Practice management. A 10-step trip to failure

The current euphoria in law firm circles is being caused by a much higher demand for legal services than was projected a year ago.

Unfortunately, the success of most firms may cause a return to the sort of management and decision-making that caused many of the problems firms have been struggling to overcome during the past few years. Based on our consulting experience, these are the classic law firm management mistakes leaders must be sure to avoid:

1. Failure to insist on strong leadership:

Nothing marks the success of law firms more or is a predictor of serious problems than the failure of partners to insist on and support strong, long-term and consistent leadership. It matters little how leaders are chosen as long as there is a culture of leadership. Constant rotation of leaders and managers may be ideal in a college fraternity, but it has no place in the modern law firm.

On the other hand, managing partners and others who talk themselves and others into the idea that they must continue to manage because there simply is no one else with any management talent have probably outlived their effectiveness.

2. Failure to have a compensation system that rewards more than one year's performance:

There is no single compensation system that works for all. On the other hand, there are probably only about six basic compensation systems in the Western world. There is one well-known principle lawyers would do well to understand. It is “You get what you reward”. Firms that over-reward individual statistics and fail to put real economic clout behind firm cooperation, training client service and so on, will not act and behave like a true law firm. They will simply be a group of lawyers sharing overhead.

3. Lack of a credible plan:

It is amazing how many partners still scoff at having business plans and yet do not understand the complexity of the law business. It is also incredible how many firms open offices or engage in other types of expansion without the most rudimentary market research or development of a business plan on which to base decisions.

4. Failure to recognize the consolidation within the profession:

The trust of the matter is that a consolidation of major proportion is under way, not unlike what happened in the accounting profession 10 years ago and what is going on now in the medical profession. This is not to say that there is not a place for firms of all sizes but the current market in the business community clearly favours growing international domestic and regional firms . Despite all the predictions of the past few years that large firms are unmanageable dinosaurs, there is no evidence to support this. Sometimes these experts cite the number of spin-offs and boutique firms that have been formed in the recent years as evidence of this trend. Actually, there were more boutique spinoffs of large firms in the 1970s and early 1980s than during all of the 1990s so far.

5. Failure to reorganise practices to meet market demands:

The organisational structure of most law firms is completely out of date for the market. Send the organisational chart that has the old, traditional, and unmanageable departments to a museum – it will be of most use as an historical amusement. Talk to any CEO of a major corporation today and they will tell you that the only way to manage is through the use of small business groups. In law firm terms, this is small practice teams that reflect the client base and target market of your firm.

6. Careless hiring of lateral partners:

Nothing has changed the complexion of the modern law firm more than the phenomenon of the lateral partner. Here is a statistic that will startle you: 45 per cent of all partners in major US firms came as lateral senior associates or partners. Lateral partners have made enormous contributions to many firms and have destroyed the cultures of others. The cardinal rules for the acquisition of lateral lawyers are careful selection and due diligence. Too few firms limit their due diligence to economic issues and fail to put enough weight on personality and past problems. Personalities rarely change. Also, do not hire lateral lawyers on the concept of filling empty space or simply sharing overhead. It would be more effective and more fun to fight with the landlord.

7. Failure to insist on quality of product and service:

Too many firms which pride themselves on quality of service simply do not live up to their billing. It is most interesting to interview partners of firms to ascertain why there is not more cross-selling and cooperation within the firm. Guess what the most common excuse is? “I do not trust the quality of some of our lawyers.” And this comes from some of the best firms in the country. But quality of product does not mean over-lawyering; it means developing a culture in which lawyers are expected to produce their best, no matter what the time constraints and on the level of performance that the project demands – not what the lawyers think it demands. As important as quality of product is quality of service. For most clients, service price and quality of product is quality of service. Indeed, for most clients, service price and quality are at the same level. To quote from a recent client interview of a firm which is arrogant about its level of quality: “The quality is excellent, but no better than anyone else we use.”

The firm's “bedside manner” with clients is non-existent – they will lose work.

8. Failure to establish competitive pricing policies:

We are in the midst of a philosophical change in pricing that is not going away. And a growing number of businesses are outsourcing legal work and cutting in-house staff. This work is generally a volume for fixed price transaction. Because this change will also reduce the number of law firms used by clients, there is the chance not only to increase business, but actually make a profit. For firms that can develop such relationships, there will be the return to a more personal and trusting relationship between client and lawyer.

9. Failure to invest in tech nology:

Firms must have an annual capital budget to invest in technology to connect the lawyer to the client. Such technology must be supported from leadership and managed by professionals with the ability to relate to clients. The smart firm would hire the type of technology people who can participate in proposal meetings for clients.

10. Failure to train lawyers in marketing skills:

I am not speaking of some of the silly stuff that many marketing consultants – especially image consultants and PR firms – attempt to sell. I mean sophisticated in-house marketing professionals who help lawyers develop personal and practice plans and consultants who can help lawyers obtain training in sales, client relations, presentation and writing skills.