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LawVision Insights

Redefining “Nice” at Law Firms: The Interplay between Culture and Tenured Partner Underperformance

By Jessa M. Baker on Posted in Leadership Development, Talent Strategy

During our most recent LawVision Managing Partner Roundtable, a topic of common concern resurfaced, albeit this time with a slightly different spin.  Although we have had numerous conversations in the past about how to address tenured Partners who no longer meet the standards for Equity Partnership, this discussion circled back to an often under-examined notion: Culture, and how it relates to managing underperforming partners.

Culture is defined by Merriam-Webster as “the set of shared attitudes, values, goals, and practices that characterizes an institution or organization”.  As a law firm management consultant, I’ve learned that “culture” can imply something far different to lawyers.  Too often, culture includes a whole host of behaviors that result in sub-optimal performance and “preserving culture” becomes a proxy for inertia and avoiding difficult decisions.  “Our firm is too nice to address underperforming tenured partners” is a common refrain.  Accommodations are made so that lawyers remain in the equity ranks despite sustained performance that falls below agreed-upon partnership standards.

Setting aside the financial implications of partner underperformance and viewing this cultural quandary via a talent strategy lens helps reframe the issue.  Asking the following questions can’t help but leave the most accomplished law firm leaders feeling a bit squeamish:

  • Is it my firm’s culture to prevent lawyer advancement by limiting opportunities for the admission of new partners, potentially forcing rising talent to look outside the firm for career growth?
  • Is it my firm’s culture to set tenured lawyers up for disappointment by failing to recognize and redefine gaps in performance expectations?
  • Is it my firm’s culture to model and reward underperformance?
  • Is it my firm’s culture to sacrifice long-term growth and longevity to avoid temporary discomfort?

Consider, for a moment, how firms address underperforming associates.   It is extremely unlikely that a firm would use passive techniques to address underperforming junior lawyers.  However, many firms respond to tenured Partner underperformance by hoping the Partner will either (1) Raise their performance standards, or (2) Leave the firm.  Passive techniques, such as deequitization, rarely serve to improve performance and can often be as detrimental as aggressive alternatives.  Both options can damage firm morale.

How do successful law firm leaders walk the cultural tightrope?  One idea to consider that might work particularly well with older partners is to find new ways to match talent strategy gaps with tenured Partners’ institutional knowledge.  Many firm leaders have learned to successfully channel tenured Partners’ assets via mentoring, coaching, and professional development opportunities. For example, one mid-size firm successfully transitioned an underperforming tenured Partner to oversee the firm’s associate performance review process.  Other firms have encouraged tenured Partners to introduce and involve junior lawyers in civic and philanthropic organizations.

Underperforming tenured Partners exist in every law firm.  Unless they are guilty of some type of misconduct, the firm owes these Partners courtesy, respect, and consideration in addressing their underperformance.  Shifting their job expectations not only fills talent gaps, it can promote a culture of professional development and growth.   The conversations are difficult, but the rewards are significant.  You owe it to your firm- and its culture.

Law Firm Growth

By Silvia L. Coulter on Posted in Business Development, Leadership Development

Bloomberg BusinessWeek’s May 6 issue focuses on “Big Law’s” need to wake up and build strong leadership citing the demise of some impressive firms over the last decade and predicting there may be many more to come.  The poor outcomes some firms faced—too much real estate debt; too much investment in cases that didn’t pay off fast enough; overpaying laterals, and other poor leadership and management decisions– could not be avoided once bad decisions were implemented.  “Steven Harper, a recently retired partner of Chicago-based Kirkland & Ellis, ascribes the problem to self-inflicted mistakes ranging from growth for growth’s sake to breathtakingly incompetent leadership,” cites the Business Week article.

The article also touches on the current climate and the scrutiny clients are now giving their legal bills for all except the most loyal relationships and high stakes deals and litigation.  I suggest, despite the bleak forecast, there is a silver lining for savvy firms.  That is to re-examine the focus firms give to their very best clients.  Seriously, how many in house or general counsel panels do firms need to hear repeat the message over and over again, “Come talk to us.”  The facts remain clear: the opportunities for legal work are stable or decreasing.  Go talk to your clients to retain their relationships, grow the opportunities and build advocacy so they refer the firm to others.  If you are a leader of a firm or within a firm, be smart and invite dialog from partners who work with key clients and listen to ideas about ways in which to show you love your clients. If you don’t, the other 15+ firms who work with your clients might and they will be gone forever.

It’s a simple process really:

  1. Conduct a client feedback review—interview key members of the client’s team one on one or hire someone to do this for the firm. Clients happily share their thoughts and input.
  2. Really think hard about what is going on with the client, their industry and determine how to add value to the relationship and to help them meet their goals (revenue will ultimately follow but it takes time)
  3. Invest in the relationship—visit the client at least once a year regardless of where they are located. Make it a priority; invite them to visit the firm and plan a day of meetings they’ve helped design (of course the firm pays for this)

Do the above every year and you will see good results, happy clients and reasonable revenue growth will follow.

If this is a sure bet for growth, why aren’t firms doing more of this?

Despite the challenges of a mature and quickly-changing industry, good and bad leaders need to tighten up their game plan for the firm to succeed.  Start with your clients.  It’s the strongest foundation you’ll build for the firm’s and your future. Don’t let your firm be next in the Business Week headlines.

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Silvia Coulter, a principal with LawVision Group,  is a business development expert who helps firms with client retention and growth and new business development.

Time to Change the Partner Compensation System?

By Michael D. Short on Posted in Practice Group Management, Strategic Planning and Implementation

I was recently discussing some preliminary findings from our Partner Compensation System Survey* with a Managing Partner – issues such as how many firms use each type of system, how long these firms have used the same system, how specific efforts are “weighted” in relation to each other, and who makes the decisions.  Some of our findings are not what I expected and I was pointing out the variances between our anticipated results and the realities of many Partner Compensation Systems.

He stopped me mid-sentence and asked, “Are you saying that all firms that don’t have these characteristics (that we were discussing) should change their systems?”  The slight grin with which he delivered the question indicated to me that he knew the pending response, which was “no”…but not for reasons tied directly to the survey.

My summarized response went something like this – Changing any Partner Compensation System is like handling dynamite.  If you know what you’re doing and why, everything will go well.  If you don’t, you could accidentally create some major damage.  It is a process fraught with unintended consequences.  That said, much has changed since the recession and we see many compensation systems that are grossly out of touch with the new business of law.  For this reason, we think it is prudent to revisit them periodically and with an open perspective to ensure that they are not quietly creating long term challenges – even if everything appears to be working well.

Any or all of the following issues could be blind spots in a current Partner Compensation System:

1) Succession planning – The “graying” of many partnerships is a ticking time bomb, with respect to both a) the talent and skills within the partnership, and b) retaining the clients of the Senior Partners.  Many compensation systems have no provisions for transitioning a client base, and a successful outcome is often based on the individual Partner’s willingness to “do the right thing”.  While a few will, most cannot foresee retiring any time soon and will hang on to their client relationships to maintain their status in the firm, and their basis for compensation.  While the individual Partner benefits, the firm and its client relationships are put at increasing risk as each year passes.

2) Practice profitability – Prior to the recession, there was a fairly strong relationship between the growth rates of both revenue and profits.  This was the result of a very stable business model where the only changing variable was billing rates.  Today, the relationship between revenue and profits is far less predictable as fee resistance from clients increases and realization rates decline commensurately.  In other words, the generation of revenue – which is the primary area of focus for many firms’ compensation systems, may not be the best metric for the generation of profits, which is the account from which Partners are paid.

Consider two Partners in the same firm.  Each generates the same amount of revenue and the two are paid equally.  One generates the revenue via the involvement of a service Partner, an Associate, and a Paralegal.  The other generates the revenue via the involvement of two service Partners, two Associates, and two Paralegals.  (This is a real scenario that we saw recently.)  Should they be paid the same?  In some firms, they are.

The second Partner referenced in this example provides commoditized services.  If this Partner stays focused on an old, rate-focused service delivery model then the firm and the Partner have limited upside.  If the Partner focuses on optimizing the profitability of the work – which is the proper approach – then he/she will suffer – unfairly – under a revenue-based compensation system.  Negative consequences equal no action…even if it is in the best interests of the firm.

Important note – involving profitability data in the compensation process is another decision fraught with challenges.  That will be a topic for another day.

3) Common/shared work ethic – Each partnership has some range of contributions realized from all Partners.  Some contribute at a higher level than others and most compensation systems align the dollars paid with the contributions received, thus making the process “fair”.  There are, however, limits to the range of contributions that most healthy partnerships can withstand, particularly when someone falls below minimum expectations.

Consider a firm where the average Partner bills 1,700 hours, the top producer billed 1,900 hours and the lowest producer billed 1,500 hours.  This is a relatively healthy situation…particularly if the lower billers are investing their idle time in more business development efforts.  Contrast this with a firm where the average Partner bills 1,700 hours, the top producer billed 2,100 hours and the lowest producer billed 1,300 hours.  A top to bottom variance of 400 hours is much more tolerable for the top producers than a range of 800.  The larger the variance, the higher the odds that the top producers leave because a) they feel as if they are subsidizing those who produce less, and/or b) if the lesser producers produced more (an easily achieved feat from the perspective of a top producer) then everyone would make more money.  There is a point beyond which different levels of contribution cannot be handled solely via compensation.

Work ethic extends to investment (i.e., non-billable) time.  Consider two Partners who both bill 1,700 hours and have the same cash return on that time.  One of these Partners spends an additional 700 investment hours working hard to develop business, while the other Partner goes home when the billable work is done.  Should these two Partners be paid the same amount?   In some firms, they are.

Our survey results tell us what firms are doing.  Some would call this “best practices”, which is incorrect, old-school thinking.  We call it valuable information for a firm to determine if changes are needed and which combination of changes may make the most sense…after, of course, an evaluation of unintended consequences.

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* To date we have over 90 participating law firms in our confidential survey.  Detailed results will be made available only to participating law firms.  While we are working on our reports and analyses right now, you may still be able to submit your data.  Please email me at mshort@lawvisiongroup.com to discuss your participation at this point in time.

What’s Wrong With This Process? Why Are So Few Lawyers Willing to Assess How They’re Delivering Legal Services?

By Carla Landry on Posted in Legal Project Management, Process Improvement, Strategic Planning and Implementation

Last month I wrote that lawyers still hadn’t decided which should come first between legal project management (LPM) and legal process improvement (LPI).  It had been two years since I first wrote about it and yet the question was still out there.

A number of interested parties reached out to me by email and a couple with blog comments saying that it’s true, although the most logical order of things would be LPI then LPM, it turns out most lawyers chose to focus first on LPM.

Jeffrey Carr, VP and GC of FMC Technologies, a Fortune 500 company, summed it up nicely when he commented that the order of adoption is not relevant because they are two different things.  “LPI is about designing a process — LPM is about operating it.”  He goes on to comment that “many firms focused on LPM first because it’s easier and – to be very cynical – consistent with the inefficient cost-plus business model that has prevailed for so long.”  Although I’m certain there are lawyers and law firms that chose to focus on LPM first (and sometimes exclusively) for that reason, I believe other reasons are involved as well.

In my experience, the resistance to LPI falls into several categories and each are worth exploring and demystifying (and we’ll do so over the course of a few blogs):

  • Recognition that other things are impacted by changing how services are delivered and too overwhelmed to know where to start (e.g., staffing, fees, compensation)
  • Belief that services (and people) will become commoditized by “standardizing” the process
  • Lawyer personalities and resistance to change

First, LPI does impact other things…and it should…but that doesn’t mean it all has to be tackled (or “fixed”) at the same time.  When a process is streamlined, staffing needs change.  Ideally, lower rate professionals will be able to complete more standard tasks.  That’s the point.  Those tasks that are repetitive across matters should be done in as uniform a manner as possible and by the lowest cost professionals possible.  The unique tasks should be the focus of the highly experienced lawyers.

Fees will change.  Again, that’s the point.  The idea is to have routine matters handled at the lowest possible level – use technology or non-timekeepers, if possible – in order to reduce the cost of the service to clients.  This means that lawyers and firms need to rethink how to maintain profits under that scenario.  Fixed fee billing which is accurately priced and managed to budget is often the answer.  This is where strong LPM skills are critical.

Compensation systems are still frequently linked to bulk revenue, not efficiency or low cost or profitability.  This may be the last thing to change, but that doesn’t mean firms should continue to deliver legal services in an inefficient manner.  Delivering value to your clients should be the driving force behind your choices, not your compensation system.  If not, you’re likely going to lose your clients.

It’s possible to affect change one piece at a time.  To point back to Jeffrey Carr’s comments, “perhaps the best way to think of this is as a three step holistic and continuous cycle:  (1) plan/organize; (2) execute flawlessly; and (3) assess/improve.  Since it’s a continuous circle, it doesn’t really matter where you enter.”  And as I mentioned in a blog last fall, “the point is to get started somewhere….”

Coach Lawyers to Develop Business by Using Their Strengths

By Craig Brown on Posted in Business Development, Coaching

A recent post by my colleague Bruce Alltop addressed the ability of introverts to develop business.  The following are a few charts based on research from our Lawyer Behavior Profile that support Bruce’s conclusions.

We tallied results from hundreds of lawyers who participated in the Lawyer Behavior Profile assessment tool and compared them with sales executives who participated in a companion tool based on the same underlying research and question patterns.  The results didn’t surprise us.  Lawyers are less entrepreneurial, more passive, more introverted, less aggressive and more compulsive than sales professionals.

As Bruce said, being more of an introvert (or having any of the characteristics common to the lawyer personality) doesn’t preclude you from business development success and may be an additional factor of success.  Consider the chart below comparing misconceptions about introverts to advantages we’ve found in our coaching of hundreds (maybe thousands) of them. 

For example, classic introverts may not have as many contacts as their more outgoing counterparts but the contacts they have are typically deep, strong and loyal relationships.  A first glance at an introverted lawyers list of contacts often induces a knee-jerk reaction from a concerned marketing director to help the lawyer build more contacts.  I often hear directives like, “get Mary out in front of more people – get her involved in the community.”  While it’s never bad to get your lawyers more in touch with other professionals, doing so without acknowledging the depth and power of current relationships may cause you to miss some gold.

Coach your lawyers by acknowledging their unique personalities as strengths.   They will respond to your efforts more positively and ultimately be more successful.

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Craig Brown has worked with managing partners, attorneys, CEOs, and executives, as a coach, consultant and business executive for over 20 years.  He is a Principal in Business Development Practice at LawVision where his consulting and training practice focuses on helping law firms rethink how to build clientele by reconnecting people to their core strengths. 

He can be reached at cbrown@lawvisiongroup.com

Simple is better……

By Joseph B. Altonji on Posted in Governance and Management, Leadership Development, Process Improvement

Things should be made as simple as possible, but not simpler.

Albert Einstein

I am frequently reminded of Albert Einstein’s wise counsel when working with law firms.  As surprising as it might seem, history’s most famous physicist has a lot to offer law firms worldwide.  I am constantly amazed at how good law firms are at making simple things complicated, sometimes to the point of complete incomprehensibility.  The ability of smart lawyers to complicate things that should be simple, usually to address some perceived problem that may or may not exist, seems boundless.

Compensation systems are a common vector of complexity, particularly in firms with formulaic approaches (which remain common, particularly with smaller firms.)  Such systems, which were usually intended to make things simple – or at least clear – rarely “get it right”.  So firms address this failure by annually massaging the formula, the data, or both to the point where few really understand all the factors that go into compensation setting, even if the formula itself remains “simple.”  Sometimes, the formula itself gets so complicated that no one understands what it does, and if some (specific) person in a cubicle somewhere happened to have a heart attack, no one would be paid for the next six months.  Wouldn’t it be simpler to let trusted leaders weigh all the data and reach appropriate, explainable, consistently-applied conclusions?

Another source of complexity is in rule-setting and policy development, much of which seem to get created to address specific instances of bad behavior.  One or two individuals push the limit on what most people would accept as reasonable and prudent behaviors – spending for a client development lunch, for example – and everyone is subject to a whole new set of rules, approval processes, and advance justification.  Wouldn’t it have been easier for the Managing Partner to just sit down with the offending partner and lay out expectations?  Or to use a more serious example, how many people have sat through sexual harassment training because of the behavior of one poorly behaving lawyer?  Wouldn’t it be simpler to fire him?

Another source of complexity lies in procedures and reporting.  Why do we do things in such-and- such a way?  And why do we continue to produce a report that no one has looked at in 10 years?  In many cases there was once a good reason (or some important partner wanted it), but everyone has forgotten that reason.  Add enough of that together and it adds significantly to the cost of doing business.

The second half of Einstein’s advice is equally important: “… but not simpler.”  Law firms often miss on this side as well, usually in their interpretation of an issue.   Always anxious to “do something,” and generally desirous of avoiding really hard work (and non-billable time) on internal matters, law firms will jump to easy conclusions and simple solutions.  Why does our law firm have an associate attrition problem?  We must be underpaying them.  It can’t possibly be, for example, a lack of quality work? Or partner investment in the associates’ careers?  Or a bad work environment? Or poor practice management? Or lack of perceived opportunity?  Or all of the above?  Raising pay and going back to work is an easy thing to do – until it doesn’t solve the problem.  You can’t solve a problem until it’s properly and objectively analyzed and defined, and sometimes that’s hard work.

Things should be made as simple as possible, but not simpler.  Wise words for anyone managing a firm today.

Law Firm Business Development: Extroverts Beware

By Bruce Alltop on Posted in Business Development

One of the more common themes that comes up during my initial coaching session with new coachees is that they feel that they are too much of an introvert to ever be good at business development (sales). This is one of the great business development myths that is perpetuated by non-business development professionals and, perhaps, many other introverted professionals who are fearful of being perceived as a “salesperson”.

A gregarious personality is most definitely not a requisite to be great at developing business. In fact, despite the fact that we say that business development is “relationship development”, you don’t even need to like people all that much to be great at business development. As you might suspect, the vast majority of my coachees are very intelligent and good at solving problems. These individuals are also good at research and preparation. So, I ask my coachees to change the way they think about business development. Combining their research and preparation traits, I ask them to think about sales as being about identifying a client’s business issues through simple research techniques and then using that information to solve business problems for the client through their legal service offerings. Give it a try.

The reality is that it’s less important to know how to sell than it is to know why (and how) people buy. By placing the prospective clients’ business issues and organizational objectives ahead of your own need to “sell stuff”, you will be way ahead of the game; introvert or otherwise.

The $200,000 Mistake Law Firm Leaders Can’t Afford to Make

By Jessa M. Baker on Posted in Talent Strategy

If preventable errors lead to $200,000 worth of technology equipment disappearing from a law firm, dire consequences would ensue.  At a bare minimum, the firm’s leaders would revisit the policies and procedures that failed to retain their valuable assets. If there were undetected but detectable signs leading up to the disappearance the wrath would be even more severe.

Why is it, then, that underlying issues creating unintended lawyer departures often go overlooked, discounted or ignored?

Considering training time, recruiting time, headhunter fees, lost productivity, internal resource reallocation and client interruption, the negative financial impact of an unintended lawyer departure is estimated between $200,000 and $400,000.  Increasingly, however, I’ve noticed that law firms are failing to pick up on signs of underlying engagement issues.

Here is an example:  I was recently assisting a law firm interested in improving their internal management and operations.  As part of the project, I conducted associate interviews and focus groups.  In addition to discussing operational issues, the associates to a person  wanted to share their concerns about the firm’s changing culture.

The associates had incredible respect and admiration for the partners, and deeply missed interacting with them:  Something had changed at the firm.  The social interaction and “open door” atmosphere had disappeared over time as the firm grew.  To compound the issue, a series of small, inexpensive to fix but highly visible (to the associates) office issues compounded a sense that the firm did not value its people.   As a result, associates felt unappreciated, unmotivated, and wondered about their future at the firm. Although the partners were starting to notice slight productivity issues, they didn’t anticipate how few of their top performers expected to be at the firm 5 or 10 years down the road.

Although I’ve written about associate engagement in previous posts, this project was a stark reminder of how important confidential associate interviews and focus groups can be.  The up-front investment of providing a confidential, safe environment for associates to voice their concerns can reap incredible rewards.  In this case, the associates provided numerous inexpensive suggestions on how to increase associate satisfaction- All they needed was a confidential forum to share their concerns.

Law firm leaders protect investments in their resources.  Guarding $200,000 in technology equipment is a justifiable expense – Human capital should merit the same protection.

 

 

 

Focus on Clients

By Silvia L. Coulter on Posted in Business Development

Every once in a while we get reminded of how important client service really is, particularly for those of us in the service business.  We work hard, long hours and believe we always think of clients first.  I was speaking with a general counsel over lunch the other day and he said,

When I practiced law (at a large firm) I thought I was very focused on my clients.  Since I’ve been a general counsel, going on more than ten years now, I realize there were some things I could have done better.

I’m sure that’s how two of our clients feel who each just lost a multi-million dollar client to a competitor. Each firm had these client relationships for more than 15 years.  We suggest it’s always about the basics—and keeping in touch to build the relationship is basic for sure.

We all hear client/GC panelists talk about the outside counsel/in house counsel relationships and what could be better.  Perhaps a short list of things to do–regardless of how well you believe you are liked or if you think your client is too busy to be bothered with client feedback meetings, etc.—will be helpful to strengthen your/your firm’s client relationships.

Spend time focusing on the relationship.  Ask relationship-building questions. It might be that there is a lot of interaction between the client and the partner(s) on a regular basis but this usually pertains to the legal work not the relationship.  Focus on the relationship and what’s important to the client.  Don’t assume you know. We’ve seen far too many instances where the best clients have left their firms for reasons that should not have happened and they are all relationship-oriented.

Be proactive about aligning with the clients’ business goals.  If the client is trying to achieve cost-containment goals, hire a consultant to teach a project management workshop and invite the client. Or discuss other ways the client envisions cost-cutting.  They have good ideas and your firm can benefit from hearing what other firms are discussing with the client.

Ask for feedback on a regular basis.  Clients welcome the conversation and firms will greatly benefit from the same.  A recent law firm client told us the GC of a significant organization is too busy to have these kinds of meetings and the firm is well thought of and gets most of their work. When the GC was approached for a client feedback meeting, she said she thought the firm took the business for granted and they never ask to meet with her.  Needless to say the MP was out there the next day which she very much appreciated.  Inviting clients to team meetings is another way to confirm to them that their opinion matters greatly.

Try these few things to open up dialog and align with clients and reap the rewards.

Advice for Law Firms in Serious Trouble

By Michael D. Short on Posted in Strategic Planning and Implementation

Law firms are fragile organizations that are held together by the will of the Partners to keep showing up for work each day.  Many firms are one or two key defections away from the start of a downward spiral in confidence that can quickly pull any law firm apart.

A dissolving law firm is viewed much as one views a car collision ahead of you on a road – you slow down, take a hard look, try to quickly discern what happened, whisper to yourself “there, but for the grace of <insert deity name here> go I”, and then drive away…feeling lucky, but knowing that the potential for such an unforeseen event remains for all drivers no matter how careful or risk adverse.

The “discern what happened” step can be valuable if approached in a respectful and objective manner.  The key challenges are that a) dissolutions are, thankfully, few and far between, and b) each dissolution has a unique underlying story, so drawing any broad “lessons learned” – other than the fact that the overall confidence in the institution could no longer hold the partnership together – may not be applicable to your firm.

If dissolutions are rare, then why write about them?  We believe that there will be a number of small to mid-sized firms and a large firm or two that will, for a variety of reasons, find themselves in a crisis. Once a crisis begins, rapid decision-making is critical – to either save the firm or maintain asset value if the firm is not salvageable.  Saving the firm typically happens in one of two manners -

  1. A rapid, radical restructuring.  Our methodology requires a very short timeline and no ties to the past or off-limit topics.  The solution must be holistic and designed to serve the greatest good.  The existing assets, systems, structures, and processes are restructured from a “blank slate” perspective.
  2. A “savior acquirer” (law firm) to step in and absorb the firm in crisis.  This option is the path of least resistance, which is why we don’t see many more dissolutions in the press.  These transactions look like acquisitions and the solutions happen out of the public’s purview.

Those that cannot achieve either of these options may face the difficult, yet sometimes correct, decision to dissolve the firm.  If you get to this point, seek help from someone who has been through the process so your firm can benefit from their experiences.

For your consideration, I offer some advice from two experienced counselors.  First, here are my personal “Top 3” observations:

  1. Fighting too long to save a dying institution may, in the long term, do more harm than good.  For as painful and emotional as this decision can be, it is better to bring a failing firm to a quick conclusion rather than endure a process called “death by a thousand little cuts” by those who have suffered through it.
  2. Once a partnership reaches the conclusion that it should cease to exist, the goal is to wind down the firm’s affairs without declaring bankruptcy if at all possible.  This requires a) having a small, empowered, and experienced wind-down team, b) developing an effective relationship with each creditor – secured and unsecured, and c) generating enough money from the firm’s assets to cover its liabilities at a sufficient level for each creditor.
  3. Dissolution is not a means to another end…it is an end.  I occasionally hear from a disaffected segment of a partnership that is considering dissolving in order to effectuate a difficult change, with the goal of immediately reforming with the change (e.g., without certain undesirable Partners) in place in a “new” firm.  The risks associated with such a move are immense and some key partners will use this opportunity to look around. The marketplace will know about it, and good people will have many opportunities -.

I also shared these thoughts with Yann Geron, a Partner at Fox Rothschild LLP and a member of our small group of experienced professionals in this unique area.  He offers the following observations:

  1. Once the firm decides to wind down, it is of paramount importance for the firm to maintain credibility with its key creditors throughout the wind down process.  In addition to maximizing creditor recovery, the firm will need a team of specialists in this area to communicate effectively with creditors and provide them with transparency into the dissolution process so as to establish reasonable (and achievable) expectations in the creditor group.  The skill, credentials and prior experience of the wind down group are important, because the group’s credibility with the firm’s creditors will inform how those creditors react during the wind down process.
  2. When the wind down becomes broadly known internally, the firm’s attorneys (at all levels) and staff will quickly look for safer employment.  This causes a rapid degradation in firm’s ability to administer itself, so the wind down plan must implement steps to avoid a leadership vacuum.  The wind down team will develop incentives and leverage with each of the firm’s internal constituencies to drive the wind down process forward efficiently and quickly, with a particular focus on billing and collections.  Another issue that requires careful consideration is what exposure, if any, do partners may face for compensation they received prior to the firm’s decision to wind down.  Whether they need to repay anything, and if so, how and when it will be repaid, could be the lynchpin for a successful wind-down which avoids both bankruptcy and unwelcomed publicity.
  3. Open client matters will need to be transitioned to new firms as billing partners shift to those firms.  Much has been written lately about potential liability which those partners and their new firms may face on account of the open client matters which they took to their new firm.  Early in the wind down, the wind down team will need to work with the relationship attorneys to ensure that clients and their files are transitioned properly, so that receivables are collected and creditor recovery is maximized, all in an effort to avert bankruptcy.  As recent publicity on large law firm bankruptcies shows, once a bankruptcy is filed, the liquidation process changes dramatically, often to the detriment of the partners and others at the firm.  In many circumstances, the organized transition of client files for the mutual benefit of the “prior” and “successor” firms could further decrease the possibility of a bankruptcy.

We sincerely hope you never have to rely upon any of this advice.  If, however, you get to this point, keep the emotion of the situation at bay and do what the firm logically and factually needs…and do it quickly.

By Mike Short and Yann Geron