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Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC For the past three weeks I have been discussing the characteristics of successful law firms and introduced the following basic building blocks that successful firms typically have in place:
  • Partner Relations
  • Leadership
  • Firm Management
  • Partner Compensation
  • Planning
  • Client Service
  • Marketing
Partner relations, leadership building, and management blocks have been discussed. The fourth basic building block is partner compensation. Successful firms have a good partner compensation in place. Partners frequently advise us in confidential interviews that they are more dissatisfied with the method used to determine compensation than with the amount of compensation itself. How much and how partners are paid are probably the two most challenging management issues that law firms face. Many law firms are struggling with compensation systems that no longer meet the needs of the firm and the individual partners. Failure to explore alternatives to failing systems often result in partner dissatisfaction leading to partner defections and disintegration of the firm. In many law firms compensation systems have been counter-cultural and failed to align compensation systems with business strategies. As more law firms move toward teams many are incorporating new ways to compensate partners in order to develop a more motivated and productive workforce. Team goals are being linked to business plans and compensation is linked to achieving team goals.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC For the past two weeks I have been discussing the characteristics of successful law firms and introduced the following basic building blocks that successful firms typically have in place:
  • Partner Relations
  • Leadership
  • Firm Management
  • Partner Compensation
  • Planning
  • Client Service
  • Marketing
Partner relations and the leadership building blocks have been discussed. The third basic building block is management. Successful firms have a good governance and management structure in place and effectively manage the firm. A major problem facing many law firms is the lack of long range focus and the amount of partner time that is being spent on administrative issues as opposed to higher level management issues. Time spent in firm governance and management, if properly controlled, is as valuable as, if not more valuable, than the same time recorded as a billable hour.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Last week I discussed the characteristics of successful law firms and introduced the basic building blocks that successful firms typically have in place. These are:
  • Partner Relations
  • Leadership
  • Firm Management
  • Partner Compensation
  • Planning
  • Client Service
  • Marketing
  • Last week we focused on partner relations as a core foundational building block.
The second basic building block is leadership. Successful firms have good leadership in place. This may be a single individual or a core group of individuals. Leadership does not always come from the formalized management structure of the firm. Leadership is one of the major problems facing law firms. Leaders are needed for managing partner posts, executive committee chairs, and practice group heads. Leadership behaviors include:
  • Developing people
  • Being able to influence others
  • Encouraging teamwork
  • Empowering people
  • Using multiple options thinking
  • Taking intelligent risks
  • Being passionate about work
  • Having a strong clear vision.
  • Leadership skills will need to be included in compensation systems.
Seven traits of effective leaders include:
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. My partner and I just started our firm two years ago. We have one associate attorney and one staff member. As we grow our firm what should we keep in mind so we don't repeat some of the mistakes that I have seen in other firms that have not been successful? A. I often refer to what I call the Basic Building Blocks of Successful Law Firms which are:
  • Partner Relations
  • Leadership
  • Firm Management
  • Partner Compensation
  • Planning
  • Client Service
  • Marketing
Lets take the first one - Partner Relations. This is the foundation (bedrock) of a successful firm. A successful firm has a healthy partner culture - a good marriage. In such a culture partners share common vision and purpose, respect one another, shoot straight with each other, and have difficult conversations and discussions when needed and deal with issues and problems. In many firms this is not the case and these firms often are characterized by the following:
  • Partner Defections
  • Firm Splits and Break-ups
  • Personal Fiefdoms
  • Maverick Partners
  • Hoarding Work
  • Lone Rangers
Such firms are often doomed from the start. Firms that don't get this foundational building block right will build a firm on a shaky foundation. Before forming a partnership - go slow and get to know the other lawyer or lawyers and insure that the marriage makes sense, that you share similar goals and values, that you will be compatible, and you will be good partners.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a three attorney law partnership that does primarily business transactional work. My partner and I have been in practice together for four years. We are equal partners (50% each) as far as our partnership interests and we use these same interests for determining partner compensation. In other words we receive the same compensation. We recently have been discussing whether we should look into a different method for determining partner compensation. Currently we produce about the same level of fee revenue. What are your thoughts? A. I could write a whole book on compensation systems - but here are a few thoughts:
  1. Over the past 30+ years I have seen just about every form of compensation system that there is - from "even steven" systems such as yours to "eat-what-you-kill", other formula systems, profit center systems, objective systems, etc. No particular system is better than another system. It depends upon the firm - the culture - strategic goals - and the environment.
  2. If the system is working - sometimes it is better to leave it alone. There is nothing wrong with an "even steven" system as long as the contributions (fee generation, fee origination, firm management, and otherwise) made by both of you to the firm are perceived as equal. Frequently, partners start out making even contributions and down the road contributions change (often due to life or family changes) and are no longer in alignment.
  3. When perceived contributions get out of alignment partners are reluctant to have the candid discussions that need to occur as well as changes in the arrangement or compensation system.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 5 attorney (all partners) personal injury plaintiff law firm in Central Illinois. We are all working hard, are extremely busy, but we don't seem to be seeing the results of our hard work in our earnings and compensation. We are making hefty marketing investments - in fact we are spending around 6% of revenue on marketing. What are your recommendations on how we can improve our profitability? A. It is hard for me to comment specifically with the limited information that you have provided. There are numerous variables that need to be examined. However, in general terms:
  1. How long have your lawyers been in practice? If over 10 years - you ought to be taking home $200,000+. Many lawyers aren't - but if they have tuned and focused their practices they should/could be.
  2. Each lawyer should be collecting $300,000+ per year in fees. If not, examine case production hours, quality of cases being accepted, effective rate per hour as well as realization. (Assumes time is being kept on contingency fee cases)
  3. Firm's margin should be in the range of 35-45%. (Net Income - excluding owner salaries divided by Gross Fee Revenue)
  4. Is the firm (high volume low dollar PI firms) investing 8-10% of fee revenue on marketing? Many high volume PI practices are spending much more.
  5. Are you measuring the ROMI (return on marketing investment)? This is critical. Not all marketing investments produce fruit - some fail. You must actively measure, manage, and fine tune marketing programs. Identify those that don't work and kill them. Dashboard reports are crucial.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Everyone seems to be working hard in our firm but it seems like we are not making any money. Do you have ideas or tips on what we can do better? A. Regardless of firm size, focus is the key to success and improved profitability. It is hard to serve two masters – clients and the business of your firm. Here are a few ideas.
  1. Never eat lunch alone. Have lunch every day with clients, prospective clients, referral sources or members of your team.
  2. Take our time management self test. Begin working on your problem areas one behavior at a time. Time is money.
  3. Enter you time daily into you time and billing system - both billable and non-billable - as you work. Don't go home until you have accounted for an entire day. You may be dropping 10-25% potential revenue.
  4. Look for ways to brand yourself - dare to be different. With the internet you really can expand your base beyond your local community.
  5. Set a few goals and hold yourself and your team accountable.
John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am having problems with effective client development. I believe that I need to do more networking and become involve in professional organizations. Suggestions? A. Definitely. However, here are a few ideas and guidelines.
  • Have a real interest in the organization you are joining.
  • Attend meetings regularly. Miss three monthly meetings in a year and you might as well have skipped them all. Get on a committee and into a leadership position. This lets you establish credibility with prospects and referral sources.
  • Evaluate the culture of the organization and confirm that networking and marketing is acceptable within the group.
  • After a few years there will be a point of diminishing returns and that is when you should move on and start the process all over.
  • Don’t just join legal organizations – join a trade that your client belongs to and become active in the group.
John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am a partner in a 21-attorney firm in Northern California. Our partnership has been discussing the need to do a better job of “cross-selling” and referring clients to others in the firm for different types of matters. We have had limited success. Any ideas? A. My experience and our surveys of our clients and their clients has shown similar results. Cross-selling is talked about a lot and seldom implemented. Cross-selling can be an effective strategy - but it is not easy and it requires trust, commitment, communication, hard work, dedication and organizational alignment. Here are a few ideas for improving the odds: No. 1: Stop giving cross-selling lip service - if you are serious - put in place organizational systems that will facilitate the process. No. 2: Ensure that firm communication systems support cross-selling initiatives. No. 3: Ensure that the firm compensation system does not encourage hoarding of work and discourage a cross-selling program. No. 4: Foster a culture of "giving to get" in which professionals in the firm uphold a "firm first" attitude and are willing to invest the time and effort to foster relationship building and cross-selling efforts. No. 5: Find ways to create, foster, and support trust building in the firm. No. 6: Provide relationship management and client service training to all attorneys in the firm. No.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am a female non-equity partner in a 14-attorney firm in Central Kentucky. I have recently been considering approaching the partners in the firm about a reduced work schedule. The firm has no policy in place regarding “part-time partners”. Frankly, I am leery as I am afraid they will consider it a lack of commitment on my part and may have a negative impact upon my future with the firm. What are your thoughts? A. According to ABA studies, almost half of surveyed lawyers feel that they do not have enough time for themselves or their families. Almost three-quarters of lawyers with children report difficulty balancing professional and personal demands. The number of women who doubt the possibility of successfully combining work and family has almost tripled over the past two decades. Only a fifth of surveyed lawyers are very satisfied with the allocation of time between work and personal needs. A desire for more time to meet personal and family needs is one of the major reasons lawyers consider changing jobs, and it is a more important consideration for women than for men. Our law firm clients tell us that personal and professional life balance is their greatest challenge. Time is becoming more important to people than money. While it may be a battle for you in your particular firm – inroads are being made with regard to part-time partners in law firms – for both women and men. Here are a few ideas: No. 1: First and foremost - Develop the courage to ask and have the determination to say no. Create your life balance expectations for your clients and your superiors in the firm. When interviewing for a new job or position let your future employer know your expectations – upfront. No. 2: Create A Personal/Professional Life Plan. Establishing personal and professional priorities and making correct choices is crucial. You must begin by determining what’s important in life – make a list of what’s truly important in your life, establish boundaries and priorities, and formulate a plan. Typical elements that should be on your list include: