A Roadmap for Changing Your Firm’s Future: The Case of a Struggling Law Firm

by John W. Olmstead, Jr., MBA

Numerous law firms today are experiencing serious management and leadership problems that could jeopardize their future existence. Many of our client firms have advised us they are becoming overwhelmed by the magnitude of many of the changes that they are having to confront. High on the list are issues such as

retaining high quality partners,
recruiting and retaining high quality associates,
recruiting and retaining quality staff,
acquiring and keeping quality clients,
shrinking practice areas,
maintaining past levels of profitability,
inadequate marketing capabilities,
lack of a firm vision and strategy,
poor management and leadership skills, and
partner accountability, implementation and follow-up.

Insurance defense practices in particular are bewildered by client demands, poor profitability, and loss of control over their practices. Many insurance defense firms are actually giving up and either closing up shop or looking for other types of work. It has become apparent that many of the old business models simply no longer work.

Case Overview

A firm of approximately 10 attorneys was having hard times. While the firm had over a 100 year history since the inception of its practice, during the past decade the firm had numerous setbacks. The firm had lost several major insurance companies and other institutional clients and had several partner and associate defections to other firms. The firm had dwindled from a firm which at one time had approximately 22 attorneys to its present size of 10 attorneys. Partner earnings and firm profitability was well below that of comparable firms. Firm management was stuck in its tracks and ineffective in implementing needed changes. Partners were unhappy and many were about to jump ship unless needed changes could be made. The Executive Committee decided that it needed help and asked us for assistance.

Our Role

In order to help the firm identify specific problems and solutions we suggested that we conduct a comprehensive management review designed to lead to an action orientated change program. Specific project phases included:

On-Site Visit

Meeting with partners regarding future organizational plans and other long range plans and objectives.
Organizational review.
Review and analysis of current operations.
Observations of facilities and systems.
Interviews with attorneys and staff personnel.
Reviews of documents and files.

Written Report of Findings and Recommendations

Areas of Focus

Firm Image.
Long Range Plans.
Marketing, Business Development & Client Relations.
Firm Governance.
Business Operations.
Financial Performance.
Human Resources.
Administration.
Computer System and Related Controls.

Off-Site Partner Briefing Session

Action & Implementation Plan

Ongoing Follow-up and Implementation Assistance

The Review

Prior to the on-site visit, we provided the firm with a work plan and asked the firm to schedule interview appointments with all firm personnel (partners, associates, and staff). We forwarded firm management questionnaires and the Myers-Briggs Personality Type Indicator (MBTI) and asked that each member complete and return both the firm management questionnaire and the MBTI to us prior to our site visit. Upon receipt the questionnaires were tabulated and scored. The firm also provided us with firm demographic data as well as basic financial data prior to our site visit. This data was also reviewed prior to our site visit.

Most of our initial site visit time was spent interviewing personnel. We spent three days at the law firm. On the first day we began the day with an extensive interview of the Executive Committee which lasted approximately 2 ½ hours. We then shifted gears and began conducting our individual interviews with partners, associates, and staff members. A total of 20 people were interviewed with each interview lasting approximately one hour. While some specific closed-ended questions were asked, the majority of the questions were open-ended questions with a great deal of probing into the details of actual responses. In essence we were active listeners and the interviewee did most of the talking. The interviews focused on a wide range of issues including firm management and leadership, office morale, policies and procedures, firm strengths and weaknesses, compensation and benefits, the compensation system in general, performance management systems, communication and feedback, training, marketing and client development, client service, and recommended improvement areas.

After concluding our interviews we met with the bookkeeper, reviewed accounting and bookkeeping operations, and collected needed financial reports (last three years) for subsequent review. A tour of the firm’s office facilities and a review of their systems and operations were then conducted. Other documents that were collected and reviewed included:

Firm newsletters and other marketing collateral materials.
Firm meeting minutes.
Office policy and procedures manual.
Organizational chart/listing.
Internal memos.
Partnership and all other agreements.
Compensation data.
Personnel census data for past three years.
List of top 20 clients and fees received for past three years.

We then conducted a brief meeting with the Executive Committee regarding our initial thoughts, plan of attack, and the next phase of the project. A date and time was selected, approximately four weeks out, for an off-site full day partner briefing session.

The Report

Upon return to our office we began the detailed process of analyzing the data that we collected. The quantitative segments of the firm management questionnaires and the MBTI instruments were loaded in our SPSS statistical software, which then generated statistical calculations and graphic presentations. Categorical summaries were prepared for the qualitative long answer and comment segments of the firm management questionnaires. Financial data was loaded into our Excel Law Firm Financial Model. Output from the model consisted of the firm’s financial profile that provided financial summary data for the past three years, calculated ratios, comparisons against law firm benchmarks, and graphical representations.

After we reviewed the above quantitative statistical summaries, qualitative categorical summaries, and the firm financial profile, we reviewed our interview and general notes as well as various documents collected. We then commenced our detailed analysis of the data, identified problems, and drafted our findings and recommendations in each of the areas of focus listed earlier. An action and implementation plan was then prepared in which we prioritized and sequenced action orientated activities that we believed required initial attention.

Since the entire focus of our approach was upon real change and action orientated implementation, our report consisted of our findings and recommendations, a prioritized action and implementation plan, summaries of firm management questionnaires and interview notes (with interviewee unidentified), firm financial profile including graphs and charts, and numerous documents and tools to actually help get the change process moving and assist in actual implementation. A copy of our Powerpoint slides used in the partner briefing were also included with our report.

Findings and Recommendations

Findings and recommendations were identified and listed in each of the following focus areas:

Firm Image.
Long Range Plans.
Marketing, Business Development & Client Relations.
Firm Governance.
Business Operations.
Financial Performance.
Human Resources.
Administration.
Computer System and Related Controls.

After identifying findings and recommendations in each of these areas, we prepared an action and implementation plan which prioritized and sequenced the top initiatives.

The Top 15 Findings:

Continued viability of the firm in question.
Poor financial performance. Fee revenue and partner compensation 100% below comparable firms.
Low billing rates, billable hours, and leverage.
Over dependence on three clients.
Loss of several key insurance companies and other institutional clients.
Lack of management and structure at the firm and the practice area.
Very little partner discipline, accountability, and consequences.
No one running the firm on a day-to-day basis.
The firm is too busy practicing law to have time to manage the firm and engage in long range developmental activities.
Lack of firm leadership and focus.
No planning and no marketing.
Limited management competencies.
Poor office communication and poor staff morale.
Problems with associate and partner development and retention.
Shortage of skilled attorneys.

The Partner Briefing Session

Four weeks after our initial site visit we returned to conduct on off-site partner briefing. The briefing was conducted at an off-site facility and lasted ten hours. The briefing was designed as a working session designed to specifically move to real change and implementation. Our first task was to create a sense of urgency. Tools used included our report of findings and recommendations, SPSS statistical and graphical output documenting and supporting the firm’s present situation, a Powerpoint presentation, flip charts, facilitative brainstorming sessions, and a prioritized and sequenced action and implementation plan.

Since the session was intended to be both educational as well as to present our findings and recommendations, we started the session with a presentation entitled “Characteristics of Successful Law Firms.” We also presented a “Law Firm Profitability Model” designed to help the partners identify the various variables involved in law firm profitability.

We then presented our statistical and graphical evidence of the firm’s present state. The intent here was for our hard data to be so overwhelming as to help drive a commitment to change. We know all to well how many firms collect reports from consultants and never move to action or change. After we presented our statistical and graphical financial and non-financial data, we reviewed our report of findings and recommendations. The next stage of the session involved detailed discussions and brainstorming.

The Action & Implementation Plan

Due to the extensive number of recommendations contained in the report we were concerned that the firm would lose focus and not know where to start. Therefore, we reviewed our prioritized and sequenced action and implementation plan, made changes, and went to work.

The first 10 action items included the following

Commitment to change.
Approve a firm governance plan.
Implement a comprehensive financial improvement plan.
Formulate a pilot practice group
Implement an Associate and Paralegal Development Program.
Hold a firm retreat to formulate firm image, mission, vision, goals, etc.
Develop a firm business and marketing plan.
Develop monthly business reports to measure attainment of both financial and non-financial goals.
Conduct a client survey.
Develop collateral marketing materials.

A great deal of thought was given to the above sequence of action items. We felt that the firm’s problems were so extensive and with many of the solutions requiring new behavioral patterns, no quick fixes would be imminent. Therefore, without a real commitment to change the firm would not have the tenacity or patience to effect the changes required. Since many of the firm’s problems stemmed from lack of action, accountability, and follow-up as well, and a requirement that all partners be involved in management decisions, a governance structure would need to be put in place before anything else could be accomplished. Finally, the firm needed to improve its financial performance in order to survive. We provided the firm with suggested governance and financial improvement plans. Our goal was to focus the firm initially on just these three goals.

We spent the remainder of the session (3 hours) dealing with the first action item – commitment to change. We discussed the hard work that would be involved in turning the firm around and how much easier it would be for attorneys to go out on their own or with other firms. Each attorney then gave a personal presentation as to why they wanted to see the firm succeed, sacrifices and commitments they were willing to make, and why they did not want to take the easy way out and go elsewhere. Each confirmed that they believed that if major changes were not made – the firm would not exist within a year. In the end, possibly the first time in many years, we had a unanimous decision – a commitment to change.

We then moved to the second item – firm governance. All firm members agreed that the Executive Committee should have greater control over firm affairs and that a formal governance plan should be adopted. Each committed to stay out of day-to-day decisions. It was decided that the Executive Committee would work out the details of the governance plan and would commence work on the action and implementation plan. We were asked to serve as an adjunct member of the Executive Committee and assist on an as needed basis, monitor progress, and assist in implementation matters.

We then concluded the partner briefing session with commitments to work together to effect major changes that would alter the course of the firm.

Present Status

During the past three months the Executive Committee has been hard at work. The governance plan was finalized. Job descriptions were approved for the Executive Committee and a new Firm Administrator position. A list of decisions requiring partnership vote was identified. The three documents were appended to an approved corporate resolution outlining and approving the governance plan. An experienced firm administrator was recruited and hired. One of her top priorities has been moving forward the action and implementation plan.

A pilot practice group has been put in place. Members have been selected, a chair selected, and ground rules formulated. They have had several meetings and are currently working on priorities and practice group plans.

Work has commenced on the financial improvement plan. Billable hour quotas have been formulated and a billing committee has been formed. Client acceptance criteria has been developed. Billing rates have been revamped and alternative billing methods implemented for some practice areas. A utilization plan for existing paralegals and future hires was adopted and financial goals were put in place. Both associate and paralegal recruiting goals and plans were put in place. Staff utilization practices were reviewed. A firm budget was formulated and both firm and personal business marketing plans have been adopted.

We assisted the Executive Committee to stay focused and on track. We are a phone call or e-mail away and have functioned as an ongoing adjunct member and resource to the committee. We have conducted management skill development workshops for both the Executive Committee and staff. We also helped the pilot practice group with initial formulation of team roles and other team building skills. The results of the MBTI instruments that were administered previously were used as one of our tools in these sessions. We were also on hand to orientate the new firm administrator and continue to work hand-in-hand with both the Executive Committee and the firm administrator.

Did it Work?

We believe so. At least the firm is on the right track and moving forward. Some hard decisions have been made. A lot of work still needs to be done. Many habits and behaviors still need to take root. Additional skills need to be developed. However, now that the infrastructure and the tools are in place, we believe that the firm has a good shot.

Dr. John W. Olmstead, Jr., MBA, is a Certified Professional Consultant to Management and the president of Olmstead & Associates, Legal Management Consultants, St. Louis, MO. The firm provides organizational performance, management, leadership development, and marketing advisory services to law and other professional service firms. He is the Editor-in-Chief of The Lawyers Competitive Edge: The Journal of Law Office Economics and Management, West Group. He may be contacted by e-mail at jolmstead@olmsteadassoc.com.