Every law firm is talking about the effect of alternative business structures. How will new money affect old ways, and what difference will it make, to whom and how.
At the same time firms are rightfully concerned about their own profit levels and associated increasing client expectations.
The traditional response to patchy levels of work is to rely on the counter-cyclical elements of a full service law firm: if Corporate and Real Estate are down, Insolvency and Litigation will pick up the slack. This recession is different. Banks have been cautious in forcing companies into liquidation both for political and economic reasons. If the assets are a liability, a bank does not benefit by owning them directly, and may in turn anger its new government shareholders.
In the face of these unexpected market conditions firms have therefore decided to concentrate on sectors or even geographies where growth will be more likely. This in turn lead to a desire to hire the right lateral partners (i.e the ones who fit with the new strategy), and fire the wrong ones. The wrong ones are a combination of partners whose practices no longer fit, and partners who are no longer fit to practice in the New World order. A harsher edge has emerged.
Lateral hires are hired to fit together like lego bricks, bringing in complementary expertise as well as building up the existing core. But does it work? Laterals fail at an alarming rate. in October 2011 Mark Brandon of Motive Legal produced an excellence piece of research showing just how few laterals succeed. http://www.motivelegal.com/wp-content/uploads/downloads/MotiveLegal_LateralPartnerMoves2.pdf . Looking at 1944 lateral partner moves in the period 2005-2010, he discovered that about a third left by the 3 year point and almost half (44%) had left the receiving firm after 5 years.
What can firms do to prevent this happening? The success of a lateral hire depends on both the lateral and the receiving firm.
The lateral is often ill-prepared for the harder edged culture of the recession-hit firms who have decided that laterals are the answer. It's not a soft and collegiate world. Laterals need to be very clear about expectations, resources and timeframes. A hiring firm may talk about long term investment, but once the lateral arrives monthly partner financial reports send a continuous stream of concern to other partners. A lateral has to quickly find friends and influence them.
The receiving firm is also to blame. The firm can tell the potential lateral one thing and the incumbent partners another. There is often very little practical feedback and support in the initial stages, and often a general resentment from the firm's less-successful (and often senior) partners that the lateral is sucking work from existing partners. Whilst the lateral knows what they are supposed to do - and are committed to it - there is rarely a matched urgency and drive amongst the incumbent partners. Promises to arrange client lunches and coffees often fail to materialise.
A more detailed critique of the anatomy of failure (and what to do about it) is in the associated white paper. The problem is a cultural one. Just as seed can only be successfully sown in a field prepared to receive it, so too can a lateral only thrive in a firm who are set up to host and integrate lateral hires. A good question might be "How long have your laterals lasted?" You could also ask your laterals what the firm could be doing more of/less of to increase the ease of integartion and speed to full performance.
A firm that keeps laterals but does not integrate them may be in a worse position. Lateral hire partners were marketable because their client base was portable. Without integration, their client bases will stay semi-detached, and the firm will become a bazaar of sole traders, hawking their wares to passing clients but jealously guarding their own turf. Not sector-focused but just geographically co-located.
"9 out of 10 law firms who would consider merger say they would only do so with a firm smaller than themselves. The other 10% are being forced to consider merger by the bank"
This what the principal of a major legal recruitment consultancy said to me last week. If it is true - and I've no reason to disbelieve him - why? Is it a desire to control the merger - to be the buyer rather than the seller - or is it because every firm has a tight, well-structured strategy and plan which it is loath to abandon?
It's certainly not driven by most firms' strategy. Firms have a general belief that "bigger is better, because it enables economy of scale". But that isn't a strategy. True, mergers can cut expenses - people, property and PI cover - could be reduced in many cases, but if that all the merger is you will be pushed to make 2+2=5.
The biggest potential benefit from merger is in fact a synergy of business - clients, sectors & industries. For this to occur requires an end to the buyer/seller mentality. It requires a vision for "NewCo" which is built on the best of both, not the momentum of tradition. GK Chesterton said "tradition is the truest form of democracy: even the dead get a vote". What a new firm needs is not tradition, but metamorphis, something which is recognised by the external investors circling the arena.
What attracts the external investors? The prospect of a major dislocation in which the old model is incapable of changing to meet the new challenges. They see parallels in the demise of Kodak as an example of where a company - despite dominating the market and seeing the digital tsunami coming were unable to turn away from its high-margin film business to address the low margin digital world. Kodak dabbled in the new world - with the first digital camera, and a highly rated investment business - but weren't able to turn the ship around. It's now in Chapter 11.
Your firm is considerably smaller than Kodak, but a legal groupthink combined with conservative practice can produce a similar mind-set. "We can keep on going as we have until things become clearer. All we need to do is get more work and do it more profitably."
To overcome this tendency, firms who would consider merger - which is more firms than not - need to look for firms with cultural synergy, a desire for change and a willingness to do things completely differently. Financial equivalence is a factor, but not the decisive one. The big catlyst for change will be NewCo's managment - and leadership. ABS funders will often call in external management who have an equity stake in the business to drive NewCo, but firms can do this themselves if they have the vision and the drive.
If you don't have vision and drive, there's no point contemplating merger anyway. Without vision and drive merger becomes an exercise in joining together wounded soldiers in the hope that they will become an effective army.
They won't.
Does having a “Vision” make more profit?
Are Vision statements a complete waste of time for law firms? What do they actually contribute to the bottom line? Do they have their place in advertising agencies, management consultancies and similar places where fluffy people gather, but not in practical places like law firms?
Certainly law firms are different. Lawyers “own the business, run the business and are the business”. This is underpinned by a cultural legacy of old-fashioned partnership, where all partners sat down together around the boardroom table every morning to open the post and profit was shared equally – or as equally as senior shares would allow.
The ongoing culture is therefore one where all partners expect to be consulted, and where decisions are consensus-based. The sanctions for non-compliance are limited and largely based on peer pressure. There is nothing wrong with this process where the firm is small, the market static and the workforce both loyal and contented. Today, however, this is rarely true.
In a dynamic market decisions need to be taken quickly, firms need to be larger and the market for lateral hires means dissatisfaction has a practical outlet. At more junior levels the culture is also markedly changed. The credit crunch means that the escalator to partnership has become an occasional elevator, and Gen Y’s desire for being valued as people isn’t what a law firm is designed to deliver.
So what? What has this got to do with “the Vision thing?”
Within law firms “Vision” has been debased. It has accrued new-age connotations; vaporous words destined for a website. Vision is seen as part of the brand consultant’s kitbag; used when the marketing team have been let loose on the firm, but quickly consigned to the associated PowerPoint presentation. Instead law firms have used a financial target as a Vision. A goal of 15% revenue increase was sufficient. They took a number and presented it as a Vision/Mission/Strategy melange. In a rising market nobody commented that the King had no clothes on. In a static market this visual trick is not possible. The Vision question needs to be answered, or the partners’ individual preference is as equally valid as any other partners. As the Cheshire cat pointed out, “unless you know where you are going, any direction will do”. So the partners must decide:
“What does a successful firm look like to the partners? Without being allowed to talk about finance numbers – which form part of the results of the Vision - what would be happening in Success & Co? What firms would you be working for? What types of lawyers would you have? Where would you have offices? How many lawyers would you have? How many partners and support staff? How would IT be helping? What would people who work at your firm be saying to others about your firm? “
These are big, wide-open questions that require more than a 30 minute slot on a committee meeting or after lunch at a partners’ conference. Unless this question is asked, answered and agreed it is not possible to create strategy and plans. Fundamental disagreements cannot be papered over by clever wording and all-encompassing sector plans. The Vision is literally fundamental. Strategy is designed to focus resources to achieve the Vision. Plans are how we organised to execute the strategy. The cornerstone is Vision. As Ecclesiastes points out “without vision the people perish”.
Vision is designed to give the long term destination. It is the promised land. How we get there will change, but where we’re going shouldn’t. In a dynamic market the How will change. The Why musn’t, because it’s the reason that we’re working together.
Once the Vision is established a true strategy can be crafted and plans made. Your managing partner can be given a clear mandate and the partners have a reference framework against which to gauge results. They can “be the business” as lawyers, “run the business” with reference to clear goals (including financial ones) and “own the business” by seeing the vision become reality.
So Vision is not for the fluffy people. It’s for firms who see the need to anchor plans into something bigger, something against which the firm’s long term journey can be measured. The firms who understand the need to engage the workforce, not just employ lawyers. The firms who can see ABS, merger or even growth as a means, not an end. The law firms who will succeed.
The legal project manager is the person who ensures that “quality” work is done, with quality defined as work that the client deems fit for purpose. Its a role which a partner has traditionally taken, with the limitations set out in the last post. [You can read a fuller exploration of this and last week's post by downloading the associated white paper].
This means that a project manager manages:
- the scoping – which set out the expectations,
- the planning – which defined how the work would be done whilst making an acceptable profit,
- the execution – when the work is being undertaken, changed and re-scoped as new information comes to light,
- The review –exploring with the client how the processes could have been even better.
In fact the responsibilities of the legal project manager are not therefore that different from a traditional one in industry apart from one thing: a legal project manager needs to be able to work within a law firm, and work with lawyers.
Should a partner undertake the role?
Yes and No.
Obviously a partner truly understands the law firm culture. They typically fail, however, in the other project manager roles. This is not to say that they could not fulfil the other roles, it is to say that they do not in a systematic manner. Thus they will plan a matter, but often only in their head, and without considering the full range of available people. They will talk to the client, but not have the detailed information necessary to discuss the financial consequences of the upcoming risks, and the plans to mitigate them. There are exceptions, but most will do just enough project management to allow themselves to get to grip with the interesting part – the law.
For a true legal project manager, the law is just one component of the matter. The business development director of a 40 partner corporate team believes that 30% of a typical M&A deal is admin. Client satisfaction is based on the client’s perception of your performance, not the performance itself. And unless the matter makes an acceptable profit, the firm is a hobby, not a business.
Should a firm use industry-trained project managers?
Yes and No.
Is it possible, but the role cannot be a traditional project manager’s. The centrality of the partner to the client relationship means that no project manager, however talented, would be allowed to “fly solo” in their dealings with the client or even muster the internal legal resources. Thus a legal project manager must act as a “para-planner”, doing all the background work to enable the client partner to make the right decisions.
The legal project manager will the one who modifies the firm’s current financial systems to create useful project reports, and will be the one who communicates with the internal team to ensure that there are no surprises. As a relationship develops a legal project manager will increasingly know the mind of the partners they are working for there and there will be some calls, updates and client conversations that the legal project planner will field on behalf of the partner.
So is the legal project planner part of the client team? Should the client be aware of their existence, or should the firm deploy them behind the scenes? The data are scarce. At least one firm formally charges a project manager out to the client, and has proved to themselves that they add to both the client satisfaction and the bottom line profit. In fact having a project manager on board can be seen as a positive point of difference. Other firms have alternatively used them behind the scenes, focusing on the internal resourcing of the work rather than client-facing.
What Should your firm do?
It depends.
If you can change the way your partners work - perhaps by rewarding profitability, leverage and processes you may be able to effect a transformation with your existing team.
If you can find, integrate and cross-train professional project managers to become legal project managers, whilst preparing the firm to accept them you would probably have a more profitable solution.
If you do nothing you will be taken to the cleaners by ABS Companies who come with none of the baggage and adopt a fresh approach
To read a fuller exploration of the partner .v. professional project manager issue, download the associated whitepaper.
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The Problem
All the firms I work with are wrestling with the challenge of making profit from fixed fees. The problem is compounded because often the firm is being asked to pitch without being able to fully scope the work because the client says "the other firms I have spoken to are happy to work with the information given".
Where a firm has excess capacity - and most firms do - the temptation to continually drop price is almost irresistible, the argument being that any profit is better than people sitting around idle. This would be an acceptable strategy if the high-profit clients could be isolated from the low profit ones, but they can't. The profit malaise seeps through the firm, polluting as it goes.
The Solution
Just as King Canute failed to prevent the tide advancing, no firm can prevent the fixed fee tide. So firms have to address the question "How do we make profit from the fees offered?" The simplistic solution is to incur less cost in undertaking the work. Profit = Income-Expenditure. But how can firms achieve this? The answer is Legal Project Management.
Legal Project Management
Legal Project Management can be defined as project management made fit for purpose in for legal environment. Firms who have hired fully accredited and trained industry-hardened project managers have found that the disciplines that they bring – system, processes, procedures, flow charts, numbers and standard reports – are hard to integrate into the legal culture. The project managers are often bemused and frustrated, and the lawyers unyeilding. Why is that? The problems stem from both partner practice and firm structure:
- Partners do the work and run the work. The cardinal rule of project management is that the project manager does not do the work – they look ahead, planning the next move. If a project manager is focusing on “now” it is analogous to a racing driver watching the dials rather than the road ahead. Yet in a law firm the partner running the matter is usually also heavily involved in doing it.
- Partners prefer law to management. Project Management is traditional management on steroids, so few partners have the skills, knowledge or attitude to undertake the role of project manager, even if they had the time. Which they say they don’t.
- Firms reward the wrong things. Firms routinely reward partners for getting work & doing work, not delivering profit. The natural pressure is therefore to maximise personal chargeable hours before passing work to others – like a reservoir. An efficient project, conversely, is one where the work is done at the most junior level possible whilst meeting the client requirement.
- Firms do not have the systems to produce project reports. Firms systems are designed to record and charge time, not manage projects. A project manager needs to know things such as %completion, expected completion date, revenue forecasts for sub-matters, risk plans and communication processes. Without this information the project is not being project managed in the traditional sense.
- Firms are poorly staffed. Much of a project is not law. Perhaps 30% is admin. Trainees are routinely used for this work, yet it could be done better and cheaper by people who worked standard processes and did not change job every 6 months. Firms may see this work as valuable experience for the trainees, but the client would benefit from more non-legal input.
Overcoming these hurdles is not simple, or every firm would have already done so. The decision is is “Do we make partners legal project managers, or do we train and equip project managers to work with partners in the legal environment? Both scenarios require the reward systems and reporting processes within the firm to be overhauled.
So which would be easier?
If managing partners were allowed to write a new year’s resolutions for their colleagues, it would be a 3 point manifesto:
- Get more work
- Make sure that the work is profitable
- Delegate more to ensure (2) is true and you have more time for (1)
The elements of this list would have been the same for the last few years, although the need increases: the challenge of squeezing profit is getting greater, the market place is more competitive and the junior lawyers are less inclined to sacrifice quality of life in return for future promises.
But what can managing partners do to enable their colleagues to do what they all agree needs to be done? What should be on their own list of resolutions?
The associated whitepaper (click here) develops the theme in detail, but to cut to the chase:
1. Managing partners need to get face-to-face with people and communicate the vision. Without a clear vision and associated strategy business development remains an inherently personal and defensive activity designed to maintain the status quo, not build bigger structures. The need is for partners to develop profitable, on-strategy clients. They need to be confident to get in the market and sell the brand.
2. Managing partners need to get a handle on profitability, both personally and organisationally. If the firm rewards chargeable hours and revenue generation, that will be the partner focus. Without a focus on profitability the firm will be squeezed between rising costs and static revenues. The Managing partner needs to identify those proxy measures which give a good indicator of profitability (it's always an inexact science, because not everything that is done is recorded or allocated) and then bring them up the management agenda for discussion and reward.
3. Managing partners need to champion legal project management. There is a first-mover advantage still to be gained from legal project management. It can engage junior lawyers, maximise profitability and reassure clients. The managing partner needs to lead the firm beyond the creation of pricing models and precedent banks into an arena where the scoping, planning and delivery are dynamic. The first step is to find a pilot where the partners can see the vision - which leads us back to point 1 - and not to get caught up in over comlicated gannt charts and process diagrams.
The managing partner cannot do all this on their own. They need an effective management team which accepts them as the leader, and who will share the enthusiasm and responsibility for putting the resolutions into action.
2012 will separate out the law firms who are led from those who are just a brand franchise. The Whitepaper will help you stay in the former catagory.
Law firms have perfected the art of spewing forth financial data to aid legal management. Tired of the constant requests for yet more information, finance departments send out reams of paper to partners far and wide. But data is not the same as information. Without a context, data is just numbers. The context is the firm’s business plan, because the question that the numbers are attempting to answer is “How are we tracking against plan?”. At the risk of being pedantic, the problems stems from defining “we”, “tracking” and “plan”.
“We”
The whole firm is the only financial entity that matters. If the ship is sinking it doesn’t matter that your end is currently above water. So senior partners should concentrate on the whole firm’s performance, acting as main board directors rather than shop stewards for their own departments. Sadly most remuneration systems encourage solo or silo mentalities, because the price of dealing with partner under performance (and rewarding superstars) was increasing difference in individual partner reward.
At the more junior partner level it makes sense to let the partner see the data which they can influence; their own figures, plus those people who look to them for work. Partners are not good at screening out unnecessary data; their job depends on reading those things that other people ignore. Thus faced with huge quantities of data they can become absorbed in other people’s issues (“why is Sue in private client only recording 3 hours a day?”) rather than the 2 or 3 people who really matter to them. The overall departmental figure can be useful if they are rewarded for the departmental result, but again they can become voyeurs rather than actors.
At the FE level the individual needs to see the data that will affect their performance review. Lawyers are competitive, and need the answer to “how well am I doing?”. Since the finance data is usually all we have got (see my point on tracking) they need to see it, and then be guided as to what to do about it.
The truth is that financial data can identify where the ship is letting in water, but does not offer the remedy. In fact the detailed data rarely reveals anything those whose job it is to address the situation didn’t already know. Which shows one weakness of financial data. Knowing there is a problem doesn’t immediately lead to change, as my white paper (see below) explores in greater detail.
“Plan”
For many firms the financials are synonymous with the plan. The plan is to achieve a (revenue – costs / equity partners) that is acceptable. The plan created at the beginning of the planning cycle is rarely holistic, strategic or even referred to throughout the year. This is true at the whole-firm level, where the firm’s plan is often a collection of departmental documents, but also at the departmental level where the analysis and planning rarely maps onto in-year activity. If you disagree, read your 2011 plan and ponder when did you last read it, and did you do what it said?
Thus the pan is really just business as usual. Whilst attempting to be strategic – by which firms mean advocating sector focus and building niche teams – few firms turn work away. Hence they remain trapped in doing the poorly-profitable work for off-strategy clients because it “keeps the lights on”. Plans need to be accepted, executed and rewarded activities if they are to change from aspiration into activity
“Tracking”
How would you know if the plan was actually working? I have written separately about the need for balanced scorecards, particularly as the race for survival or expansion is moving from getting clients to getting profitable clients. The financial data can only tell you what has happened, not what is happening or more importantly what’s ahead. So how would you know if your firm was successful if you couldn’t see the financials? What are the indicators that there is vitality in your firm? In former days the managing partner could use the amount of mail as a rough guide to vibrancy, and walking the floor as a good guide to morale. What are your modern day equivalents? How do you capture this information, and report it to others? This is the information which provides the wharf to the financial weave to provide a true tapestry of what’s going on.
Summary
So, “Who gets to see what?” In summary, the individual partner needs to consider all the information – not just the financial information – which will enable them to deliver their part of the firm’s plan, and support the other parts in the whole-ship mentality. Getting them to change their behaviour as a result of this information is a separate challenge, as the white paper touches upon. It also looks at the manner of reporting – not just the content.
I have encountered very few partners who enjoy discussing money with the client. I know one partner - now a managing parter - who kept (and perhaps still keeps?) a list of billing targets in his top pocket. But he is unusual. It is ironic that a profession which has the closest form of naked capitalism I can think of (selling time for money) as its basic metric finds it so difficult to establish, communicate and defend price.
I believe the problem is that the typical partner sees the (a) internal costing and (b) pricing for the client as 2 separate processes which need to take place before we interact with the client. So our preferred style is to absorb information, consider consequences, calculate internal costs and then establish a price which we believe that is both fair and the client will pay. Then we tell the client. Usually via email.
This is poor practice for any salesperson. A client wants to know how much something might cost at the time he is considering making the decision. The cost forms part of the decision-making process, so needs to be discussed with the professional who will provide the service (i.e. you). In an ideal world the client would respond to your carefully-worded email sent 24 hours after the meeting with a well-crafted reply. In the real world they may not read your response for some days, in which time they have met other people, considered other priorities and forgotten the rapport which you had built with them.
The solution is to raise the price issue upfront, when you initially talk to the client, because even if the client doesn't mention it, you know they are thinking about it. You can then frame the price in terms of the work they want done, and explore other options which would change the price.
If you find the whole idea of discussing price uncomfortable, you should read the white paper on "The 10 step process to discussing money with the client." Once you get the hang of it it becomes both lucrative and useful in building client loyalty.
Anybody who has worked with partners will have spotted that they are good at analysis; particularly verbal. When undertaking business development planning they deploy this skill with vigour – admittedly when pushed by the marketing department, but nonetheless in an impressive manner.
A typical plan
Thus a typical partner’s marketing plan – whether centred on the practice or the individual, will have a large portion devoted to an analysis of the market and client profiles. The analysis will then continue to include the obligatory SWOT analysis, which will rarely produce any new insight. The back of the plan is therefore devoted to a table indicating how the current marketing activities are to be diarised. These events are usually in the 0-6 month horizon.
The plan is then consigned to the marketing team’s document management system, with the locally held copy being resurrected in time for next year’s repeat performance.
I have therefore found no correlation between successful lawyers/practices those who undertake systematic planning.
The alternative is to provide a greater sense of direction and involvement. It requires the planning as well as the execution to be a team event. And it requires an underpinning strategy to link togethet the disparate elements.
You can download a short white paper giving some additional practical suggestions.
The more ambitious could consider exploring the world of strategy. There’s not a lot of real strategy – as would be recognised by a corporate client - going on in law firms, but if you want a couple of well-written and pragmatic books, I suggest:
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A collection of articles and thought pieces which destroy traditional planning theory and offer a breath of fresh air.
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Explains why most law firm strategy(numbers working backwards) is flawed.
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Law firms are good at reporting: the typical law firm finance department spews financial data like a broken fire hydrant; the narrative that accompanies the client invoice is a model of what we did, how and why; even the marketing department is, at last, achieving some traction in getting client-facing lawyers to enter information into the CRM system.
Law firms are, however, not good at planning. The past is a stable country, auditable and precise. The future is an environment fraught with uncertainty and risk. If possible, risk is transferred to the client. At the very least it is mitigated. The law firm's own affairs consequently became an adjunct to the client work; a lawyer would rather focus on the task in hand, and trust that the firm’s future will be simple projection from the past.
For many years (until 2008?) this was a viable strategy, and one firm even proudly asserted that their strategy was simply “£ this year plus +15%”. This is no longer possible. Revenues are flat, profit per lawyer is under pressure, and clients are changing the way that law is consumed. Law firms therefore have to create strategies that require changed behaviour. The firm cannot do what it has always done, and expect to get the results it has always achieved.
This is now the problem. The firm knows the market is changing, and can see the train coming down the track. Well-read and well-educated partners understand the issues, and can weigh up the alternatives. The subsequent strategy is, however, often academically sound but fundamentally useless, because the firm cannot execute it. As Drucker famously observed “Culture eats strategy for breakfast”. If the culture – the way we do things round here – is inherently cautious, risk-averse and precedent-based there is no chance that a Damascene strategy is going to work regardless of the inherent logic of it.
In the book “Switch”, the authors observe that the conscious mind can be viewed as the rider on the elephant of the unconscious. A large change of direction requires consistent effort from the driver, and fatigue quickly sets in. Reversion to the norm ensues. Even in the face of crisis, the pattern is that partners revert to safe behaviours, rather than grasp the nettle. In a law firm under pressure the managing partner prefers to spend time with his clients, experienced partners focus on existing clients, not new ones, junior partners are content to work on the matter in hand and the firm edges towards irrelevance. It's not that they don't see the problem - it's just more reassuring to do something they are good at, even if it's the wrong thing.
To overcome this inertia, the strategy must therefore move from its lofty height to become a practical play-book. Just as a football coach establishes set-pieces and standard strategies to enable the individual players to know their roles, the law firm must do the spade work in turning high-level ideas into pragmatic actions and then monitor and encourage the results. So, for example, having a sector strategy may be a good thing, but “so what?” What should I do about it, a junior partner or a senior associate? The firm may want to hire a big-hitter into a particular discipline, but “So what?” What should I, a partner unencumbered by a management role, do to support the strategy? Those of us who spend the days immersed in management speak easily forget that, in the end, executed strategy all comes down to individual partner choice.
Scary, isn’t it?
Two books you may find helpful: