Are you a law firm leader or decision-maker tired of all the advice you’ve been reading and receiving since the 2008 economic downturn?
Yet over the past decade, how much of that advice has been heeded and implemented in your firm? Probably not much, as addressed by ALM Intelligence Fellow Jae Um earlier this year for The American Lawyer:
“The modern American law firm is a beleaguered enterprise, beset on all sides by intensifying competitive pressures both new and old. By all accounts, law firm leaders know this to be a self-evident truth. You see it in your financials, you sense it in the air, and you feel it in your bones. And yet in 69 percent of law firms, partners resist most change efforts.”
In 2013, legal commentator and consultant Timothy B. Corcoran wrote extensively on the changes and innovations he believes are crucial to the ongoing success and viability of big law firms. He wrote it from the perspective of 10 things he would do differently as a law firm CEO. Five years later, his advice is still relevant, not only to CEOs but to other decision-makers in law firms, including library / knowledge / research directors.
1. Change the governance model
Notwithstanding any potential tax or liability benefits of the business form, it is ridiculous to believe that all partners should have an equal say in firm operations, particularly after an organization reaches a certain size. Nor is a dictatorship acceptable, even when led by a benevolent leader, because such firms lack sustainable business processes and falter when the leader inevitably departs. Identify a core leadership team at the firm and practice group levels and give them the authority to lead.
2. Productize the offerings
All law firms have products, they just choose the collective delusion that legal services are unique and non-repeatable actions. Some matters require unique tasks, but every legal matter includes tasks that have been done before, usually many times before. Figure out which service offerings the firm produces profitably and effectively and commit them to a repeatable series of actions. Repeatability and reiteration lead to improved quality and profitability by reducing variability.
3. Embrace strategic pricing
Here’s a revelation: clients will care less about the mechanics of your invoice, whether the billing is by the hour, by the word, by flat fees or based on astrology charts, so long as the value delivered is commensurate with the price paid.
Learn what it costs the firm to produce and deliver its legal services. Establish a price that covers costs, delivers value and generates a profit. If you can’t figure this out, hire a new finance team. If you can’t find a profitable price, focus on lowering your cost of delivery, not just your overhead. Or accept that the client may not place the same value on the offering that you do and find something else to offer that has greater value.
4. Reduce inefficiencies
Law firms carry extraordinarily wasteful overhead. Say no to the partner who demands his own graphic designer and high-capacity printing operation on the off-chance he might leave a key proposal to the last second and need to run an after-hours, all-hands-on-deck fire drill to generate a boilerplate RFP response. Stop running the same conflict checks by investing in a data cleanup operation, adding in corporate trees and linking your CRM system to your billing system and the conflicts database. Improve your RFP win rate by requiring that lawyers adhere to best practices, instead of repeating the same mistakes. Look at every single process in the firm’s back office and find ways to eliminate redundant and wasteful steps. If you’re not sure how or don’t have the time, hire an expert to do it for you or to train you to do it.
5. Reduce the cost of goods sold
The techniques used to identify and reduce back-office inefficiencies can be effectively applied to a legal practice. When faced with flat or declining revenues, the sustainable way to maintain or grow profits and to defend against predatory competitors is to reduce costs at a faster rate. Whether in litigation or transactions, there are repeatable steps on the critical path to success and excess steps that may be deemed helpful or necessary by risk-averse lawyers, but are not statistically relevant to risk-taking clients. Undergo a rigorous examination of all processes and develop project plans that reflect successful and profitable approaches.
6. Invest in knowledge management
Back in the day, knowledge management (KM) meant writing summaries of notable briefs and memoranda and indexing and filing them away in a database for later retrieval, which combined a task that no one liked with a result that no one wanted. KM should be synonymous with a learning curve, or the economic principle that what we’ve done multiple times we can do more efficiently.
Poor leaders believe KM is a technology problem and will invest millions in tools that lawyers happily ignore, but wise leaders recognize this as primarily a cultural problem. Also, rather than lamenting the decline of associate training that was once fully funded by clients, a KM culture both accelerates and improves associate education.
7. Don’t guess, forecast
Businesses thrive on certainty and generally value repeatable revenue streams over one-time transactions, and corporate budgeting is a never-ending exercise to identify revenues and expenses. No business can operate without a clear sense of its working capital, cash flow and resource needs; yet most law firms employ lagging indicators such as profits per partner to determine fiscal health. That’s like driving a car until the gas tank is empty to determine the gas tank’s capacity, which is then retroactively applied to the prior day’s agenda to see if the tank should have been refilled before embarking upon a series of errands.
- Create and maintain a sales pipeline, applying simple methods to target the right prospects and predict future engagements, resources needed, likely cash flow and potential profits.
- Implement zero-based expense budgets and hold everyone accountable.
- Measure the ROI of marketing investments, and not just the ad campaign but the partners who take the same clients or law school pals to sporting events with no discernible incremental business resulting from the expense.
8. Measure client satisfaction constantly
Hire a consultant; send your managing partner on the road; ask your CMO to conduct interviews; conduct an annual satisfaction survey; conduct an end-of-matter survey after every matter.
Whatever you do and however you do it, study it, sustain it and act on it. Most law firms claim to be too busy to systematically gather client feedback, naively believing good legal work speaks for itself. Many who claim to care sit on findings that are challenging to address, e.g., toxic rainmakers or institutional overbilling. Even those who measure client satisfaction effectively well tend to do so at too-infrequent intervals.
- Know why clients hire you
- Know why they don’t hire you
- Know why (and when!) they fire you
- Know what you do well and what you can improve
Know these explicitly and implement programs specifically designed to improve performance.
9. Compensate for retention and profit
Partner compensation is often described as the third-rail of law firm management. Partners will act in their own self-interest when there is no alternative, so give them some alternatives that tie improved compensation to improved client satisfaction. Long-term client value trumps short-term transactional profit. Satisfied clients will generate higher profits over a longer period by lowering the cost of sales, and retaining existing clients is always less costly than acquiring new clients.
Businesses deal with compensation conundrums every day. It may seem complex, but relatively simple calculations can help identify the optimal approach. Law firms tend to maximize one factor: originated hours. By tweaking the formula, leaders can better recognize and reward lawyers who contribute at different points in the process.
10. Require leadership and management training
It doesn’t require an MBA to lead a successful business, but it helps to be consciously competent. In other words, know why you’re successful and how to repeat it. Many law firms and their leaders have been unconsciously competent for a long time; successful, but no one is quite sure why. You don’t have to do it on your own. Educated people are willing to teach law firm leaders these techniques, and there are many who are eager to join firms to demonstrate from the inside.
- Stop hiring administrators whose primary asset is not rocking the boat.
- Cast aside, or gently nudge, the unqualified or uninterested and replace them with committed leaders who have or will learn new skills
- Employ experts for advice along the way.
The law firm model isn’t dead; nor is law firm growth. But law firms and law firm leaders stubbornly adhering to outdated models are gasping for their last breath. The modern law firm can thrive, but not if it pretends it’s still 2007.
The above article was originally written and published by Tim Corcoran.