Well, we’re still in it. The “Great Recession” is undergoing a painfully slow death. Yet, our polling of law firms around the state and the country indicates that law firms are doing reasonably well by learning to do more with less.
Headcounts are basically flat after the downsizing that began in 2008-2009. Associate starting salaries are flat and are expected to remain so for the near future. There are many lawyers on the market who graduated at the beginning of the recession who are willing to work for salaries offered to recent graduates. This means that first-year hiring will be more competitive and that we should expect an even greater decline in law school enrollment.
Most law firms are leaner and more efficient than they were, say, five years ago. They have to be, because their clients are demanding that they become more efficient. In the long run, that is a good thing. To be sure, the last four years have been very painful for law firms, their partners and their employees. That said, today’s law firms are, by and large, more efficiently staffed, better capitalized and more attuned to focusing on the three most important elements of law practice management: client development, talent development and work management.
Firms of all stripes, especially those who serve businesses, are striving to be more aware of their clients’ needs and wishes. Many of them have formal team efforts in which they take the initiative to regularly talk to clients about legal services and the economics of providing them. The focus these days is on “relationship management,” not just business origination. “Finders” are still important people who have to be encouraged and rewarded for developing new business, but there appears to be an emerging era in which the “minders’ ” stars are rising. Client retention is now as important as client origination.
On the talent front, we are also facing a big generational shift. During the last two decades, the Baby Boomers have been the rising stars and, in many ways, led the shift in law firm cultures from egalitarianism to meritocracy. They joined up in large numbers in the 1970s and 1980s, grew practices and advanced throughout the next two or so decades, and are all now poised to transition into retirement. The problem is that many of them did little to develop the “Next Generation” behind them. Many firm leaders are telling us that they have a high-performing top generation and a high-performing group of rising young stars, but a weaker “Middle Generation”.
Thus, while client development will continue to be critical in the coming years, talent development and retention will be even more important. Succession cannot happen if the succeeding generation is weak. Small wonder that the younger partner classes in larger firms, especially those in concentrated areas like New York City, are the most vulnerable to cherry picking. The lateral-partner market is quickly becoming dominated by demand for rising stars — young partners with great skills, entrepreneurial drive and an unwillingness to “wait their turns” until the “big dogs” have finished eating.
Hence, talent development and retention are important concerns. That means a lower tolerance for mid-level “cruisers” in partnership ranks — those partners whose comfort zones tolerate mid-level pay for mid-level effort and performance.
Finally, there is the need to focus on work management. By that I mean worrying about two things: how matters are staffed and managed, and how matters are advanced through the “pipeline” more quickly.
It has been widely recognized that, so long as every timekeeper is fairly busy and that the firm is doing a good job with “business hygiene” (i. e., pricing, realization, billing and collection), firms that are successful at delegating as much work as possible to non-equity lawyers will make more money per partner than those who do not. Increasing leverage — the ratio of non-equity timekeepers in the firm to the number of equity partners — has been an elusive goal, however. You don’t get there without making a concerted effort to work on equity partners’ delegation, supervision and project management skills. The goal should be to maximize the amount of work that a given equity partner can effectively supervise, without risking malpractice because critical work falls through the cracks.
It all begins with how matters are staffed. Rewarding those who drive work to the most appropriate level in the organization discourages hoarding and provides interesting, challenging and rewarding work for junior lawyers — aiding in the development and advancement of their careers. This means that firms need to become less tolerant of partners who hoard work to keep for themselves or who tend to operate in silos or as lone wolves.
To be sure, firms are feeling some “push-back” from clients about not wanting to pay for junior people. So, there is another challenge for client relationship partners to convince clients that some leverage is tolerable and adds to efficiency, if the work is priced and delivered effectively.
As to “pipeline management”, probably the biggest complaint from clients about lawyers — apart from their high cost — is the slow pace by which their work gets done. They get increasingly impatient as matters languish and client/lawyer communication dries up. Not only must partners learn how to better delegate and supervise, they need to get better at keeping the work moving through the pipeline. To that end, we are seeing clients make targeted investments in software, systems and processes to better track and manage “throughput.” They understand that law practice management is more than worrying about profits and compensation systems. They recognize that superior work management processes can provide enormous competitive advantage over firms that are less able to deliver services efficiently and quickly.
Big Six Challenges
This, in brief, is the case for spending increased efforts on client relationship development, talent development and process and project management. These are the things that should be keeping law firm leaders awake at night. But, what other issues are out there that also contribute to “Managing Partner Insomnia”?
Each year, we survey about 300 law-firm managing partners, executive directors and COOs around the country and ask them about what they see as their biggest management challenges. This year’s survey yielded what we have come to call the “Big Six of 2012″. In order of importance, they are:
Underproductive Partners: It is statistically true that every law firm has a median level of performance and, thus, 50 percent of a firm’s partners may be considered “underproductive.” But, that is not what we mean by an underproductive partner. A chronic underproductive partner (which implies a number of years of sub-standard behavior) usually includes most or all of four characteristics: 1) a consistent lack of productivity; 2) a below-average work ethic; 3) a dislike of and an aversion to marketing; and 4) a resistance to participating in talent development, teamwork and other necessary firm-building activities.
In most firms they are either tolerated, ostracized, ignored, or supposedly dealt with through compensation (a major legal management fallacy). While the last few years have seen considerable progress in dealing with underproductive partners, there still is much to do, because most firms do not see or understand how damaging, collectively and individually, they are. The management challenge will be to move these partners out of their “comfort zones” or move them out of the firm altogether.
Client Responsibility Succession: We have already addressed this, in part, above. The highly productive partners who developed and nurtured key client relationships in the ’80s, ’90s, etc. (and thus, who contributed directly to the era of significant law firm growth) are now approaching, or are passing “normal” retirement age. Most firms (and most of these partners themselves) have done a very poor job of planning for their succession vis-à-vis client relationships. In addition, many firms have not invested sufficiently in ensuring that the next generation will be capable of inheriting the practices of retiring partners. This bolsters our case for focusing on and investing in talent development.
Practice Group/Team Management: The top of the food chain is not occupied by the individual homo sapiens. It is, in fact occupied by “humans acting in groups”. How well a firm manages its projects and pipeline, as we have asserted, is one of the prime determinants of law firm success and competitive advantage. To be sure, individual partners need to be good at managing the work on their own plates. More important, however, is their ability to manage the work on multiple plates. Lawyers operating in effectively managed practice groups can accomplish major advances in client development, talent development and work management. Everyone must have a role. Everyone must understand his/her role, both individually and relative to other team members. Everyone must play his/her role to the best of his/her ability. Everyone should be rewarded for team successes.
Partners Not Behaving As Owners: This condition is a complaint we hear to some degree in every firm we serve. Its manifestations are a lack of interest in partnership issues, lack of involvement in talent development, and a host of other symptoms. While, to an outsider, its continuing existence is cancerous to a firm, firm managements are loath to deal with it.
Without trying to deal with the different divisions of the responsibilities of multi-tier partnerships, let us offer a single prescription. If a partner is legally an owner of the firm, then (s)he needs to unquestionably behave as an owner of the Firm. If (s)he cannot, (s)he cannot be a partner.
Inadequate Marketing And Client Development: There are many things that go into effective law firm marketing — too many, in fact, to discuss in this article. As to this topic, however, I want to emphasize the importance of client-relationship management. Origination — commonly thought of as the result of “marketing” — is only part of the picture. Retaining and expanding relationships, as well as focusing on the client’s overall “experience” in working with the firm, really enhance the firm “brand” and are critical elements of building lasting institutions.
Less Than Fully Effective Strategic Planning: While we know, as strategic planning consultants, that suggesting better strategic planning and plan implementation is like the dentist calling for tooth check-ups, it is still a valid observation. Just as with practice team management, effective strategic plan development and implementation can separate the better firm from the good firms and the best firms from the better firms. Most importantly, it can create sustainable competitive advantage in an ever-more-competitive marketplace. Firms that excel at building and institutionalizing client relationships, building and retaining successive generations of truly excellent talent, and investing in proprietary project and pipeline management tools will become distinctive and unique institutions. Those who do not are destined to lose ground, eventually fading into mediocrity.
So, all you managing partners out there, stay awake and think about these three key issues and how they relate to the “Big Six”. The key to getting a good night’s sleep is to take action and implement changes that focus on clients, talent and work management. Once you do that, you can rest more easily, knowing that you have done your duty to your firm and your fellow business owners.•