Editor’s note: This is the first installment in what will be an ongoing series of Q&As with leaders of midsize firms in Pennsylvania, providing insight into the unique challenges and opportunities they face in a rapidly changing legal profession.
With 135 attorneys, Harrisburg-based McNees Wallace & Nurick is in what chairman David Kleppinger describes as the “interesting position” of simultaneously being a midsize firm in the national legal market and the largest firm in central Pennsylvania.
That dual role means the firm’s leadership must compete on price with the smaller firms in its local market while pushing to remain forward-thinking on issues like project management, technology and succession planning to remain in step with its larger competitors from nearby major metropolitan markets.
Kleppinger talked about maintaining that balance as the firm forges ahead into the future of legal services.
The responses were lightly edited for length and clarity.
How big is your firm, where is it located and what are its primary areas of practice and focus?
We are a firm of 135 attorneys and 166 total timekeepers, based in central Pennsylvania, with offices in Harrisburg, Lancaster, State College and Scranton. In addition, we have offices in Columbus, Ohio and Washington, D.C./Frederick, Maryland. We are a very diversified firm with 10 primary practice groups: estate planning, automotive dealership, construction and procurement, financial services and public finance, labor and employment, real estate, corporate and tax, energy and environmental/toxic tort, intellectual property, and litigation. In addition to these primary practice group areas, we have substantial practice groups for food and beverage, health care, state and local tax, education, and family law. No one practice area is greater than 20 percent of firm revenue, thus, our practice diversification has benefited us during times of market downturns in one or more particular areas.
Please explain your firm’s governance structure and compensation model.
Our firm’s governance structure is relatively simple and highly centralized. We have a three-person management committee consisting of the chairman and two partners. Our chief operating officer actively participates in all management committee meetings in a non-voting capacity. The management committee also serves as the compensation committee for partners. The management committee meets every three weeks and more frequently during compensation season. The committee also meets at least quarterly with our “kitchen cabinet,” which consists of the primary practice group leaders and the partners in charge of each of our office locations.
While our chairman and management committee are elected annually for one-year terms, we have relatively little turnover. I have been chairman for over 11 years, and during that 11 years, only three people have served in the other two management committee positions.
Our compensation model is best characterized as “the subjective application of objective information.” The compensation committee sets compensation on an annual basis with each partner completing a compensation questionnaire and personal goals for the upcoming year. We review four years of objective data and rely on those four-year averages in establishing compensation. As a result, there is relative stability in our partner compensation. The partner productivity data is open in the sense that each partner knows their relative position on financial metrics in relation to all other partners, but does not have the individual partner data on anyone other than [themselves]. Upon finalization of the compensation committee decisions on an annual basis, each partner has the ability to access the full partner compensation schedule with individual partner names and compensation levels.
What do you view as the two biggest opportunities for your firm, and what are the two biggest threats?
One of our two biggest opportunities is our ability to capitalize on cross-servicing our loyal client base. By establishing client service teams for our highest revenue-generating clients, we are educating clients on the diversity of our practice in areas where we are not currently serving them. Our second biggest opportunity is capitalizing on the pressures being experienced by in-house legal departments and large businesses without in-house legal staff seeking to reduce outside counsel spend and obtain higher value. We have a very favorable overhead position in comparison to the Am Law 200 firms and can market our value proposition at our standard hourly rates and alternative fee arrangements, which can provide higher value and lower total cost than even deeply discounted rates from the Am Law 200 firms.
One of our biggest threats is the challenge presented with our ability to continue attracting and retaining the best and brightest personnel throughout our organization. Most of our offices are not located in large metropolitan areas which tend to be more attractive to the millennial employee population. We are optimistic that, by offering an attractive work/life balance and maintaining our status as a “Best Place to Work in PA” for over 10 consecutive years, we will withstand this threat.
Our second biggest threat is to innovate and adapt at a pace equal to or greater than the pace at which our industry is changing. Whether the issue is technology, client relationship management, knowledge management, or legal project management, we must be on the leading edge of innovation and adaptation as the world of artificial intelligence in the legal industry is closer than many of us want to recognize.
After the recession hit, the prevailing theory was that midsize firms would start to see more work come their way from large clients who could no longer justify paying Big Law rates. What has been your experience?
Even during the “Great Recession” our firm continued to grow in terms of revenue, profitability and head count. We have successfully responded to large client RFPs which typically have been won by Am Law 200 firms. As a result, several of our practices are now regional, national and international in scope. However, our firm is in an interesting position as a “midsize firm” because while we are “midsize” in comparison to the Am Law 200, we are the largest firm in our central Pennsylvania markets. As a result, we need to balance our pricing to withstand the competition from the smaller and midsize firms in the central Pennsylvania regional market.
Another beneficial impact to our firm that is partially attributable to the recession has been the growth in our lateral hiring of partners from Am Law 200 firms who have regional offices in central Pennsylvania. These attorneys, with a substantial clientele of small and medium-size, closely-held and family-owned businesses were able to maintain or reduce pricing by joining our firm, as opposed to remaining in regional offices of Am Law 200 firms with higher overhead and pricing philosophies.
Are your clients pushing for more alternative fee arrangements, and if so what types? Is your firm amenable to those requests?
Clients are clearly seeking higher value and certainty in their purchase of legal services. We have been providing alternative fee arrangements for clients in a variety of practice areas for many years and that trend is clearly continuing both at our own urging and at the request of clients. We have employed blended hourly rates, fixed fees, maximum fees, contingent fees, and budgetary ranges for as much as 25 percent to 30 percent of our revenue. We expect that percentage will continue to grow and is one of the reasons we are aggressively implementing legal project management.
There is much debate around how law firms can foster the next generation of legal talent. What advantages and disadvantages do midsize firms have in attracting and retaining young lawyers, particularly millennials?
I have already touched on this issue above as one of our biggest threats. Our advantage as a midsize firm in attracting and retaining millennials at all levels of our organization is to emphasize the quality of life and law practice that a firm like ours can offer in a smaller metropolitan environment. The sophisticated legal representations in which we engage are attractive to the millennial population, but we need to offer those experiences with the work/life balance that they so richly value. Fortunately, our geographic location is within a three-hour or less train ride or drive to New York City, Philadelphia, Baltimore and Washington, D.C. Thus, we market the “best of both worlds” to our employees because they can enjoy the positive externalities of those great cities without some of the day-to-day hassles of metropolitan life. Clearly, our marketing challenge to attract and retain the best and the brightest is in converting perceived disadvantages of a midsize firm in a smaller city into an advantage by convincing that talent that they can develop themselves into an outstanding attorney providing sophisticated legal services to a client base ranging from an individual estate planning client to a Fortune 500 company, and do so in practices that are regional, national and international in scope.
Does your firm employ any nonlawyer professionals in high-level positions (e.g., COO, business development officer, chief strategy officer, etc.)? If so, why is it advantageous to have a nonlawyer in that role? If not, have you considered hiring any?
We do employ nonlawyer professionals in high-level positions both in our administration and in our timekeeper population. In addition to our traditional paralegals, our timekeeper population includes accountants, engineers, energy management specialists and patent agents. We have found these nonlawyer professional timekeepers capable of providing high-quality and valued services to our clients, while generating profitable revenues for our partners.
Our chief operating officer has always been a nonlawyer with a strong financial and accounting background in addition to understanding building operations, given the fact that we own the office building in which 100 of our lawyers reside. Our chief business development and marketing officer practiced law for 20 years before leaving the active practice in favor of law firm marketing positions. We also employ nonlawyer professionals in our positions of litigation technology manager, legal project management coordinator, director of billing, director of accounting, information security architect, director of information technology, director of human resources, and director of our information center. We have found these highly educated, trained and quality individuals to be indispensable to our firm’s success. They each bring a nonlawyer perspective, not only to their respective position, but also to firmwide operations.
What, if any, technology advancements have you made in your firm in recent years? What are the challenges in implementing tech changes?
Over the last few years, we have essentially replaced and/or updated our entire hardware system and enhanced our data security to meet current needs. We have updated our document management and preparation systems and installed a sophisticated client relationship management (CRM) system. In 2018 we will switch from an Elite-based time and billing system to an Aderant system. We have also increased our information technology staff by not only having a director of information technology, but also an Information security architect, given the worldwide challenges in that area. As lawyers are typically resistant to change, the speed and timeframe during which we have had to make these changes has been challenging, but we believe we are on the down-side of the curve of adaptation. We also have challenges at our support staff level because the speed of change and the need for ongoing training can be intimidating. Fortunately, we have on-site training facilities with a person solely dedicated to technology training.
What would you say is the most innovative thing your firm has done recently, whether it be internal operations, how you work with clients, etc.?
The most innovative thing we have done recently is to hire a legal project management coordinator. This position will work directly with lawyers as we develop responses to RFPs, price our product, and execute on the tasks associated with any particular legal project. For a firm of our size and our geographic area, we believe we are the first firm to employ a dedicated legal project management person. This hiring was an outgrowth of our long-term strategic planning process which we called “McNees 2026.” That strategic plan process culminated with the adoption of a long-term strategic plan at our 2016 retreat and was designed to assure that we will do whatever is necessary over the next decade to be even more successful in 2026 than we are today. Successful implementation of legal project management is crucial to that success.
Does your firm have a succession plan in place? If so, what challenges do you face in trying to execute that plan? If you don’t currently have a plan, is it an issue your firm is thinking about?
Our firm conducts succession planning at several levels. With respect to the chairman’s position, I announced that 2018 would be the last year for which I would stand for election. Therefore, the partners were informed at least two years ago that they would be electing a new chairman effective Nov. 1, 2018. The management committee put forth a plan identifying the individual who is interested in succeeding me in that position, recognizing to the partners that the decision will still be up to them when those elections occur in October of 2018. We fully anticipate that the plan laid out for the succession of my position will be approved.
At the practice group leader level, we have also implemented a succession plan and practice group leader changes as our baby boomer practice group leaders are being replaced with the next generation of practice group leaders. That plan was shared with the partners in late 2017 and will be implemented prior to the election of our new chairman in October of 2018. At the individual attorney level, the chairman meets annually with every attorney after they reach the age of 60. During those meetings, individual clients are reviewed and tentative decisions are made as to the successor to the current client relationship manager. With a mandatory retirement age for equity partners at age 65, we use those five years and five annual meetings to ensure smooth client transition.