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Profitable Law Firm Management - Briefing

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JOEL A. ROSE & ASSOCIATES, INC.
Management Consultants to Law Offices
P.O. Box 162, Cherry Hill, NJ 08003
jrose63827@aol.com
Telephone (856)427-0050 | Fax (856)429-0073
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WELCOME to Profitable Law Firm Management Briefing, a free, monthly newsletter that contains insight and information about law firm management and economics.

THIS ISSUE CONTAINS:

A SPECIAL INTEREST ARTICLE: “A NEW PHILOSOPHY FOR MANAGING PARTNERS”

And insight on:

1. How to Evaluate a Candidate for a Merger; and
2. A Checklist for Your Compensation Concerns.

HOW TO EVALUATE A CANDIDATE FOR A MERGER
Finding a merger candidate or responding to an offer from another group of attorneys can be a somewhat difficult process. In an effort to integrate the practices of two firms, the leadership of both must focus on determining as many solutions as possible in advance of the actual merger. To this end, this article presents a series of questions which may be used as a discussion guide in preliminary meetings between firms considering a merger.
http://www.joelarose.com/articles/evalmerg.html

A CHECKLIST FOR YOUR COMPENSATION CONCERNS
Partners’ discontent over the amount of their compensation is but one unfortunate consequence of the economic slowdown. Adding to the issue are fears that pumped-up associate salaries and/or an “ineffective” system will increase bickering among owners when it comes time to dole out year-end distributions. This article will outline some issues that should help you and your fellow owners devise a compensation approach that will better serve the needs of your firm and its owners.
http://www.joelarose.com/articles/checklist_compensation.html

Please Note: If you know of a colleague who would enjoy “Profitable Law Firm Management-Briefing” please feel free to forward this e-mail. New subscribers may sign-up at any time at www.joelarose.com.

~ SPECIAL INTEREST ARTICLE ~
on
A NEW PHILOSOPHY FOR MANAGING PARTNERS

An astute lawyer-manager must achieve the appropriate balance of building consensus among the partners versus managing as an autocrat.

Countless law firms, large and small, are questioning long-standing views about firm management and structure. Yet, the sources of their concern are not new. After years of analyzing the personal and professional styles of lawyer managers in successful (and not so successful) law firms, three inescapable conclusions are readily apparent:

1. The authority of lawyer management is derived from the willingness of partners to be managed;

2. Partners in most law firms perceive themselves as being owners of the firm, having certain prerogatives and independence, not as employees to be “managed”; and

3. Law firms have their own personalities and cultures; management techniques that may be effective in one firm may be only marginally effective or even unsuccessful in another.

Why a Management Philosophy is Needed

One of the most basic tenets of law firm practice is that joining together will achieve benefits for each partner, which would be less possible if he or she were to practice individually, i.e., income, workload, coverage, ultimate withdrawal benefits, and similar considerations. To obtain the benefits of an organized practice, law firm leaders need to know that individual lawyers will subordinate their individual judgment to a select few, however chosen, in order to allow for a comprehensive and more holistic oversight approach to firm management. Absent that mindset, management will have a difficult, if not impossible, struggle to succeed.

Since philosophical cohesion is a prerequisite to effectuating a structure by which partners will agree to be bound, great care must be taken (1) to determine what the partners want lawyer management to be/not to be, i.e., strong leadership, consensus builders, visionaries, functional managers, etc.; and (2) to engage in extensive discussion about the partners’ respective expectations for individual involvement in decision-making in defined areas, paying particular attention to those areas likely to challenge the natural independence of lawyers who have already successfully achieved partnership.

Given partners’ natural predilection for debate, the areas of firm decision-making in which partners expect to be involved must be defined and must be fairly identified. Some common areas of collective input and decision-making are:

1. Admission to and termination from partnership;

2. Establishment and implementation of firm policies, which, as to partners, must include compensation;

3. Strategic initiatives; and

4. Professional liability issues affecting partners and/or the firm.

When defining the partners’ expectations about their involvement in decision-making, firm leaders need to discourage partners’ desire to expand the number of items requiring partner approval before action is taken, because this has a tendency to render impotent the firm’s management. Partners should make every effort to achieve unanimity or at least consensus on issues that affect the firm’s ability to make management decisions quickly and efficiently. Although certain issues deserve to be carefully deliberated, not every management decision needs to be considered by all partners before implementation.

A majority, or a defined super-majority, of the partners will undoubtedly be sufficient to implement most management objectives. Yet, the firm’s philosophy is key in establishing a firm’s culture, and all hands should be on the table. Partners must clearly feel that decision-making will be in firm, but fair hands, and that each partner will be treated with courtesy and respect.

During the formative process, if one or more partners strongly resist or refuse the call for individual subordination, the other partners must give serious thought to how the descendant partners should be treated before a structure is finally determined. For example, they may require participation in the management in order to ensure their “buy-in” or, failing acceptance after significant effort, they may best be subject to separation. Isolation is an unacceptable alternative, since it leads to non-cooperation, exclusion and simply delays dealing with a problem partner.

Selecting the Management Structure

Once a management philosophy has been identified and agreed upon, it is incumbent upon the firm to determine the form that management will take. Good practice and experience dictate that it will not work to allow partners (or members/shareholders) to exercise autonomy on all matters affecting the firm. Traditionally, many firms name a single managing partner/ shareholder and a management committee, i.e., an executive committee. Decisions of consequence relating to structure, which must be made, include:

1. What exactly are the roles and responsibilities of the partners, managing partner, executive committee and department chairs?

2. How do they interact and what is the reporting responsibility of each to the other(s)?

In some firms, one partner assumes the leadership role naturally, either because the individual is a founding partner or controls a significant client base. In firms where the partners are relatively young and inexperienced, however, this process of natural selection may be more difficult (if not impossible). In firms where no partner surfaces as a natural leader or no one wants the job, the firm must take aggressive action if it wishes to grow and satisfy its members’ professional, economic and personal objectives.

The firm must make some hard-and-fast decisions about the kind of leadership required and what the members are willing to accept. Should a managing partner be elected by the general partnership? Or should this individual be appointed by the management committee?

Sometimes the firm’s size will preclude this particular dilemma. The smaller firm is in a position to establish a democratic form of governance that includes all the partners in a leadership role. But, when this is not practical, the partners face a difficult choice and risk setting up two power centers - and consequent decisiveness - if the general partnership elects both the management committee and the managing partner. To avoid this debacle, in some firms, the management committee selects the managing partner.

Qualities of an Effective Leader

What kind of person makes a good managing partner? Generally, lawyers are not recruited to a law firm on the basis of their interest or skills in management. They are rarely trained by the firm in management skills. Consequently, lawyers’ skills and levels of interest in management frequently leave something to be desired. Regardless of training or experience, however, some important characteristics of successful managing partners include the following:

• The leader must possess respect and support, and have the clout and the willingness to wield it when necessary.
• The leader’s skills must combine judgment, commitment, vision.
• He or she must possess a sense of humor, be reasonably “thick-skinned” and be a “people person.”
• He or she should possess a vision about what the firm should be and a good sense of timing for when and how to discuss and implement initiatives.

The most successful managing partner is not necessarily:

• The best lawyer;
• The biggest rainmaker;
• The “workaholic” partner, the senior partner;
• The “idea” partner; or
• The “willing” partner.

What partners expect of managing partners:

• Leadership… but not dictatorship.
• Financial knowledge.
• Address the problem… but pick your battles.
• Be a visionary… but a realist.
• Be decisive… but build consensus.
• Be an example… but admit your mistakes.
• Delegate… but be in the know.
• Treat everyone fairly… but know the “buttons.”
• Know key clients/be visible in the community.
• Be a risk taker… but be accountable.
• Listen to all points of view… but make the call.
• Expect the best… but tolerate mistakes.
• Be accessible… but you must get away.
• Communicate.
• Communicate.
• Did we mention…. Communicate.

Conclusion

In the final analysis, individual needs of attorneys have to be balanced with individual partner independence to be responsive to the firm’s organizational patterns and policies. Applying management techniques to practice areas may introduce to the firm a new take on methods for enhancing profitability.

Joel A. Rose & Associates, Inc.
Management Consultants to Law Offices

SPECIFIC SERVICES FOR PRIVATE LAW OFFICES

ORGANIZATION AND LONG RANGE PLANNING:
~ Retreats and Other Meetings
~ Firm Governance, Administrative and Financial Management
~ Management of Practice Areas
~ Marketing of Legal Services
~ Total Quality Management
~ Mergers, Branch Offices and Problems with Growth
~ Computer Models for Projected Growth

ECONOMICS OF LAW PRACTICE:
~ Lawyers’ Earning Plans and Income Expectations
~ Capital Requirements and Evaluation of Proprietary Interests
~ Evaluation of Economic Results by Lawyer, Firm, Fields of Law and Client
~ Fees and Billing Policies
~ Analysis of Income and Disbursements; Planning for Profit, Overhead and Projected Growth

MERGERS AND ACQUISITIONS:
~ Feasibility Studies
~ Identifying and Evaluating Target Firms
~Integrating the Merged Firms

FINANCIAL SYSTEMS AND ADMINISTRATIVE PROCEDURES:
~ Controls for Client Matters and Attorney Workloads
~ Time and Money Records and Cost Controls
~ Bookkeeping, Accounting and Billing Systems
~ Utilization of Financial and Management Information
~ Records Retention and Retrieval of Prior Work Product

CAREER DEVELOPMENT - PROFESSIONAL STAFFS:
~ Salaries and Other Compensation
~ Methods of Evaluation and Training
~ Recruiting Practices
~ Progression to Partner/Shareholder

AUTOMATION OF PROCESSES:
~ Word and Data Processing
~ Practice Support
~ Telecommunications

RECRUITMENT OF MANAGERIAL PERSONNEL

P.O. Box 162, 1766 Rolling Lane, Cherry Hill, New Jersey 08003 • (800) 381-1645 • (856) 427-0050 • Fax (856) 429-0073