Joseph B. Altonji

A law firm’s strategy must evolve if its fortunes deteriorate. It is important that priorities are understood by management and clearly driven from the top down.

The greatest thing about the future is that it comes along day by day and allows us the time to influence its outcome - (paraphrasing Abraham Lincoln). Some law firms have never seriously tried to influence, much less manage, their own futures. They have either never taken a hard look at themselves, or worse, have allowed their focus on basic business health to fall by the wayside as the boom economy made business discipline seem less important and unattractive. These firms are waking up to a new reality where some are suffering downturns, stagnation and similar challenges, while others are on the verge of implosion or catastrophic upheaval. Amazingly, either due to a singular focus on expenses, or because they remain blind to their own situation, many of these same firms still don’t recognise the gravity of their condition, nor do they understand what they need to do to fix it.

This article reprinted with permission from American Lawyer.  © 2009 by Incisive Media US Properties, LLC, futher distribution or reproduction without permission is prohibited.

Sometimes a firm is less than the sum of its parts. In a struggling economy, business misalignment can be fatal.

 

IT'S NO SECRET THAT WE ARE IN A period of significant economic stress. Many firms are struggling with declining revenues, lower billable hours, slower-paying clients, and, inevitably, declining partner incomes. A few firms have already called it quits. Time to circle the wagons and ride out the storm, right? Maybe, for some. But many firms will face radical restructuring, and some will fail, for reasons that go well beyond the downturn.

 

There are two reasons for this. The first is that the economy is not just in distress--it is being remade at a remarkable pace, in ways we do not yet fully understand. The second reason is more fundamental. Many firms are in greater-than-expected distress, because they were fundamentally misaligned as businesses before the economic crisis hit. The economy has simply forced some to come to grips with these challenges faster and more aggressively than they likely would have otherwise.

 

Firm-level alignment problems tend to fall into three primary, but sometimes interrelated, categories--economic, strategic, and cultural. Each has different roots and implications.

Copyright 2007 ALM Properties, Inc. All rights reserved.  This article was reprinted with permission from the New York Law Journal.

EVERY JANUARY, law firms around the country welcome into their partnerships the best and the brightest -- or so they say -- from among those young lawyers who have attained the requisite seniority and, presumably, degree of accomplishment.

For some, the lucky ones perhaps, this rite of passage is well deserved, as they take their place in a partnership defined by well-articulated and rigorously upheld standards. These new partners know what they have worked so hard to achieve, and can look forward to a bright and successful future.

However, too many new partners -- potentially a majority, once all firms of all sizes in all markets are considered -- have entered partnerships in transition, where it is clear that the old standards of partnership ('do good work, last seven years') can no longer apply, but the new standards are in a state of flux. Promotion in these firms is often driven by perceived necessity, politics and a sense of obligation as much as by any perception that the individual has met well-articulated standards beyond being a good quality, hard working lawyer.

This article is reprinted with permission from the June, 2004 edition of Of Counsel. 

Editor’s Note: This article is the second in a two-part series. Part One, “What You Believe Really Can Hurt You: How Self-Delusion Torpedoes Strategic Planning,” appeared in the May 2004 Of Counsel.

Increasing competition has caused more and more US law firms to focus on their desired strategic position. This effort requires a firm to think clearly about its current and desired value positions as a key element of its strategic positioning. Put simply, it is unlikely a firm will achieve a clear strategic position if it leaves the value positioning of its practice unattended.

The value position of the law firm (or any other business) is the position it occupies in the perception of the clients and would-be clients of the firm. Abstractly, law firm managers have long recognized that different legal services command different market values. At the extremes, for example, corporate M&A is worth more to the client (by a lot!) than collections of delinquent retail accounts, and almost everyone would recognize this distinction.

But, in between dwell a range of other types of work that are considered by clients to have different values. Further, within any generic type of work, such as “corporate” or “real estate,” there is a wide variety of value positions. Unfortunately, most lawyers, including most of those managing law firms, are insufficiently attuned to the differences in value both among the practices in their own firm and between a practice in their firm and one with the same name in another law firm.

This article is reprinted with permission from the May, 2004 edition of Of Counsel. 

Most law firms are pretty good organizations, but very few of them are truly great organizations. Many firms are held back from achieving real greatness by a set of myths about their current position. The resultant misconceptions and self-delusions drive fuzzy or non-existent strategies.

Strategic thinking begins with a hardheaded and clear assessment of where the firm is today, cutting through the myths. At most firms, the partners lack a clear, collective understanding of their present market position. Consider some of the myths we mean, common to many firms:

• “We’re just as good as [The Brand Name Firm), but clients want the comfort of the big name.” This is the Confusion of Value Position. As a general rule, the firm is not “just as good as” the brand name firm, at least in their competing practice areas. They do not have the expertise, the depth, or the experience to handle certain types of legal work, which are typically the most important and, consequently, of higher value to the client.

There is a reason why some lawyers can command substantially higher billing rates for the “same type” of legal work. The reason is, it’s really not the same. For many lawyers, unfortunately, the idea that they are not, as a firm, “just as good as” somebody else implies lower self-worth for the individual lawyer. Many firms customarily lament the work they “lose” (as if they somehow had it to begin with) to “Wall Street” (or, “Big Name Firm”), rather than focusing on the areas where they can best compete.

The Hildebrandt Handbook of Law Firm Management draws on the extensive collective experience of the consultants of Hildebrandt International to address the key management issues and leadership challenges confronting law firms in today’s rapidly changing market environment. The Handbook provides the best current thinking on the day-to-day issues central to leading and managing modern law firms as well as identifying the emerging trends.

Legal services pricing is the hottest topic in law firms today. Many companies are experiencing significant cost pressures and legal services, which for years have been excluded from corporate scrutiny, are now expected to find efficiencies and cost savings. Moreover, the conversation has gone beyond simply pricing to actually delivering services on a different, and more cost effective, basis. Some lawyers, remembering the host of articles over the last 25 years calling for “alternative pricing” and predicting the death of the billable hour, question whether law firms will ever bill significant amounts of work on a non-hourly basis. Others see pricing and service delivery as a way to partner with key clients and enhance their market position.

Legal services pricing is the hottest topic in law firms today. Many companies are experiencing significant cost pressures and legal services, which for years have been excluded from corporate scrutiny, are now expected to find efficiencies and cost savings. Moreover, the conversation has gone beyond simply pricing to actually delivering services on a different, and more cost effective, basis. Some lawyers, remembering the host of articles over the last 25 years calling for “alternative pricing” and predicting the death of the billable hour, question whether law firms will ever bill significant amounts of work on a non-hourly basis. Others see pricing and service delivery as a way to partner with key clients and enhance their market position.

The 1990’s and early years of this decade saw a dramatic trend away from the traditional single tier of partnership among large law firms toward a new model where most larger firms today operate with both a traditional tier of equity partners (owners) and a second tier of non-equity partners whose status is somewhat different. These trends were driven by the twin assumptions that a second tier of “partners” would increase profitability by boosting leverage with highly productive and trained lawyers, and improve long-term performance by assuring that the owners/decision makers were those partners who were truly crucial to the firm’s success while giving these rising stars an extended period of time to prove themselves. Based on the evidence of the early 1990’s, these assumptions seemed reasonable. At that time, the dominant version of the two-tier structure, sometimes called the Chicago Model, was focused on using the non-equity tier as a stepping stone to equity. In well managed two-tier firms at that time, an analysis of the profit contributions of the various classes of lawyer generally demonstrated that the most senior associates and the non-equity partners were by far the hardest working lawyers in the firm, and contributed dramatically to firm profitability.