Law Practice Management Asked and Answered Blog

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Apr 24, 2019


Law Firm Training Tools – Documentation of Processes and Procedures in Firm Procedural Manuals

Question: 

I am the sole owner of a six attorney personal injury firm in San Francisco with five support staff. My father started the firm twenty-five years ago and has since retired from practice. I took over the practice five years ago. At the time I took over the practice we had just my dad, myself, a couple legal assistants, and no technology. Since then I have done a lot to grow the practice including adding attorneys and staff as well as implementing technology. My biggest problem is training new attorneys and staff. We have no written documentation as to how we do things so training has to be done orally by myself or others every time a new attorney or staff member joins the firm. Can you offer any suggestions?

Response: 

Sounds like you don’t have a written employee handbook or procedures manuals. These are essential tools that every law firm regardless of size should have. These tools dramatically reduce time that has to be spent by others to on-board new employees and can facilitate bringing on lower cost employees with less experience such as recent law graduates or paralegal graduates.

The employee handbook outlines the firm’s employment policies and contains sections such as:

An operation or procedures manual is the firm’s how-to-do-it guide. It defines the purpose of work, specifies the steps that need to be taken while doing the work, and summarizes the standards associates with both the process and the result. Your operation or procedures manual specifies this is how we do it here. Every process in the firm should be documented in your manual – from marketing – to accounting –  to IT – to legal case work. Sections in your manual might include:

Procedures manuals are often a list of steps in outline form. The American Bar Association has a book – The Law Office Policy and Procedures Manual that may help you get started. 

In my earlier life I spent nine years in the United States Air Force Judge Advocate Generals (JAG) office and there I learned the importance of policy and procedures manuals and I carried this into both law firms where I worked prior to starting my consulting practice thirty-four years ago.

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

 

 

 

 

Mar 20, 2019


Associate Attorney and Non-Equity Partner Compensation

Question: 

I am the owner of a seven lawyer insurance defense firm in downtown Chicago. Two of the lawyers are non-equity partners and four are associates. Currently I pay the associates a set salary and a performance bonus based upon annual billable hours over 1800. Until last year non-equity partners were paid in the same fashion, however non-equity partners received a few additional perks such as a firm credit card and a country club membership. Last year I changed the non-equity partner compensation system to focus on collected receipts rather than billable hours. Non-equity partners receive a salary and a performance bonus based upon working attorney collected received above a established threshold and a delegation bonus.

Currently all of the non-equity partners are paid salaries above $100,000 and two of the associates are above $100,000.

My results with the two bonus systems are dismal at best. My objective was to motivate my attorneys to bill more hours. However, they don’t seem interested. Very few have received bonuses. Last year I had several lawyers that did not even bill 1500 hours. What have a done wrong?

Response: 

There is noting wrong with your approach to compensation. You may have the wrong people on the bus. They simply aren’t hungry and this is not something you can teach. You are paying them salaries high enough that they can pay their bills – they are content and don’t want to put in the additional work to earn the extra income. Work-life balance is as important to more and more young attorneys as is money. If your attorneys are simply meeting the thresholds (billable hour or revenue expectations) and not exceeding them that is one thing. However, if your attorneys are not meeting the minimal expectations (hours or revenue thresholds/expectations – this is another issue as they are not producing at a level to justify the salaries they are being paid. Salary adjustments downward may be in order or simply terminating them. I don’t know many insurance defense firms that will tolerate less than 1800 billable hours.

While you must get compensation right in order to acquire and retain top lawyer talent as well as reward performance and reinforce desired behaviors, the starting point is hiring and retaining the right people to begin with.

Research from a classic business study that was highlighted in the popular business book “Good to Great” (Collins, 2001) authored by Jim Collins found that the method of compensation was largely irrelevant as a causal variable for high and sustained levels of performance. Other research also bears out that performance and motivational alignment are impacted by intrinsic and other factors other than just extrinsic factors such as compensation or methods of compensation. Over the years I have seen too many partners leave lucrative situations in law firms to join other firms for less compensation or to start their own firms to suggest that it is not only about the money or compensation package.

Jim Collins sums it up best in the following quotes from Good to Great (p 10-13)

“First who – then what”

“They 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.

James Cotterman, Altman & Weil, Inc., (Cotterman, 2004) contents that there are two groups of employees for whom compensation is not an effective management tool. The intrinsically motivated (6% to 16% of partners perhaps) do not need compensation as an incentive. The struggling performers (another 6% to 16%) will not react favorably to a compensation system that rewards positive behavior.

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

Mar 13, 2019


Law Firm Attorneys Overuse of Email and Text Messaging

Question: 

I am the owner of a four-attorney firm in Indianapolis, Indiana. The firm has three associate attorneys plus three paralegals and three other staff members. One of my attorneys recently advised me that he wanted to do more work remotely. The next day I emailed him my thoughts and advised him that I would not let him work remotely. He then emailed me that he was giving me his two weeks notice. What should I have done differently?

Response: 

You should have met with him personally and discussed the matter face to face. Email has its uses but I find it is often overused and used in situations where it should not be.

Note the following scale of communication media and richness.

1. Face to face
2. Telephone
3. Email and texts

Face to face is the richest form of communications and should be used for sensitive communications such as performance reviews and other such discussions concerning performance, praise, training and mentoring, etc. It should have been used in the situation you discussed in your question.

Telephone is the second richest form of communications and should be used for less sensitive communications or for face to face situations discussed above when a face to face meeting is physically not possible.

Email, text, and other written communications should be used for routine communications such as assignment of projects and tasks, work instructions, etc.

Sensitive and difficult communications should be communicated through a rich medium such as face-to-face meetings and routine communications through a lean medium such as a memo.

Media richness is determined by the speed the media provides, the variety of communications channels on which it works, the extent of personal interactions allowed, and the richness of language it accommodates. As tasks become more ambiguous, you should increase the richness of the
media that you use.

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

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

Jan 29, 2019


Law Firm Structure and Growth

Question: 

I am the administrator with a firm in Buffalo, New York. We have fourteen attorneys – seven partners and seven associates. We are an eat-what-you kill law firm. All the partners have to weight in and agree on any and all management decisions. Our management team consists of “all partners”. While I have been hired as the administrator to management the firm, I have very little authority to do anything. The partners all have the freedom to do as they please and there is very little accountability to each other. Recently we have been discussing the pros and cons of why we might want to change our governance and overall structure. I would be interested in your thoughts.

Response: 

I believe that law firms that are “firm first” team based firms and organized along these lines have (or will have) a competitive advantage with respect to clients, legal talent, and merger partners. As law firms grow the “lone ranger” confederation approach no longer works. Decision-making is too time consuming, partner time is wasted, and opportunities are missed. Synergy (where one plus one equals three or four) is not achieved and the firm achieves little more than any one of the attorneys could achieve in solo practice.

Recently I was working with a similar size firm in Chicago that was looking for a merger partner. When the other firm learned that my client was a “lone ranger” firm they discontinued discussions. Larger firms that are “team-based” are not interested in merging with “long ranger” firms – they tend to cherry pick key talent from these firms rather than pursuing mergers or combinations.

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

Jan 16, 2019


Improving Productivity and Profitability in a Sole Owner Six Attorney Insurance Defense Law Firm

Question:

I am the owner of a six attorney insurance defense firm in Indianapolis, Indiana. I started the practice twelve years ago with myself and a paralegal and have grown the firm to where is is today – six attorneys, two paralegals, and two other staff members. While I have done well, and am taking home around $350,000 a year, I am not sure if we are attaining the numbers that we should be. I have a fifteen hundred billable hour expectation with a per hour bonus payable for each billable hour exceeding fifteen hundred. I do not have any attorneys that have reached this expectation. Our billing rates average around $150 per hour. I am wanting to put in place a partnership track and am not sure where to start. You thoughts would be appreciated.

Response

Let me first illustrate the profitability levers for law and other professional service firms:

R – Rate – billing rate (effective rate, realization rate, etc.).
U – Utilization – the number of billable hours.
L – Leverage – the number of associates/paralegal, etc. to owners or equity partners.
E – Expenses – office overhead
S – Speed – time it takes from the time work is done to when cash comes in the door.

With the low billing rates that are prevalent in insurance defense firms the primary profitability levers that can be managed in an insurance defense practice are utilization, leverage, and expenses. Insurance defense firms need 1800 – 2000 annual billable hours from their associates, a high leverage ratio of three or four associates for every equity partner, and low expenses  – i.e. no frills office space.

You are doing fine now with regard to compensation but this would not be the case if you had partners – the profits would not be there to pay higher salaries. Less than 1800 annual billable hours is not acceptable and it sounds like there are no consequences for non-attainment of the 1500 hours. You need to look into the reasons as to why your associates are not attaining the 1500 hours. Possibilities could include:

If there is enough work you need to focus on the other factors and let everyone know what the consequences are for not attaining the billable hour expectation. Start with the 1500 hour expectation as an initial baby step but then increase the expectation to 1800 hours as soon as your can.

As you think about a partner track keep in mind the issue of leverage and don’t be temped to make too many partners.

Keep an eye on your expenses.

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

 

 

 

Nov 28, 2018


Associate Attorney Mentoring and Giving Feedback

Question:

I am the owner of an elder law firm in Jackson Mississippi. There are three associate attorneys working in the firm that have been with me under five years. All three were hired directly out of law school. While I try to mentor and train each of the associates as needed in “real time” I also conduct annual performance reviews with each associate and provide them with a written performance evaluation. I am getting frustrated as it seems that the feedback that I provide them does not stick and they continue to make the same errors and mistakes. I welcome any thoughts that you may have.

Response: 

You may need more frequent discussions that are scheduled. I have some law firm client owners  that have an ongoing scheduled meeting with each associate twice a month. You may also want to examine how you actually provide feedback to your associates. Often owners beat around the bush and don’t really provide meaningful feedback.

Giving meaningful feedback contributes an essential component to effective associate management. Whether you give feedback informally, midway through the work or at the end, or formally through a scheduled  evaluation process, it gives you a powerful management tool, assisting individuals in professional development, teaching those you manage to work more effectively, and giving recognition and showing appreciation when deserved.

Effective feedback should be:

Praise you associates when deserved. Praise provides an effective motivator for most associates and should include:

Provide constructive criticism when deserved. It should include the items listed above and you should give it:

Use the following outline when giving constructive feedback:

Try to implement some of these ideas and go from there.

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

Aug 22, 2018


Law Firm Retreat Follow-up and Implementation

Question: 

I am a partner in a eighteen attorney firm in Milwaukee. Over the years our firm has held firm retreats, but the results have been disappointing – a lot of talk and little action. We have the same problem in our monthly partner meetings. We spend a lot of time in meetings – discussions and decisions made but little implementation. This week we are having a partner vote to decide on whether to have a retreat this year. Frankly, I will vote against it and I think it will be a waste of time. What are your thoughts concerning law firm retreats?

Response: 

I understand your frustration and concern. Many law firms have had similar experiences with retreats. Good ideas and decisions but no follow-up or implementation once the retreat is over. Often retreats are too loose with no structure or leadership.

Insure that the firm appoints a qualified retreat leader either from within the firm or someone outside the firm that has experience leading or facilitating retreats. Identify specific objectives and desired outcomes during the retreat planning phase and design in how follow-up and accountability for implementation will be achieved. Be sure you come away from the retreat with a specific plan for follow-up action on every problem discussed. For example, if you decide to start a talent search to fill specific position, or if you have assigned several partners members to work further on specific problems and report the results, it is important that individual assignments and target dates for reporting and completion be made explicit. Determinations of this kind should be recorded and made part of the minutes of the retreat. Further, a system of follow through meetings to assess progress is advised, in order to maintain the momentum achieved at the retreat.

Many law firms benefit considerably by incorporating specific retreat decisions into a twelve month plan and schedule of activities to meet firm objectives. Planning of this kind typically results in significant firm progress, even though there may be initial resistance to these efforts by some firm members.

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

Aug 01, 2018


Law Firm Merger or Of Counsel Arrangement and Due Diligence Information from Larger Firm

Question: 

I am a solo practitioner in upstate New York and I hope to retire three years from now and move to Florida and spend my retirement years there with my family. I have been talking with a larger firm, twenty-attorneys, in Albany that has an interest in me either merger my practice with their firm or joining as Of Counsel. My plan would be to work three more years, gradually phase back, and transition clients and referral sources.

I have had several meetings with the partners in the firm and they are now asking me for detailed due diligence information – tax returns, financial statements, etc. I have no problem providing these documents however I was wondering if I should be asking them for information. What do you think?

Response:

I believe that you are entitled to similar due diligence information from the other firm. You need to see what you are getting into.

Usually the smaller firm gets less – but they should share some information with you as you have with them.

I would ask for the following from them (or discuss with them):

  1. Five years profit and loss statements, balance sheets and tax returns.
  2. Lawyer and staff headcount for each of those five years.
  3. Current hourly billing rates.
  4. Description of practice area mix of clients by dollars collected – practice type and office location.
  5. Description of how the firm bills (hourly, flat rate, contingency)
  6. Copy of all leases (office space, equipment)
  7. Copy of malpractice insurance policy and last application.
  8. Salaries and benefits for equity and non-equity partners.
  9. Any governance plan or agreements.
  10. Copies of all partnership agreements or operating agreements for all business entities.
  11. Any documents pertaining to the retirement of partners including information as to obligations for partners who have already retired and those nearing retirement.
  12. Compensation data for equity and non-equity partners.
  13. Copy of the written compensation plan for equity partners if one exists or if not a discussion of how the compensation system works.
  14. Information on the line of credit and copies of all debt agreements.
  15. Copies of third party vendor agreements (equipment leases, subscriptions)
  16. Copy of the firm’s present malpractice insurance policy and most recent application.
  17. List of benefits provided.

I presume that you all have discussed any potential client conflicts of interest, etc.

You need to zero in whether the arrangement is going to be a merger or Of Counsel arrangement. If the arrangement is to be an Of Counsel arrangement the firm will be less likely to be willing to share all the information on the list and you will have less need as well. However, I believe you should at least have the basic financial and compensation information.

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

 

Jul 19, 2018


Law Firm Structure and Elevating Associates to Partnership

Question: 

I started my firm as a solo nine years ago in New Orleans. My practice focuses on maritime defense litigation. Over the years I have added associates and currently I have six associates working for me. I am overwhelmed with work – from the legal work that I am doing in addition to the business development and firm administration. My thought is that I should consider restructuring the firm by making some of my associates partners so I can offload and share some of the administrative responsibilities. I would like your thoughts. What are other firms in my situation doing.

Response: 

Years ago when I started in this business there were solo practitioners and there were multi-attorney firms that were partnerships. There were not many multi-attorney firms that were what I call sole owner firms – firms will many attorneys and just one owner. This has changed. More and more attorneys don’t want to be in partnerships with other attorneys. Sometimes this is a result of bad experiences in other partnerships. In other cases they simply want to go it alone. Also, more and more associates don’t want to take on the stress and financial obligations of partnership – they simply want a job that provides them with a decent income with work life balance. I have law firm clients with sole owners, fifteen to twenty attorneys, and fifty to seventy staff employees. These firm owners have hired firm administrators, marketing managers, and other such talent to offload the administration. While these firm owners have been enjoying the fruits of sole ownership eventually they will have to reevaluate their situation when they begin planning their succession and exit strategies.

I think you have to ask yourself the following questions:

  1. Is adding partners the best way to offload your administrative responsibilities? Should you hire a firm administrator?
  2. Are  you ready for partners?
  3. Do you have associates that meet your requirements for partner admission? Have you thought about these requirements?
  4. Do the associates that you would consider for partnership have an interest in being partners?

Give this some more thought – don’t just make partners to have partners or to have someone to handle administration.

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

 

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