Walker Clark Worldview

The final demise of the British firm Halliwells, reported last week in the on-line edition of The Lawyer, is a good case study in the financial failure of a law firm.  The Lawyer summarized the factors that led to Halliwells’ failure earlier this month.

The failure and breakup of Halliwells is instructive for law firms anywhere that substitute wishful thinking for attentive management of operating costs and deepening debt.  From what I have read about the final days of Halliwells, they seem to me to have been about as orderly as the evacuation of the Titanic, with reports that more than 30 support staff were handed no-notice dismissals, apparently without any redundancy compensation or accrued vacation pay, at the end of the work day at a meeting that not one partner had the courage to attend.  (To be fair and tell the whole story, more than 460 staff found employment in one of the firms that acquired the surviving pieces of the Halliwells practice.)

A new post this morning in The Lawyer provides a glimpse of the “afterlife” for the parts of Halliwells that were acquired by other firms, who have created “firewalls” in the form of separate LLPs to protect the acquiring firms from the liabilities of the former Halliwells partners, as well as to enable a more reasoned pace of integrating the new partners into their firms.

Norman Clark

The recent on-again off-again status of merger talks between Mayer Brown and Simmons and Simmons illustrate how law firm mergers are a lot like baseball.

As I watch the World Cup, I continue to be amazed at how world-class stars take what is basically a simple game and play it at a level of skill and grace that is almost magical.  Football (real football…not the American version) truly is the Beautiful Game.  (As my firm has clients in almost all of the countries in the Round of 16, I will not disclose my allegiances at this time.)

By contrast, baseball is a very difficult game made to look easy by the skills of its best players.

Law firm mergers, if done properly, are more like major league baseball than World Cup football. Although the business case for the merger might seem strong, the details of execution are usually much more difficult — especially at the “major league” level of two firms like Mayer Brown and Simmons and Simmons.  The complexity of merger negotiations and post-merger integration, combined with the intense partner attention and involvement that a successful merger requires, are among the principal reasons why good merger opportunities often fail to be realized. Conversely, most rushed mergers, in our firm’s experience, produce disappointing results at best, and, in many instances, an anti-synergy that leaves the combined firm weaker than the sum of its antecedent parts.

Although I am not privy to all the details, it appears to me that Mayer Brown and Simmons and Simmons are right to take their time with a searching, in-depth, and fully-informed consideration of all aspects of the proposed deal. A successful merger of these two excellent firms could be wonderful to behold, like a triple play in baseball. A sloppy merger could be each firm’s worst disaster, like an own-goal in the 90th minute of the World Cup final.

Norman Clark

For more information about Walker Clark merger services to law firms, click here.

Nobel Prize laureate Paul Krugman has a very important column in today’s New York Times. His title “The Third Depression,” along with the thoughtful analysis that he presents, communicate a clear warning to law firms that depend heavily on clients in the United States and Europe.

His main point is that it is too early to celebrate an economic recovery.  He writes:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of the years following the Panic of 1873] than the much more severe Great Depression [of the 1930s]. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

Krugman warns us not too take too much comfort from signs of “recovery.”

…future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

What does this mean for law firms?

I think that there are at least three important admonitions implicit in Krugman’s views:

1. Take a long view when planning strategy. We need to think ahead beyond the end of this year or even next year. Do not base optimistic strategic plans only on economic improvements over the past six months.  Instead, law firm partners should ask, “What do we need to do in the next 12-18 months to support survival and sustainable business performance over the next five to ten years?” Taking the long view usually involves questions such as succession planning and improved productivity of internal operations, which are often overlooked in shorter-range strategic planning exercises.
2. Consider alternative economic scenarios. Strategic objectives must be supported and managed by reliable, relatively simple performance measurements. Because law firm revenue is often a lagging economic indicator, the strategic management of a law firm must include an increased alertness to economic and geopolitical events. Some law firms are now planning for a set of contingent scenarios. In other words, what will be the early signs of the next economic crisis and what should we do if they appear?
3. Do not count on policy makers to do the right thing.  Krugman has some very blunt criticism of the response of politicians and economic policy makers in the United States and Europe. He characterizes current government policy in both economies as:

…the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

This blog has previously communicated our firm’s concern that future financial crises, equal to or worse than the crisis of 2008-2009, are almost certain; because economic policy makers have failed miserably to address the underlying structural defects that caused the recent crisis and that remain relatively untouched.

In the United States, those basic structural weaknesses include:

• An alarming widening of the gap between rich and poor in the United States
• The continued submersion of formerly middle-class people into the ranks of the “working poor”
• “Permanent unemployment” for millions of otherwise able and willing workers
• A Federal taxation system that has collapsed under its own political weight
• The corrupting influence of wealth on the U.S. legislative and regulatory process

I want to be clear about one thing.  I think that the Obama administration has prevented things from getting worse than they could have been. But the weak foundations remain as weak as ever.

Fortunately, the world is no longer as dependent on the United States economy as in the past; but the failure of U.S. policy makers to address any of these basic issues in any rational way will continue to have worldwide effects.

And these effects will continue to be felt by law firms.

Law firms in many parts of the world — and their clients — have just come through very difficult economic times. Paul Krugman reminds us that the conditions that produced the recent economic crisis are still there; and wise law firm partners and managers need to plan for the next episodes in what is likely to be an extended period of economic uncertainty.

Norman Clark

“We all know that we should be cross-marketing and cross-selling, but we’re just so bad at actually doing it.” I frequently hear comments like this from law firm partners.

There are a number of reasons why a law firm can be so bad at cross-marketing.

• Lack of available, shared information about the best cross-marketing opportunities
• A partnership culture that produces a “my client” mentality rather than “our client”
• A partner compensation systems that do not reward — and in some cases discourage — cross-marketing
• Lack of adequate marketing support
• A misdirected marketing strategy that focuses on opportunities with relatively low return on investment

All of these are important factors; but, in our experience, the most important obstacle of all is simply that the partners lack the basic skills to work together as a high-performing business team. Unless and until partners can learn to organize themselves for the achievement of specific goals, manage internal disagreements productively, and build genuine trust based on the free flow of information and ideas, they will never — repeat never — achieve their full potential, whether at cross-marketing or any other worthwhile goal.

This sounds like a dogmatic statement, but there is simply too much overwhelming evidence — both in law firms and in other businesses — that supports the importance of group development as the make-or-break factor in the ability of a business group — like a group of partners or a practice group — to achieve its goals.

To quote the American comic strip character, Pogo, “We have met the enemy and he is us.”

The good news is that business groups develop their achievement potential through specific behaviors and skills that can be learned and improved with practice.

To learn more about how to do this, contact Lisa Walker Johnson by e-mail or through the walkerclark.com website.

Norman Clark

Focus groups of more than 900 law firm associates, conducted by Walker Clark members worldwide, have consistently identified the availability of career planning as one of the most important factors that cause good associates to stay at their firm. Associates typically express this in terms such as:

I want to know what I need to do in order to become a partner in this firm someday.

I want to understand clearly what the firm expects of me in terms of performance.

On a parallel intellectual track, many law firm partners have never considered in depth the professional knowledge and business skills that every partner in the firm should display, nor how those requirements translate into observable and, in some cases, measurable behaviors. This is why, for some law firms, election of a new partner is more an act of faith, supported by hope and guesswork, rather than a well-informed business decision.

Many law firms have purchased “off-the-shelf” or slightly-tailored from “career management systems” from human resources consultants.  A few of the packages are reasonably good in terms of providing a basic structure by which to manage associate performance and development.  Most of them, however, appear to me to demonstrate a fundamental lack of understanding of the practice of law in a law firm.

As one law firm partner told me, “It was like the HR consultant just crossed out the word bank from his last project and wrote in law firm.“

Or as another one once remarked to me, “I don’t think the company that sold us our associate career plan ever even talked to one of our associates, much less any of the partners.”

These criticisms might have been exaggerated a little, but they point out the risks and disappointing results of purchasing an off-the-shelf HR package and calling it a career management program.

Nonetheless, any effort to provide structure, policies, and processes to career management in a law firm is a good step forward. However, even the best career management plan cannot implement itself. Even in detailed and well-documented career management systems, there is always a risk that weaknesses can sneak into the system.  These are usually the result of a half-hearted implementation by the firm or of diminishing partner attention and participation over time.

This is why so many law firms have very elegant-looking career management manuals gathering dust on managing partners’ bookshelves.

As you consider how you manage the careers of your firm’s associates, remain alert to these frequent flaws.  They can creep into even the best-managed law firms:

• Performance standards and evaluation criteria that focus on “knowledge” and “attitudes,” rather than observable professional and business behaviors
• Promotion criteria that are not linked to specific, defined achievement of skills and demonstrated business and professional performance
• “Competencies” that have not been tested to ensure that they skills that associates need to master in order to become productive partners
• A lack of ongoing coaching and feedback between the formal performance evaluations
• Performance evaluations that exist only on paper and fail to include any meaningful discussion of the associate’s performance
• Inconsistent or non-existent mentoring, regardless of the existence of a formal “mentoring program”
• Weak business skills development in areas such as marketing, sales, negotiations, law firm economics, and coaching and feedback of junior lawyers and staff

A weakness in any of these areas can dramatically affect associate retention and readinesses (on the part of those who remain) to assume the responsibilities of partnership in a modern law firm.

Norman Clark

On Monday 14 June 2010, I had the privilege of moderating a panel discussion about the adoption of a business approach to law firm strategy.  This was part of the very successful Managing a Modern Law Firm conference, organized by the Law Firm Management Committee and the Latin American Forum of the International Bar Association, and was held in Buenos Aires.

As part of my comments, I discussed three general lessons that many law firms worldwide have learned from the economic crises in 2008-2009 (and continuing into 2010 for some countries).

1. The need to be alert to emerging economic and geopolitical trends before they arrive in the form of a crisis
2. The need for a more intense focus on profitability, particularly with respect to lawyer productivity and efficiency
3. The need for fully-informed business decisions, based on facts, not hunches or hopes.

Norman Clark

Why don’t more law firms conduct client surveys?

Our firm has been researching that issue continuously for the past five years, through surveys (of course!) and also hundreds of informal discussions with law firm managers and marketing directors.

Some law firms are simply afraid to ask for feedback.  They are not relevant to this issue because, refusing to solicit feedback in a systematic way, they are doomed to crisis-to-crisis improvisation and, ultimately, the deterioration of their client base and market position.

However, when we ask people from healthier firms why they have not conducted a formal client survey within the past five years (or, in a shocking percentage of instances, never!), we usually hear three excuses.  Each one of these reasons seems to make good business sense, but has been disproven by the experiences of successful law firms throughout the world.

“Clients already have to fill out too many surveys.  The won’t participate in ours.”

Most clients see a significant difference in a survey conducted by a hotel chain and a serious survey conducted by a law firm.  When clients fail to participate in a survey conducted by their law firms, it is frequently because:

• The survey questions are trivial; or
• They are not confident that their answers will make a difference.

Law firms that send out generic surveys usually learn this lesson the hard way.  Surveys that might work well in ordinary consumer businesses can completely miss the key points with respect to quality in legal services.  This is why we recommend that your survey be designed for a law firm — not a hotel chain — and  be tailored to the specific characteristics, practice specialties, and client base of your firm.

The truth is that even the busiest clients like to be asked for their opinions.  If at all possible, even busy clients will try to find time to answer serious questions.  However, questions such as “Do you like our website?” and “Are our fees fair?” (I am not making these up.) usually drive clients away.

A good law firm client survey should be as sophisticated and thoughtful as the clients to whom it is sent.

“Client surveys are too expensive and too much work.”

Like all myths, this one has a kernel of truth.  Client surveys used to be expensive and time-consuming.  With on-line survey administration and tabulation, a custom-designed survey, including an in-depth analytical report and benchmarking to other law firms, can be conducted at a cost that most law firms can recover, several times over, with one new client or one new matter. Whether you design and conduct the survey yourselves or outsource it to a firm like Walker Clark, your firm cannot afford not to conduct a client survey.

“Surveys don’t produce results.”

This myth also can be true if you merely read the survey and do nothing about it. The most important part of a client survey is the follow-up, both with the clients and internally. Even a dissatisfied client can become one of your firm’s biggest fans if you follow up specifically and systematically concerning the points of dissatisfaction.

Specific follow-up means responding promptly to the client about the client’s concerns. Systematic follow-up means making improvements in your firm’s internal operations and client relations practices to ensure that similar problems do not arise in the future.

What to expect from a survey service provider

Every Walker Clark survey, from our low-cost high-yield Snapshot survey (which we offer to any firm for a fixed fee of US$ 800) to our most sophisticated survey service, the Strategic Business Development Survey, offers these basic components:

• A predictable fixed fee
• Multilingual capabilities
• Customized, firm-specific questions
• Comparison of your results to benchmarks
• A written analytical report with specific recommendations for follow-up
• Post-survey advice and assistance with implementation

These features can turn a client survey from a marginal marketing exercise to a low-cost investment that pays for itself with one or two new instructions and can produce a higher return on investment than almost any other marketing activity.  They can also help your firm to identify opportunities to improve the cost-effectiveness and profitability of your internal operations, by responding to and meeting the clients’ needs and expectations better.

Visit the Walker Clark website for more information and examples.

Norman Clark

“Never ask a question to which you do not already know the answer.”

This is one of the cardinal rules of trial advocacy.

Unfortunately, this rule is foolish in law firm management.

My colleagues and I frequently hear statements such as these from otherwise intelligent lawyers and business managers:

• We can’t ask those questions of our associates or staff. That would only stir things up and make the situation worse.
• We can’t ask those questions of our clients. We must not raise their expectations.

One of the most important skills for leaders in law firms is to ask courageous that produce answers that the firm needs to succeed. Sometimes the answers are ones that we would rather not hear, but we must hear and heed them nonetheless. This is usually the only way to get the accurate and reliable information needed to make wise, fully-informed decisions.

Sometimes there is no act more courageous than asking a question.

Good leaders stir things up.

There are few, if any businesses, that are as heavily dependent on people as are law firms. People, along with their knowledge and skills, make up at least 90% of the assets of a law firm. The other stuff — some furniture, books, and perhaps a leasehold — are comparatively worth almost nothing, because without its people, a law firm has no real value at all.

Leaders of law firms need to know how junior fee earners and staff perceive the firm and its internal issues. Relying on hunches, group-think by partners (a favorite but usually worthless pastime at partner retreats), or “what it was like when I was an associate” are deadly problem-solving strategies.

To be sure, asking for opinions about sensitive issues might “stir things up;” but that is usually the only way to see and to understand the perceptions, misunderstandings, and grievances that sometimes lurk at the bottom.

And the best way to get to the bottom of an issue is simply to ask about it.

Good law firms want to raise client expectations.

Some law firms seem to have a phobia about client feedback. In some instances the refusal to ask clients for performance feedback is the result of a deep-seated condescension — or even contempt — about the client.

For example:

• “Why ask the clients? They really don’t know what they need. That’s why they hired us.”

In healthier law firms, however, I often hear this excuse for not soliciting client feedback:

• “We can’t ask anything that might raise the clients’ expectations.”

Raising client expectations is exactly what law firms should be doing in today’s highly competitive legal markets.

You should set standards of client care and service delivery that are above current levels demonstrated by your competitors. The best way to do this is to ask clients to describe what “quality” means to them. What indicators, such as responsiveness and understanding of the client’s business, are most important? Even if you believe that you are performing as well as you possibly can, ask the client how you can perform even better. You might be surprised by the answer. You might wonder why you are not already doing what the client suggests.

By asking these questions and responding to them in ways that the clients can observe and measure, your law firm can raise market expectations to levels at which few, if any, of your competitors will be able to perform right now. Some of your competitors will catch up to you eventually, but during that period when you alone are performing above market expectations, you will have an almost unchallenged opportunity to win new clients and new instructions from current clients.

Simple but sophisticated tools

The art of asking questions involves much more than asking questions.

Asking a junior staff member, “How do you like the firm?” is more likely to produce a cautious, positive response than meaningful data. Most staff members are not fools. Even the best-intentioned open-ended question often will look like a trap.

Asking a client, “How did you like our firm’s performance on that matter?”  will seldom produce the specific information that is the key to understanding a possible competitive advantage or disadvantage for your firm. Many clients have never articulated their key quality indictors. Sometimes you need to lead them there.

To produce worthwhile information, the questions need to probe specific issues and potential issues. The questions should be asked in a systematic and consistent way. This is why my colleagues and I recommend three tools above all others:

• Surveys – A well-designed survey can produce substantial volumes of data, compiled in a consistent manner, that can be very useful in understanding the seriousness and priority of an issue.  A survey is also an excellent tool for identifying potential obstacles to the implementation of a new strategy or a proposed solution to a difficult problem. Click here for more information.

• Interviews - We usually recommend that confidential interviews be used as a follow-up to a survey. However, confidential interviews can also provide detailed and sophisticated information that cannot be produced easily within the structural limits of a survey. Therefore the confidential interview is especially powerful to identify and understand opportunities or issues in relationships with major clients.

• Monitoring – Surveys and interviews are usually one-time activities.  They can produce useful baseline results, but cannot detect changes in opinions over time or in changing circumstances. For example, our firm’s Client Service Monitor is an outsourced service by which we assume responsibility for ongoing monitoring of client satisfaction and early detection of client service issues. This can help law firms to identify issues before they become crises and to minimize loss of clients due to dissatisfaction with the firm’s performance.

The important point is this:  regardless of which tools you use, a key tool in successful law firm management today is asking courageous questions. Ask them frequently. Ask them of your own colleagues and staff and of clients.  Ask them even when you do not know — or do not want to hear — the answer. To be sure, sometimes a courageous question might involve risk; but that risk is no greater than the underlying risk that already lurks, undetected and out of sight of your current knowledge and understanding.

Norman Clark

While attending the mid-year officers meetings of the International Bar Association last week in Copenhagen, Denmark,  I had an opportunity to conduct my informal, unscientific semi-annual survey of some of my  colleagues in the IBA Law Firm Management Committee. I relied on the time honored methodology of casual conversations among professional friends.

Although it was expressed in a variety of ways, the top concern of these law firm managers and leaders was how to protect — and maybe even improve — the profitability of a law firm’s internal operations in increasingly price-sensitive markets. This concern prevailed among law firm managers and leaders from law firms on every continent, from small firms to some of the largest in the world, and in a broad range of practice specialties.

There was also a recognition that one of the most cost-effective methods of managing the profitability of internal operations is through an increased emphasis on quality assurance. This was expressed in a number of interesting and insightful ways.  For example:

Clients are no longer willing to pay us to fix our own mistakes.

Clients won’t subsidize our learning curve.

We have to start looking inward to improve our profitability; continuing to raise fees no longer works.

We have to find a way to avoid making mistakes in the first place, rather than relying on fixing them after we make them.

We get only one chance to get it right.

Quality assurance is Walker Clark terminology for the application of Total Quality Management to the practice of law. It affects both back-room and support operations, such as clerical support and billing, and the actual delivery of legal services by lawyers and paralegals. Members of our firm, including me, have been advising and assisting law firms, corporate law departments, and government legal agencies about quality assurance concepts, tools, and methods for more than 20 years. Our experience demonstrates that quality assurance is the most cost-effective profitability tool that a law firm can use; because it works in the core operations of a legal practice, where the great majority of waste, inefficiency, and unnecessary costs are to be found.

For more information about quality assurance programs, please contact me by email or telephone at +1.239.466.8370.

Norman Clark

Business succession and generational transition are no longer just theoretical issues or problems to be deferred until sometime in the future. By our estimates, a majority of the law firms in the world — perhaps as many as 75% of them — are now or within the next ten years will be, confronting the need to pass leadership, management, and fee-producing responsibilities from the older generation of partners to the younger generation.

Moreover, they will be doing this for the first time.

These firms are past the point for succession planning.  They need succession management.

As many of these firms are already discovering, succession in a law firm involves much more than redistributing the departing partner’s files and filling an empty office. There are some subtle and very difficult issues that my colleagues and I have observed as otherwise well-managed firms deal with succession.

• Should we have a mandatory retirement age?
• If not, how will we know when it is time for a partner to retire?
• Can we continue to handle retirements on a case-by-case basis?  Is this wise flexibility or crisis-to-crisis improvisation?
• How do we calculate the amount of money that we owe the retiring partner?
• How can we manage the buy-out of a retiring partner without jeopardizing the incomes of the partners who remain in the firm?
• What do we do about partners who are no longer fully productive, but are reluctant to leave?
• What do we do about partners who want to remain affiliated with the firm in some way?
• What do we do about younger partners who are reluctant to assume management duties being given up by the older partners?
• When is the right time to “pass the torch” of ownership control and management responsibility to the next generation?
• What should we do about a partner compensation system that rewards financial performance but also discourages partners from transitioning to retirement?

Interestingly — but not surprisingly — the law firms that have the most difficulty with transition issues and succession management are those with partnership agreements that are vague or even silent on the subject. (I use the term partnership agreements in a generic sense, to include shareholders agreements, operating agreements, and other corporate “constitutions.”) This is why, for law firms with partners who are over age 50, one of the most important first steps toward successful succession planning and management is to review the firm’s corporate documents to ensure that the policies and rules governing partner retirement are clear, support the long-term business and financial interests of all partners, and are consistent with the professional culture of the firm.

Norman Clark