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

“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

It only takes one hole to sink a ship, not a hole in every compartment.  If one practice group — or even one lawyer — has a vulnerability, the same or similar weaknesses probably exist elsewhere in the firm. A firm-wide approach to quality assurance therefore usually produces the best return on the investment of time, resources, and attention.

To carry the maritime analogy forward, we observe two principal types of “leaks” in law firms with poor quality assurance. Like many leaks, each one can go unnoticed for months or years while it does major damage to a law firm’s financial seaworthiness.

Reduced productivity

“We can always find time to fix our mistakes, but we can never find time to prevent them.”

Most law firms rely primarily on after-the-fact inspection to catch and correct mistakes, particularly in documents. Such rework can consume as much as 40% of the time of fee earners and staff. Since most clients are unwilling to pay the law firm to correct its own mistakes, every hour spent in rework represents a revenue-producing opportunity that is lost forever.

Law firms that have introduced serious, systematic quality assurance systems and procedures have found that the resulting improvements in productivity can produce substantially increased fee revenue without proportional increases in staff. This results in dramatic improvements in profitability.

Loss of clients

“We get only once chance to get it right.”

This comment by one of our firm’s clients, a practice group head in a mid-size firm in the United Kingdom, summarizes what law firms everywhere are experiencing.  Clients today have decreased tolerance for poor quality. By the time the client actually complains, it might be too late to save the firm’s credibility with the client.

This leak is more subtle than the client who fires the law firm midway through a case or matter. One of the most important diagnostic indicators of a systemic quality assurance problem is the relatively low percentage of clients who return to the firm for subsequent legal services.

Interestingly, there also appears to be a correlation between poor quality assurance and poor recovery. Firms that lack a quality assurance system also tend to be inept at responding promptly to client complaints. At best they tend to placate the unhappy client for the moment, but do little if anything to prevent the problem from arising again.

Norman Clark

In its Knowledge@Wharton site yesterday, the Wharton Business School, University of Pennsylvania, posted an interesting abstract about motivating employees: “Putting a Face to a Name: The Art of Motivating Employees.” This should be a quick, but worthwhile, entry on your personal “to read” list.

University of Pennsylvania professor Adam Grant draws several interesting conclusions from his research.  I believe that, although not drawn from observations in the legal profession, they have direct applicability to law firms.

People are motivated by an understanding of the positive impact that their activities have on others.  Here are summaries to two of their studies:

Grant and a team of researchers — Elizabeth Campbell, Grace Chen, David Lapedis and Keenan Cottone from the University of Michigan — arranged for one group of call center workers to interact with scholarship students who were the recipients of the school’s fundraising largess. It wasn’t a long meeting — just a five-minute session where the workers were able to ask the student about his or her studies. But over the next month, that little chat made a big difference. The call center was able to monitor both the amount of time its employees spent on the phone and the amount of donation dollars they brought in. A month later, callers who had interacted with the scholarship student spent more than two times as many minutes on the phone, and brought in vastly more money: a weekly average of $503.22, up from $185.94.

Even reading about the benefits that one’s work produces for other people can produce apparent increases in motivation .

In a follow up study to the one he published in 2007, he focused on lifeguards at a community recreation center. Some of them were given stories to read about cases in which lifeguards had saved lives. A second group was given a different kind of reading material: testimonies from lifeguards about how they had personally benefitted from their work. The results: Those who had been reading about their ability to avert fatalities saw their measure of hours worked shoot up by more than 40%, whereas those who had merely learned that a lifeguard gig could be personally enriching kept working at the same clip.

The Knowledge@Wharton post has links to the papers that Grant and his teams produced.

Some law firms try to minimize face-to-face contact with clients by junior associates and support staff.  Grant’s research suggests that this is a mistake.

Everyone in the firm needs to see the face of the client. In some cases this can be a simple face-to-face encounter, such as a partner taking time to introduce a client to associates and support staff who work on the client’s matter. Even when employees cannot literally see the face of the client, partners should make sure that each member of the team — from senior associates to the crew in the mail room — understands how their efforts ultimately benefit the client.

Norman Clark

To nobody’s surprise, the wave of lawyer and support staff layoffs, which began last year, is flowing into 2009. Here are some of the reductions in law firm staffing that were announced or confirmed in just the past two weeks.

• Cassels Brock & Blackwell (Canada): 38 staff
• Fish & Richardson (USA): 30 staff
• Linklaters (UK): 120 lawyers and 150 staff in London
• McDermott Will & Emery:  (USA) 60 lawyers and 89 staff
• Morrison & Foerster: (USA) 53 lawyers and 148 staff
• Wilson Sonsini Goodrich & Rosati: (USA) 45 lawyers and 68 staff

This is bad news for the people who have lost their jobs. It is also bad news for those who escape the axe. The relief that a downsizing “survivor” feels is usually replaced by increased apprehension about the future. “Will I go in the next round?” If not managed well, lower morale and, frequently, increased work loads can hurt productivity and push the firm’s business performance deeper into the whirlpool that management has tried so hard to avoid.

The good news is that the pool of available legal talent is growing. Contrary to popular assumptions, most of the associates and staff who are being terminated now are not “deadwood” or marginal performers.  In better times, they would have little difficulty finding a place in another firm.

This creates an opportunity.  Some law firms tell me that they continue to be working at almost full capacity.  Some are planning a limited number of well-defined, strategic hirings in 2009, in order to build their service delivery capabilities, work capacity, and expertise.

Moreover, in order to keep individual lawyer profitability high, some firms will be concentrating on increasing the number of skilled administrative and paralegal staff in areas such as insolvency, litigation support, and patent prosecution.

If successful, these counter-intuitive strategies (e.g., managed growth while everyone else is contracting) could result in significant competitive advantages when the economic recovery begins.

Norman Clark