Law Firm Managment – Characteristics of Successful Law Firms – Basic Building Blocks

By John W. Olmstead, MBA Ph.D CMC

 

In my Illinois Lawyer Weekly Online Column – and in my blog – http://blog.olmsteadassoc.com I encourage the submission of questions concerning law practice management topics. I am receiving more and more questions pertaining to management and leadership. Here is a question that I recently received concerning firm management in a newly minted eight attorney firm.

Question:

My partner and I just started our firm two years ago. We have four associate attorneys and four staff members. As we grow our firm what should we keep in mind so we don’t repeat some of the mistakes that I have seen in other firms that have not been successful?

Here was my response to the question:

I outlined what I call the Basic Building Blocks of Successful Law Firms which are:

Block One – Partner Relations.

This is the foundation (bedrock) of a successful firm. A successful firm has a healthy partner culture – a good marriage. In such a culture partners share common vision and purpose, respect one another, shoot straight with each other, and have difficult conversations and discussions when needed and deal with issues and problems. In many firms this is not the case and these firms often are characterized by the following:

Such firms are often doomed from the start. Firms that don’t get this foundational building block right will build a firm on a shaky foundation. Before forming a partnership – go slow and get to know the other lawyer or lawyers and insure that the marriage makes sense, that you share similar goals and values, and that you will be compatible, and you will be good partners. Once you have made the commitment – communicate, communicate, communicate and deal with issues in real time.

Block Two – Leadership

The second basic building block is leadership. Successful firms have good leadership in place. This may be a single individual or a core group of individuals. Leadership does not always come from the formalized management structure of the firm.

Leadership is one of the major problems facing law firms. Leaders are needed for managing partner posts, executive committee chairs, and practice group heads.

Leadership behaviors include:

Leadership skills should be rewarded in the partner compensation systems.

Seven traits of effective leaders include:

  1. Make others feel important
  2. Promote a vision
  3. Follow the golden rule and establish trust
  4. Admit mistakes
  5. Criticize others only in private
  6. Stay close to the action
  7. Walk the talk.

Leadership is what makes things happen and propels the firm forward, facilitates new directions and attainment of strategic goals, and provides the firms the resiliency needed in today’s challenging competitive climate.

Law firms without leadership are easy to spot. They are the firms that are “stuck-in-a-rut”, unable to reach agreement or consensus on new ideas, stagnating profitability, and partner defections.

Firm must pay attention to this key area and develop leaders for all roles mentioned above.

Click here to read my article on leadership

Block 3 – Management

The third basic building block is management. Successful firms have a good governance and management structure in place and effectively manage the firm. A major problem facing many law firms is the lack of long range focus and the amount of partner time that is being spent on administrivia issues as opposed to higher level management issues. Time spent in firm management, if properly controlled, is as valuable as, if not more valuable, than the same time recorded as a billable hour. (Client production time)

There is a difference between management and administration.

Partners and law firm owners should be focusing their time on the management issues rather than administration.

Management includes:

Almost everything else is administration

Hire an office administrator, manager or assistant for the administrivia matters so the partners can focus on the management concerns of the firm.

Block 4 – Partner Compensation

The fourth basic building block is partner compensation. Successful firms have a good partner compensation system in place. Partners frequently advise us in confidential interviews that they are more dissatisfied with the method used to determine compensation than with the amount of compensation itself.

How much and how partners are paid are probably the two most challenging management issues that law firms face. Many law firms are struggling with compensation systems that no longer meet the needs of the firm and the individual partners. Failure to explore alternatives to failing systems often result in partner dissatisfaction leading to partner defections and disintegration of the firm.

In many law firms compensation systems have been failed to align compensation systems with business strategies. As more law firms move toward teams many are incorporating new ways to compensate partners in order to develop a more motivated and productive workforce. Team goals are being linked to business plans and compensation is linked to achieving team goals. Such systems reinforce a culture that significantly advances the firm’s strategic goals.

People tend to behave the way they’re measured and paid

What gets measured and rewarded – is what gets done

However, be advised that compensation does not drive behavior – it maintains status quo. Motivation requires leadership which can have a greater impact upon a firm than anything else.

Compensation systems should do more than simply allocate the pie – they should reinforce the behaviors and efforts that the firm seeks from its attorneys. Many firms are discovering that desired behaviors and results must go beyond short term fee production and must include contributions in areas such as marketing, mentoring, firm management, etc. to ensure the long term viability of the firm.

Click here to read my article on the topic

Block 5 – Planning

The fifth basic building block is planning. Successful firms have a long range business or strategic plan in place.

Based upon our experience from client engagements we have concluded that lack of focus and accountability is one of the major problems facing law firms. Often the problem is too many ideas, alternatives, and options. The result often is no action at all or actions that fail to distinguish firms from their competitors and provide them with a sustained competitive advantage. Ideas, recommendations, suggestions, etc. are of no value unless implemented.

Well-designed business plans are essential for focusing your firm. However, don’t hide behind strategy and planning. Attorneys love to postpone implementation.

Elements of an effective business plan should include:

Failing to plan is planning to fail.

Click here to read my article on the topic

Block 6 – Client Service

The sixth basic building block is client service. Successful firms deliver exceptional client service. They don’t just meet client expectations – they exceed them.

This is the decade of the client. Clients are demanding and getting – both world-class service – and top quality products. Many law firms have spent too much energy on developing new clients and not enough retaining old ones. For many law firms, obtaining new work from existing clients is the most productive type of marketing.

Delivering great client service is extremely important in today’s legal marketplace. More and more lawyers and law firms are competing for fewer clients while client loyalty continues to drop. It is no longer sufficient to simply be competent or an expert in today’s competitive legal environment – law firms must distinguish themselves by the service they provide. Lawyers and law firms must strive for 100% client satisfaction. Service is how many clients can tell one lawyer or law firm from another.

Clearly, from what law firms’ clients are telling us, lawyers and law firms need to improve client service by integrating a client-first service focus into everyday practice and getting feedback on performance.

Most clients can’t evaluate the quality of your legal work. What they can and do is evaluate the experience of working with you.

Let’s face it – customer and client expectations have changed across all industries. It is a buyers’ market and they know it. Today clients want it all – better, faster and cheaper. If you can’t provide it they will go somewhere else.

The key is to management client expectations – under promise and over deliver.

Click here to read my article series on client service.

Block 7 – Marketing

The seventh and final basic building block is marketing. Successful firms have an effective marketing infrastructure and program in place.

Gone are the days when attorneys simply practiced law. Today, they face increased competition, shrinking demand for services and increasing supply of professional talent, availability of service substitutes, and marketing of professional services. Marketing can no longer be ignored if small law practices are to survive in the future.

Based upon our observations working with client law firms over the past twenty six years we have concluded that marketing is poorly understood and ineffectively implemented in many small law firms. In addition, the following obstacles are at play:

Time – There is no time for marketing or any firm developmental activities. Production is king and non-billable activities such as marketing are discouraged.

Uneasiness With Marketing – Attorneys are uncomfortable with marketing. This is primarily due to lack of understanding, training, and experience with the process.

Lack of Marketing Understanding – Many attorneys confuse marketing with advertising. Marketing is not advertising. Marketing activities can exist without any promotional components such as television advertisements, radio spots, tombstone magazine advertisements, or direct mail. Marketing is the broader process concerned with the development and delivery of legal services and is part of the firm’s long range planning process. It provides answers to the questions what are we selling and to whom are we selling. It involves maintaining relationships with existing clients as well as creating new relationships with prospective clients. In fact, a major objective of many successful marketing plans is obtain additional business from existing clients.

Focus and Accountability Problems – Frequently law firms experiment with marketing and engage in isolated promotional activities not integrated with the firm’s business plan with the expectation of immediate results after the one-shot activity. The firm engages in fits-and-start activities that are completely unfocused, unrelated to an overall plan, unmeasured, inconsistent and often inappropriate.

Cultural Issues – The typical culture of many law firms discourages investment in long-term developmental activities. The focus is on billable hours and production. Everything else is of secondary concern. The consensus governance model typical in law firms hinders change and timely decision-making at the firm level. In addition, effective marketing in law firms requires marketing at the firm, practice group, and individual attorney levels. This requires effective training, mentoring, follow-up, and accountability at each of these levels.

Reward and Compensation Systems – Most reward and compensation systems focus on short-term production and discourage participation in longer term (non-billable) firm investment activities or projects.

Click here to read one of my articles on marketing

Click here to read my blog postings on marketing

John W. Olmstead, MBA, Ph.D., CMC, is a Certified Management Consultant and the president of Olmstead & Associates, Legal Management Consultants, based in St. Louis, Missouri. The firm helps law and other professional service firms improve the operations and management of their practices and the lives of their practitioners. The firm, founded in 1984 serves clients across the Globe assisting them with implementing change and improving operational and financial performance, management, leadership, client development and marketing.

Dr. Olmstead’s assignments have covered the spectrum of management issues. However, in recent years most of his time is focused on engagements helping firms with:

Dr. Olmstead is the Editor-in-Chief of “The Lawyers Competitive Edge: The Journal of Law Office Economics and Management,” published by Thomson West. He is currently serving as Past Chair, Illinois State Bar Association Standing Committee on Law Office Management and Economics and as a member of the Legal Marketing Association (LMA) Research Committee. Dr. Olmstead may be contacted via e-mail at jolmstead@olmsteadassoc.com. Additional articles and information is available at the firm’s web site:

www.olmsteadassoc.com.

© Olmstead & Associates, 2014. All rights reserved.

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