Financial Management

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.

Reprinted with permission of The Recorder.  © 2009 by American Lawyer Media, ALM, LLC.  Further distribution without permission prohibited.

Barack Obama set his sights on the White House long before he knew the job would come complete with the worst economic crisis since the Great Depression. If you are a new practice group leader or managing partner of a law firm, the path to your position may have also been well under way before it was clear you would take your position in the most challenging environment your firm has ever seen.

As one seasoned firm leader recently said to me, 'Leading a firm in good times is difficult; leading a firm when net income per partner is off budget is impossible.' Numerous practice group heads and managing partners will lead meetings this month while holding a leadership title for the first time. Leading lawyers has never been easy, but the level of difficulty has increased dramatically. In the recent past, law firm leaders complained incessantly about how hard it was to find enough quality lawyers to do all of the work that was piling up in every corner of the firm. While that challenge did, in fact, keep law firm leaders awake at night, it hardly seems as daunting as what awaits leaders today: Profits and workloads are declining, payment cycles are stretching like never before, major clients are refusing rate increases, and associates and staff avoid eye contact with you because they fear layoffs.

How can a new leader with little or no formal training perform under these circumstances? Paying close attention to three facets of leadership will help.

This article reprinted with permission of Legal Week.  Further distribution or reproduction prohibited.  © July 2008, Legal Week.

For a number of years, clients have been sharpening their focus on the procurement of legal services. With a tightening economy and clients’ own margins under pressure, this focus will intensify and clients will negotiate harder across all aspects of legal services — including price.

This article explores a number of key factors that drive clients’ purchasing decisions and looks at what law firms might consider when assessing how they can most successfully compete in this buyers’ market.

Three key factors are driving clients’ purchasing decisions. First, the perceived strategic value of legal matters; second, the clients’ own cost pressures and third, levels of competition and choice between law firms.

Reprinted with permission from the May 2008 issue of the Lexpert Magazine. © Thomson Carswell.  Further reproduction or distribution prohibited.

There is an old saying in the law firm strategy consulting world that has to do with the alignment between a law firm’s compensation system and its strategy.

Specifically, this axiom is: If your compensation system does not support the goals and objectives of your strategy then your compensation system is your strategy.

Whenever I say this to a law firm partnership for the first time, I usually see nods of agreement from a majority — along with looks of strong protest from a few. Those who agree tend to accept the following concepts:

• You generally get what you reward with respect to the compensation system for partners.
• Management is ultimately responsible for the implementation of a strategic plan.

When two law firms undertake merger discussions, they eventually exchange financial information. Typically, this exchange is anticipated from both a curiosity standpoint as well as a practical standpoint. Ultimately no merger will occur if it does not make good economic sense; therefore, critical financial review is essential. In our experience at Hildebrandt International, Inc. certain missteps involving the financial review appear repeatedly. Here, we have compiled a short list of do’s and don’ts to combat avoidable problems related to merger financials. This list is not meant to be all-inclusive; rather, these are some suggestions for those unaccustomed to financial merger analysis.

In these challenging times, it is critical to have up-to-the-minute, actionable information about the performance of your firm and how it compares to peer firms. Hildebrandt Peer Monitor is an innovative real-time benchmarking program delivered online anywhere and anytime you need to access your data. Peer Monitor provides law firm decision makers with benchmarking data as current as the most recent monthly financial statements. Key metrics such as demand, rates, productivity and expenses are broken out by practice groups, offices and individual timekeepers. Key insights on a member firm's performance relative to peers are available via a Web-based dashboard, along with an economic index and custom analytics. I have included a link to the just-published 2008 Q4 Peer Monitor Index to give you a firsthand look at the type of information available.  I think you'll find the insights on the marketplace to be interesting reading.

Over the last few weeks, many of the top 100 UK firm’s 2010¹ provisional revenue and profitability figures have been announced. The full and underlying financials are yet to be published (we are awaiting more detailed information on productivity, leverage, costs, margin, etc.) but in the meantime enough indicative data is available to begin to discuss the potential drivers of this year’s results and expectations for the future.

While the "Great Recession" of 2008 and 2009 appears to be winding to a close, its impact on the legal profession is both enduring and profound. Blane Prescott examines the trends in today's legal marketplace, and supports his assertions with up-to-date data from the Peer Monitor Index.

Please click here to download the entire presentation as a PDF.