LAWPRO Magazine recently convened a panel of experts on law firm finances, management and operations to provide insights on the issues facing law firms during these trying economic times. The panel considered leadership issues, marketing, client relationships, managing finances, and other current topics. We at Lawyers Alert were pleased to see our regular contributor, Gerry Riskin, participate in the panel discussion. Some of Gerry's responses to the issues discussed are excerpted below with our thanks to LAWPRO. For the full discussion, visit the LAWPRO Magazine website at www.lawpro.ca/magazine.
Leadership – What do the best law firm leaders do in tough times?
Number one is to manage the expectations of the folks inside the firm, including managing the expectations of partners in terms of what they're going to earn. Candid discussions on an ongoing basis on the nature of the compensation system are a must, or you could end up with a number of surprised, disappointed or unhappy partners who could trigger an event you don't want.
Second, data has to be managed with much greater frequency. In ordinary times it's okay to look at various things – like WIP, receivables and cash flow – from time to time. But in these times one eyeball has to be on the data at all times.
Third, it's really important to watch the trend lines to see what's going on. For example, are lawyers being laid off at other firms? If so, you want to know that real-time to help you manage the expectations of your own people.
Human Capital – One of the usual responses in tough times is to lay off associates and/or staff. What do you do about your superstars, your new associates, your underperformers?
Shame on the leader who has left it until now to cut underperformers. You're now releasing people into a far more dangerous environment and you're hurting them a lot more. One of the lessons here is not to wait for this kind of environment to start doing what you need to do on an ongoing basis.
In terms of the associates, I think if we don't have enough work for them, then spend the time training them. Help them learn how to develop business or enhance their client relations. In other words, make them better.
Employee Relations, Engagement and Morale – How do you keep your firm staff engaged and motivated?
You involve them a lot and you have to be very clear about what you're doing. We've learned from previous recessions that uncertainty is a killer. Be really clear as to how you're managing (and) making decisions and let them know that if they're at risk, they'll know about it.
The other issue is not to hide bad news. These are adults, they're smart and they know what's going on in the world. Bad news has to be delivered. If they don’t already know it, it'll leak out, so I think it's time for candour.
Client Relationships – How do you get closer to existing clients and figure out what they really want and need? How will client needs change in a downturn and how do you respond?
Although we may think we know all about our clients’ businesses, research shows that is not the case. So I think a tablespoon of humility is appropriate. We have to be talking with our key clients. Contact them to propose a conference on the topic of recession planning. Make it an interactive session where client and law firm try to figure out how they can help each other, given the nature of the challenges they face.
We also need to think in terms of opportunities. I know of one firm that is ratcheting up its real estate capability at a time when there is no real estate work to do. They're optimistic that they're going to remain in business and believe that now is the time they can attract talent like never before. We're also now seeing a trend toward re-negotiating leases.
Marketing – How do your marketing efforts change in difficult times?
You do more marketing, but you focus more on the existing clients. Firms generally are reluctant to talk to clients in bad times. They assume the last thing the client wants to do is talk about its difficulties. Get over that and call and say: "Hey, how are things going? What's going on?" It's a time to get close to these people.
Finances – How do firms respond to clients' economic constraints? Is this the time to decrease fees or increase billing rates, or look at alternative billing options?
The linear reaction when we find out clients want to decrease their legal spend is to think we need to lower our hourly rates by whatever the percentage is that clients are trying to reduce their legal fees. The creative option – which is too rarely exploited – is to sit down with a client and say, "Let's look at your big picture. Let's look at how you allocate your legal spend and what you get for it and let's at least try to help you reduce that legal spend, not necessarily by cutting rates across the board, but maybe by doing things differently or prioritizing work differently."
Firm Compensation – It's the biggest expense at every firm, so what do we do about the shrinking pie? Is this a time for new compensation approaches?
Even in great times, I am slow to view compensation as a way to solve anything. So no, under any circumstances, don't touch a compensation system. But if you're looking for different behaviours – for example you don't want people to hoard work, you want them to delegate to associates, and so on – then you may have to fine tune your compensation system so that it's consistent with the behaviour you want.
It’s really important here that we watch trends going on in the profession because, in managing the expectations of partners and associates in terms of their income, it's very helpful to be able to say, “This is the impact this recession is having on the legal profession.”
It may also be necessary to make some changes to other costs and compensation so that the partners can have at least a reasonable compensation. There are lawyers who may have been used to living on more than they earn because they were consistently getting increases. They are going to have some very specific problems. It may be part of management's responsibility to communicate with those people and find out how this recession is going to impact them, and find imaginative ways to cushion that individual from really severe personal problems.
Operations: Costs, Expenses, Budgets – What do you do to control expenses and/or cut costs? What do you do differently?
I'm obsessed with frequency during times like this because I think the normal early warning systems aren't early enough. Firm leaders need to have their hands on the pulse of what's going on far more frequently. Reports that were generated monthly should now be generated weekly, and some daily. For example, on the issue of collections, I'd want to know the receivables of the firm day by day, and I'd want to know person by person – because it's not just the discipline of the lawyers in the firm that is going to lead to problems, it's going to be problems that the clients are experiencing themselves. And so you need to know about and attack that early so you know what is going on and what are the right answers.
Gerry Riskin is a former managing partner, a co-founder of Edge International, and an internationally recognized lawyer, author and management consultant. Contact Gerry at riskin@edge-international.com or 202-957-6717.