CHOOSING A METHOD OF GOVERNANCE

by Joel A. Rose
 

     There is no "best" approach for structuring a given law firm. An organizational concept that is fully accepted and supported by one firm may be rejected by another. The method of governance and policies embraced by a particular firm reflects its history and the personalities, objectives and desires of the partners. All law firms are concerned with the basics of managing a successful, professional enterprise. If a firm's management and administration are to achieve excellence, the lawyers need to have a conceptual understanding of what the firm must accomplish. These basic concepts include the following factors.

(1) A law firm must develop, maintain or enlarge its client base. It needs to produce a quality product, and deliver legal services, promptly and effectively.

(2) Legal services must be provided at an appropriate fee in terms of current economics, and include a reasonable profit for the firm.

(3) A law firm must recruit the caliber of personnel that are required at all levels of its practice in order to produce the high quality of service desired. The firm cannot optimize the efforts of the most capable lawyers if it employs mediocre administrative support personnel. Once employed, lawyers and their administrative staff need to be trained and evaluated on an ongoing basis.

(4) A law firm needs adequate facilities in terms of physical plant, library, word and data processing equipment, administrative systems and financial controls to support the practice.

(5) A law firm needs an excellent compensation program, a supportive environment, and a formal career development program to motivate and retain its partners, associates and administrative staff.

(6) Law firms, as most other businesses, must concern themselves with certain financial management issues. A firm cannot meet its payroll unless lawyers are able to record a certain number of hours, or transactions, at an appropriate fee, and submit a bill and collect the fees and costs. The firm must have a practice of sufficient volume and profitability to support its activities, and enable the partners to receive a reasonable income.

(7) A law firm should provide its attorneys with a sound plan that establishes the gross revenue required to maintain operations and provide an adequate net income for the lawyers.

     All of these issues are interrelated with the business management aspect of the law practice. Sound leadership and effective organization of the firm will establish these concepts as the basis for a successful management philosophy. In order for a management system to function, there are several key aspects involved in the process that must be addressed before the results desired by partners can be achieved. These factors include managing personnel (specifically lawyers), rate of growth and time.

Personnel Management -Attorneys, by nature, are generally independent, meticulous and verbose. For the most part, they have not been trained to make business decisions. The management process takes both time and active involvement. Many attorneys are unwilling to take the time away from client work in order to plan, direct, coordinate and control the myriad of activities involved in managing a law firm. To further compound the issue, partners are oftentimes reluctant to delegate authority for managing the firm to other partners or a non-partner.

Rate of Growth - Coping with rapid or sporadic growth can result in significant problems. These might involve hiring and training the appropriate number and type of professional and administrative staff; insuring adequate space and facilities; managing substantive practice areas to insure a timely and quality work product; overseeing the adequacy of administrative and financial systems to accommodate the increased volume of client work and firm personnel.

Time Management - Even under the best circumstances, managing a law firm is a difficult and time consuming process. It is self-evident that "successful law firms do not manage themselves." Managing the firm and its resources must be worked at by the partners as a committee of the whole, a select committee of lawyers, a managing partner or combination of the above.

     The law firm must develop and maintain goals to keep pace with the economic and professional objectives of partners and associates, and to satisfy the needs of its clients. Considerations involved in establishment of these goals include: (1) "why, how, and when" the firm was founded; (2) lifestyle, work ethic and personalities of the partners; (3) type of practice, nature and location of client base; and (4) ages and experience levels of the partners.

     In the course of my experience, the items typically mentioned by most attorneys as important to quality of life usually include the following points.

     Satisfaction for a job well done in an environment conducive to meeting personal, professional and intellectual needs, where the attorneys look forward to coming the office to practice law.

     Compensation in proportion to the personal and professional contributions of the partners, associates and staff, while working to improve the firm's overall economic position.

     Positive reinforcement for performance to maintain good morale, and assure the physical and mental well-being of all personnel.

     Open and adequate communication at all levels to avoid the "management by intimidation" philosophy as a basis for managing.

     Adequate system for firm governance, policy determination and implementation to minimize "management by crisis," (presupposes delegation of authority and responsibility for decision making to the appropriate management level).

     Most smaller to medium sized law firms choose one of three fundamental varieties of management structure. These systems may be characterized as management by: (1) democracy, (2) a managing partner, or (3) an executive or management committee.

Democratic - Under a democracy each member of the firm has an equal voice in management and is "just as needed" as others to act. Any decision must be concurred upon by all partners, and various administrative tasks may be assigned or rotated among partners. Notwithstanding the perceived benefits accruing to partners as the result of participating in firm management and "controlling their own destinies," democratic firms traditionally progress more slowly and at a less profitable rate than firms governed under one of the other structural concepts.

Managing Partner - This approach is probably the most efficient form of managing a law firm. A strong managing partner is oftentimes referred to as a "benevolent dictator." Authority and accountability for all firm matters may be controlled by one partner or a tightly knit group of dominant partners. Typically, a managing partner is the person who opens the office in the morning and closes it in the evening. He may be responsible for originating and retaining the firm's major clients. The managing partner frequently receives all work assignments from clients and parcels work out to other partners and associates. The managing partner typically determines the partners' and associates' compensation and perquisites.

     Notwithstanding the fact that "the administrative life" of other partners in the firm may be less complicated as the result of abdicating management prerogatives to a managing partner, this type of structure is fraught with many problems. The most fundamental problem involves partner egos. The managing partner becoming inundated with firm decisions. Furthermore, as an active attorney, this partner may not be able to devote the time or follow-through required to handle organizational and financial matters. Since no other partner may be trained in managing the firm, this partner may not feel comfortable in relinquishing power to anyone else. This is a problem which may be especially troublesome if the managing partner dies, becomes ill or disabled.

     Some attorneys may be dismayed at the prospect of having their firm dominated by an individual or group of partners. However, if properly handled, this form of structure can be productive, and economically and professionally rewarding. To be effective, the managing partner should maintain communication with other partners. The managing partner should seek advice from other partners (and associates) on matters that will affect them. The managing partner should obtain other partners' input on decisions, appoint individuals or committees of partners to perform particular functions and require a report of their achievements.

Executive or Management Committee - The executive or management committee structural concept is a representative form of governance typified by a committee of partners having defined authority, accountability and responsibility. In most smaller firms this committee, frequently consisting of three partners, may be responsible for recommending and implementing policy for the firm, planning for the future, appraising results and recommending corrective action, as required.

     A three partner executive or management committee is frequently recommended to avoid deadlocks or inaction and to spread the burden of administration among appropriate partners. One of the partners should be designated to chair the committee. Each of the other members may be assigned authority, responsibility and accountability for coordinating and/or performing specific functions. For example, one partner may serve as the financial partner. This would involve responsibility for insuring the preparation and analysis of income and expense budgets and financial reporting. This partner would oversee attorney production, fees, collections, etc. A second partner may be responsible for the personnel functions including associate career development, i.e., employment, training, evaluation, etc., and implementation of policy for the administrative staff. A third partner may serve as the general administrative partner, and oversee the implementation of administrative policy, systems, automation, etc. These partners may be assisted by an office manager, bookkeeper, etc.

     To preserve continuity in the management function, it is recommended that tenure of partners on the executive or management committee be staggered over a two or three year period. The executive committee should communicate with the partners regularly or as issues arise. The executive committee should meet weekly, or if that isn't convenient, as frequently as required. To keep all of the partners apprised of issues before the executive committee meeting is held, it is recommended that the meeting agenda be distributed to all partners within 48 hours prior to the scheduled meeting. Partners should be encouraged to discuss, with members of the executive committee, any items listed on the agenda or recommend subjects for discussion. Following this meeting, minutes should be prepared and distributed to all of the partners for information purposes.

     Meetings with all of the partners and associates should be scheduled monthly. If it is difficult to coordinate schedules for daytime meetings, then it may be desirable to arrange for meetings in the evening or Saturday morning. For evening meetings, it is commonplace to have a firm dinner at 6:00 p.m. and to begin the meeting at 7:30 p.m. Associates attending the dinner and first part of the firm meeting may be excused after presentations of reports on new developments, "non-sensitive" matters, reports on seminars and other subjects. Following the departure of the associates, the partners can discuss matters relating to financial and policy issues.

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