Law Practice Management Asked and Answered Blog

Category: Firm

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Apr 17, 2018

Subjective Law Firm Partner Compensation Systems

Question: 

I am a partner in a twelve attorney commercial litigation law firm in Palm Beach, Florida. There are five partners in the firm. We are contemplating merging with another firm in the area of similar size. We have done our due diligence and have come across a possible non-starter – the compensation system. Our compensation system is totally objective – formula-based very close to an eat-what-you-kill system. The other firm has operated under a subjective system and they are pushing for the firm to operate under this type of system. We would appreciate your thoughts and enlightenment concerning subjective-based systems.

Response:

Subjective-based systems are the most commonly used approach to setting partner compensation, especially in larger firms. More and more firms your size and larger are moving to subjective systems as a result of the failure of other systems to account for the full range of contributions that partners make to the law firm. Subjective systems can take on a variety of forms but the central theme of such systems is that they rely on a subjective assessment of partner performance, without reference to specific weighting of factors or a set formula. This is not to say that subjective systems lack structure or predictability, or that they don’t consider objective financial data. Successful subjective compensation systems include these elements and more.

Subjective compensation systems vary widely. Here are some of the most common elements found in subjective systems:

In additional to subjective compensation systems some firms used hybrid systems that employs objective (formula) and subjective components.

Subjective systems are not for all firms. They will fail with out strong, trusted, leadership. In very small firms it is difficult to structure a compensation decision making body.

It sounds like your firm and the firm you are thinking of merging with may come from two very different cultures. Subjective systems work well for firms that are “firm first” firms but not for lone ranger firms that often operate under eat-what-you-kill systems. If you firm is not a long ranger firm and your are in fact a “firm first” firm or aspire to be such you may be able to adapt to a subjective system. However, you may need a post-merger phase-in period. Another comprise approach might be a hybrid system.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Apr 11, 2018

Law Firm Practice Groups

Question: 

I am a partner and a member of our three-member executive committee. Our firm is a twenty-five attorney litigation defense firm in Kansas City, Missouri. We handle matters such as personal injury, medical malpractice, professional malpractice, products liability, and health care law. Each attorney handles and manages his or her own cases and operates in isolation of the other partners in the firm. Other than attending a quarterly partnership meeting there is little interaction among the partners. We have been discussing whether we should form practice groups. We would appreciate your thoughts.

Response: 

Practice groups can be excellent vehicles for enhancing communications, attorney and staff skill development and training, practice management, and marketing. Practice groups should share the mission and vision of the firm as well as goals of enhancing services to clients by developing the skills of the members of the group in a particular legal specialty or industry niche and developing business for that particular group. Practice groups should not operate as isolated islands but should be structured and integrated with the firm. Specifically, functional practice groups should:

Practice groups can be structured around legal specialties such as personal injury, product liability, and professional malpractice. Other practice groups can be structured around industry niches such as energy, health care, etc. In cases where a firm has a very large client a practice group can established for that specific client.

While practice groups can have their advantages, I have found that in many firms they are dysfunctional. They do not meet on a consistent basis, have no goals, or direction, poor leadership, and seem to accomplish little. To be effective  practice groups must:

  1. Be setup by the executive committee with specific goals and have a written charter developed by the executive committee.
  2. Effective leaders should be appointed by the executive committee to serve as chair of the practice group assigned. Specific roles should be identified as well as expectations.
  3. Practice group chair leadership effectiveness should be a factor in the compensation system.
  4. Practice groups should have written strategic plans that integrate with the firm’s strategic plan.
  5. Practice groups should meet monthly.

I believe a practice group would be a logical direction for your firm. You might want to start slow and try a “pilot” test group where there appears to be significant interest and see how it develops.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Mar 28, 2018

Law Firm Growth Planning

Question:

I am a partner in a six lawyer firm in Jackson Mississippi. There are three partners and three associates in the firm. The firm is a insurance defense litigation firm. Our firm has been at its present size for many years, revenues have been flat, and profits have been shrinking. The partners have been discussing the pros and cons of growth and we would like to significantly grow the practice. A couple of our insurance company clients have asked us to open offices in other states and we are giving this consideration. Initially, we would open two other offices and we anticipate that this would require us to hire six additional attorneys. We appreciate any thoughts that you have.

Response: 

This is a huge step and I suggest that you give it careful thought. Here are a few of the issues you should consider:

  1. Firm Size – opening two branch offices and hiring six additional attorneys all at once is a major undertaking. This would double your firm size. A twelve attorney firm is quite different that a six attorney firm and requires a different approach to management, structure, etc. This would tough enough if the expansion were not in remote offices but in remote offices I believe the growth is too aggressive. I would start with one branch office and phase in the work and attorneys. Hopefully, you have a commitment from more than one client to send you work for a given location.
  2. Branch Office Staffing – staffing the office, especially with attorneys, will be a major issue. Unless you have attorneys in your office now that are licensed in these states you are going to have to hire local talent. How will you integrate the cultures of the two firms, prevent the remote offices from operating as separate silos, and keep the new offices from splitting off in a few years and starting a competing firm. Quality attorney talent will be hard to find and those that you do find will be reluctant to want to work for a small firm with no footprint in the local area. It is always preferable to staff a branch office, at least initially, with attorneys from the home office.
  3. Structure and Management – a larger firm will require a more sophisticated structure and approach to management. Will the attorneys hired for the remote offices be partners or associates? Will you need to create a non-equity tier? Who will manage the remote offices? Will you need to hire a firm administrator?
  4. Cash Flow – Growth will put a strain on the firm’s cash flow and will require additional working capital. Your partners will have to invest additional capital or the firm will have to take on debt.
  5. Systems – Growth will require you to examine your IT systems and software that you are currently using. They may not be sufficient. Consider how you will connect the computer system of the main office to the remote offices. How will phone systems be connected?
  6. Policies and Procedures – policies, procedures, and protocols will need to be developed and documented.
  7. Compensation – You present attorney compensation system may no longer be adequate. Consider whether a new approach will be required to attract new attorney talent.
  8. Financial Management – Your approach to financial management may need to be more formal that it is now. Budgeting will be a necessity.
  9. Facilities – Office space will have to be located and leases signed unless you start out with an executive suite type of arrangement, such as a Regus office. There are pros and cons to starting this way. One the one hand it provides a low risk way to enter a new market but on the other hand it signals that you are not committed to the market and you have just one toe in the water.

These are just a few of the issues that you will need to consider. Do your homework and due diligence on this before you jump feet first.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

Mar 07, 2018

Law Firm Marketing – Using Articles to Demonstrate Expertise

Question: 

I am new non-equity partner in a sixteen attorney firm in Phoenix, Arizona. My equity partners are telling me that I now have to do more than generate billable hours and perform quality work for clients. They now expect me to begin bringing in clients. I am not sure where to start.

Response: 

I often advise attorneys that while what you know is important what you want to be known for is more important. Just having your name known is pretty useless unless it is known for something. An outstanding personal injury plaintiff lawyer – not just a good lawyer. In law firms it is the reputation for expertise that matters, not just the reputation. Therefore, a successful marketing program must project and demonstrate expertise. This can be accomplished in the following ways:

  1. Byline Articles
  2. Authored Books
  3. Presentations
  4. Client Testimonials on the firm’s website.

While biographies on the website are important, prospective clients and referral sources are looking for proof of expertise. Articles, authored books, presentations, and client testimonials provide such proof.

One of the best and reliable ways of providing such proof is the article. In a byline article, you don’t have to say that your are an expert – the fact that you wrote the article, discussing a particular legal topic, says it for you. Its your expertise on display whether the article be in a print publication or posted on your website, blog, or other location.

An article is one tool that you can use where you have control – you can say what you want to say and say it in your way. In most cases, if an article is acceptable to a publication, an editor won’t change the thrust of it.

For most legal and business trade journal publications that accept articles you do not have to be a well known writer to write an article that will be accepted by these publications. You simply have to know what you are talking about. Editors will help with the formatting, style, and syntax.

If you retain the copyright to your article you can re-purpose your article and use it on the firm’s website, reprints, firm brochures, and as a future chapter in your first book.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

Feb 21, 2018

Law Firm Staff Work Distribution Analysis

Question: 

I am a new firm administrator with a thirty-five attorney litigation firm in Los Angeles, California. In my accounting department I have seven staff members handling a variety of tasks. My partners are concerning that we are inefficient and over staffed. I am having a hard time finding where to start so to get a handle on  this issue. Please provide any information that you are willing to share.

Response: 

There are questions that you must ask yourself in order to analyze the work distribution of your accounting department. Such questions as the following will help you in knowing what to look for:

  1. What activities take the most time?
  2. Is there any misdirected effort?
  3. Are skills being used properly?
  4. Are you staff doing too many unrelated tasks?
  5. Are tasks spread too thinly?
  6. Is work distributed evenly?
  7. Are the right people on the bus?

Before you can analyze your accounting department you must be able to see clearly, in one place, all the activities of your accounting department and the contribution of each employee on each activity. A work distribution chart is the easiest and best way to arrange these facts in simple form. A properly made work distribution chart will help you determine if the largest time of your staff is devoted to the major function of your department. (Operations list down the left rows and staff names listed across the columns) It may indicate that more time is being devoted to other functions than is necessary. A function or task may require a more detailed study, as might be indicated where total hours seem unreasonable. You may discover that your accounting department is spending too much time on relatively unimportant or unnecessary work. Misdirected effort appears on the work distribution chart when staff are involved in tasks not contribution directly to the mission of the accounting department.

Here is an overview of the process:

  1. Have each staff member prepare a task list.
    1. List specific and clear activities for a specific time period with time listed for each activity.
    2. Task lists should cover a complete cycle of work. (Weekly, Monthly, etc.)
  2. Determine operations performed
    1. Prepare an operations list grouping related or same kind of tasks (operations).
    2. Check operations list against breakdown of department mission.
  3. Complete the work distribution chart
    1. Complete heading.
    2. List operations.
    3. Enter staff names in a column of the chart.
    4. Enter tasks, time, and work count for each operation.
    5. Total the columns and rows.
  4. Examine the present work distribution
    1. What operations take the most time?
    2. Are they essential?
    3. Is there misdirected effort?
    4. Are skills used properly?
    5. Are you staff doing too many unrelated tasks?
    6. Are tasks spread too thinly?
    7. Is work distributed equitably?
    8. Is the department overstaffed?
    9. Are the right people on the bus?
  5. Improve work distribution
    1. Consider eliminations, additions, and rearrangement of tasks and operations.
    2. Prepare a proposed work distribution chart.
    3. Discuss proposed changes with your partners.
    4. Put proposed changes into effect.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Feb 14, 2018

Compensation Ideas for Law Firm Staff – Goal Bonuses

Question: 

I am the firm administrator with a ten attorney firm in Long Beach, California. I really enjoyed reading your blog – Law Firm Compensation – Bonuses for Staff, dated December 27, 2016.  

I really like your approach of tying bonuses to measurable outcomes. Have you used other approaches other than percentage of salary? Can you give additional examples of specific goals that would be appropriate for a bookkeeper, office manager, or firm administrator?

Response: 

Research and experience tells us that employment expect the following five things from management:

  1. Mutual agreement as to what is expected.
  2. The opportunity to exercise his or her ability.
  3. Feedback on his or her performance.
  4. Direction when needed.
  5. Reward – compensation in equal measure to his or her contribution to the firm.

The problem with staff employee is quantifying and measuring performance so that bonuses are not “Santa Clause” bonuses. A bonus system tied to measurable goals/objectives can, as outlined in my earlier blog, eliminate the problem of bonuses being considered by employees as an entitlement.

Other approaches that some of my law firm clients have used is to develop a limited laundry list of goals with a specific dollar amount tied to each goal for specific positions such a bookkeeper, firm administrator, etc. Typically, there is a cap on how much can be earned per year – 5% – 10% of salary. At the beginning of each year the employee selects the goals that they plan on working on for the upcoming year, obtains approval from his or her supervisor, and both parties sign off on a goal plan for the year. The goals must be SMART goals. Bonuses are paid as goals are completed.

Here are some additional examples:

Bookkeeper 

  1. Reduce accounts receivable over 90 days by 25%
  2. Write and implement an accounting manual by December 31 of this year.

Firm Administrator 

  1. Manage the firm within the approved expense budget for the year.
  2. Reduce staff turnover during the year by 25% below an average of the past three years turnover history.
  3. Reduce headhunting fees for staff by 40% below an average of the past three years.
  4. Write and implement an Employee Handbook by December 31 of this year.
  5. Implement a new time and billing system by December 31 of this year within time and cost budget.

The key to the goals is that they are important to the firm and are measurable.

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John W. Olmstead, MBA, Ph.D, CMC

Feb 06, 2018

Partner Withdrawal from a Law Firm

Question: 

I am a partner in a law firm in Walnut Creek, California with four other partners and three associates. We are a general practice firm and our clients are primarily individual clients. I have a good relationship with my other partners. I have decided to leave the firm and join a larger firm in San Francisco. I have notified my partners in writing of my intention to leave and they are supportive of my decision. Therefore, I anticipate a amicable withdrawal. Since this is the first time that a partner has left the firm for any reason we are not sure what the next step is. Please share with us any thoughts that you have.

Response: 

It sounds like you will be fortunate enough to have an uncontested withdrawal. Leaving a partnership takes planning and foresight. If your firm has a partnership, shareholder, or operating agreement your have a starting point. However, even if you have such an agreement, I have found that in most cases there are still a myriad of issues and details that still have to be resolved. You and your partners will still need to negotiate the terms for your withdrawal and ultimately sign a withdrawal or separation agreement. Your partners may be unhappy about certain issues, or in you leaving, but in the end, will do the right thing either because they have to or because they want to.

While there are a lot of moving parts and details to tend to the major issues that have to be resolved when a partner withdraws from a partnership involve:

I suggested you start by developing a project plan outlining all the tasks and sub-tasks with start dates, target completion dates, dates competed, and to whom is assigned to each of the tasks that are going to have to be accomplished. At the top of the list will be to negotiate a withdrawal or separation agreement that addresses the above issues and minimizes your risks and future liability. Here is a checklist you can use to get started:

  1. Review the firm’s current partnership, operating, or shareholder agreement to ensure that you follow any and all withdrawal requirements.
  2. Identify all assets and liabilities, on and off balance sheet, and come to an agreement with your partners on the status of those assets and liabilities and any ongoing responsibility that you may have.
  3. Identify all contracts, liens, mortgages and other obligatory documents that name you personally or where you otherwise act as a personal guarantee or surety.
  4. Based on the above information, negotiate withdrawal terms.
  5. Have yourself removed from all obligatory documents and/or where you a personal guarantee or surety.
  6. Draft a withdrawal agreement that documents everything, and have it executed properly by each of your partners.
  7. If there is a long-term commitment by the firm to you to pay you money over time, or retire some form of debt, consider mechanisms to enforce those commitments, including the right to audit or security interests.
  8. Make sure your name is removed from all firm formation documents, including to the Operating Agreement (for an LLC), Partnership Agreement, Shareholder Agreement or Bylaws, Corporate Register (if a C-Corp or S-Corp, Articles, and with the IRS, if your name was used as the responsible party when your FEIN was obtained.

Once you have a withdrawal agreement in place you can begin to address some of the other tasks that will have to be addressed. Review your state’s rules of professional responsibility concerning withdrawal – particularly those pertaining to client notification, conflicts of interest, etc.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

 

 

Jan 31, 2018

Law Firm Leadership – Profile for a Legal Administrator for an Eight Attorney Firm

Question: 

Our firm is an eight attorney estate planning firm in the Chicago area. Our firm has grown from two attorneys to our present size in four years. We have five partners and three associates. Currently management is handled by a managing partner. The partners have been discussing hiring a legal administrator. We were thinking of hiring someone with experience in managing law firms and a solid background in human resources and bookkeeping/accounting. One of our clients suggested that we hire someone with a strong academic background, MBA, CPA type that has served as the CEO of a mid-size corporation. What are your thoughts?

Response: 

I think you are too small to justify hiring a person with this background that is currently employed in such a role. Such a person would be unaffordable and if you could locate such a person your firm would probably be a stepping stone until they find a position elsewhere. If you were able to find someone that is retired and willing to work in a small firm setting that could be a possibility. Another option would be to hire someone that has served as CEO, COO, or CFO of a smaller company – with or without MBA, CPA designation. You could also look for an experienced legal administrator that has worked in a larger firm – possibly with a CPA or MBA. Again affordability will be an issue as well as long term retention. Personally, at your current size I think you should look for someone with BA or MBA degree in business, with a strong background in accounting and human resources, and experience as an administrator in a law or other professional services firm such as an accounting firm, consulting firm, engineering firm. Look for someone that has worked in a firm with 15-35 attorneys/professionals. Be careful of applicants that have worked in very large firms – i.e. 50+ attorney firm for example, as they may only stay a short while in a firm your size and move on to a larger firm when a position becomes available. They may also not be the “hands on jack of all trades” administrator that you need in a firm your size.

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John W. Olmstead, MBA, Ph.D, CMC

Jan 10, 2018

Increasing Case Volume in a Personal Injury Law Firm

Question: 

I am a partner in a two partner personal injury firm in Tampa, Florida. We do not have any associate attorneys. Our firm only handles personal injury work. We have been in practice for thirty-five years and have been very successful over the years. However, the last few years have been terrible. Adjusters are not settling cases and the days of three times specials is over. Our case volume is down, the quality of cases that we have in our inventory is far below what we had in previous years, and our revenues are down substantially. Cash flow is awful. We have had to live off of our credit line for the past year. Our main source of business over the years has been referrals from past clients and other lawyers, yellow pages, and our very basic website. We would appreciate any thoughts and suggestions that you may have.

Response: 

This is a common complaint that I have hearing from personal injury firms across the country. In some states tort reform is having an impact and insurance companies are getting harder to deal with. Extensive advertising by other law firms is having a major impact. Larger personal injury firms that are doing extensive television and other forms of advertising are doing well. Here are a few thoughts:

  1. Your ages may be having an impact. I would guess that the two of you are at least in your sixties or later. Your market may be gradually retiring each of you based on your age. You may want to consider your succession strategy and finding a way to bring is some younger attorneys. When I chose my last doctor and dentist I asked the receptionist at their offices how old they were. Attorneys doing insurance defense work often find that their insurance company clients often begin sending them less cases (or none) as they get into their 70’s and 80’s.
  2. TV advertising works for personal injury but requires a major investment and commitment. In order to be successful with a TV campaign you would need to commit to one year. I doubt that you are in a position to do this.
  3. Work your referral sources – particularly attorneys. Many attorneys as they get older stop or reduce their networking and as a result are not getting the attorney referrals that they used to receive. In fact, many of your attorney referral sources may have retired themselves.
  4. Traditional marketing using “push” or outbound techniques such as TV, radio, and print advertising are giving way to “pull” techniques as people are using the internet to shop and gather information. Pull techniques involve internet search engines, blogs, and social media such as Twitter, Facebook, LinkedIn, YouTube, and others. Your website should be your marketing hub and it should be more than a basic webpage. It should be loaded with content and information and designed in a way that search engines place you well in their rankings – especially Google. Suggest that you consider the following:
    1. Create lots of content people will want to consume and place on your website.
    2. Add a blog to your website and post new content at least weekly.
    3. Focus on where the action is – Google, blogs, social media sites.
    4. Setup Facebook and LinkedIn accounts for the firm and the individual attorneys and post content to Facebook weekly.
  5. Have your website reviewed as to how well it ranks as far as searches in Google. Consider having your site optimized for Google if necessary.
  6. Personal injury firms, due to the internet advertising by personal injury firms, have a hard time standing out in Google search ranking without paid ads. Consider a pay-per-click add on Google if you are not ranking well in Google.
  7. Client leads coming in through TV and the Internet require quick response. The biggest mistake that many law firms make is making investments in TV advertising or pay-per-click internet advertising and then not responding to inquiries after hours or weekends. Have someone monitoring internet inquiries and getting in touch with prospective clients after hours and weekends.
  8. Measure and track which marketing sources your leads and cases are coming from.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Jan 04, 2018

Law Firm 2018 Initiatives and Goals

Question: 

Our firm is an eighteen attorney insurance defense firm located in Los Angeles, California. We have six partners and twelve associates. We represent insurance companies in personal injury and property claims. Over the last five years our growth and our profitability has been flat. We feel that we have enough work to reach our goals but we just don’t think our people are energized. We have a billing requirement of 2000 billable hours but few of our attorneys are hitting them. The partners met a few weeks ago and set for the first time set some goals for 2018. The firm does not have a business or strategic Plan. Do you have any thoughts on 2018 goals and how best we can implement?

Response: 

Since you do not have a strategic plan I assume that you have not done any formal planning in the past. Even firms that do have strategic plans often fail to engage and energize their team. Here are a few thoughts regarding your 2018 goals and initiatives:

  1. Most law firms are not run like a business. They haphazardly go through the motions without a plan, without structure, and with no order. The first thing I would suggest is for the firm to make a commitment this year to begin running your firm more like a business with more structure, order, and accountability from your lawyers and staff.
  2. If the firm does not have a budget develop a budget this year before the end of January and review the firm’s performance against the budget monthly. The revenue section is particularly important. Build it from the ground up timekeeper by timekeeper. Advise each lawyer and other timekeepers  of their revenue and or hours targets for the upcoming year.
  3. Consider a new year kickoff meeting, possibly breakfast or lunch, to jump start the new year that would include attorneys and staff. During this meeting you can accomplish the following:
    1. Recognize team members that performed well the past year.
    2. Provide information about the firm’s past year performance, where the firm is and where it is headed in the upcoming year.
    3. Review the firm’s mission and purpose and specific firm and individual goals for the upcoming year.
    4. The firm kickoff meeting sets the tone for the upcoming year, communicates firm and individuals goals, and energizes team members and solicits commitment.
  4. During the year consider the following meeting schedule:
    1. Kickoff meeting – attorneys and staff – early January.
    2. Attorney meeting – weekly
    3. Staff meeting – monthly
    4. Partner meeting – monthly
    5. Midyear meeting – attorneys and staff – early July
    6. Budget and Planning meeting – Partners or Management Committee –  early December.
  5. Review your attorney compensation system to ensure that it is rewarding the performance you are seeking.
  6. Review your attorney hiring protocols to ensure that you are getting the right people on the bus.
  7. Dig deeper and look into why attorneys are not meeting billable hours requirements. Possible reasons might be:
    1. Not enough work.
    2. Attorney not putting in the hours.
    3. Attorney has poor time management habits.
    4. Attorney has poor timekeeping habits.
    5. A combination of all of the above.
  8. Implement solutions to above.
  9. Take a tougher approach to those attorneys that are not meeting performance targets.
  10. Conduct formal performance reviews with each attorney and staff member annually.
  11. Commit to starting to work on a strategic plan no later than the third quarter of this year.

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John W. Olmstead, MBA, Ph.D, CMC

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