Now is the Time for Managing Partners to Shine - By Barry Strauss & Donna Corini

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Citi and Wells Fargo announced their survey results for the 3rd quarter of 2017 both noting
continued declines in profitability for small and mid-size law firms. Results also indicated that for the first nine months of 2017 revenues at these firms remained flat, demand declined, and
expenses increased. The only good news was that inventory, work in progress, and accounts
receivable, increased.

Full year survey results will be available in a few months. Profitability is expected to remain flat at best and declining at many firms. The leaders of small and mid-size firms continue to face challenging and difficult issues. Now is the time for them to develop and implement strategic initiatives to enhance financial performance. Expenses rising faster than revenue is not a sustainable business model and the ease with which partners and their business can depart to other firms makes it vital that leaders build a partnership consensus regarding financial performance before the dam starts leaking. This is a correctable problem if addressed decisively.

For the most part, law firm leaders of small and mid-size firms tend to focus predominantly on
short term results, generally a six to twelve month window. Leadership’s attention is, perhaps
necessarily, focused on day-to-day issues with the assumption that tomorrow will take care of
itself. This type of management philosophy worked years ago in law firms when there always
seemed to be enough business and revenue to keep partners happy. This “caretaker” model
of management, if used today, will ensure declining long term profitability. Add in a possible
lack of business acumen, planning, and execution, and it is no surprise that the number of small
and mid-size firms is declining. In some cases the firms are forced to combine with other firms
after the situation becomes unredeemable, and in other cases, the firm simply breaks apart.

There has been speculation from managing partners and reporters that the lack of attention to
business details may be due to the fact that partners are still earning a very nice living. One
managing partner recently explained that even though his firm’s profits per partner declined
20% over the last three years the partners were still making good money, so there was
insufficient reason to reconsider firm policies and procedures. Managing partners who lead
their firms with this type of philosophy are doing a disservice to the partners, and are moving the firm towards unfortunate results. A firm with this type of management philosophy and
leadership is vulnerable to the proverbial “death spiral” where the firm loses its luster in the
market, making recruiting difficult. Then, the lack of new talent and energy clouds the future
and compels the strongest partners to leave.

Leaders need to take charge and focus on their firm’s performance in all business areas including: services offered, pricing, acquiring and retaining clients, financial statements, compensation systems, etc. The overall business model in many small and mid-size firms is simply not working. Changes need to occur. The “caretaker” attitude of maintaining status quo is not a long-term strategy.

Many managing partners at small and mid-size firms have practices of their own. Administrative leaders are busy keeping the lights on and the trains running on time. Both are full-time jobs and neither includes developing a long-term strategy and managing on a daily basis to achieve the vision created. Therefore, the business of the firm becomes secondary.

The question partners should be asking is “Who is managing the business aspects of the firm?”

The answer we see is generally multiple people on an ad hoc, as needed basis. Firms
generating millions of dollars in revenue require a disciplined approach to the business itself.

This current downward spiral in profitability can be and must be managed. The following five strategic initiatives, if implemented successfully, will help improve financial performance:

1. Deliver effective, efficient, and less expensive legal services to clients. This has to be
implemented practice-by-practice because each practice has a different business model.
Delegate responsibility and authority to practice group leaders (PGL). Choose PGLs
based on their ability to lead, not necessarily economic dominance. Reward and hold
the PGLs accountable for results achieved.

2. Communicate with clients on a regular basis to understand their pain points and work
with the clients to resolve their problems.

3. Manage time and expenses closely. This includes capturing, billing and collecting time,
and investing in sensible and affordable talent, technology, and marketing.

4. Make decisions to enhance the financial stability of the firm. Do not let the most
demanding partners rule your decision making.

5. Have a vision and make difficult decisions today that will have a positive effect on the
firm’s future. Controversial decisions need courage. The cost of not acting may be far

Many small and mid-size firms will lose their ability to decide their future and become part of a
larger firm. The larger firm will not hesitate to make necessary business decisions. Others will
simply close their doors. When firms melt away, their assets (lawyers and staff) are forced to
redeploy, reinvent, and reprice themselves. The defunct firm could have taken those steps to
save itself, but the focus on short term tranquility resulted in complete failure. Those
unfortunate outcomes can change with attention to the business needs of the firm.

Leaders of small and mid-size firms need to take action today. Start planning for the future today. If needed, ask for outside help. Don’t let your partners and employees down. They are counting on you!

About Legal Strategies Group LLC
The Legal Strategies Group LLC (LSG) is a consulting firm that provides objective, strategic
business advice to law firm leaders. We help firms improve their business operations including
revenue enhancement and profitability. LSG is a proud affiliate of the GLC Law Firm Consulting Group.

About the Authors
Barry Strauss and Donna Corini are co-founders of LSG. Barry and Donna are former in-house
senior executives with more than 20 years of law firm experience advising leaders on issues of
revenue enhancement, profitability, marketing, and organizational excellence. Greg Cirillo is a
senior consultant with LSG and a founding member of HCH Legal, LLC. Greg provides
analysis, planning and implementation services to small and mid-sized clients. The authors
can be reached at 202.288.2095 or info