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Best Practice Tips

Asked and Answered

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

Q. We are a five attorney firm in Detroit. Our firm does exclusively elder law and estate planning and most of our fees are based upon flat fees. Business has been steady and solid in spite of the recession. In an effort to improve profitability we are considering raising our fees but are concerned about adverse effects that it may have upon our competitiveness. We are already at the high end of the fee scale. Do you have any thoughts?

A. Raising fees is one approach to improving profitability. Clients are starting to push back more and more concerning legal fees. If you are at the high end of the rate scale I suggest that before charging off and raising rates you step back and conduct a process review by using an approach similar to the following:

Asked and Answered

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

Q.  I am the chair of our three person management committee. Our firm, now entering second generation, is a 17 attorney firm in Kansas City, Missouri. We represent businesses and other institutional clients. We have several of our founding partners in their 70s and as they phase back and slow down we are discovering that the younger generation of partners have not developed client development skills. What should we be doing to get more business? We are not sure we even know how?

A.  Research conducted over the years by numerous research organizations has shown that on average it costs five times as much (dollars/time investment) to get new clients than it does to get more business from existing clients. It just makes good business sense to leverage existing relationships.

Institutional clients are reducing the number of law firms that they use. According to BTI Consulting Group, corporations in the Fortune 1000 list are using 20% fewer core law firms than they did a year earlier. As a result fewer firms will be getting work from these companies and they will likely be the firms that successfully cross-sell their practices.

Recommendation From a Fortune 500 Client

Recently I was doing a telephone interview with the general counsel of a Fortune 500 company for our law firm client and I asked him if there was an opportunity for the law firm to get additional work in a practice area in which the company had no experience with the law firm previously and if an opportunity existed what the firm needed to do to earn the business. Here is his response

Asked and Answered

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

Q. Our firm, a 22 attorney law firm in Chicago, has been contemplating acquiring a 6 attorney firm in the suburbs. We believe we have done an adequate job of due diligence regarding financials, people, culture, systems, and practice-mix compatibility. Our concern is client retention. What are your thoughts concerning how we can determine if the clients will stay with us?

A. Why not ask the clients?

Much can be learned by talking to the firm's clients. Structured telephone interviews and other forms of surveys conducted by a neutral third party can uncover many surprises as well as answers. Client satisfaction surveys can be one of the best due diligence tools that you can use.

It is good business practice to see how clients might react to a acquisition or merger. Understanding where your prospective firm's clients stand and how they feel about service quality can be one of the most valuable inputs into your due diligence process that you can get your hands on. Finding out where your prospective firm's clients stand can tell you a lot about their future retention.

Before you invest significant time, money, or effort in developing an overall acquision/merger implementation strategy, survey your prospective firm's clients to understand where their clients stand.  

You must be careful using this approach and insure that it is done with the permission and in concert with the prospective firm. The approach must be setup, communicated and coordinated properly. It must be sensitive to clients and done in a way to communicate and reinforce positive rather than negative signals to the clients involved.

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC 

Q.  As the administrator of our 14 attorney firm I have been asked to present a plan to the partners for reducing employee benefits. We have had a difficult time during this recession. So far we have not had to reduce our employee headcount - but this could change in the future. It is our hope that if we can reduce the cost of benefits we won't have to layoff or terminate any employees. What is the best way to handle/manage this difficult discussion and process?

A.  As an "at-will" employer you have the right to change benefits whenever you please. However, you must be careful as employees will perceive a reduction in benefits as a reduction to their overall compensation package.

If you do decide to cut benefits it is advisable to plan carefully and communicate as much in advance of the changes so that people know what is coming in time for them to allow for changes in their lives. It is also a good idea to be prepared to clearly and concisely share comprehendible reasons for making these changes. If implementing this type of change will save jobs, present it this way. If you believe that you may again provide benefits that have been cut once the economic environment is better, that knowledge will make it more palatable to employees.

A key point here -- do an overall examination of your benefits and cut once and be done with it -- don't keep reducing benefits every month or so.

Asked and Answered

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

Q. Our firm is a 5 attorney firm in Detroit with three partners and two associates. The three partners are 79, 72, and 67 respectively. All three are considering succession and exit options. While internal succession is an option the firm has had a few merger chats with larger firms - on isolated unplanned occasions. We are having problems getting focused and generating interest from other firms. Is there a suggested process and or documents that we should prepare to generate interest and properly package our firm?

A. I suggest that you start by preparing an offer package that can be provided to other firms that you may approach directly or indirectly. A good offer package consists of the following:

  1. A firm profile (without identity for some presentations)
  2. Nondisclosure Agreement
  3. Detained Offering Memorandum (Confidential Descriptive Memorandum)

The Offering Memorandum

Tells the firm's story

Provides relevant facts other firms want to know including:

Asked and Answered

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

Q. I am the senior partner in a six attorney firm in Los Angeles. I am 68 years old and thought that it was  about time I begin thinking about retirement and begin discussions with my other partners. We have no partnership agreement and no plans in place to effect the transition of partners. What are some of the methods being used by law firms effect the retirement of partners?

A. There are almost as many approaches as there are law firms - ranging from partners that just leave and give their practices to the others partners to various methods for buying out the departing partner's interest in the partnership. In the final analysis the optimal approach is what makes everyone happy and a solution that everyone can live with. Here are a few illustrations:

 Fully Funded Retirement

  • Partner gets capital account
  • Share of current year earnings
  • Benefits from the partner’s personal retirement plan
  • No payment for share of WIP or AR

50 Percent Wind Down Option – Then Retirement Payments For Live

  • Five year step-down plan in lieu of payoff
  • Partner get capital accounts
  • Share of accounts receivable
  • No share of WIP
  • Five year stepped pay down to 50%, then for life one-half of 5th year payout.

Pension For Live

Asked and Answered

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

Q. I am the managing partner of a 35 attorney firm in Washington D.C. Governance consists of the full partnership on some management matters, myself at the next level, and a firm administrator. The administrator and I meet regularly to review accomplishments - but it seems like initiatives take forever to get implemented or never get implemented at all. Some are initiatives on my plate and some are initiatives on the administrator's plate. What are your thoughts?

A. I assume that you are a part time managing partner and that you are also servicing clients full time as well. It is difficult serving two masters - the firm (non-billable time) and your clients (billable time). Firm management issues always seem to take a back seat to client priorities. To do otherwise requires that you be very focused and effective time manager. You must balance both balls at the same time. Your administrator has a similar problem. His or her priorities are often focused on day-to-day operations management and there never seems to be time - especially large chunks of time - for long-term projects. Law firms have a hard time getting long term initiatives or projects such as the following implemented:

By John W. Olmstead, MBA, Ph.D, CMC Q. I am an 11-year attorney practicing at a small firm on the west coast. We currently focus on business litigation, employment litigation, corporate formation, bankruptcy, wills and trusts, and personal injury. We are trying to expand our practice into the area of insurance defense. To that end, I have been sending out correspondence to insurance companies offering my services in defense of general liability, property/casualty, and employment practices claims.  My goal would be to develop a regular stream of business from these types of cases, and to cross-market our other services to clients that come through insurance defense referrals. I am not sure if I am going about this the right way, and would like to seek your counsel. A. In all honesty, I have more firms asking how to diversify out of insurance defense into more self-insured and direct representation work. If you want to pursue this market you will need to become part of the club and do more than just dabble in this area. You will have to get on the "approved lists" of the various insurance companies. Once you are on these lists you have to entice claims manager to use you as opposed to other law firms that are on their approved lists. In other words, establish relationships with numerous claims manager throughout the company. This is harder than it used to be due to policies that many companies now have prohibiting various forms of networking such as dinners, gifts, ball games, etc. Now days it seems that educational venues is one of the few formats that is not frowned upon. You may also find that some companies reluctant to work with a firm your size.

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

Q. I rarely use my business card anymore. Is there any value for a lawyer to have one?

By John W. Olmstead, MBA, Ph.D, CMC Q. In a recent firm meeting the question was raised as to whether law firms hit a wall when they run up against new competitors, new technologies, new business models, or when their talent peaks. Is there a general model of sustaining a law firm? A. The mechanics of managing a law firm are too complex to address in this forum. It would be better to discuss what to tell you what to look for that tells you, well in advance of a fee revenue plateau, that your practice needs some work. Once you know where your practice is getting wobbly, then you will have a clearer idea of how to fix the mechanics. We tell our clients that often a law firm is on an  "S-Curve" in which slow and steady growth often occurs at the start of the law practice, followed by gaining momentum and rapid growth, then tapering off as practice areas get saturated or competitors enter the practice areas in which the firm is engaged. Watch these components for advance warning: 1. Competition - any practice area attractive to you will also attract other law firms, so monitor new entrants starting to chip away at your clients. 2. Capabilities - you created or bought some new technology, skills or other assets to start your firm/growth, but the distinctiveness of these eventually wears off and they are likely to be available to competitors once their value is clear. 3. Talent - you had it when you started your firm, but attorneys and staff have become "free agents" and increasingly move between law firms more frequently and you may lose a key asset. There may be other components unique to your practice and market.