing virtual things) and a total on-line virtual practice. Even if you decide that the firm is not ready for a total on-line virtual practice, you may want to consider doing some of the virtual practices (virtual things) that we discussed to offer your clients more delivery options and more flexibility to your attorneys and staff.

Start with your strategic plan and if you don’t have one begin developing your long range plan. If you want to move in this direction you can use my handout as a resource guide.

Click here for our blog on law firm strategy

Click here for my article on creating strategic (business) plans.

 

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

Feb 09, 2011

Surviving in an Insurance Defense Law Firm – Reinventing the Practice & Staying in the Game

Question: 

I am the founding partner of a 17 attorney firm in Missouri and I serve as the managing partner. We have 12 partners and 5 associates. Our practice is entirely defense – personal injury and workers compensation. The majority of our clients are insurance companies and third party administrators. We represent a handful of self insured companies. While we have had a successful past fifteen years are firm is now struggling. We have lost market share and our case counts are way down due to the economy and regulatory changes in Missouri. Our profitability has suffered as a result. We need to make some changes but are unsure where to start. Could you share your thoughts?

Response:

The present state of the insurance defense practice presents numerous challenges to the law firm. These challenges simply cannot be ignored – they will have to be faced head-on. The solutions are complex and will require time to sort through. While solutions can come in different varieties, they will take the form of one of two general strategic approaches.

  1. Reinvent the Practice – Stay in the Game
  2. Exit or Diversify the Practice

The remainder of this post will focus on reinventing the practice and staying in the game.

For some firms the appropriate strategy may be to stay in the game. These will be firms that have a well-established reputation in insurance defense, where insurance defense represents a major source of their revenue, and where adequate leverage and profitability and leverage exist. These firms will not be firms that dabble in insurance work. These firms will be committed to this practice area and will focus on it exclusively. Some of the following actions will be required to reinvent the practice and stay in the game:

  1. Get leverage back on track. Tough decisions will be required here. High priced senior associates will have to be let go. Unproductive partners will also have to leave. Paralegals should be hired. Ratios need to get back to 4 to 1.
  2. Partnership admission criteria will become more demanding. Time required to make partner will be lengthened.
  3. Compensation will be based upon performance.
  4. Billable hour quotas will be enforced.
  5. Expenses will be tightly controlled.
  6. Flat fees and other forms of alternative billing will be commonplace.
  7. Unique out-of-the-box solutions will be designed to provide tailored services to meet client needs and differentiate the firm from competitors. The firm will no longer wait for the insurance company to take the lead. The firm will take the lead and provide clients will a menu of service solutions.
  8. Technology will be employed to the fullest extent to reengineer work processes. It will not be used just for technology sake or to keep up with the corporate litigation law firms. When technology is employed old outdated practices and processes will be eliminated.
  9. Standardized practices and procedures will be developed and used throughout the firm wherever possible.
  10. Client focus groups, insurance company councils, and other forums will be formed to open up channels of communications with clients in order to mend the tarnished client relationship and reestablish a business partnership. Innovative insurance defense firms will take active leadership roles in this endeavor.
  11. Aggressive marketing and business development strategies and plans will be implemented in order to maintain appropriate growth rates and profitability. Relationships with unprofitable clients will be terminated. Marketing with be done as a team approach as opposed to being a function done at the individual lawyer level. Both firm and individual personal marketing plans will be commonplace.

Click here for my article – Trapped In an Insurance Defense Practice

Click here for our blog on law firm strategy

 

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

Feb 02, 2011

Why Training Programs for Lawyers and Staff Fail to Produce Results

Question:

I am the managing partner for a 8 attorney firm located in San Diego. During the past several years we have invested significantly in continuing education – primarily conferences and seminars – for our lawyers and staff. We have just completed a review of our expenses in this area and we are concerned that we are not getting a satisfactory return on this investment. Please advise as to your thoughts.

Response:

Training and skill development is not easy. Studies reveal that 90 percent of the people who attend seminars and training sessions see no improvement because they don’t take the time to implement what they learn. Practices create habits and habits determine your future. Up to 90 percent of our normal behavior is based on habits. The key to skill learning is to get the new skill to become a habit. Once the new habit is well developed it becomes your new normal behavior. This requires practice. Unfortunately, law firms do not give employees time to practice and experiment.

Research on memory and retention shows that upon completion of a training session, there is a precipitous drop in retention during the first few hours after exposure to the new information. We forget more than 60 percent of the information in less than nine hours. After seven days only 10 percent of the material is retained. Most memory loss occurs very rapidly after learning new information. Your employees can improve their memories:

Skills become automated through practice. The more we do a set of actions, the more likely we are to link those actions into a complete, fluid movement that we do not have to think about. With enough practice, employees can become fluent in many different physical and mental skills.

Skill development involves behavioral change and changing many habits and practices on the part of the employee. In some situations, beliefs, attitudes, values and the actual structure of an employee’s working environment are affected. Effective training and skill development cannot be achieved with one-shot training programs. Training programs should be considered by all involved to be a long-range effort.

In general, three elements drive human behavior and shape the habits we possess: antecedents, competencies and consequences.

Antecedents are those things that prompt us to take an action. In a law firm setting, these include policies, goals, directives, announcements, training programs, procedures, vision statements, organizational structures, accountabilities and so forth. They are very important because they provide each person with cues as to what to do in his or her job. They encourage certain actions, and they are intended to get people to start doing something by providing them with reasons, plans, skills or information to do it.

The second element – competencies – is the knowledge, skills and abilities that enable people to perform certain tasks. These abilities enable a behavior to occur. Employees develop competencies over time, a product of good antecedents and positive consequences and the focus for most selection and training strategies.

The third element is consequences. Consequences are those things that happen to a person when they perform certain actions. They always occur after a behavior. They may be positive or negative and, depending on their impact, will determine whether a person will repeat an activity. Rewards (compensation systems) are the typical consequences employed in law firms. However, a balanced mix of positive and negative consequences is often appropriate. Consequences drive human behavior.

Firm managers must address all three elements in any training program designed to produce lasting results.

Click here for our blog on human resources

Click here for my article on this topic

 

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

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