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Law Firms Functioning “More Like A Business”

law firm practice managementEvery law firm, although unique, is in some way experiencing the economic and client pressures presently affecting the entire legal industry. The common response to these pressures often begins, and sometimes ends, with a broad comment that your firm needs to “function more like a business.” This article will briefly discuss how we see this phrase commonly perceived, the unique difficulties it creates within the legal environment, and the challenge law firm leaders must face if they want to thrive during these challenging times.

Two Perspectives

“Function more like a business.” While everyone will have their own unique definition of this phrase, I see them fall into two general perspectives.

The first is by those who have experience in industries other than legal or have formal business training or education. These individuals envision efficient and profitable operations where performance metrics are routinely developed and utilized almost exclusively as their basis for major decisions affecting the business. I call this the “innovator” perspective. 

The second is by those whose experience is nearly exclusive to the legal industry. While these individuals also desire profitability, they envision many business practices as restrictive or as a distraction from the regal nature of the practice of law and the profound impact it has on our society and nation as a whole. I call this the “traditionalist” perspective.

The Leadership Challenge

Anyone who observes the legal industry knows that economic and client pressures presently have momentum on the side of the innovators. However, those in law firm leadership who try to implement innovative change continue to experience the traditionalist’s significant ability to resist that change. But change they must. In fact, despite reluctance, the last several years have brought dramatic changes to the legal industry.

Consequently, if change and resistance are both inevitable, the challenge presented to law firm leaders is to find balance by seeking ways to implement innovative change while simultaneously working to preserve the cultural aspects of the practice that make it unique among professional services.

Proactive vs. Reactive

Much of the change law firms have experienced in recent years happened as the result of internal reactions to external pressures. Because external pressures are often unexpected, the resulting internal reactions occur with little time for management to research and plan for the change effectively. As a result, the change can often have unintended, and certainly unexpected, consequences.

As a result, when we talk about law firms functioning “more like a business,” an excellent place to start can be summarized as follows…

“Working proactively to minimize the unintended

consequences of changes we need or desire to implement.”

So, with this objective in mind, how do we begin? What can we do proactively to improve all future changes, irrespective of what those changes may be?

We need to start by accepting a simple truth... that any change we make is fundamentally influenced by our present understanding of what we are changing. Therefore, if our goal is to better manage the changes we need to make to our practice or operation, we need to begin by improving our understanding of our practice or operation.

Perception vs. Reality

Throughout my career, I have encountered a phenomenon where law firm management, at every level, possesses insufficient knowledge of the practice or operation they are managing. This occurs for a variety of reasons, but they often feel they either know, don’t need to know, or are not held accountable for what is occurring. As a result, efforts to analyze the practice or operation are suppressed because they are viewed as an unnecessary distraction.

Some will deny the existence of this phenomenon. Allow me to respond to two common defenses.

“We have undertaken multiple efforts to gather information about our organization.”

You have, and I do not mean to imply that those efforts were not successful (common examples include interviews, focus groups and surveys). While these efforts likely accomplished their intended purpose, they are often too narrow in scope or lack sufficient detail for their results to be useful for larger purposes.

“Our management team has a firm grasp on our internal operation.”

Yes, senior leaders and departmental managers, each focusing on their area of responsibility, have a general understanding of what activities individuals in their respective departments perform. However, systems are often not in place for this information to be gathered and compiled allowing it to be effectively referenced during their decision making processes. Additionally, where individual departments collect performance data, systems do not exist that correlate and compile the data with data from other departments providing management with a holistic view of the firm’s operation.

Allow me to illustrate using common examples.

Attorneys: “We establish an understanding of an attorney’s role by practicing with them and reviewing their time sheets.”

While observations, conversations and reviewing time sheets can certainly provide a view of an attorney’s client-chargeable activity, it is not a complete picture. What about the rest of the attorney’s time? An average attorney can spend a significant amount of time (commonly between 15%-25% of their total work day) performing non-chargeable activities. Because these do not generate revenue, they are often overlooked. Wouldn’t a better understanding of this time improve our understanding of the attorney's true work habits and productivity? Consider the following:

  • How much do we know about their non-chargeable time?
  • What specific support activities are they performing?
  • How many hours are they spending on each?
  • Can any of those activities be done by support staff?
  • What is the likely effect of making more or less support available?
  • What skills would staff require in order to assume these activities?

Secretaries: “We establish an understanding of a legal secretary’s role by obtaining an assessment from those they support and in some cases a dedicated supervisor.”

Establishing an assessment of a secretary’s performance by compiling fragmented information from multiple sources is the best most firms can accomplish. While satisfactory, this commonly produces an incomplete picture of what is actually a highly diverse and specialized role. Wouldn’t a better understanding of a secretary's time improve our understanding of their true work habits and productivity? Consider the following:

  • What specific support activities are they performing?
  • How many hours are they spending on each?
  • How are we managing the diverse requirements of this position?
  • How do the activities of legal secretaries intersect/overlap with other support departments or personnel?

The Challenge

While these two examples illustrate how a firm may have what many would describe as an "adequate" understanding of these positions, a deeper level of understanding would significantly improve business decisions affecting their performance and value and simultaneously give a firm the insight needed to minimize any adverse effects of those decisions.

Meeting this challenge begins with the recognition that our present understanding of our operation is insufficient. Many long-standing traditions and practices restrict our ability to move firms forward, but with patience and respect for history, I believe significant progress is possible.

Related Post:

Do Law Firms Still Need legal Secretaries?

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About the author: William D. Mech is a veteran legal administrator and Principal with ofPartner Consulting Services www.ofpartnerocs.com which provides a host of analytical and performance assessment services designed to improve the operation of law firms. Comments or questions about this article can be sent to him directly at: wdmech@ofpartner.com.

©2013 ofPartner LLC

 

Comments for Law Firms Functioning “More Like A Business”


Name: Jack
Time: Monday, July 22, 2013

With greatest respect, this post is misleading and inaccurate. Law firms have been moving toward a business model and away from a traditional partnership for at least the last 40 years, and there is significant evidence to suggest that this trend is, in fact, the cause of the current malaise, not the solution. Law firms were traditionally based upon an institutional client base, client-attorney loyalty, strong firm interrelationships with in-house counsel, camraderie amongst partners in different specialties, equitable compensation of partners decided by the whole of the partnership in accordance with one's equity interest, reasonable billing rates that do not squeeze the last dollar from every client, and consensus decisionmaking with equity owners. By contrast, today we see firms with untrained managing partners making all business decisions, client disloyalty, so-called "rainmakers" moving from firm to firm due to ever more lucrative "guaranteed commitments, a total disrespect for the "partnership" relationship and numerous levels of "partners", many of whom have no equity stake in the firm. Many great and collegial firms have disappeared from the legal landscape for no good reason other than some highly-paid consultant earned a large fee to come to a lavish partnership retreat to tell the partners how little they knew about business, and how for a few hundred thou they could remedy all their problems. Usually, this meant firing partners, hiring mercenaries in elite specialty areas, downsizing staff, eliminating pension and medical benefits, wild geographic expansion without reason, and ill-timed and ill-conceived mergers with other firms with totally disparate cultures and practices. Perhaps, therefore, the correct solution to the current malaise would be to return to the very structure and ethos now so decried and disparaged by these highly-paid 'consultants, and return to the model which made the practice of law such a noble profession in the 20th century?

Name: William Mech
Time: Wednesday, July 24, 2013

Thanks for the comment John. While I am unclear which part of the article you found misleading or unclear, I agree that the overview you provide accurately describes events experienced by many firms.

There are two parts of your response that I would like to respectfully challenge.

First, you state that law firms have been “…moving toward a business model and away from a traditional partnership for at least the last 40 years”. While I agree generally, your comment implies that firms have willingly embraced these changes. I believe that the evidence to the contrary is significant. Not only are firms presently lagging far behind other industries in the acceptance of standard business practices, but it has taken 40 years to come as far as they have! The struggle between the “traditionalists” and the “innovators” described in my article is one of the fundamental reasons for this slow rate of adoption.

Second, you state that “…this trend is, in fact, the cause of the current malaise, not the solution”. Based on my experience, this trend is neither the cause nor the solution. Rather it is our present reality and therefore must be accepted and embraced before constructive progress can be made. Traditionalists cannot erase the reality of how firms used to be any more than the innovators can erase the reality of the technological advances and social changes that have occurred over the last 40 years. Finding a respectful balance between these two realities is the industry’s only hope for preserving its noble traditions into the future.

Finally, in your closing you question whether a solution lies in a “…return to the model which made the practice of law such a noble profession in the 20th century?” A visceral response would reject this notion simply based on the world being a different place. While I generally agree with this response, I do think it may be possible to capture some of the fundamental principles of the 20th century model, not by looking to the past, but rather looking to the future. Allow me to explain.

Law firms have responded to technological and social changes by building significant internal support systems. They now find themselves not only managing the technological and social changes themselves, but also managing the internal bureaucracies created in response to them.

New law firms are being established specifically designed to negate this trend. By embracing new business models that exploit cloud computing, outsourcing, and other virtual services, these new firms can not only significantly reduce their operating costs (which means lower rates to clients and higher profits to the firm), but they also have fewer bureaucratic distractions. Think about the practice of law 40 years ago. There were almost no technology, human resource, or business development distractions from the practice. Even the bookkeeping was simpler. Will this new model (or some variation) take the industry “Back to the Future”? Many certainly hope so.

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