Why Hire Professional Managers?
by Joel A. Rose
The increasingly important role of professional managers is unquestioned by enlightened law offices. Seeing how these offices employ professionals who have advanced management techniques can provide useful models. Some costly, if not injurious, trial and error can be avoided by following their examples. Still, how a law office is structured is a matter of choice. Unfortunately, structures will evolve, albeit dysfunctionally, when choices are hasty or perfunctory. It is, therefore, important to recognize the archetypical forces that compel law offices to seek better management, and to understand how professional managers achieve that end.
Forces at Large -
During the boom periods of the early to mid-2000's, many private law firms were financially successful in spite of poor management, because talented lawyers were able to attract and serve the needs of clients who were ready and able to pay their fees. Today, the practice environment and economic conditions are quite different.
Law firms are experiencing the same wrenching changes that have affected their corporate and business clients. Corporate, as well as governmental, law offices continue to be faced with budget cutting mandates. While resources dwindle, caseloads in governmental law offices continue to swell. Similarly, restraints on using outside counsel have not only forced corporate counsel to do more with less, but also put pressure on private law firms to contain fees.
Law firms' individual, business, and corporate clients alike are increasingly frustrated with the shortcomings of the hourly-rate billing system. The more sophisticated business and corporate clients are insisting that outside counsel implement alternative billing arrangements in lieu of the traditional hourly-rate billing, which encourages and rewards inefficient performance and management of legal work, and discourages productivity and quick achievement of client objectives.
Realizing greater efficiency has thus become a top priority for all law office. Proper implementation of technology increases an office's ability to deliver high-quality services in a timely and cost-effective manner. The proliferation of personal computers has enabled lawyers to draft and edit documents, retrieve prior work product within and external to the firm, provide litigation support, avoid conflicts of interest, and maintain docket control and calendaring. The proliferation also has made it more difficult for lawyers to select the hardware and software that will best satisfy their particular needs. Without appropriate automation, law offices not only lose a service-favorable edge, but also experience difficulty attracting and retaining high-quality lawyers, many of whom have been groomed in law school to depend on computers.
This need for technology has notably increased the amount firms spend per lawyer on automation. In an atmosphere where the ordinary cost of doing business escalates without a commensurate ability to raise fees, profits are, needless to say, squeezed. Technology is required to track and control transactions more precisely and to provide the means for sound decision making.
Willingness to forego, however temporarily, personal economic rewards for the benefit of an office's better functioning has fallen by the wayside. Increased mobility among individual and groups of entrepreneurial lawyers has weakened ties to law offices. In private firms, lawyers who control a significant volume of portable client business often are willing to leave their offices to form new partnerships or join other law firms. Law offices are finding it increasingly difficult to attract and retain quality lawyers and administrative staffs, unless they offer adequate compensation.
Not only does this mobility phenomenon impose more financial demands, it also furthers the complexity law offices face. Without an ironclad commitment from partners, and oftentimes with it, private law firms are increasingly turning to lenders outside of the office to finance pressing needs. Such financing brings with it a host of restrictive operating guidelines and stringent reporting requirements, not to mention financing costs.
A once simpler accountability - to colleagues and staff, clients and ethical standards - now includes authorities outside of the practice of law. Corporate and government law offices may be accustomed to the compliance and reporting required by their parent organizations, however, they do not have control over the broad and sweeping changes so often associated with larger institutions today. Corporate or government directives can be, in substance, at odds with their law office's objectives or, at the very least, impediments to greater efficiency. Private law firms, too, must comply not only with institutions with whom they have chosen to ally, but also with an every-growing list of authorities that regulate taxes, social security, employment, civil rights, ecology, safety, health benefits, and so on.
The reality is that law offices are at the apex of social, economic, political and technological dynamics - forces beyond the per se practice of law. And within the legal profession, there is the added dynamic of competition. High quality law firms and most of the services they offer are plentiful, giving clients a wide choice of attorneys. This already competitive arena is further crowded by banks, accountants, financial consultants, insurance agents, and brokerage houses, all of which are now providing services that once were exclusively offered by law firms. Lawyers practice in a "buyer's market" which only increases clients' bargaining power in regard to fees charged and the terms of employing law firms as outside counsel.
The Prudence of Delegation -
In light of the forces at play, law offices of all types and sizes face a moment of reckoning, the practice of law has been pulled into a complex and volatile world. Dealing with current and projected challenges, law offices must adopt capabilities that cut across substantive and administrative lines. Key elements of success include:
Recognizing the exigencies of successful law offices is certainly an important first step. Bringing them about requires good leadership and sound management practices, such as the vision to identify opportunities and direction, financial insight, appropriate interpersonal and communicative skills, the willingness of lawyer management to share authority, and the empowerment of other lawyers and key management personnel.
Evolving into a well-managed law office requires re-examining the way in which authority and responsibility are delegated. The tension between the need to serve clients and manage the law office causes most lawyers to put aside much of their nonlegal work and give "short shrift" to their management role.
Although it may seem to make sense to delegate administrative responsibilities to support staff, they, too, may find that these responsibilities are too difficult to cope with while serving in their support roles. Being a good manager requires the unquestioning trust, confidence and respect of partners and a sound understanding of finances, technology, and human resources. The skills required are not simply tasks, but rather are steeped in the ability to analyze, plan, and implement actions with leadership and management acumen.
It is therefore, a mistake to assume that nominally productive partners can or should take on practical management functions. Law schools train lawyers, not managers. Expecting under-utilized partners to function as managers is inherently wrong, especially because they have not been trained in the disciplines necessary to manage.
Delegating management authority and responsibility to a professional manager is clearly the most prudent option. Not only will a professional manager assure that management functions will be carried out completely and competently, but also his or her presence will free lawyers and staff to do what they do best.
The Economics of Delegation -
Those lawyers who hold on tightly to management functions under the guise of saving overhead are fooling themselves. In one firm, the uneconomical use of lawyer time devoted to management become readily apparent when, during its first quarter, five partners in a ten person firm devoted a little less than $90,000 of potentially billable time to managerial matters. Only after expressing the time of partner involvement performing management functions in dollars did the cost of having no professional firm management become apparent. Also, in addition to the loss of billable hours, it was the consensus of the partners that the firm was not receiving management services equal to the dollars expended.
Though applying a $100-, $200-, or $300-per-lawyer-hour sum to diversionary management time does not require the use of higher mathematics, its inherent lack of economic sense often is overlooked. In a "penny-wise, dollar foolish" mindset, lawyers are not apt to associate cost with actual expenditure. It is true that the price of talented professional managers, depending on the scope of their jobs, will rival that of talented lawyers. However, while lawyers are the means with which revenues are generated, professional managers are the means with which revenues are maximized and perpetuated. The true value of professional managers is not measured so narrowly as an out-of-pocket cost or even as the sum of lawyer time saved. More appropriately, the ascription of a dollar value to threats avoided and opportunities captured paints a vivid picture of the costs of not employing professional managers. After all, what is the cost of losing a firm's largest client or of the defection of a profitable practice group. . . particularly when it could have been prevented?
The Bottom Line -
There is no question that professional law office managers make important contributions to the financial and operating success of the legal organizations in which they are employed. The value of these legal managers can only increase as they continue to apply business principles to legal organizations and to enhance productivity by developing automation and maintaining and analyzing financial data and management information to ensure the delivery of high-quality legal services, in a timely manner, at fees clients are willing and able to pay. Increasingly, astute managers are exercising influence on virtually all decisions affecting the "business of law" and are providing management support to those lawyers who are responsible for managing and coordinating substantive practice areas.
A wise managing partner of a major New York City law firm told the author, "The continued growth and profitability of this law firm depends on two factors: The first is the people in it. This is the single most important element. The second is the ability of the firm's lawyer management to exercise good judgment and continue to make sound business decisions that will contribute positively to the firm's financial growth and to the healthy interpersonal relationships among and between the partners, the partners and the associates, and between the lawyers and the administrative support personnel. I hope the future lawyer managers of this firm are as fortunate as I was to work with as able an administrator as I have. Without a competent administrative legal executive who possesses the financial acumen, business insights and management skills, my job as managing partner would be considerable more difficult and stressful, if not impossible to perform."
©1999-2015 Joel A. Rose & Associates