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Sounds simple enough, doesn't it? But how do you go about doing it?
First, we have to determine what a great law firm
is. An old Amacon book tried to define the concept of great businesses practices. The conclusion was that a definition can be somewhat elusive, but as the book's title reveals "I Know It When
I See It."
Along these lines, The Law Society of England and Wales has developed the Lexcel program which awards certifications, much like a Good Housekeeping Seal of Approval, to law firms that meet their Practice Management Standards. Accordingly, they have identified performance criteria in six areas:
- Management Structure
- Managing People
- Services & Forward Planning
- Office Administration
- Financial Management
- Case Management
As forward-thinking as this is, it nonetheless does little to help Managing Partners or Directors of Administration know where to
begin, let alone execute a plan for becoming great. To keep things simple, we will define great as the achievement of multiple objectives: profitability, viability and growth.
Some partners say that they
don't want their firms to grow. The term growth, as used here, is not the literal interpretation of mere size. Growth is used to depict the concepts of improvement, advancement and development.
How that manifests varies from firm to firm. It could mean that a firm has grown its staff or it can mean that a firm has grown its skill set among staff, its service offerings, efficiencies or competitive standing. While the number of employees may remain static, a firm may nonetheless grow. Growth is often a function of profitability and profitability is often a function of growth. As will become apparent, the multiple objectives of profitability, viability and growth are inextricably interwoven. Great law firms have learned this and work at balancing the three.
You can have profitability without viability or growth, but it would not be characterized as good management.
An example of this is taken from the restaurant industry in the early 1970's. At that time, anyone could buy a going restaurant with zero money down. Those selling their restaurants were happy to underwrite the sale, take notes and have an annuity for their retirements. Vendors and suppliers were happy to extend credit so that they could secure accounts.
The new operators, however, were hardly restaurateurs.
There was a new breed that business brokers referred to affectionately as bombers. These bombers would come into an ongoing enterprise, pocket the money from this all-cash business, default on the notes and stiff the vendors.
From the bombers' point of view, operating in this fashion was extremely profitable.
They could earn tens of thousands of dollars of income weekly, if not daily, and incur no overhead other than nominal payroll costs to get through several months of operation. They needed only several months to make a small fortune. Then they were gone and on to the next target.
Of course, this example is extreme and involves a certain personality type. But, it also shows how using profitability as a sole criteria for success or qualifying as "great" is misleading.
Though law firms are not cash businesses, per se, they are typically cash basis taxpayers.
There is little impetus to review financial statements from an accrual basis -- there are neither public nor tax reporting requirements. As a result, there is a tendency to measure a law firm's well being by how much money is in the bank.
This points to a management maxim coined by Ben Cohen, founder of Ben and Jerry's, which is "you cannot manage that which you don't measure."
Since law firms are not typically studying and analyzing accrual basis balance sheets and profit and loss statements, they are often not adequately managing their long term viability. And, as we saw in the above restaurant example, sometimes immediate and extreme cash-basis profitability can actually cause an enterprise's death.
That brings us back to the opening statement and lends new insight into how tricky it can be to allocate the right resources to the right tasks.
Yes, we want to increase profitability. But, we don't want profitability at the expense of long-term viability.
"Okay," you say, "I'll look at long-term obligations, forecast income and make
decisions over a longer time horizon."
Well, that's a step in the right direction. You do have to save for a rainy day -- account for personal or unincorporated business tax installments (NYC partners will understand this one), new lease negotiations, new equipment or at least developing the creditworthiness to get new equipment or add or train staff, just to name a scant few exigencies.
Though these events can easily fall through the cracks, they can be properly managed if supported by adequate systems.
There are certain impediments, however, to getting systems installed in, especially new or small, law firms: 1) lawyers are not trained in finance, accounting, computers, organization development, etc. and thus either don't recognize the need or they can become lost or overwhelmed; 2) even if lawyers do come from a business or management background, their first priority is to legal work; 3) there is usually no one on staff with the expertise to see such projects through to completion; 4) though project management can be outsourced or expertise hired, lawyers are not accustomed to delegating the authority necessary to seeing tasks through to completion; 5) since management projects become dependent on owner/lawyer's oversight, projects get deferred to times when they are not busy; 6) without the right resources being allocated (expertise, authority, time, and, of course, cash) projects are started and then stopped and rarely seen through to completion.
Ironically, being a law firm that is adept at allocating the right resources to the right tasks requires as a first step allocating the right resources to the right tasks. You can start to see how
tricky it is to hit that objective:
- You need information that shows the impact and consequences of the way business is currently conducted
- In order to have information that can be relied upon, you need systems that capture that information
- In order to have systems, you need someone to design and install them
- In order to have someone design and install systems, you have to find and secure someone with expertise
- In order to have the expert design and install systems, they have to be given the authority to do it
- In order for owner/lawyers to delegate authority, they need to value doing so
- In order for owner/lawyers to value the importance of delegating authority, they need to understand some fundamental management precepts
- In order for owner/lawyers to understand sound management underpinnings, they need some quick and efficient way of getting this information
This module is intended to do just that -- deliver information to owners, lawyers and managers so that they can start to grow in their
own management acumen. Bear in mind that this specific module, which covers management fundamentals, is but a first step in the journey...a small tile in the mosaic...a page of a book. You get the picture --
it's not the whole thing.
For every law firm there is a management prescription.
There are requirements and priorities that are necessitated by its own unique stage of development. And this stage is a composite of many different domains: standing in the marketplace, capabilities of attorneys and staff, efficiencies and economies of systems, quality of and access to information, personalities and temperaments, quality and composition of client base, capitalization, cash flow, poise as a learning organization, speed with which it responds to threats and opportunities, etc. The refrain that you will hear throughout your management development is that becoming a good law firm is tricky. It's tricky because what is really going on in every law firm in every moment is a dynamic interplay among these and many other factors.
Einstein said that in order to solve any problem, you have to start with the universe and then work your way backward.
This is the theory of relativity in a nutshell -- that there is an interdependence of matter, time and space. Now, I'm not saying that managing a law firm is akin to splitting the atom. But, it is absolutely necessary to understand, if not revere, the fact that for every action taken (including inaction), as simple and discrete as it may seem, there are cause and effect relationships that may not be immediately apparent.
The universe for law firms, and here's where it gets really tricky, is that there is interdependence among factors -- such as capital, clients, cash flow and many other aspects listed previously -- and there
is interdependence among the objectives of profitability, viability and growth and there is intradependence among factors and the objectives.
Now I've given you the universe and asserted that innumerable
components thereof are whirling about in a constant swirl of interdependence.
It's enough to make anybody's head spin (see how things are interdependent?). But, if we are to take that universe, work backwards and break everything down into manageable parts, we come back a simpler stage: a great law firm allocates the right resources to the right tasks.
Perhaps there is a better understanding of that statement now.
How do we know what the right task is? Which factor has more positively profound impact on the objectives? And what are the right resources? And if we use resources for one factor, what will be the effect on other factors and, thus, on the objectives?
Having a tough time getting to the answer?
Well, here's a hint. If, at any time, your head is still spinning because answers only lead to more questions, you can pretty much be assured that you have not broken the problem into an irreducible part.
Discovering what the right task is and what the right resources are rests squarely on the art and science of decision-making. Fundamentally, every law firm needs a rigorous decision-making method that uses
quality information, employs critical thinking and respects relativity.
But, alas, good decision-making cannot exist without management acumen. So if ever there was a prescription for a law firm that starts
with the most irreducible tasks, it would be this:
- Management (owners, lawyers and professional managers) must first know that there is a bigger picture to becoming a great law firm.
- Management must study, understand and work at the art of delegation.
- Management must study and understand systems theory.
- Management must study and understand relativity
- Only once the aforementioned concepts are understood, can decision-making routines be set up.
- Sound decision-making will reveal what tasks should be worked on, in what order and to what extent.
- Then, and only then, should implementation begin.
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