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Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q.  I am a partner in a 14-attorney business litigation law firm in New Orleans. There are five partners in the firm. We are a first-generation firm and all five partners are the original founders. Each partner has equal ownership interests and is compensated based upon ownership points. While this approach to compensation worked for many years, this system is no longer working for us. Performance used to be pretty close but this is no longer the case. Your suggestions are welcomed.

A. This is a common problem that new law firms eventually face. Here are a few thoughts:


Asked and Answered 

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the owner of a small estate planning firm in Worcester, Massachusetts. I have three associates and three staff members. I am 55 and want to begin putting in place my succession/exit plan. I would like to retire and exit the practice in 10 years. Would I be better off selling to another firm or attorney, merging the practice, bringing in laterals, or selling to one or both of my associates? I am interested in your thoughts.

A. The biggest challenge for many firms, is finding the right who.

The who dictates the what — the actual succession/transition/exit strategy. In other words, many law firms find that they start down one path and end up on another. Not all non-equity partners and associates want to own a law firm. Not all lateral and merger candidates will be a good fit for your firm and culture. The key is the right relationship and sometimes that takes the form of making someone at the firm a partner, bringing in a seasoned lateral, merging with another firm, or selling the practice. Therefore, succession/transition plans have to be flexible and often the key is not getting stuck in creating complex succession plans at the onset. Establish timelines, outline a general course of action, generate some momentum and see where that takes you. Then build the plan when you can see where the firm is headed.


Asked and Answered 

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am a member of the executive committee of a 75-attorney firm in Houston, Texas. We are a first-generation firm. Several of our founders are in their 60s and we have recently begun discussing succession planning and how clients and management duties will be transitioned. We would appreciate your thoughts in these areas.

A. In larger firms, clients are more likely to be large, sophisticated clients, possibly Fortune 500 companies, which refer many matters to the firm during the course of a year. Often such clients may be both a blessing and a curse for the firm. A blessing in that their business provides the firm with huge legal fees during the course of a year. A curse in that their business represents a large percent of the firm’s annual fee collections and a significant business risk if the firm were to lose the client. An effective client transition is critical, takes time, and must be well planned.

Successful client transition – moving clients from one generation to the next – is a major challenge for larger firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients, the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:


Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am a partner in a 45-lawyer firm in Memphis and a member on the firm’s executive committee. We are planning on having a two-day planning retreat in June of this year. We have had these retreats every year for the past six years. Past retreats have only included attorneys. This year we are considering including staff members. We would appreciate your thoughts as to whether this is a good idea.

A. A firm invites all key staff to a retreat when they can play a major role in identifying problems and developing solutions. A firm retreat is an excellent forum if the partners or management have determined that individuals at different levels within the firm are having communication problems – for example – where communication is inadequate between:

  • Equity partners and non-equity partners
  • Partners and associates
  • Attorneys and staff

Having these individuals participate in solving their own communication problems at the retreat usually produces better results than those obtained when the partners hand down orders that may not deal with the real issues. Staff participation can help identify problems, involve more firm members after the retreat in the implementation of solutions, and improve buy in.    

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the managing partner of a six-lawyer general practice firm in Chicago. We have four partners and two associates and have been in practice for 20 years. While we are holding our own financially we would like to do better. The partners have never earned more than $175,000 – some years not even that. What can we do to improve profitability?

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am a newly appointed managing partner for an 18-attorney firm in Dayton, Ohio. We are an employment law litigation firm that represents plaintiffs on a contingency fee basis. We have been in business for five years and are facing severe cash flow and profitability challenges primarily due to lackluster contingency fee outcomes. Do you have any guidelines or suggestions as to what we should aim for?

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. We have a two-partner firm in Columbus, Ohio. We have two staff members, and there are no other attorneys in the firm. We have been in practice together for 17 years. I am 62 and my partner is in his fifties. My practice is limited to intellectual property and my partner’s practice is limited to medical malpractice defense. Recently, as a result of lack of coverage, our unwillingness to hire associate attorneys, and our frustrations with dealing with management issues, we have decided that we would like to merge with a larger firm. However, we are concerned that our numbers may not be satisfactory. Our five-year averages are as follows:

  • Gross Revenue – $500,000
  • Expenses – $240,000
  • Net Income – $260,000

Since we split the pot evenly we each made $130,000 on average. With these numbers are we a suitable candidate or are we just whistling in the wind? We would appreciate your thoughts.

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the owner of a plaintiff personal injury law firm in Arlington, Texas. I have three associate attorneys, six non-lawyer case managers, and three other staff members. Our marketing consists of our yellow pages program and our website. I am considering TV advertising and I would appreciate your thoughts concerning venturing into this arena.

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q.  We have a 16-attorney business law firm in Cleveland, Ohio – six equity partners and 10 associates. The equity partners have been discussing putting in place an associate attorney career advancement program and outlining equity partner admission requirements. Can you share your thoughts on what we should be considering and how we should get started?

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q.  We have a 12-attorney business litigation firm in Sacramento, California. I am one of three members on our technology committee. Our IT infrastructure consists of an in-house Microsoft file server, a separate Microsoft Exchange e-mail server, and document management and time, billing, and accounting software. Our documents are stored locally and managed by the locally installed document management software. Several of our partners have talked with other firms that are operating totally in the cloud. We would appreciate whether moving to the cloud is something that we should consider?