BIG LAW FIRM MANAGEMENT PUZZLES

Last month, ALM Legal Intelligence released  “Thinking Like Your Client: Strategic Planning In Law Firms,” a curiously titled survey of Am Law 200 law firm leaders. The title is curious because the results demonstrate that most law firm managing partners are neither thinking like clients nor planning strategically for their firms’ futures.

Lateral self-delusion

The appendix of actual law firm responses from 79 out of all Am Law 200 partners is more interesting than the narrative explanations in the report. For example, one question asked them to identify their firms’ top three priorities. In order, the most frequent answers were:

Growing the firm’s revenues — 66 percent

Talent acquisition and retention — 59 percent

Improving firm profitability — 54 percent

Eighty percent said they had a strategic plan in place to address firm priorities. But other responses suggest that the plans are pretty simple: hire more lateral partners.

When asked how, as part of their strategic plans, firms were pursuing growth in the next two years, 96 percent said “acquiring laterals.” Seventy-six percent of the 75 respondents who listed this strategy said they would pursue laterals “aggressively.” More than 70 percent of respondents expect that, as a staffing category, lateral partner hires will increase over the next five years.

Yet they also acknowledge that laterals have been a mixed bag. Only 28 percent of managing partners said that their lateral strategies over the past five years have been “very effective — most laterals have been retained and contributed to business growth.” And those are just the dollar impacts. Ignored are the cultural consequences for a firm whose growth strategy depends on endless acquisition of outside talent. Nevertheless, most big firm leaders are doubling down on a dubious approach.

Is it really about the clients?

As for other half of the report’s title — “thinking like your client” — fewer than a third of respondents included “client performance management and client satisfaction measurement” as one of their top three priorities. Responses to other questions echoed that attitude. Forty-one percent admitted that they had no plan in place to build, track and measure client loyalty and satisfaction. When asked what aspect of their client relationships they would most like to change, only 21 percent said higher service levels — far behind the desire to take work from other firms and improve profitability.

When asked to identify the top three metrics they regarded as most important in managing firm performance, leaders listed a familiar trinity: firm revenue, firm profit, and profit per partner. Client retention metrics got a whopping 4 percent response, tied at the bottom of the list with “other.”

Only 18 percent use “client retention metrics” to reward partners, but more than 70 percent identified collections, firm profit, billings and client business development as the key criteria. (Apparently dollars from new clients are worth more than dollars from old ones.)

Look out for what’s next

How well is all of this working? Better for some than for others, and that will continue. When asked whether non-partner to partner leverage ratios had left their firms properly resourced to provide exceptional client service while also growing the firm business, 70 percent of law firm managers said they needed to make adjustments.

We all know which way those “adjustments” will go: in the direction of fewer equity partners. With respect to staffing categories that managing partners expect to experience the biggest decrease over the next five years, the largest plurality chose equity partners. Additionally, more than 90 percent of law firm managers said they had “unprofitable partners.” Seventy percent said that such subpar performers were at risk for de-equitization or removal.

Finally, if you’re wondering about the hourly rate regime and whether law firms can deal with any other system, consider this: When asked to compare alternative fee arrangements (AFAs) to hourly rate matters, 12 percent of firm leaders said AFAs were more profitable, 23 percent said they were less profitable, and 65 percent had no clue. How’s that for a leadership confidence builder?

Perhaps some of these managing partners have a subconscious awareness of their shortcomings. When asked to list the top three areas where their firms have a competitive advantage, only 14 percent chose “strong firm leadership.” Unfortunately, it seems clear that even that dismal number is too high.

2 thoughts on “BIG LAW FIRM MANAGEMENT PUZZLES

  1. Steve: Some great observations. Adding to yours, here’s my take as I was staggered to read the substance of this report.

    This study ‘Strategic Planning In Law Firms” consists of responses from 79 of the AmLaw 200 firms to 31 different questions. I’m not sure how these questions were formulated, but only 5 of the questions really deal with strategic planning: do you have a plan; who developed it, what resources were used; what growth options are being pursued; and how aggressively. The remainder (26) of the questions deal primarily with five areas: various metrics, information sharing, staffing, client satisfaction, and managing profitability – all important issues; but all operational in nature (looking at the here and now) not necessarily looking at the future or at the strategic nature of how one’s firm and one’s profession may evolve over the next few years. In other words, it would appear to me that neither LexisNexis, nor ALM Media really understand what strategic planning is about. It is my strong belief that a true strategic plan should:
    • focus on the future (“what will our profession look like in 2016 and how do we get to the future first?”) not obsess about the present;
    • exploit opportunities and build on strengths (“how do we further enhance the value we provide clients?”) not simply solve problems and correct weaknesses; and
    • be concerned with the external environment (“how do we operate in an economic environment that may be very different in the coming years from the continual growth economy that we all grew up in?”); not circle the wagons and fire inward.

    One of the findings that jumps out: “When pressed, many of our follow-up interviews revealed that implementation is not as rigorous as it could be.” Big surprise? This is an affliction that I’ve seen many managing partners suffer from, something I’ve come to call seeing SPOTS – Strategic Plan On The Shelf. One of the reasons this happens (not the only reason) is because the ‘strategic planning group’ does not then become the ‘strategic implementation group’ once the plan is finalized. Many firms behave as if the intelligence required to draft the strategy should not be sullied by actually having to roll-up-their-sleeves and now execute. Thus the strategic plan is delegated to someone else; anyone else – a busy managing partner and/or COO, the marketing department, some newly formed committee, practice group leaders, etc.

    One of the other reasons this happens is because partners have not really been actively involved in the creation of the strategy such that they can see a glimmer of their own fingerprint somewhere on the final plan. And we all know (don’t we?) that no partner buys in to, gets enthusiastic about or willingly supports any plan, direction or change that they have not had some small part in formulating. I’ve actually witnessed executive committees go off for a weekend to develop the firm’s strategic plan and then spend the better part of the coming year trying to sell it to their partners.

    One section of this report deals with ‘Client Relations” and in the survey they report that just over half (56%) of respondents have a plan to track client loyalty and satisfaction. This may be very interesting information . . . but what does it have to do with strategic planning?

    Strategic planning is NOT about determining your client’s satisfaction (looking backwards); it’s about discovering what your client’s unmet needs are and what is frustrating the hell out of them in achieving their business objectives. It’s not about you. It is about how much you know about them, and what their future expectations and aspirations are. Have they used AFA’s, are they inclined to offshore any work, what do they think of certain technology applications, and so forth?

    I could go on at some length, but time does not permit.

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