Law Practice Management Asked and Answered Blog

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May 15, 2019


Challenges in Law Firms that are Family Businesses

Question: 

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

Response: 

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

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

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

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

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

 

May 07, 2019


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

Question:

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

Response: 

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

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

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

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

Click here for our blog on succession

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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

 

 

 

Oct 31, 2018


What Law Firms Must Do to Remain Competitive in the Internet Age

Question: 

I am the managing partner of a twelve attorney family law firm in Kansas City, Missouri. We have been in practice going on thirty years. Over the last ten years we have shifted more of our advertising from print directories and advertising to the internet. Today virtually all of our work comes from the internet. While to some extent this has been a blessing it has also been a curse as we must continue to make investments in search engine optimization, update the website, pay to be included in online directories, etc. It is a vicious circle and we are losing business to new attorneys just starting out that are putting up first class websites and making online investments.  I would appreciate your thoughts.

Response: 

The internet as well as advances in information technology has and will continue to be the key driver forcing change in the legal marketplace as well as other segments and our daily lives as well. Shopping malls are disappearing from our communities and department stores are struggling for survival. Being the king of the hill or the biggest is not the strategic advantage that it once was. The internet is leveling the playing field in many industries as well as law firms.  There are new opportunities and new competitors. Consider the following:

  1. Everything is being commoditized. More practice areas are moving down the value curve and prices are becoming more price sensitive.
  2. Disintermediation of traditional delivery channels. The internet provides new access to information and is eliminating the middleman. It is impacting how we shop, bank, conduct business, and pay our credit cards and taxes. It is also impacting how clients locate and select lawyers and how legal services are delivered.
  3. Our society is becoming – more and more – a DIY (Do it Yourself) nation.
  4. Lawyers competitors are just a click away whether they be legal process outsourcing providers (LPO) in India, other lawyers in your state – but further away and servicing clients remotely, legal publishers, or online form providers.
  5. New client opportunities for your may also be just a click away.

Challenges and Questions to Think About

  1. How do you deal with commoditized transactions?
  2. How do you tie yourself to your client in an online world?
  3. How do you compete with new models and approaches to the delivery of legal services?
  4. How do you compete with virtual law firms?
  5. Would you consider adding a online delivery component to your traditional brick and mortar practice?
  6. Should you consider other practice areas?
  7. Should you consider expanding your geographical reach in areas where you are licensed and other areas by forming relationships with licensed attorneys in those areas.

Here are a few suggestions:

  1. For your practice area you should continue what you are doing and maximize your online and electronic marketing investments.
  2. Online reviews are becoming more and more important. Have a protocol in place that asks clients for reviews upon completion of their matter. Make it easy for them by providing them with appropriate online links.
  3. Your website does not do enough to demonstrate expertise. I do not see any evidence of attorneys publishing any articles, serving on law related committees, or chairing such committees pertaining to family law. There are no testimonials from past clients or others on the website. Get your attorneys writing articles, get them published where you can, and get them posted to your website. Get testimonials from past clients and referral sources and post them to your website. Also get your attorneys involved in bar and other law related associations. Do more to build the brand of the firm and the individual attorneys. Many of my family law firm clients still receive a bulk of their business from past client referrals and referrals from other attorneys.
  4. Consider satellite offices in some of the suburban communities in Missouri and Kansas. I have family law firm clients that have been quite successful with multiple offices – staffed and not staffed.

Even in the age of the internet expertise, professionalism, and reputation is important. Do all you can to convey this through your website and your initial communications with clients.

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

Jan 23, 2018


Client Satisfaction Surveys in Law Firms

Question: 

Our firm is a seventeen attorney firm is San Diego. We are a boutique business litigation firm and we represent companies of all sizes. We represent several Fortune 500 companies. I am a member of our three member marketing committee and during our last meeting one of our members suggested that we consider a formal survey of our clients. What are your thoughts regarding client satisfaction surveys? Is this something we should consider?

Response: 

Personally, I believe that if you represent institutional clients such as yours, that soliciting feedback from clients and acting on that feedback is one of the best marketing/client development investments that a firm can make. During a recent client satisfaction telephone interview with a corporate client of a law firm a client told me, “If our lawyers would pay just a little more attention to us, take us to lunch once in a while – without billing for the time . . .if they would treat us like they care … I’d give them all of our business in the entire state of California.” Statements of this sort are not at all uncommon in client satisfaction interviews. Of all investments of a  firm’s marketing budget, none is as cost effective as a client satisfaction survey.

A law firm’s existing clients are important source of continuing and new business for the firm. The most efficient way to bring in business is to sell additional work to existing clients.

Surveying the firm’s clients is an effective method of monitoring satisfaction. It is the first step towards improving client relations and increasing revenue from the current client base. A well-designed client satisfaction survey can help a firm do the following:

For firms that represent institutional clients I believe that structured telephone interviews are the best survey method.

I have had situations where law firm clients have advised me that they had stopped sending files to the firm due to a relationship issue with a particular partner and the law firms, after being appraised of the issues, were able to resolve the problem and repair the relationship.

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

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

 

Jan 10, 2018


Increasing Case Volume in a Personal Injury Law Firm

Question: 

I am a partner in a two partner personal injury firm in Tampa, Florida. We do not have any associate attorneys. Our firm only handles personal injury work. We have been in practice for thirty-five years and have been very successful over the years. However, the last few years have been terrible. Adjusters are not settling cases and the days of three times specials is over. Our case volume is down, the quality of cases that we have in our inventory is far below what we had in previous years, and our revenues are down substantially. Cash flow is awful. We have had to live off of our credit line for the past year. Our main source of business over the years has been referrals from past clients and other lawyers, yellow pages, and our very basic website. We would appreciate any thoughts and suggestions that you may have.

Response: 

This is a common complaint that I have hearing from personal injury firms across the country. In some states tort reform is having an impact and insurance companies are getting harder to deal with. Extensive advertising by other law firms is having a major impact. Larger personal injury firms that are doing extensive television and other forms of advertising are doing well. Here are a few thoughts:

  1. Your ages may be having an impact. I would guess that the two of you are at least in your sixties or later. Your market may be gradually retiring each of you based on your age. You may want to consider your succession strategy and finding a way to bring is some younger attorneys. When I chose my last doctor and dentist I asked the receptionist at their offices how old they were. Attorneys doing insurance defense work often find that their insurance company clients often begin sending them less cases (or none) as they get into their 70’s and 80’s.
  2. TV advertising works for personal injury but requires a major investment and commitment. In order to be successful with a TV campaign you would need to commit to one year. I doubt that you are in a position to do this.
  3. Work your referral sources – particularly attorneys. Many attorneys as they get older stop or reduce their networking and as a result are not getting the attorney referrals that they used to receive. In fact, many of your attorney referral sources may have retired themselves.
  4. Traditional marketing using “push” or outbound techniques such as TV, radio, and print advertising are giving way to “pull” techniques as people are using the internet to shop and gather information. Pull techniques involve internet search engines, blogs, and social media such as Twitter, Facebook, LinkedIn, YouTube, and others. Your website should be your marketing hub and it should be more than a basic webpage. It should be loaded with content and information and designed in a way that search engines place you well in their rankings – especially Google. Suggest that you consider the following:
    1. Create lots of content people will want to consume and place on your website.
    2. Add a blog to your website and post new content at least weekly.
    3. Focus on where the action is – Google, blogs, social media sites.
    4. Setup Facebook and LinkedIn accounts for the firm and the individual attorneys and post content to Facebook weekly.
  5. Have your website reviewed as to how well it ranks as far as searches in Google. Consider having your site optimized for Google if necessary.
  6. Personal injury firms, due to the internet advertising by personal injury firms, have a hard time standing out in Google search ranking without paid ads. Consider a pay-per-click add on Google if you are not ranking well in Google.
  7. Client leads coming in through TV and the Internet require quick response. The biggest mistake that many law firms make is making investments in TV advertising or pay-per-click internet advertising and then not responding to inquiries after hours or weekends. Have someone monitoring internet inquiries and getting in touch with prospective clients after hours and weekends.
  8. Measure and track which marketing sources your leads and cases are coming from.

Click here for our blog on marketing

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

 

 

Oct 25, 2017


Law Firm Equity Partner Succession – Transition in a Multi-Partner Firm

Question:

I am an equity partner in a thirty-six attorney firm in Miami. We have seven equity partners, eight non-equity partners, and twenty one associates. Our practice limited to civil litigation defense and our clients are institutional clients consisting of business firms, governmental agencies, and insurance companies. The ages of our equity-partners are: 64 62, 60, 58, 54, 48, and 44. The firm does not have a succession plan for the senior partners and has not even discussed the matter. I am not sure what the partnership agreement provides. I am concerned about our future if we don’t start addressing this. I would appreciate your thoughts.

Response:

With three members already in their sixties you are going to have some retirement bunching issues before long and I agree that you should start planning and deal with this sooner than later.

The partners as a group need to start talking and the senior partners should begin sharing their ideas and plans concerning their retirement goals. There should be an ongoing dialog with your senior partners. Review the firm’s partnership/operating/shareholder agreement. After reviewing these documents, determine how the firm’s policy regarding retirement, if there is one, will affect various partner’s retirement timelines, compensation, and payout. Does the policy require mandatory retirement at a certain age? Ascertain whether the policy provides for phase-down. How does the phase-down handle management and client transition? Is there an “Of Counsel” provision after retirement? The firm needs to reach an agreement with its senior partners nearing retirement concerning their retirement timelines, client and management transition, and retirement payout or return on invested capital.

The initial challenge in a larger firm is to determine who the successor or successors will be to transition clients and management responsibilities. This may be no easy task especially if the firm is in first generation and the retiring partner is one of the founders.

Client Transition

In firms your size, clients are more likely to be large sophisticated clients, possibly Fortune 500 companies, which refer many matters to the firm during the course of a year. Often such clients may be both a blessing and a curse for the firm. A blessing in that their business provides the firm with huge legal fees during the course of a year. A curse in that their business represents a large percent of the firm’s annual fee collections and a significant business risk if the firm were to lose the client. An effective client transition is critical, takes time, and must be well planned.

Successful client transition – moving clients from one generation to the next – is a major challenge for larger firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:

Management Transition

In larger firms, partners may have management responsibilities as well as client responsibilities. A retiring partner may be a managing partner, executive committee chair or member, or serve as a chair or member on other firm committees. Retiring partners will have to transition these responsibilities to other partners in the firm.

Transitioning client relationships and management responsibilities effectively can and where possible should take a number of years – preferably five years – typically not less than three years. For this reason, many firms use five-year phasedown programs for retiring partners. These plans provide detailed timelines and action steps for transitioning client relationships and management responsibilities.

Click here for our blog on succession

Click here for out articles on various management topics

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

Sep 20, 2017


Compensating Your First Associate Attorney in a Law Firm

Question:

I am the owner of a law practice in Belleville, Illinois. My practice focuses on real estate, estate planning and administration, and bankruptcy. I have three legal assistants. While I have been in practice for ten years, I have never hired an associate. I have a busy practice and now is the time. I have identified a candidate with six years experience that I want to hire. He has business that he can bring with him. He has been working with a larger firm as an associate and has been paid a straight salary. My next step is to make him an offer but I am struggling with how to pay him. I would like to hear your thoughts.

Response:

Some small firms put associates on an eat-what-you kill system based upon fee revenue collected from clients they bring in and fee collections from other matters they are assigned. They are they paid a percentage – ranging for thirty to forty percent when the fees are paid. However, in most firms associates are paid a salary and possibly a bonus based upon performance. Bonuses may be discretionary or formulaic based upon performance factors such as billable hours, working attorney collected fees, client origination collected fees, goal attainment, signed engagements, etc. Personally, I think a salary plus and discretionary bonus is the best approach for new associates.

However, in your case with an associate that is more seasoned and that has a book of business I think you should consider a salary with a formulaic bonus based upon his working attorney fee collections and client originations. Here are the mechanics:

I would also set a minimum performance expectation of $240,000 for the salary that is being paid.

You could also include non-billable goal attainment bonus as well but you can always add that later.

Click here for our blog on compensation

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

Aug 02, 2017


Associate Attorney Career Track in a Small Law Firm

Question: 

I am the owner of a five-attorney estate planning practice in Denver. I have four associate attorneys of which three have been with the firm for over twelve years. Last year an associate that had been with me for many years left the firm and started his own practice. I thought I was paying him well by virtue of a competitive salary and discretionary bonus in additional to other benefits. I do not want to lose other seasoned attorneys. What should I do to provide more incentives for them to stay with the firm?

Response: 

Our experience as well as research over the years by our firm and others has demonstrated that the following, in priority order, are the key drivers of associate attorney job satisfaction:

  1. Satisfaction with immediate manager or supervisor
  2. Opportunities for training
  3. Satisfaction with team and coworkers
  4. Opportunities for career growth
  5. Compensation
  6. Opportunities for promotion

While compensation often is considered the primary factor related to associate satisfaction, I often find that opportunities for career growth and promotion play a significant role. Associates do leave law firms for less money for career growth and promotion opportunities in other firms or in some cases starting their own firm.

A key tool that law firm’s should be using for managing attorneys is a well-defined career path/track. The critical components of a career track include well-defined levels, roles and responsibilities at each level, promotion criteria, and compensation plans for each level. Typically these are outlined and documents in a career advancement program policy document. For example:

  1. Levels. Each attorney level within the firm (partner, non-Equity partner, principal, senior associate, associate) should carry a specific and clear title.
  2. Roles and Responsibilities. For each level, the typical roles and responsibilities should be clearly documented including client service work as well as business development and administrative responsibilities.
  3. Promotion Criteria. For each level in the firm, the criteria for promotion to that level should be outlined in the career track or career advancement program policy document. These criteria are often tied to competencies (knowledge, capabilities, and experience of the attorney), tenure as well as other factors.
  4. Compensation. A compensation plan should be developed for each level. (salary, bonus, benefits, and other perks)

I suggest that you give some thought to developing such a program. As you start with levels you will have to do some soul searching and confront the most burning issue – is partnership an option for associates in your firm – do I want partners –  and go from there.

Click here for our blog on career management

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

 

 

 

 

May 31, 2017


Law Firm Governance – Partner Participation in Management

Question: 

I am the founder, majority partner (80%), and managing partner of a twenty two attorney firm in Phoenix, Arizona. The firm practice is focused in the area of health care. There are twelve equity partners, five non-equity partners, and five associates. I manage the firm as a benevolent dictator. I am becoming overwhelmed trying to manage the firm and practice law and I believe the firm is now at a size where others must become involved in managing the firm. I have been considering forming a committee of all the equity partners to manage the firm. Your thoughts are welcomed.

Response: 

While I believe that you are of a size that warrants broader participation in the governance and management of the firm you can go too far. Broad participation in decision making and consensus building slows things down. It can also make it difficult to reach a definitive conclusion. Getting all the partners to agree takes time. Broad participation can also diffuse responsibility. If everyone is in charge no one is in charge. In law firms whose partners are overly deferential to their partners’ views, the decision-making process often seizes up. Unless firm partners who, when necessary, will assert themselves and use their influence to press for action, the only decisions it’s likely to make are decisions not to decide.

I believe that you should stop short of broad participation by all the equity partners. Consider a three member executive committee elected by the equity partners on three-year staggered terms. This committee would have responsibility for the general management of the firm not delegated to your firm administrator if you have such a position in your firm. Committee responsibilities would include financial management, human resource management/oversight, client development, IT systems oversight, procedures and policies, etc. Establish proper structure for the committee with a chair, identified roles and duties for each member, defined meeting schedule, and agenda and meeting minutes. Define in your partnership agreement those powers that are restricted to a vote by the full partnership and the rules for voting – one partner one vote or vote by percentage interest. Other than those powers restricted to the full partnership partners should let the executive committee manage the firm and not second guess.

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

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