RECONCILING DIFFERENT OUTLOOKS

by Joel A. Rose
 

What does a firm do when differences in philosophy and management style threaten its very existence? How do you begin to deal with the issues that have accelerated to the crisis stage? Following is the experience of one firm that had to face some difficult decisions about its future. We were requested to step in and sort out the problems with a view towards proposing solutions and providing a basis for reconciliation. This scenario presents the case of a fictional law firm, Mason & Logan, and is a composite of the types of problems encountered by a firm in transition.

Background
The firm of Mason & Logan was founded some 40 years ago, and currently consists of 17 partners and 14 associates. Presently, Sam Green and Dave White are the principal rainmakers. Other partners generate some business but primarily service the business produced by Sam and Dave. Sam Green is 72 and Dave White is 64. The next two partners, Gene Scott and Tom Wilson are 52 and 53, respectively. The remainder of the partners are in their 40's and late 30's.

Partners' View
The partners identified the firm's immediate priorities as being: (1) improve the firm's gross revenue and net profit; (2) expand and upgrade the client base and increase the volume of work generated by partners; and (3) acquire several mid-level and aggressive partners between the ages of 40-50 to generate and retain client business, produce significant billings, and manage associates and the firm's practice areas.

Partners acknowledge that over the past few years the firm has experienced serious problems due to the departure of several partners and associates, loss of client business due to personality conflicts with certain partners, the increased use of in-house counsel by corporate clients, substantial inventory of unbilled time and accounts receivable affecting cash flow and the loss of referral work from some larger law firms, etc. Most of the partners believe they are under-compensated, and feel they could earn more money at another firm. There is considerable doubt whether the present partner complement can generate the type and volume of client business that is required to make a significant improvement in the firm's gross income and partner net income on a continuing basis.

Quite simply, the partners are uncertain about the firm's future. Generally they think that the firm would probably continue to exist, but reduced in size and with a limited practice. They believe that although the firm's local client base has diminished, the firm's reputation in a specific area and Sam Green's efforts continue to generate referrals. Dave White's marketing efforts in the general corporate area have produced positive results in terms of increasing client work and enhancing the firm's image. Some partners doubt whether the firm is capable of generating much additional business from the other practice areas.

The attorneys readily admit that these problems are not new. They have existed for years. In the past, the firm was better able to cope because there were more business generators, and the financial difficulties were not as severe as they are today. One attorney said, "The firm can no longer continue to muddle along as it did previously -- this is no longer an option."

In addition, there are problems in the production of work. Some partners believe the firm is understaffed. They think the firm needs to add associates because the work they assign to associates is not completed in a timely manner. Other partners indicated that work is not handled promptly because associates perceive this work as having a low priority.

Several partners believe that stronger control and innovative thinking by lawyer management is required to turn the firm around. However, no one is certain whether the present lawyer management is able or willing to do this, considering the firm's diverse practice areas. Even the more optimistic partners believe that it may take four to five years before any appreciable improvements may be realized.

Some partners are not prepared to wait that long before earning a "living wage." One partner recognizes that the firm's future rests with the younger attorneys, and if the younger attorneys leave, there will be no one left to do the work. He believes that the senior partners must "tighten their belts and add more lateral attorneys." He thinks the senior partners must make additional financial sacrifices to provide an incentive for younger attorneys to remain with the firm. However, some of the partners indicated that they are not financially prepared to make further personal sacrifices to provide incentives to younger attorneys. As one partner stated, he simply cannot afford to continue to borrow. Despite the strong personality and philosophical differences between the partners, attorneys also acknowledge the quality, professionalism and feeling of trust that prevails among partners in each of the firm's practice areas. The major issues that must be resolved include (1) establishing a method for firm governance and administration; (2) delineating the role of the managing partner; (3) strengthening the interpersonal relationships among and between the partners and (4) improving cash flow.

The firm is governed by consensus of the partners. For the past several years, Dave White has served as managing partner. His management style and personality differ significantly from that of Sam Green, the firm's former managing partner. Dave relates to partners in a less formal and more laid back manner. He prefers to speak to partners on a one-to-one basis rather than conducting regularly scheduled partner meetings and distributing memoranda.

The partners generally like Dave's style of governance. They attribute the economic downturn to circumstances that prevailed prior to his becoming managing partner and do not fault him for the lack of adequate management. In fact, the majority of partners believe the communications among and between attorneys on firm administrative and financial matters have improved and, that they know what is happening in virtually all areas of the practice.

Notwithstanding the partners' satisfaction with Dave's personal style, the question remains whether partners are willing to face up to difficult issues and whether the prevailing form of management will produce the desired results. All of the partners recognize the seriousness of the firm's financial problems. One possible remedy that has been discussed is a merger. The partners believe that merging with a similar sized firm or being acquired by a larger firm is the firm's salvation and should be pursued. They feel that the synergistic effect of joining with another firm will improve the current client base. Also, by having more and varied clients, the firm can be selective in accepting client work and drop some less profitable areas of work.
Partners are open-minded about the size of firm they would consider as a merger partner. Several favor the acquisition of a smaller firm rather than joining with a similar sized or larger firm. This would preserve the Mason & Logan culture and identity. Other partners believe that joining a larger group would be advantageous because a larger firm would most likely have an impressive client base and undoubtedly have a more efficient form of governance and systems, and would provide more security to the partners. While some of the partners believe that Mason & Logan would be a desirable candidate because of its reputation, and the individual reputations and expertise of selected partners, others wonder whether the firm is such a desirable merger candidate given its marginal earnings record and questionable client base and workload.

Associates' View
The associates' opinions of the firm also vary, however, several recurring themes are evident. On a positive note, all of the associates like working at the firm and enjoy the interaction they have with the partners. Overall the associates believe the partners are grappling with two major problems: (1) determining what the firm is today; and (2) deciding where the firm will be within the next four to six years. The younger attorneys are frustrated. They are aware of the tension that exists among the senior partners, and between the senior and junior partners. They believe that the seniors are attempting to maximize their retirement situation and short-term objectives. This schism is perceived as dangerous. The associates do not see the laissez-faire form of management as being especially effective. They feel that partners with authority and an inclination towards management don't seem to care or have the time to perform this function. The firm has experienced excessive lawyer turnover. Inefficient management and training at the associate and staff levels have contributed to ineffectiveness. The associates feel the firm is not as profitable as it should be.

Associates feel under-compensated in relation to their peers at other firms. Some associates believe that partners are sending signals to associates that the value of their work is lower than the value of legal work performed by associates in other firms. This has created considerable tension between partners and associates.

Associates are concerned about the firm's future especially since there appears to be little or no leadership and future planning. Certain associates consider this to be a more critical factor than the compensation issue. There was indication that former associates resigned because they felt that the firm had little or no future. The associates who resigned were high quality lawyers, and their departure has created a ripple and stirred the associates who remain to think about their future with the firm.
Associates believe that they should meet more frequently with the partners to discuss plans and goals. Although it is agreed that communications are quite informal and eventually everyone learns what is happening within the firm, the absence of formal communications denotes the vacuum in firm leadership, and reinforces the sense that partners may not be pulling together.

The associates recognize that partners are not pleased with the number of billable hours they record. Some associates suggested that this could be improved if partners generated more interesting work. Most associates reported having a sufficiently high volume of work to satisfy the partners' billing requirements, however, the nature of the work is less than challenging.

The associates believe that the firm needs to attract more attorneys at the mid-level who possess business development skills and can provide for the continued growth of the firm. They point out that Sam, Dave and Tom are the principal rainmakers. This fact speaks for itself, and therein rests the crux of the problem. The key players are 72 and 64, respectively. The sole immediate successor is 52.

Recommendations
The firm is in a crisis situation. Before the partners can expect the conditions to improve significantly, they must be prepared to take some strong medicine to correct a series of ills that plague the firm. The partners must be willing to determine the form of governance that would be acceptable for the difficult tasks that lie ahead. They must decide how the day-to-day decisions should be made, and who should be making them. The partners must be prepared to discuss serious issues candidly and diplomatically. Firm objectives have to be set based upon partners' perceptions of priorities and the realities of the situation. Methods for achieving firm objectives have to be established. Partner accountability must be determined to assure compliance.

Regular partner and firm meetings should be conducted to keep lawyers (partners and associates) apprised on plans, progress, obstacles, etc. Partners and associates have to believe in each other's ability and commitment to the firm in order to effect a change. The areas of practice need to be analyzed to determine their value to the firm. Incentives for business origination and production should be provided.

To the extent possible, partners must be willing to objectively appraise and discuss the firm's and their own organizational and substantive capabilities. This means that they should determine the volume of work being performed for current clients by principal client and field of law. Projections for the volume of current work from existing clients should also be prepared in addition to similar projects for potential work.

Partners must profile the strengths and weaknesses of partners and associates according to age, expertise and client responsibility. Partners should discuss openly their personal and professional objectives, i.e., which lawyers will remain with the firm as active partners or perhaps retire, and/or become of counsel.

Even though the firm has had a long and, with recent exceptions, distinguished history, the partners must be prepared to make some difficult decisions concerning the firm's future. Which areas of practice should be emphasized and invested in: Which should be maintained and improved incrementally? Which practice areas not currently offered or offered to a limited extent should be developed and which areas of practice should be de-emphasized or divested? Which partners and associates are able, and have the desire, to contribute to achieving the firm's objectives? What should they be doing to attract more business and to enhance the reputation of the firm? Which partners and associates should be invited to leave because their presence is more of a liability than an asset? How can the firm provide better or more timely service to clients? What should partners and associates do to improve client relationships? Who at the firm, i.e., partners and associates, should have greater exposure to certain clients on an ongoing basis? Which partners have created problems for the firm vis a vis client relationships and how can these partners be weaned away from certain clients without losing the client?

The firm has an obligation to develop a business plan that includes active roles for senior and junior partners as well as promising associates. Only by working together can the partners and associates achieve the desired results for a successful firm.

The two senior partners, with the approval of the other partners should be willing to make a commitment to developing and implementing a plan for reorganizing the firm. They should be willing to address critical and highly sensitive issues candidly and diplomatically. The firm should schedule a meeting of all the partners and associates in order to discuss the planned reorganization. The roles of the managing partner and/or committee should be discussed.

The decisions reserved for the partners should be determined and the level of independent decision making by the management committee and the firm's managing partners need to be agreed upon. The quality and frequency of communications between and among the partners, associates, the executive committee and managing partner need to be reinforced. Those individuals responsible for developing the overall firm plan should then meet with each partner and associate to determine their personal and professional objectives and priorities.

The firm's leaders, together with the partners must agree upon what will be the firm's expectations of the productivity of individual attorneys while allowing for some flexibility in terms of contribution in order to foster mutual accountability and achievement of planned goals. Further, the leaders, in concert with the other partners must work together to create a firm culture and environment which stresses commitment to improve the quality of client service.

In the mature legal marketplace in which this firm practices, differentiation of law firm services is an effective way of creating competitive advantages. Through more and better defined practice development programs for the firm generally and each of its specialties, partners must be willing to invest their time and effort to expand the firm's presence and "brand name" recognition of its core competencies. A newly configured Marketing Committee will be established to work with the heads of the firm's principal practice areas to develop marketing strategies and develop a firm-wide marketing culture among the partners, associates and administrative support staff. Significant emphasis will be given to create a culture which fosters and rewards cross-selling efforts of attorneys within the same and different practice areas. The principal practice groups will work with the Marketing Committee and individual attorneys to implement the marketing plans for the firm.

Following these personal meetings and detailed analysis of the firm's financial and management data, and client base, a detailed plan should be prepared, reviewed with the partners and associates, and implemented in accordance with a proposed timetable.

Greater attention needs to be given to financial management. Financial and management reports need to be analyzed and acted upon. The accounts receivable report needs to be "laundered" to insure that the figures reported are accurate and have reasonable chance of being collected. One or two partners have been designated to meet with each billing partner to discuss the collectability of the receivables and to monitor the progress on collections.

Partners have to understand that regular billings of client work produce fees which constitute a vital component of a successful firm. Unbilled time must be reviewed to identify which unbilled time can be billed and the reasons other unbilled time cannot be billed. The partners responsible for following up outstanding accounts receivables should oversee the timely billing of unbilled time.

The managing partner or committee should follow-up on the progress of work being performed. The partners should be willing to commit themselves to remaining with the firm for a minimum of three to four years, since it will take that amount of time to implement the plan and realize improvement.

The point of this article to be emphasized here is that any partnership, no matter the size, needs leadership. Good law firm management cannot be achieved until all the partners agree to subordinate some degree of independence to a managing partner or an executive/managing committee. The partners must strike a balance between their rights as owners and their responsibilities as citizens of the firm. They must relinquish some personal prerogatives in order to achieve the overall results that they would not be able to attain on their own.

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