"Hyman Roth always makes money for his partners."
--- Johnny Ola
(second tier mobster)
The Godfather Part II (1974)
Forget for a moment the somewhat less desirable business practices of the Miami-based gangster Hyman Roth in The Godfather Part II, as brilliantly portrayed by Lee Strasberg. Can you say the same thing about each of your partners? Can they say that about you?
This is the fourth in a five-part series of posts that focuses on profitability in small law firms and solo practices.
In our experience and observation, the most dangerous profitability mistakes that these law firms make usually fall into four categories:
- continuing to serve unprofitable clients when there is no reasonable prospect that they ever will become profitable
- continuing to offer unprofitable services when there is no reasonable business case for doing so
- continuing to tolerate unprofitable performance by partners
- failing to make minimal investments in quality assurance tools and methods to improve productivity
"urban legends" about partner profitability
Partners form the engine that drives the financial performance of any law firm.
This is a statement that few would dispute. It is critically important in small law firms, where almost all of the economic performance of the firm may be the result efforts by only one or two partners. Yet partners in law firms of all sizes frequently operate based on profitability assumptions that seldom survive close, well-informed scrutiny.
These are similar to "urban legends." They might be based on a single, usually misreported or exaggerated fact or observation. As with urban legends in our societies and cultures, these law firm urban legends can be very difficult to overcome.
The most common of these "urban legends" is that billing and collecting fees is the same thing as being profitable. Actually, in some firms in which we have measured the relative profitability of individual partners and their books of business, we have discovered sometimes that some of the biggest billers are also among the least profitable partners in the entire firm, usually due to investing too much time and effort in unprofitable clients and work, or due to poor practice management techniques, such as poor delegation or inadequate quality assurance.
Partners in small law firms sometimes refuse even to consider comparing their relative profitability, usually due to a well-intentioned fear of disrupting collegiality or trust. Even when chronic substandard financial performance is obvious, they are reluctant to confront it, identify the causes, and discuss possible solutions with the underperforming partner. Rather than attempt to find an economical, effective, and, if necessary, respectful solution, these firms continue to allow one or two partners to drag them all down, year after year.
Alternatives, such as our firm's performance recovery service, are available. We can not only define the causes of, and best responses to, substandard performance by partners; but, while helping individual partners, we also can help the firm to create better practice management and a more productive partnership culture that benefits everyone.
"Having partners that aren't profitable is just a cost of doing business in a law firm," the senior partner of a small firm recently commented to me.
I respectfully disagreed.
It is always better at least to have a few difficult conversations about and with unprofitable partners.