Law Firm Compensation & Culture

As we approach Labor Day, law firm managing partners should re-evaluate the connection between compensation structure and firm culture. This is a good time to review financial data, identify patterns, and, if appropriate, negotiate a new compensation plan to implement for next year. Perhaps there’s not much cross-marketing going on at your firm. Perhaps partners are hoarding work and not pushing it down to associates. These behaviors are often a direct result of the incentives set up by the firm’s compensation model. The first step to updating your compensation plan should be to identify what you most want law firm partners to do.

At many firms, there is a lack of consensus about how much weight should be given to partners who have the client relationship but don’t do the legal work. Different firms answer this question in different ways. The extent to which partners are incentivized to bring in work that they don’t personally do, or which may be outside their competencies to do, plays a major role in determining a firm’s culture.

How information about compensation is shared and the level of flexibility in the compensation structure can also impact culture. Partners specifically need to address the following questions:

 

  • How transparent do you want your compensation structure to be? To what extent is compensation information shared among partners? To junior lawyers?

 

  • How discretionary will compensation be? Does the firm want to use a strict formula across the board? What will factor into that formula? And what will warrant deviations from it?

 

Too many managing partners rely on precedent and are slow to address their compensation systems, even when they clearly aren’t incentivizing the desired behaviors. As consultants, we have seen many law firm leaders hesitate to address compensation because they know it will be a divisive issue. There is no avoiding the reality that emotions are more likely to flare when discussing money, power, and status.  But avoiding difficult discussions now is likely to force even more difficult decisions in the future. Compensation and its connection to culture are frequently the reasons a firm is not growing as quickly as its partners would like, and now is the moment to start changing that for next year.

The Most Important Business Development Strategy for Solo Practitioners

According to a report from Clio entitled “Legal Trends for Solo Law Firms,” revenues for solo law practices fell by 5-7% more than those of larger firms at the start of the pandemic (April-June 2020).

In covering the report, ABA Journal fails to recognize the limitations of solo practices more broadly. Even in the best of times, it’s widely known that there’s a cap on revenues without bringing on additional talent. If you don’t hire more associates, merge with other small firms, or join forces with new partners, you miss out on the financial upsides of their revenue-generating work. What Clio’s numbers show is that not only do the revenues of solo practices increase less in good times, but they also decrease more in bad times.

This isn’t all bad news. The lesson is clear for those solo practitioners struggling more than ever due to the pandemic: increase your leverage by tapping into the talent of others. Changes in demand over the past year have shaken up the legal services industry and created unprecedented opportunities to find new talent. The days of contract work only being utilized for document reviews are long gone, which means solo practitioners can now add lawyers and staff-level talent in more ways. Non-equity partners and Of Counsel at other firms provide especially valuable options. Senior associates remain a good possibility as well. The report from Clio is a stark reminder of how vulnerable many solo practices can be, and the success or failure of solos will depend in large measure on their ability to take advantage of opportunities to attract talent.

Train Your Lawyers to Discuss Fees

Managing partners and other law firm leaders can be reluctant to allow junior lawyers to discuss fees with potential clients. One of the recurring concerns is that the associate might commit the firm to fees that are too low. And some firms are gun shy about discussing hourly rates because of what those figures might reflect about associates’ compensation.

As consultants to law firms, we have seen firsthand that keeping lawyers in the dark has its own disadvantages. Notably, questions about fees routinely come up in discussions with potential clients. Thus, firms who seek to improve the rainmaking abilities of their more junior lawyers should strongly consider providing more training on how to talk to potential clients about fees.

Specifically, the training should address the following five questions:

 

1) What can associates tell potential clients about basic rates?

For firms that charge by the hour or on a flat fee basis, the best practice is to train associates to mention a fairly broad range rather than quote a single number.

2) What can they say about the firm’s position on alternative fee arrangements?

When asked about their firms’ openness to alternative fee arrangements, most junior lawyers answer with an “I don’t know.” This can leave a bad impression on potential clients and referral sources. Advise mid-level associates to instead communicate to clients that the firm evaluates fees on a case-by-case basis and would consider an alternative fee arrangement. It might be appropriate to provide associates with a sense of the firm’s willingness to charge blended rates, as well as some guidance around RFPs, contingency fee cases, and other special circumstances.

3) What should they convey about the process of providing quotes?

At every level, lawyers should know enough to tell their potential clients how fee decisions are made (by committee, by the head of the practice area, etc.) and when (an approximate timeline). This may seem simple, but firms often fail to offer this kind of guidance, thereby leaving the potential client in the dark about when they can expect to receive a specific quote or fee agreement.

4) To whom should associates mention a lead?

If a junior associate meets a potential client, what’s their next step? Do they report this to the billing partner, the head of the practice area, the managing partner? Make this clear. You don’t want to lose out on a valuable matter because one of your lawyers didn’t know whom to tell so that the firm could follow up.

5) What has happened with other matters the firm was pursuing?

Share success stories with mid-level associates (and special counsel and non-equity partners) so that they can incorporate the same strategies into their own interactions and learn to bring in new business.

 

This training shouldn’t just be about what to do but also about why those methods work. Well-designed training should provide lawyers with the confidence to communicate effectively about the firm’s fees.

The Best Way for Law Firms to Increase Their Profitability in 2021

If you want to increase law firm profitability, you have to track it relentlessly and share the results of your analysis widely.

 

Although profits-per-partner has become a widely known metric for large law firms, most smaller firms don’t track profits assiduously. There is a world of difference between having your accountant calculate profits at year’s end for tax purposes and measuring profits on an ongoing basis for use as a decision-making tool.

 

Here are five elements of financial planning that your firm can implement to increase profitability in 2021.

 

  1. Start tracking revenues and expenses by practice area. This will allow you to run year-to-year comparisons and identify which people and practice areas are doing exceptionally well or underperforming.

 

  1. Create quarterly revenue goals by practice area and, if applicable, by office. And put these in writing.

 

  1. Use a consistent measurement, like full-time equivalent (FTE), to allocate overhead among profit centers.

 

  1. Communicate, on a regular basis, the firm’s progress toward meeting quarterly goals. As consultants to law firms, we have seen how weekly reports to partners can be easy to ignore; monthly reporting tends to work best, especially if the firm engages in meaningful discussions about the results.

 

  1. Create a marketing budget that is aligned with your revenue goals. Too often, the marketing plans prepared by individual lawyers (assuming they are asked to prepare such plans) are nothing more than rehashed versions of prior years’ reports. Instead, focus on each marketing activity in terms of its potential profitability. This will help you to avoid one of the biggest problems facing law firms – a lack of investment in effective marketing.

 

Understandably, lawyers are drawn more to growing their books of business than to worrying about boring accounting principles. When, as now, law firms, clients, and their vendors might be receiving government loans, it is especially important to be able to determine how your business is actually performing. More than ever, you should focus on profitability.

What Law Firms Need to Know About Crisis Communications

Boies Schiller Flexner has been the subject of a steady stream of articles over the past year which suggest the firm might be facing some cash flow issues. Bloomberg reported in July that the firm was the only one in the Am Law 100 to receive funding from the Small Business Administration’s Paycheck Protection Program, although it was accompanied by several in the Second Hundred. In April, the American Lawyer broke news of fifteen partners in Los Angeles and San Francisco departing for King & Spalding. And when two Washington, D.C. partners left the firm to join Paul, Weiss, Rifkind, Wharton & Garrison in June, their contributions combined with those of the lost West Coast partners were estimated at “as much as $100 million.”

Following a delay in pay raises last month, Boies Schiller denied that cash flow had anything to do with it, responding with a statement that such an implication would be “absurd and flat-out wrong.” The raises were reportedly meant to take effect in June, being postponed several times before ultimately being implemented Nov. 6. While that kind of response may be effective in writing a brief on behalf of a client, it’s not the best strategy for combatting perceptions in the media or the marketplace.

After losing high-performing partners, it would be surprising if lawyers at the firm without sizeable books of business weren’t worrying about cash flow. Whether at one of the country’s biggest firms or a small boutique, law firm leadership has to offer a lot more than a flat-out denial to calm fears of a shaky business.

What’s missing from Boies Schiller’s statements is any sense of the firm’s strategy or priorities in the face of the departure of major rainmakers. In crisis PR, it’s critical to explain how these pieces of news, including the firm’s acceptance of PPP funding and its delayed pay raises, fit into a larger narrative. Explaining a strategy and announcing new hires would help. Likewise, some sense of contrition, regret, or other evidence of being sensitive to the human implications of the story could make it more likely that the intended audiences—clients, referral sources, attorneys at the firm, staff, alumni, and the media—will be ready to engage in a non-antagonistic way. Here, Boies Schiller seems to have a valid point. The number of employees who may have been impacted by any delayed compensation is too small to be financially material. But that doesn’t mean that a blanket and seemingly defensive denial in the press is the best approach.

In today’s media environment, law firms, regardless of size, can’t rely on the market giving them the benefit of the doubt. Crisis communication is a real expertise, and more firms would benefit from determining how they will address the next PR issue before it hits crisis proportions.

Your Most Important Hire in 2021 Might Not Be a Lawyer

The changes that have started to develop this year will manifest themselves more clearly in 2021. This includes the reduced staffing levels we’ve seen as firms became focused on cutting costs, adjusting to remote work, and keeping rainmakers happy during an economic downturn. The pandemic led many to shed practice areas they viewed as more marginal and to cut back on administrative staff, but so far, not enough time has passed for the industry to really see the impact of this trend.

There is, however, a trend that pre-dates the pandemic and is sure to survive it: When corporations hit a certain size, the CEO is no longer on the front lines. Running the place, setting strategy, getting teams to work together, managing finances, and complying with government regulations constitute a big enough job on their own, yet many law firms work on a model that requires equity partners and heads of practice areas to keep billing hours.

This system is becoming increasingly untenable, so firms would be wise to invest more in attracting, cultivating, and supporting managerial talent. In 2021, firms of all sizes will benefit from making managerial talent a top priority. For mid-sized firms, this could mean hiring an office manager or Chief Operating Officer. Having someone who can perform all the important functions of accounting, payroll, IT, and HR for the firm will open up partners to bill hours they would have otherwise spent on administrative tasks. For larger firms, this means challenging the idea that the most powerful people in a firm are necessarily lawyers and, instead, empowering management to make decisions for the strategic growth of the organization.

With so many changes this year to the usual policies and procedures, law firms need to improve the quality of their management. Whether that’s bringing on a professional office manager or even, dare we say, retaining a consultant, the most important hire you make in 2021 might not be a lawyer.

What Firms Can Do to Help Staff With School-Aged Children

There is compelling anecdotal evidence that workers with school-aged children are having an especially hard time dealing with the present situation. When the pandemic began, it was the virus itself that drew most of the attention. Now, an increasing percentage of the lawyers we advise are reporting that, while they and their families are safe, they are struggling to cope with the added burdens of running schools out of their homes.

Even the most capable multitaskers are finding it difficult to keep up with their job responsibilities while simultaneously facilitating sometimes multiple school curriculums. Lawyers are affected in particular because their income and performance are so dependent on billable hours. And we have been told by more than one attorney that school-related responsibilities are cutting two to three hours a day into their lawyering time.

This situation isn’t likely to improve as some school districts implement hybrid plans where children attend school on some days of the week and stay home on others. Schools rarely coordinate these plans with one another, so parents with children in multiple schools are faced with an increasing array of requirements to which they have to adhere. We are aware of one household where the parents of three children have to schedule up to 17 different Zoom calls for their children on a single day. This is coming at a time when law firms are counting on lawyers and paralegals to continue to generate revenues.

The most important thing law firms can do right now to support lawyers and staff with school-aged children is initiate an honest conversation about the impact that schooling and other burdens are having on them. Employees might be understandably hesitant to open up about their particular circumstances, so don’t wait for a worker to tell you an emergency has taken place or things have generally fallen apart. Let your team know now that it’s ok to say if they’re not fully ok and that the firm will respond in a flexible and intelligent way.

There are also concrete steps that a firm can take to help employees cope and continue to perform their duties. For example, consider having prepared food delivered to lighten the load on parents who have an enormous amount of caretaking to do at the moment. For larger firms who have more employees, it could make sense to subsidize or underwrite online tutoring services so that burden doesn’t fall only on the shoulders of their workers.

Some of these new benefits might seem novel or strange. So did many benefits that are now more commonplace, like providing free breakfast on Fridays. Workers without children may have a legitimate concern that their needs aren’t being as fully recognized as those of their colleagues with children. Their views and needs should be heard too. It’s possible to initiate a conversation with all of your people about what they might need while recognizing that those with school-aged children are likely to be carrying additional child-rearing responsibilities.

These times call for creative solutions, and the proper response starts with opening the door to your lawyers and staff so they can feel comfortable expressing what’s especially difficult right now and how the firm can help. The cost of not taking these extra steps can be great, in the form of workers’ compensation stress claims, lost clients due to poor work product, and malpractice actions against lawyers who weren’t able to keep up. Don’t wait to check in and offer support to those juggling the most.

Strategies for Managing Your Remote Law Firm Workforce: Preparing for Disruptions

As we wrote about last week, COVID-19 probably isn’t going away in the next few months. Beyond adjusting your firm’s workflow to a fully or partially remote system, there are other facets of the pandemic which should be considered in your management decisions right now.

In today’s post, we’re bringing attention to a huge potential for disruptions that the current situation carries with it. Your employees or their family members may themselves get sick with the virus. Others will suffer from stress and anxiety related to fulfilling their work responsibilities while caring full-time for young children. Some will feel the effects of depression more severely as their worlds are turned upside-down.  We have already seen law firms with attorneys who have come down with COVID-19 and, weeks later, reported that they still couldn’t focus or pay attention normally.

There is a myriad of reasons for which people on your staff may not be able to continue working as expected, but the implication for management remains the same. Firms should be preparing now for those possibilities.

We recommend three basic strategies for setting your firm up to handle these types of personnel disruptions.

First, increase training to create some overlap between multiple team members in their knowledge and skills. Then, if one has to take time off or reduce hours, you have redundancy built in to smooth the transition of their tasks.

Second, identify people and scenarios where the risk of failure would have far-reaching consequences. This is a standard risk-management exercise and includes scenarios such as the temporary loss of key performers. This is where key person insurance would be beneficial except that insurance companies are largely balking at covering business interruption claims or other claims related to COVID-19. So that makes finding back-up personnel a high priority. Specifically, identify lawyers such as solo practitioners and litigation paralegals who could step in should your essential people become unavailable.

Third, rigorously document systems and standard operating procedures. Too many law firms operate on the assumption that the person who has some knowledge trapped between their ears will always be available to share that information. Whether that’s the password to your online banking account, a list of your twenty most important clients and their contact information, the procedure for an administrative assistant to open up new matters in your billing and document management systems, or the process for getting client checks deposited when the mail is taking eight days to deliver letters that used to arrive in two, put this information in writing. And just as importantly, have at least two people who can access that information in the event something happens.

When COVID-19 started, it may have felt like a series of major, rolling earthquakes. Six months later, we have lost the right to be surprised by the fact that pandemics are disruptive.

Strategies for Managing Your Remote Law Firm Workforce: Communication

The shift to working remotely came suddenly for most without much lead-time for planning. Law firms adapted to the new normal thinking it would be a few months or maybe just a matter of weeks. It’s become clear, especially in cities like Los Angeles where social distancing measures haven’t contained the virus, that we are now looking at a much longer period of fully or partially remote work.

This means that firm leadership should be implementing strategies for managing a remote workforce over the long haul. In advising our clients on this issue, we’ve been able to provide a number of specific strategies for maintaining efficiency and employee satisfaction. Today, we’ll start with communication.

When your team members aren’t in the same office, an information vacuum is likely to appear, as each memo or notice needs to be consciously relayed to those whom it concerns. Email is a great way to pass along information that many workers need to know, but more frequent phone calls will help to re-create a space for ideas and suggestions that would have been tossed around casually from one desk to another.

If you aren’t holding staff calls in addition to one-on-ones, you should be. Whether these are for the whole firm or separated by practice area will depend on the size and scope of your firm, but these calls can be key to keeping everyone on the same page and making sure all concerns are heard. If you are a senior lawyer, it might feel like you are constantly communicating with colleagues, but the perception of more junior workers is often different. More frequent phone calls with smaller groups of junior attorneys, paralegals, and staff are especially important now.

More communication doesn’t need to mean more of a burden on your workforce. Send agendas in advance for staff calls whenever possible, and keep department meetings to an hour or less. Checking in with each person on your team for twenty minutes a week can also be extremely effective without interrupting their work or yours.

Finally, while Zoom was all the rage when stay-at-home orders went into effect, don’t insist on video conferencing when it’s not adding to the conversation. There are instances when you might want to share a screen or where you could expect some benefit from seeing each other’s faces, but much of the time, this is just more intrusive to your workers and wasteful of their time as they coordinate their appearance, the room’s lighting, and the activities of others in their households. So stick with traditional phone calls unless there is a very good reason not to.

Even as law offices gradually reopen going into 2021, it’s increasingly unlikely that all of your people will be in the office at the same time. Thus, you need to obtain feedback regularly from the full range of your workers to determine how your modes of communication need to evolve to keep up with the needs of a remote workforce.

Should You Hire a Graduate of the Law School Class of 2020?

California has joined the ranks of states temporarily allowing law school graduates to practice under the supervision of licensed attorneys without first passing the bar exam. This unprecedented situation gives rise to two related questions: Should you hire a graduate of the class of 2020? And if you do, how should you employ them?

The decision to hire any lawyer, including one fresh out of law school, should be client-centered. Some firms might be tempted to take advantage of the lower cost of a recent graduate. And too many firms hire (or decline to hire) out of habit. Given the economic uncertainties, it is critical to determine what your firm needs to serve its clients.

Too many law firms skip the seemingly bureaucratic step of writing detailed job descriptions that identify what they need from each role. Focus on the first six months.  This analysis might lead you to the conclusion that an experienced paralegal could deliver more for your budget than a freshly graduated lawyer. If you’re looking to delegate some of the workload initially taken on by partners so that they can instead dedicate more time to business development, that role may not require a law school education.

If you do determine that it’s in your firm’s interest to hire a law school graduate with essentially no experience, you need to be prepared to devote much more time and many more resources to training and onboarding than most firms are inclined to. As consultants to law firms, we often hear partners say that they want lawyers to do things in a very specific way and to also work with little supervision. This sentiment is the hallmark of poor management.

One of the biggest and most common mistakes firms make with new hires is failing to give timely and detailed feedback on the work product they turn in. If a new associate prepares a document and then the partner in charge of the case makes changes to it, that associate should have the chance to see what was changed and learn the reasoning behind it. If you want to maximize the impact of such training, don’t wait for a formal performance review.

Given that much, if not all, of the communication with new hires will now take place remotely, it is especially important to carefully select work assignments for new lawyers.  Ideally, you want to train a new lawyer with respect to skills that they will use repeatedly. If you include the time it takes to explain a project to a new lawyer and then to review and correct their work product, it is very likely that you could do it faster yourself. But that becomes less true as that lawyer completes similar tasks. That fact leads back to the question of the need to hire: Do you have enough work of a similar nature that will serve your clients?

If the answer to this question is yes and you are committed to training and communicating virtually, a graduate of the class of 2020 might be a good fit for you.