How a Firm Can Deal With a Management Crisis

by Joel A. Rose
 

What does a firm do when differences in philosophy and management style threaten its very existence?  How can the firm begin to deal with issues that have accelerated to the crisis stage?

The following scenario presents the case of a fictional law firm, Kruger & Munley.  The experiences chronicled here are a composite of the types of problems encountered by a firm in transition.  The study also describes what the partners did to sort out their problems and bring about consensus.

Kruger & Munley was founded some 40 years ago and at the time of the study consisted of 17 partners and 14 associates.  The firm’s principal rainmakers were 72 and 64 years old respectively; the other partners generated some business, but primarily serviced the business produced by the two rainmakers.  The next two most senior partners were 52 and 53.  The remainder of the partners were in their 40s and late 30s.

The firm was governed by partner consensus.  For the past several years, one of the two rainmakers served as managing partner.  His relationship to the other partners was informal, and he preferred to speak on a one-on-one basis rather than distributing memorandums and/or emails and conducting regularly scheduled partner meetings.

During the previous few years, however, the firm had been experiencing serious problems.  Some of them resulted from internal stresses, the departure of several partners and associates, and loss of business brought about by personality conflicts between partners.  Others arose as a result of outside forces: the bankruptcy or takeover of clients, the increased use of in-house counsel by corporate clients and the loss of referral work from some larger law firms.

In addition, there were problems in the production of work. Some partners believed the firm needed to add associates because the work they assigned was not being completed in a timely manner, as a result, they believed, of understaffing.

Most of the partners believed they were undercompensated and felt they could earn more money at another firm.  There was considerable doubt whether the present partner compensation could generate the type and volume of client business required to make a significant improvement in the firm’s gross income and partner net income on a continuing basis.

Several partners believed that stronger control and innovative thinking by management could turn the firm around, but they were doubtful that the present group could achieve this.  Even the more optimistic partners believed it might take four to five years before any appreciable improvements could be realized.

Some junior and mid-level partners felt that the senior partners must “tighten their belts” and make additional financial sacrifices - but this too, was unlikely to happen.  Some of the other partners were not financially prepared to make further personal sacrifices to provide incentives to other attorneys.
All of the partners recognized the seriousness of the firm’s financial problems.  One possible remedy that was discussed was a merger, but not all agreed on its feasibility.  Some of the partners believed that Kruger & Munley would be a desirable merger candidate because of its reputation and the individual reputations and expertise of selected partners, but other feared that its marginal earnings record and questionable client base and workload would weigh against it.

Points of Agreement:

Despite the differences among the partners in personality and philosophy, they acknowledged the quality, professionalism and trust that prevailed in each of the firm’s practice areas.  Recognizing these strengths, the partners decided to engage a management consultant to provide objective recommendations on ways to resolve the firm’s problems.

The consultant met with the partners to discuss the firm’s objectives and the consultant’s role.  The next phase involved the development and preparation of survey questionnaires for distribution to the partners and associates.  Given the complexity of the issues, the purpose of the survey was to obtain baseline information regarding the attorneys’ assessment of the firm’s culture, economics, governance and growth; practice management, marketing and development; and their own personal and economic goals and relationships with each other.  The survey was detailed and took considerable time to complete.

The next stage of the process included follow-up interviews by the consultant with all partners and associates.  With the assurance of complete confidentiality, those interviewed supplemented and elaborated on their responses to the survey questionnaire. 

What emerged from the questionnaires and personal interviews was the fact that there was more common ground between the dissenting factions than had previously been apparent.  The following suggestions revealed common perceptions regarding the firm’s needs:

  1. Improve overall profitability by developing an economic plan for the firm and its attorneys for the next two to three years.
  2. Increase the number of billable hours of partners, associates, and paralegals.
  3. Determine long-range goals and develop plans for future growth.
  4. Encourage partners to coalesce and integrate their activities in an effort to build unity and improve their morale.
  5. Develop and implement an organized plan for marketing legal services to former, current and potential clients.
  6. Allow the consultant to provide an objective assessment of the firm’s management, financial assets, liabilities and operations and then recommend methods of improvement.

Problem Areas:

The results of the questionnaires and interviews indicated that the firm was in a crisis situation.  Before the partners could expect conditions to improve significantly, they had to be prepared to take some strong medicine to correct a series of ills that plagued the firm.  They needed to be willing to agree upon the form of governance that would be acceptable to the partnership.  For example, they had to decide whether the decision-making process should be more or less concentrated, or remain as it was.

The partners needed to agree on their role and authority and those of the management and other committees.  The partners had to identify the types of issues of which they wanted to be kept apprised, how this should be handled, by whom and how often.  The firm’s objectives had to be set, based upon partners’ perceptions of priorities and realities.

The partnership also needed to foster improved cooperation within and between the various levels of partners and associates.  The partners’ personal and professional objectives for the next two- to three-years needed to be discussed.  Promising practice opportunities needed to be identified, as well as the means to grasp them.

Attorney staffing needs had to be scrutinized by practice area.  And it had to be determined whether new hires should be recent law school graduates or laterals.   In light of the firm’s economic condition, tough decisions had to be made as to what to do about underutilized partners and associates, together with an assessment of the reasons contributing to their underutilization.  Methods for achieving agreed upon objectives needed to be established and partner compliance assured.

Suggested Solutions: 

Firm governance:  The partners agreed to elect a four-person management committee representing the senior, midlevel and junior groups of partners, to be consulted on a regular basis by designated partners who managed the firm’s substantive practice areas.  To preserve continuity in management, the tenure of partners on the management committee would be staggered over a three-year period.

The chair of the management committee would provide leadership and plans and ensure prompt follow-up on matters before the committee.  This partner would make recommendations on administrative appointments of individuals, committee chairs and practice area coordinators.  The chair would carry out these functions with the help of other partners.  He or she would be supported by an administrative partner, a professional personnel partner, a partner to coordinate the firm’s business development activities, partners responsible for coordinating the substantive practice areas and the office administrator.

The administrative partner would work with the firm’s office administrator on the preparation and review of budgets for revenue, expenses and capital acquisitions.  This partner would be responsible for implementation of cost-effective methods and systems, financial management and appraisal of financial actions of the firm.  Through the firm’s administrator, the administrative partner also would be responsible for non-lawyer personnel, technology, facilities and general administration.

The professional personnel partner would direct the personnel committee and be responsible for recruiting, training and evaluating lawyers.  This partner would make recommendations to the management committee and address the professional personnel needs of the coordinators of the substantive practice areas.

The business development partner would be responsible for planning and for working with the practice area coordinators and other partners.  This person’s duties would also include guiding marketing policy for the firm generally, for each practice area and for each attorney.  This partner also would review the strengths and weaknesses of the firm in the legal fields and geographic market area in which it was engaged and keep an eye on new trends in the practice of law.

The management committee would meet on a weekly basis.  An agenda for management committee meetings, prepared by the chair, would be distributed to all partners within 48 hours before the scheduled management committee meeting.  At these meetings, partners would be encouraged to discuss items listed on the agenda and make recommendations.

To further communicate among partners, minutes of each management committee meeting would be distributed within 48 hours after the meeting.

Partners would meet monthly at a scheduled time and follow an agenda prepared by the chair of the management committee and distributed 48 hours before the meeting.  The agenda would include policy matters, client issues and professional concerns and be accompanied by committee reports on such matters as finance, personnel, general administrative matters, marketing, and business development.

 Associates’ meetings would be held bi-monthly to review such matters as firm operations and procedures and schedules for continuing legal education.

 Partner compensation:  There were two key problems with the firm’s compensation policy - inaccurate data, leading to potential unfairness, and the difficulty of assessing a partner’s total contribution to the firm.  The recommended solution called for the management committee to propose compensation decisions to the partnership, based on criteria that address the firm’s needs and objectives and are agreed to by the partners annually.  The criteria would include:

  • Client origination.
  • Client retention.
  • Quality of work product.
  • Timeliness.
  • Partner productivity.
  • Delegation of work and follow-up with other attorneys and paralegals.
  • Seniority.
  • Firm management and leadership.
  • Compliance with firm policies.
  • Personal relationships and teamwork.
  • Partner participation in firm activities and functions.
  • Lawyer training and development.
  • Professional and community activities.
  • Effort devoted to practice development.

 The management committee would discuss with each partner how his or her bonuses for the current year and compensation for the coming year would be determined.

 Recognizing that real and perceived mistakes are made in the compensation process, partners would be encouraged to ask questions, and it would be the role of the committee to provide explanations.

Although individual attorneys were to be encouraged to act as autonomously as possible in the management of their individual practices, they would be expected to perform within the administrative and management structure to satisfy the firm’s objectives.

This revised form of governance and the modifications to the compensation system had a positive result.  The partners’ trust, their shared values about the firm’s strengths and weaknesses and their desire to make the firm succeed made it possible to identify common objectives.  Partners recognized the importance of leadership and the need to subordinate their independence for the benefit of the firm.  With the partners’ encouragement and support, the management committee was able to chart a course that achieved a balance between the requirements of the practice of law and the professional, economic and personal needs of the attorneys.

©1999-2017 Joel A. Rose & Associates