Law Practice Management Asked and Answered Blog

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Sep 19, 2019

Do You Have “Stars” in Your Partner Ranks?

Question: 

Our firm is a second generation insurance defense firm in Bakersfield, California. We have fourteen lawyers, nine of which are partners. While all of the partners are great trial lawyers, work hard, and bill the required lawyers none of our partners are good at business development, leadership, or management. Our business comes from the client that we inherited. Any thoughts would be appreciated.

Response: 

Successful law firms need at least a few star partners in their ranks.

“People are our most important asset” is a standard phrase heard in business. A more accurate and honest statement in many industries might be” competent people are a necessary component of our success.” However, as important as the company’s people are, they are somewhat expendable. The reason is simple. In most businesses the company’s competitive advantage does not rely on the retention, motivation, and behavior of particular individuals. Instead, it turns on shelf space, brand strength, core position, distribution systems, price, technology, product design, location, or any number of other variables that can exist apart from individuals who created the product or service. So except in the long term, most companies profit does not necessarily correlate with their people assets.

This is not the case for law firms. A law firm’s success depends not just on its people assets but on stars. Who are an organization’s stars? They are the individuals who have the highest future value to the organization, the men and women critical jobs whose performance is central to the company success. In a law firm, if a star leaves, the firm and its clients notice the difference. If enough stars leave the firm’s financial performance suffers. In a law firm, partners for significant clients, practice areas and offices are its stars.

In law firms stars are typically partners, but not all partners are stars nor are all stars partners. What  what makes them law from stars is that they propel the business model along all three of its dimensions – building and enduring client relationships, performing up to their full potential in putting the firm first, and implementing strategic imperatives. Because they are so accomplished other members of the firm emulate their behavior.

You need to either develop or eventually recruit a few star partners that have the leadership, management, and client development skills that help the firm grow or stagnation will develop over time. I have seen make practices such as yours limp through second generation and dissolve in third generation.

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

Sep 04, 2019

Merger vs Transitioning Our Firm to Our Associates

Question:

I am one of three founding partners in a twelve attorney insurance defense firm in New Orleans. The three of us are in our early sixties and contemplating retirement in the next several years. The three of us have been discussing our succession plans and are wondering whether we would be better off merging with another firm or transitioning the firm to our associates. What are your thoughts on this matter?

Response: 

A majority of firms prefer transitioning to the next generation of attorneys within the firm whenever possible. Many founding partners at this stage of their career are often not ready to move to another firm unless they have to.

Advantages of transitioning to associates in the firm include:

Disadvantages of transitioning to associates in the firm include:

I believe that you should start by taking a critical look at the demographics of your associates and raise the following questions:

  1. What are the retirement timelines for each of you? Will you be retiring close to the same time?
  2. Do you have the bench strength – your present associates – to serve your existing clients if the three of you are no longer with the firm?
  3. If the three of you were no longer with the firm could your present associates retain your existing clients?
  4. Do any of your associates have the leadership and management skills to lead and manage the firm?
  5. Do any of your associates have the will to take over the firm and buy-out your interests?

Your answers to the above five questions will determine whether you should consider a merger strategy. It is often difficult to get a “founders benefit” (goodwill value) in mergers with other firms.

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

Aug 21, 2019

Law Firm Strategic Planning in a One Day Planning Retreat

Question: 

Our firm is a twenty-attorney litigation firm in Miami, Florida. We are managed by a three-member management committee supported by a firm administrator. While our committee and our firm administrator are entrusted to make many of the operational decisions, all partners must weight in on and vote on all major decisions as outlined in the firm’s management plan. Currently we do not have a strategic plan and our firm administrator has suggested that we can accomplish this in a one day off site retreat with all the partners. Is this realistic?

Response: 

This is a little bit aggressive and optimistic. The strategic planning process is as important as the end result – the strategic plan document, so you don’t want to rush the process. Two sessions a few weeks apart would be better as it would give some time for the ideas and discussion from the first session to cook and simmer until the second session. However, you might find that one session is all that you are going to get. If this is the case you need to do some homework before the retreat. I suggest the following:

  1. Solicit feedback from all your partners using a questionnaire. An online questionnaire such as SurveyMonkey would be preferred. Questions should include general attorney demographic information as well as issues and challenges facing the firm and suggested solutions, future direction of the firm, succession planning, talent management, practice area expansion or contraction, etc.
  2. Develop a retreat planning session agenda and workbook with all relevant supporting materials such as questionnaire results, financial reports, recent relevant articles, draft strategic plan with at least a mission, vision, goals, objectives, and issues sections completed in rough form. This should be developed by the management committee beforehand.
  3. Provide all your attorneys with the agenda and workbook at least two weeks prior to the planning retreat to allow them to come to the retreat fully prepared.
  4. Keep the retreat focused on strategic issues with day to day operational items discussions being off limits. Discuss the questionnaire results then use the draft Strategic Plan as an outline for the session. Try to get consensus on mission, vision, goals, objectives, and issues by the halfway point of your session. Focus the remainder of the session on developing specific strategies dealing with issues and goals outlined.
  5. After strategies have been developed, develop specific action items for each strategy with start and completion target dates for each action item with the name of the person that will be responsible for completion.

Once the retreat is over the management committee should finalize the rough notes from the planning session into a initial draft of the strategic plan and circulate to all partners for review and comment. Hopefully, the management committee based upon comments can finalize and launch the strategic plan within thirty days, if not a partner meeting should be scheduled for additional discussion.

Using an approach to similar to what I have outlined will improve your chances of a successful one day planning retreat.

Good luck.

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

Aug 07, 2019

Listening to Law Firm Clients – Number One Marketing Initiative for Institutional Clients

Question: 

Our firm is a sixteen attorney insurance defense in Louisville, Kentucky. We represent approximately twenty-five insurance companies in property casualty and personal injury cases. We handle products liability and medical malpractice cases as well. Our firm is in second generation and all of the founding partners have retired. Virtually all of our clients were inherited and none of the existing partners have brought in any new clients since the founding partners retired eight years ago. While we are trying to do what we can to cultivate new clients we want to insure that we retain our existing clients and don’t have any client defections. Do you have any suggestions?

Response: 

We have done numerous client satisfaction interviews with law firm insurance company clients. The category where most firm rank the lowest is understanding clients needs. For law firms one way of achieving a competitive advantage is to have a better understanding of the wants and needs of clients than does the competition. This understanding comes from an open dialog with your clients. In other words ask them.

Recently I had a law firm client who’s business was suffering due to the client’s operations shifting to adjacent states. The firm was considering an additional office location to serve these clients and was debating where and how to locate this office. I advised, why don’t we ask the clients. In our interviews we asked this question and the clients told us where their needs were and where to locate the office. It was not where the law firm was thinking of locating. Six months later a mini merger was done in the location where the clients advised us there needs were.

This is best accomplished by having an ongoing systematic structured client feedback system that tracks client preferences, desires, and requirements. Here are a few ways that this can be accomplished:

There are several articles on our website – see links below – that discuss client satisfaction survey programs and how to get started.

Click here for our blog on client service

Click here for our article on client satisfaction

Click here for our article on client surveys 

Click here for our article on analyzing survey results

Click here for our article on developing your client service improvement plan

Click here for our article on tips for rewarding and recognizing employees

Aug 01, 2019

Care and Feeding Associate Attorneys

Question:

I am the owner of a law firm in Chicago suburbs that specializes in estate planning. I started the firm twelve years ago. Over the years the firm has grown from just myself as a solo to a firm with myself and six associate attorneys. Prior to starting the firm I worked in several other firms as an associate and as a partner. I felt I was not being compensated for my hard work so I started by own firm. I have always worked hard and in addition to managing the firm and bringing in all the clients I bill 1700 billable hours a year. My associates are a disappointment. They work the bare minimum, some are lazy, and none are even billing 1400 hours a year. Some are not even billing 1200 hours a year. I have tried bonus systems based on production of fees collected and they have had no effect. In my old firms this was not the case, everyone worked hard and was self motivated. I am at a loss and I don’t know how to motivate these associates. I would appreciate any thoughts that you have regarding what I should do?

Response: 

I suspect that you, as a founder, expect the same sort of work ethic and drive that you, as well as others, in your prior firms had over the years. Welcome you the new generation of workers and the era of work-life balance. This is not to say this generation of workers is lazy – their priorities in life are different and work is not the only priority in their lives as it may have been in yours. They may not also not have the drive and self motivation that you had and require direction. You can’t simply put them on autopilot – they require care and feeding in the form of:

Often a little care and feeding will go a long way to changing performance and often accomplishes more that formulaic bonus systems. Here is a prior blog on how to go about this. 

I agree that 1200 billable hours is unsatisfactory and you should be expecting 1600 for your type of practice.  Expectations need to be established, if they aren’t, and consequences for non-compliance. I think bonus systems such as yours are fine but often do not accomplish desired results without some care and feeding. If you are unwilling to do some care and feeding your other option is to fire your worst offenders and try to replace them with self-motivated associates that have a documented track record of performance. Getting the right people on the bus can be more productive than care and feeding beyond a certain point.

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

 

 

Jul 17, 2019

Law Firm Succession – Pros and Cons of Hiring an Associate as My Succession Plan

Question: 

I am a sole practitioner in San Diego, California. My practice is mostly general practice with some emphasis on commercial real estate. I am 64 years old and am looking for a way to transition and exit my practice in the next three to five years. I am the only attorney in the firm however there are three legal assistants that work for me. I have been considering hiring an associate so that I have someone to sell my interests to in the next three to five years. I have never had an associate so I would appreciate your thoughts concerning the wisdom of hiring an associate at this stage of my career.

Response: 

In general I prefer an internal succession strategy when the firm has an attorney or attorneys in place that are willing to step up to ownership and take over the firm. Often this is easier said than done. Issues you will face will include:

  1. Unless you are loaded with work that you are unable to handle or you hire an attorney that can bring work with him or her you will be increasing your expenses and reducing your income/compensation.  Since you have operated all these years with just one attorney I assume that there is only enough work to support one attorney. If you are ready to slow down to a reduced work schedule and take less compensation that is another matter. If not, you may want to look for an experienced attorney with some business rather than hiring a lawyer fresh out of law school or wait a little longer till you hire someone.
  2. Associates require care and feeding – in other words training, mentoring, etc. A certain amount of training and orientation will be required even with an experienced attorney. Revenues may lag from one to two years and your will be saddled with their compensation and other related expenses. You have no experience with mentoring attorneys and this may be something that you are ill equipped to do or don’t want to do.
  3. You may end up hiring and training in an associate only to have them leave the firm in a year or so to join another firm and possibly take clients with them.
  4. The associate you hire may only be looking for a 9-5 lawyer job and have no interest in owning a law firm.
  5. The associate you hire may expect to have you hand them your practice for free and he or she may be unwilling to pay you for your practice.

Many firms have had positive experiences with transitioning their firm to associates. Just be aware of the possible pitfalls. You may be better off going a different direction.

Click here for our blog on succession

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

Jul 11, 2019

Law Firm Operating Metrics and Statistics

Question:

I am the newly elected managing partner in our twelve-attorney firm in Chicago, Illinois. Our firm is a business transaction firm that was started by the present four partners ten years ago. While we have an office manager that does the bookkeeping, prior to this year all four partners as a group managed the firm. This year the firm decided to create the managing partner position. Since this is new to me I am trying to learn all that I can about law firm management. My first priority is to help the firm improve profitability and I would like to know what the key operating metrics and statistics are that I should be monitoring. You suggestions will be appreciated.

Response:

Law firm operating statistics represent an important management tool. They highlight superior performances and they flag below average performances. They provide law firm management with the key information needed to manage the firm’s business. In addition to measures such as firm fee revenue collections, firm profit/net income, profit per equity owner, billable hours, fee revenue collected per attorney, operating statistics found in law firm management reports typically include information on:

The first three statistics represent factors that relate to earning the firm’s revenue. Responsibility for earning the firm’s revenue rests with the firm’s partners. Consequently, it is important to assign this responsibility to specific partners – typically the responsible/billing attorney.

In recognition of the assigned responsible attorney concept, many firms choose to present revenue-related operating statistics reports in a format that focuses on each partner’s responsibility. This gives the management group the ability to access each partner’s “business” performance.

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

Jul 03, 2019

Non-Equity Partners Receiving Percentage of Firm Profit as a Bonus

Question: 

I am one of four partners in a personal injury plaintiff firm in Denver. In addition to the three of us we have one equity partner and two associates. Our non-equity partner and our associates are paid salaries and discretionary bonuses when performance warrants bonuses. Our non-equity partner is pressing us for more money and a different approach to his compensation. A couple of our partners have suggested that in addition to salary we pay the non-equity partner a share of firm profits. What are your thoughts?

Response: 

Personally, I am against sharing firm profits with non-equity partners. I believe that non-equity partners should only share in some of the profit from their working attorney and or responsible attorney collections. Sharing firm profits should be reserved for equity partners – those that are invited into the partnership ranks, buy-in, and share in the risks as well as the profits of the firm. I would suggested that you replace the discretionary bonus or in addition to it implement an incentive bonus system based upon working attorney and or responsibility collections above a certain threshold. You may want to also consider a bonus for client origination as well. Another approach, if the non-equity partner is willing to forego his guaranteed salary or accept a lower salary, would be a percentage of his working attorney and or responsible attorney collections on a first dollar basis rather than above a threshold.  While a few of our clients have shared firm profits with non-equity partners this has been a small number with poor results. Many firms are moving away from formulaic approaches to compensation however this does not seem to be the case with personal injury firms.

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

Jun 26, 2019

Law Firm Succession Strategy When Candidate Associate Attorney Says No to Your Proposal

Question: 

I am the owner of a law firm in Mesa, Arizona. I started the firm twenty-five years ago. Our focus is exclusively on estate planning and we serve clients throughout the Phoenix metropolitan area. There are three other associate attorneys working in the firm as well as staff. One of the associates has been with the firm for ten years and the other two are right out of law school – one was hired this year and the other one year ago. I am sixty-three years old and I would like to retire and exit the practice within the next three years – the sooner the better as I have other interests that I would like to pursue.

For several years it has been my goal to transition my practice to my senior associate and he and I have discussed this vaguely over the years – just the idea in general – no specifics. Recently, I made a proposal to him where he would gradually buy my shares over the next three years and have all my shares paid for by the time of my retirement which would be three years from now. To my surprise he refused. Where do I go from here?

Response: 

Getting a “no” is not unusual. We are experiencing this quite frequently in our succession planning projects. Often this results in the firm exploring external succession strategies and having to merge with another firm or selling the practice. First of there is not the hunger for “equity” that there was thirty years ago. This is due in part to the fact that in many firms – large and small – there is now a non-equity partner status with the recognition of partner status, additional compensation and perks, and none of the risks of equity partnership. In addition, work life balance is important to many attorneys and many are unwilling to give up work life balance in exchange for the stress of equity partnership. Finally, many candidate associate attorneys either don’t have the capital/financial resources often required to obtain equity or don’t see the payback or return on their investment should they buy-in.

Here are a few thoughts concerning your situation:

  1. Reevaluate your proposal. Is the price you are asking for your shares reasonable and affordable for the candidate based upon the actual profits (your earnings) generated by the firm? If the price is not reasonable or affordable for the candidate consider providing an alternative proposal.
  2. Even if the price is reasonable and affordable, three years may not be a long enough period. You may have to settle with getting some of the value say three to five years after your retirement. Consider this as an alternative.
  3. Your associate may be reluctant not because of the terms but because he does not really want to own a law firm – he just wants a job as a lawyer. If this is the case it does not make any difference what you propose and you need to examine other options such as bringing in a lateral that is willing to take over your practice or a merger or sale of the practice.

Click here for our blog on succession

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

Jun 19, 2019

Burning Issues for a New Law Firm Owner Starting Firm After Leaving BigLaw

Question: 

I have recently started a law firm in the suburbs of New Orleans after leaving a large law firm in the city. I was a non-equity partner in the firm and had worked for the firm for fifteen years. I worked in the estate planning group and handled complex estate planning matters for wealthy individual clients. Much of the business was referred to the firm by large bank trust departments. I have been promised referrals from some of these banks. I had other referral sources as well that will be sending business. The focus of my practice will be exclusively on complex estate planning for wealthy clients. A paralegal and an associate from the firm will be coming with me. During my career my focus has been on practicing law and not running a business. What are some of the challenges and burning issues that I will face?

Response: 

You are starting with the advantage of probably having grown up with excellent training and mentoring that larger firms are capable of providing. As a result you probably have an excellent skill set and it sounds like you have learned how to get business and have developed referral relationships. However, you also have been accustomed to firm management and other resources that will not be available to you in a smaller firm. You will have to get your hands dirty and handle much more of the firm management and administrative functions than you had to do in the larger firm.

Some of the challenges and burning issues that will keep you awake at night will probably include:

  1. Hiring, training, motivating, compensating, and retaining attorneys and staff – both those that initially join you and future hires. Small firms often cannot afford to provide the level of compensation and benefits that larger law firms and other businesses provide. You must creative and use other carrots such as flexibility, work-life balance, etc. to be competitive.
  2. Additional sources of business. Even though you have promises from past referral sources to send you business the business may not materialize from these sources for various reasons. You must be prepared to proactively marketing your practice. A content-rich website, client seminars, and additional referral source development should be at the top of your list.
  3. Cash flow will be a challenge and issue, at least initially. Insure that your have sufficient working capital to start your firm and access to adequate credit lines if you need them. Obtain retainers from clients upfront, stay ahead on retainer replenishment, and bill promptly. Watch your spending but focus on revenue generation.
  4. Balancing your time between servicing clients and managing the practice. In your prior firm your primary mission was to practice law and serve clients. Now, as the sole owner of a law firm, you will also have management and administrative responsibilities. Your time between these two areas will require careful balance – neither can be neglected. While you can eventually hire some help you can never relinquish total responsibility for running the business.
  5. Development of systems. Processes and procedures will need to be documented in office policy and procedures manuals. Computer hardware and software will need to be acquired and implemented. There will need to be oversight over these systems. You should at least have a “top level” understanding of these systems.
  6. Client demands. Client demands and workloads can often take a toll on new owners. There will a time will your will be so busy you would like to hire additional help but not so busy that you are ready to or can justify doing so.

These are just a few of the challenges and burning issues that others from BigLaw starting their own practice have discussed with us.

Good luck with the launch of your practice.

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

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