Three Proven Short-Term Strategies to Sustain and Grow Future Profitsby Joel A. Rose
Law firms are not static organizations. They evolve with changes in leadership, personnel, market position and market demand.
One significant role of a law firm's lawyer-management is to formulate plans for the future, to obtain partner approval and to execute the approved plans and policies with integrity. Yet management must also be sensitive to the possible future need to modify and adjust plans in view of external market forces and internal needs and constraints. Growth for growth's sake should not be the objective.
A law firm's objective should be to grow in a manner that is profitable, enhances the firm's ability to serve its clients, attracts new clients and advances the partners' collective goals.
Firm growth should translate into improved financial and market position. Growth strategies should harness the competitive tendencies of lawyers, by setting professional goals that are congruent with personal goals, negotiating goals to ensure acceptance and mutual commitment, and by rewarding attorneys for achieving their negotiated goals.
Ideally, the professional goals of individual partners should be consistent with, and advance, the firm's goals. Remember, goals and objectives are not achieved by default. Simple plans are best.
Strategic planning requires ongoing evaluation of the firm's strengths and weaknesses and the opportunities and threats facing the firm. The key for setting successful objectives is to plan where the partners want the firm to go and then to execute the plan through talented, dedicated lawyers appropriately motivated to achieve the desired goals.
In addition to setting objectives, lawyers must be held accountable to the firm and to each other for expenditure of their professional time and firm resources, which include personnel and financial resources.
Following are three short-term strategies to sustain and grow a firm's future profits.
Protect and Preserve Talented Attorneys:
The most important assets of a firm are its attorneys. Goodwill, reputation, client relationships, the storehouse of future engagements -- i.e., wills, real estate transactions, etc. – although critical, cannot sustain a firm without its key lawyers. Only the firm's attorneys can serve existing client needs, nurture expanded engagements from existing clients and attract new clients. Only the firm's attorneys can market the skills and reputations that command significant rates which lead to greater revenues and profits.
To lose key talent would therefore be inconsistent with a plan to grow. Accordingly, the firm must endeavor to protect and preserve highly profitable and talented attorneys at all levels, equity partner, non-equity partner and associate.
In considering a firm's pool of equity partners, lawyer-management must recognize that some are perceived to represent more value to the firm than others. This fact is recognized through material differences in annual compensation.
For the firm to grow, its most talented equity partners must be motivated to remain with the firm as highly productive contributors. This core group of talented equity partners will form the foundation for profitable growth. Such equity partners must be recognized and compensated in a manner that motivates and rewards sustained high-level contributions. It is therefore critical that the equity partners who make the greatest contributions to grow revenues, clients and profits are compensated at amounts equal to or greater than their peers.
The compensation system needs to be revisited to consider whether equity partners are sufficiently rewarded for originating and delegating significant matters to others as opposed to hoarding, for efficiently utilizing associates to create significant profits and for ensuring that equity partners are advancing firm goals through their individual efforts.
Possible compensation strategies include tracking and rewarding new client originations, prospective compensation, rewarding partners who produce significant profits through associates and adjusting per-partner obligations to the firm depending on the particular strengths of partners, i.e., rewarding those with primary obligations to originate even though their personal production may be lower than that of others whose highest and best use is to primarily serve client needs.
Highly talented associates must be protected, preserved and developed. Profitable growth mandates that the firm's best associates stay and that new, highly talented associates be recruited.
To retain highly motivated and capable associates, the firm must be prepared to compensate such associates in a manner equal to or greater than their peers. This approach will necessarily lead to material differences in compensation among associates, particularly those who have been with the firm longer. Aggressively employing an associate-bonus system will help in this regard, in that it emphasizes quantifiable effort.
However, it must be remembered that compensation alone is not enough. The firm's best associates must be integrated into the firm's institutional activities through its committee structure and must be recognized for their contributions. Further, lawyer-management must ensure that the best associates are assisted and nurtured in their ability to develop clients and in developing their skills in order to increase their confidence and enhance their value to the firm.
The firm must be vigilant in dismissing associates who, after a reasonable time, show minimal prospect of providing material long-term contributions. At a minimum, less-than-productive associates diminish profits, require disproportionate amounts of partner supervisory time and have the potential to foment discord.
Develop, Expand and Market a Corporate and Business Practice:
The benefits of a strong business practice can be substantial. Law firms often develop significant litigation business from their corporate and business practice. Further, by representing significant businesses the firm will obtain opportunities to represent the owners and executives of such businesses in private client matters.
To grow their corporate and business practice, many firms have made the commitment to recruit a strong business lawyer who has the reputation and current client base that could be the foundation for building such a practice. This strategy will require a commitment to invest significant resources to possibly guarantee initial compensation, to initially underwrite the practice and to support the lateral hire as he or she seeks to attract clients.
Develop Additional Firm Locations:
Depending upon the firm's location and practice areas, it may be able to consider developing additional locations to capitalize on its reputation and to position itself to serve a growing population of high-net-worth individuals.
It is suggested that the wisest way to enter another market is through a merger with a compatible firm or by engaging a lateral hire with a profitable book of business. In evaluating possible merger candidates, significant weight should be given to the record of revenue and profits of the firm or lateral-hire candidate, the character of the key lawyers and their reputations for integrity, work ethic, competence and firm culture.
Implementing the Planning Process:
The payoff for the above planning process is in the implementation of the plan. This is frequently the most difficult part of the process. It is recommended that the plan be implemented through the firm's existing organizational structure, i.e., the managing partner, the strategic planning committee, and heads of substantive practice areas and branch offices, as required.
Individual partners should be assigned responsibility and held accountable for the satisfactory implementation of each phase of the plan, in accordance with an agreed upon timetable.
Partners responsible for the implementation phase should report to the managing partner, strategic planning committee or other group designated to oversee the planning process.
Problems and/or progress should be reviewed and assessments made to determine the most appropriate strategies to be followed. Status reports should be provided to the other partners in each phase of the plan in order to keep them apprised of the planning activities.
The implementation must be monitored to assess effectiveness, and corrective action must be taken, as required.
Strategic planning is a dynamic process. If conceived properly and implemented effectively, it will greatly assist partners in sustaining and growing their firm's short-term objectives.
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