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Partner Purges: Practical or Perilous?

 

There is a new trend on the horizon; partner purges.  Are they necessary?  Is such a drastic move ultimately good for a law firm?  I generally agree that sometimes such a move is necessary, but there are some tough issues associated with that move.  Partners of firms that have spun off from Big-Law firms have isolated part of the problem.  Those founders of the spin-off firms say that one of the reasons they left their large law firms in the first place was because of the increasing focus on an “eat what you kill” culture, and the valuation of “book of business” over partnership and collaboration.  Whole Foods CEO John Mackey recently made a great comment.  “We all need for our red blood cells to keep producing, but if they stop reproducing, we die.  Law firms need to continue to create red blood cells within the firm or the firm dies.   If “book of business” is the primary metric used by law firms to classify partners to purge, several problems may produce unintended consequences.

 

             Internal competition for client credit increases as well as lack of trust among lawyers.

             Lawyers begin to hoard clients to the detriment of the client who will not get the right expertise applied to the problem.

             “Eat what you kill” culture partners tend not to delegate work to people who can perform work more efficiently and with less costs to the client.

             Laterals brought in because of their book become more focused on their own clients rather than try to institutionalize the clients into the firm.

             The firm may cut into the muscle of contributions that cannot be traced by the book of business including: training, mentorship, interview skills, expert systems creation, and gluing clients to the firm.

 

What, Exactly, Is ‘Deadwood’?

When law firms are talking about deadwood, what should they mean?  Firms should mean those partners who retired and forgot to tell their partners or clients.  Or they could mean those equity partners who are supposed to act as owners but act as employees.  Firms should also mean those partners that are acting like jerks as described in my last article for this publication (see www.lawjournelnewsletters/18_5/156623-1.html).  The list should include those partners who value their own compensation over collaboration within the firm and with clients.  Collaboration here means a group of people bound together by a common vision and accountable to one another for the accomplishment of that vision.

 

An example will help here.  A national law firm had a problem recruiting laterals.  The primary problem was that a group of equity partners were “behaving like employees” -  acting as if they deserved a pay raise and benefits instead of acting as partners in an enterprise.  Another problem was that the firm’s average earnings per partner was low relative to their competitors.  That problem had been caused by the admission of people into the partnership who were just moving up and never took real ownership.  So the firm put three groups of such equity partners on the bubble - one group for each of the following years.  At the beginning of the year, members of Group One were given a choice of going to non-equity positions - and several took it.  At the end of that year, with warnings throughout, the firm asked the rest of Group One, which had not improved, to move to non-equity.  Over a three year period they were able to move a majority of the list to non-equity and thus improve the caliber of their partnership and the earnings per partner.   So why should a law firm reconsider their metrics in evaluating partner performance?

 

Considering Metrics

The metrics of one’s book of business is not the sole measure of a contribution of an equity partner.  There are other talents that make a law firm successful which have nothing to do with a lawyer’s book.  Some partners have not developed or hoarded a book of business but are essential to the long-term viability of the firm.  They are critical to the firm’s ability to develop and retain clients.  They nurture clients and there are those whose specialties, such as tax and appellate expertise, create client loyalty.  Let’s look at some partners who do not have a big book but are essential to the law firm’s success.

 

Training Partners

These partners may not carry a book of business but are essential in recognizing the need for training and able to do it well.  For example, one Washington, DC partnership hired an extremely talented white collar trial lawyer.  His job was to work with the partners and associates in the litigation section to improve their trial skills.  He told me that one of the biggest faults of the litigation lawyers was that they tried to cover anything the other side could do - he called it building a Maginot Line.  He would ask them to come into his office after they had reviewed the case and done some initial discovery, in order to give him their closing arguments.  After that session he would ask them to go back and build their case around that argument. 

In another example, one of the partners skilled at nurturing clients trained other partners to work with clients to insure that invoices rendered were collected.  This training improved collection rates by over 5 % - with a significant impact on the firm’s bottom line.  Then there was the case of a senior partner who had fantastic writing skills.  He would review every piece of outgoing correspondence by partners and associates after the correspondence had been sent.  He would then mark them up and send them back to the writer.  As one partner told me, it was always a humbling and learning experience.  These training partners know what to focus on and how to build a curriculum that will work.

 

Mentors

These partners are critical to instilling the core values of the firm that will make it collaborative and focus people on client service.  Core values are what enables a firm to succeed as it grows, create mutual respect, and build trust and accountability.  Mentors are not supervising attorneys but are put in places where others can go to get encouragement and support.  Mentors expect good things from people and they believe in those they mentor.  They provide a place at the table and call their charges to a purpose driven practice.  I have known some great mentors in my years of practice, and they are unique, unselfish individuals.  One I can immediately think of says that he is promoting the firm’s values on a daily and hourly basis with every one with whom he comes in contact with throughout the firm.  Another, although well recognized as a leader internationally in his litigation practice, is known to his firm, the firm’s clients, his city, and his state as “Mr. Portland.”  Every firm needs great mentors.  Those firms that have them are truly blessed.

 

Interviewers

There are a few partners in every firm who excel at listening to others and understanding their needs.  Most lawyers, when talking to clients and others, tend to form their solution before the interviewee is finished.  The best interviewers listen and then seek out the other’s needs and aspirations.  Few can listen to a client as he answers questions about the firm’s quality of service and work.  One great way to conduct a client survey is to take a three step approach: 1) The lead lawyer should ask the client: “What has happened in the last 18 months that has changed your job description or the way in which you to be evaluated?”  Then the interviewers should shut up and take notes; not trying to solve the problem at that time; 2)  At the end of that discussion, ask the client if there is a time in the next two to three weeks to when he can meet again because the team needs to go overall the information and come up with ways the firm can create a bundle of services to address the issues; 3)  Get back with the client on the ways the firm will change its approach to address the client’s needs.  Those needs will include the client’s basic needs, the expected value added, the desired value added, and the client’s unexpected value added services.

 

For example, one firm in its interviews found that the claims manager they dealt with regularly was now being evaluated on her ability to put together concise reports on the status of each case which their supervisor would review every Saturday.  The firm offered to send over a well- organized associate at no charge to help the client create the reports on a weekly basis.  The other claims managers found out and soon were asking the associate to help them as well.  Soon the firm had more work referred to them by other claims agents.

 

Another firm on the West Coast decided to conduct client interviews based upon the firm’s clients’ perceptions of quality of service and the usefulness of service, and the performance of the team serving them.  After creating the interview form, the management committee found that it was going to take plenty of training to make their client relationship lawyers confident in conducting the interviews.  That required almost six months of intensive training from the best interviewers.

 

There are great ideas for partners good at interviewing and those that should learn in a blog by Susan Duncan at http://www.rainmakingoasis.com.  Go to “insights” and then “blogs.”  Look for “Are Your Clients Apostles or Terrorists?” Also look for “Will More Firms Finally Understand the Client Feedback = Better Revenue and Profitability.”

 

Creators of Expert Systems

As predicted in the Seize the Future conference in the late 90's, expert systems are critical to the ability of law firms to provide a higher level of quality service with fewer lawyers and legal staff.  In the Law Blog of the Wall Street Journal of January 7, 2013 there was an article entitled “How a computer did the work of many.”  Through new technology like Kiiac (www.Kiiac.com), lawyers are able to search documents that many lawyers have had to do in the past. 

A great example of the expert system was put together by Linklaters in the late 1990's which enabled a law firm and their clients to create complex documents for filling papers in multiple international regions.  They took a few lawyers off-line for almost two years to create the system.  That meant no billable time and no clients.  One of the big-firm lawyers at a conference argued that such documents were very complicated and required a lot of lawyer input to make the deals work.  The answer from the Linklater’s partner was that he had looked at some of that firm’s documents and found mistakes that did not occur in the expert system.  Linklaters was able to eliminate 17 lawyers and almost a month of response time.  A New York firm, during the rush of IPOs was overloaded.  A few lawyers met every Saturday and mapped the process and were able to put a system together that eliminated the production time, dropped the number of hours everyone was working, and was able to provide a fixed fee approach that increased realization by 30 percent.

 

Every firm has lawyers who know the processes for creating complex legal products. They can map the process and from that they can create the expert system to perform the services connected with a legal product.  Client originators are usually not very good at this task.

 

Creators of Client Loyalty

There is a model used to assess client loyalty versus client profitability called the Client Investment Model (Figure1).  On the left side (Y-Axis) of the four quadrant model is loyalty of the client from low to high.  On the bottom (X-Axis) is the client profitability from low the high.  In the lower right quadrant are the “rising stars,” where the client originator lawyers excel.  They are great at staying on top of a new client to develop loyalty and move the client up to the quadrant above.  That quadrant is for clients who are loyal to the firm and are profitable.  Who is best to serve this client?  A nurturing lawyer who listens and serves.  If the firm has an “eat what you kill” culture, origination lawyers will never let go of these clients and will eventually lose them.  For example, a lawyer in a Los Angeles firm continued to claim origination and client responsibility even though four others were serving the client in San Diego every week but could not claim the book of business.  One of my clients wanted to open a San Diego office.  It was relatively easy for my client to recruit these four individuals to open the San Diego office. 

In the upper left quadrant is the “dog kennel.”  These are clients that are very loyal but have lost their position as profitable.  Here, the firm needs an understanding but tough partner who will be willing to address issues of late payments, press for increasing billing rates, or set up alternative structures with better leverage to deliver services profitably.  Finally, there is the lower left quadrant which represents those clients who are potential clients.  Here the firm needs a lawyer who can evaluate a client for their long-term future with the firm.  He or she must look at the intake as a venture capital investment.  That is a rare gift.  Most lawyers who are seeking a large book may not even look at the future of the client - only that the client will add to their book.

 

Where to Purge?

There is another way determine where to purge.  There is another model called the Service Investment Model (Figure 2) used by my clients to determine where to purge practices and the lawyers associated with that practice.  Again, there are four quadrants with the Y-Axis showing the depth of expertise from low to high and the X-Axis showing the return on rates and recognition in the market from low to high.  The top right quadrant represents the core practices of the firm.  The lower right quadrant represents those high on the X-Axis but without much depth of capability.  The upper left quadrant represents a depth of expertise but not much return or recognition.  The bottom left quadrant includes those practices that should be abandoned over time. 

For example, a firm in Texas had a labor group that was serving municipal clients at rates below what the firm was required to bill.  Over a three year period, the group refused to move its practice to corporate clients to increase the billing rates or profitability.  The firm finally had to move the group out of the firm and into a lower overhead environment. 

The firm must think strategically about where the practices reside in the Model and make decision about which practices are moving from quadrant to quadrant and then take action before the problem becomes critical.  But to choose, the firm must create an environment. 

 

Conclusion

Nothing will happen unless there is an environment that supports change and difficult discussions.  As a firm grows from small to mid-sized, it starts with a set of the original employees.  As the firm grows it encounters increasing complexity which requires a new organizational structure.  In that structure, some of the original people cannot perform at the required level and need to be replaced or supervised by people with better skill sets.  In order to deal with these decisions, there must be a vision so the leadership can make the decisions, not on a personal level, but on firm vision level.   Without a vision and the core culture, including collaboration, to support decisions, firms will make the wrong decisions.

 

Reprinted with permission from the March 2013 issue of Law Firm Partnership & Benefits Report © 2016 ALM Media Properties, LLC.  Further duplication without permission is prohibited.  All rights reserved.