Managing a Law Firm

Running a law firm successfully is often a matter of clever management. The author tells you how to look for your cheese.

James Dallas, Chairman of the firm Denton Wilde Sapte, in the publication Managing Partner in July 2001 highlighted four key elements for a law firm’s success:

• being clear about your chosen area of business;
• finding and keeping good people;
• delivering an excellent service to clients; and
• securing a financial return that enables the firm to reward its people and invest in the continuing development of the business.
  

These four elements are applicable regardless of the size or location of the firm and whether it is a two-partner general practice or a major commercial firm. Firms, however, have to work hard to achieve these four elements; it does not happen on its own. It is not sufficient that the firm has technically competent lawyers.

Having technically competent and motivated lawyers is important but it is no longer sufficient to guarantee success.

Success today has a lot to do with the way a firm is run and structured, where the markets it serves are going, and where the firm is positioned in all these developments.

Take, for example, the dedicated niche conveyancing practices of the 1980s and 1990s now facing low turnover and the abolition of scale fees in the 21st century. The lawyers may be very technically competent conveyancers but that alone will not guarantee them success in the current environment.

Equally important is the way your firm is structured and run, as well as the ability to lead and motivate fellow partners.

The truth is, lawyers generally have not had the training to manage people and many lawyers find this difficult. Good management, however, is not complicated. Most of us can often learn the necessary skills and learn to recognise our own limitations to better appreciate the strength and abilities of others.

Management therefore should be as uncomplicated as possible, and the structure should be to deliver a solution that is: (a) simple; (b) appropriate to the firm; and (c) able to draw on the strengths and talents of the partners and staff. It is important not to loose sight of what the staff can contribute. Equity partners are not the only ones with ideas.

Management not Administration

There is often a confusion about what we actually mean by ‘management’ and the distribution between management and administration. Partners can easily confuse administration with management and get involved with things that need to be done, but not necessarily by them. For example, being the person that secretaries go to when their printer is not working, changing the paper in the photocopier, fixing minor staff problems. While a partner may need to take overall responsibility for the administration, they rarely need to do it themselves. If you assume a partner charge out rate of $500 per hour, then two hours used in unnecessary administration a day amounts to $240,000 of lost revenue annually!

Time is one thing most partners lack and it must be used carefully. Partners should be more concerned with strategic issues and with driving the business forward. The starting point will be the management structure and the role of the partner in that management structure. The problem is, because of pressures on time, partners simply undertake their fee earning work and pay lip service to management.

It is important in the management of the firm to:

• assess the operational structure of the firm;
• define the roles appropriate to the operational structure and to identify the best people to fill these roles;
• prepare business and marketing plans and budgets for each team or business unit;
• translate team plans into individual objectives and an action plan for each fee earner and member of the staff; and
• ensure effective financial management controls and establish a simple reporting system, so that progress can be monitored and the plans reviewed and modified on an on-going basis.
  

The Problem

When a law firm is of a size where it is obvious that one of the partners needs to do the managing with little or no fee earning work and/or employ professional managers, which is usually the case where there are at least 20 or 30 equity partners, there isn’t too much of a problem.

Similarly, management should not be difficult in very small, two or three-partner firms.

The problem is in mid size firms of between, say, five to 15 partners, where management is typically undertaken by partners who have high workloads. The areas where they have difficulty include:

• lack of time;
• structuring a balance between management and fee earning;
• getting their partners to accept innovation and change;
• communication; and
• achieving a reasonable level of profitability.
  

Management Structure

It is important that firms have an effective management structure and an appropriate form of leadership. The challenge is to find a style and structure that is appropriate to your firm and that suits its culture.

The overall aim and purpose of your firm’s management structure should be to:

• help the partners realise their aspirations for the firm, in particular with regard to profitability, both in the short term and also in the longer term;
• enable the partners to concentrate on the important issues facing the firm rather than on day-to-day matters;
• provide leadership and a sense of direction;
• use partner time effectively; and
• get things done.
  

In essence its function is two-fold:

• to ensure the smooth running of the firm; and
• to enable the firm to move forward and develop.
  

Where there are more than, say, 10 people (not partners) in a firm, there is a need for someone to spend at least part of their time on the management of the firm. The form this will take will vary according to the personalities involved and the nature of practice, but there is generally a need for someone to take a lead and get things done.

Often, when partners consider the issues of management and leadership, they begin by visualising military or political role models. However, the style of leadership characterised by people like Margaret Thatcher is rarely successful with a law firm. It is seldom an effective way of motivating professional people — especially partners. Many partners, particularly in larger firms, will tell you of the demotivating effect this style of leadership can have. There are more appropriate styles that I will discuss at a later date.

In summary, here are some of the key elements in managing a law firm:

1. The key factors for success are: (a) a sense of focus on the markets you serve; (b) recruiting and retaining good people; (c) providing excellent client services; and (d) generating sufficient profit.
2. Constantly reminding the partners that they should be engaged in management, not administration.
3. Reviewing your operational and management structure every three to five years to ensure that they are appropriate for the future and are innovative.
4. Defining the roles and ensuring that the right people are running your firm.
   

The recent recession and increasing competition, both between firms and professionals, has left firms struggling to make profits. It is important that lawyers recognise that good management can enable them to maximise the profitability of their firms.