Demographic Analysis: Foreshadowing the Future of Your Law Firm

In law firm management audits and strategic planning, an objective demographic analysis can be a very important analytical tool. On a firm-wide and practice group basis, charting firm demographics can provide a substantive foundation for conclusions about the current standing of a law firm, and sometimes, provide the genesis for startling insights about the short- and long-term strategic position of a law firm, individual office, or practice group.

Lawyer expertise in the practice, in management and in business development can vary markedly, but acumen generally grows and correlates with experience. Unfortunately, very few lawyers graduate from U.S. law schools fully prepared to excel in the practice, let alone in the business of law. Experience ' “time in the trenches” ' is required to advance in: the practice itself; managing the practice; relating to clients, their businesses and legal matters; developing clients; and managing the business of a law firm and a practice group.

Charting a law firm's demographics can help a firm plan for its future, and the same can be said of individual offices and practice groups. One simple use of this technique involves charting a law firm's lawyers based on years since first bar admission.

Analyzing a Law Firm

The 34-lawyer firm in Figure 1, below, has several experience-related features of interest. First, while the ABC firm has seven associates with up to 5 years experience since bar admission, and five more associates with 5-10 years, the firm has relatively few lawyers in the critical production tier between 10 and 20 years. Whether the firm took a hiatus from recruiting, experienced turnover, or began growing more aggressively in recent years, this “gap” could signify workload pressures at the beginning to middle partner experience level.

[IMGCAP(1)]

Second, with the more recent hiring of new associates, the firm's gap between 10 and 20 years could indicate the likelihood of time and resource pressures on training and mentoring. Even with willing and qualified training from more senior tiers, there is likely a shortage of trainers and mentors who can empathize with their mentees based on recent memory.

Third, the firm has strength in its partner demographics between 16 and 35 years. While as stated, abilities and interests vary markedly, this firm has 17 of its 34 lawyers in what are likely to be their peak performing years ' as practitioners, as rainmakers and/or as managers.

Fourth, the strength between 16 and 35 years raises a potential long-term weakness in the firm, as the gap between 10 and 20 years advances over time, toward maturity and potential peak performance years. Without lateral acquisitions or other bold moves, the ABC firm might find itself with a major “gap” between relatively mature and relatively new lawyers, suggesting future pressures on high-level expertise, industryknowledge, client retention and new business development skills.

Fifth, ABC has four very senior partners, and a second experience gap between the four seniors and the upper-middle partner group. If the four very senior partners still have major client followings or practice responsibilities, there could be difficulties in transitioning some clients and/or some high-level legal work ' and the transitions are likely to be imminent.

Of course, all of the preceding analyses rely on indicators, gathered from a single set of information. Therefore, these resultant analytical points are only indicators as well, waiting to be proven or discounted by additional facts and circumstances. However, when augmented by additional facts and analyses, demographics can provide a strong beginning toward a variety of management and strategic planning observations and conclusions.

Analyzing a Practice Group

Consider Figure 2, below, pertaining to a large firm practice group. Here the remarkable feature is that a department with 32 lawyers and a one-to-one ratio of associates to partners has no lawyer with more than 20 years experience. Does this indicate a problem? Maybe ' maybe not. If this is a corporate department just after the spin-off of a cadre of seniors who are major rainmakers, this picture poses a problem ' and more importantly, provides additional impetus for a strategy to address issues undoubtedly arising from the departures. On the other hand, if this demographic chart depicts the cutting edge Biotech Department of an Intellectual Property firm, staffed with lawyers that have earned graduate science degrees before going to law school, this profile might be optimal.

Figure 2
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Demographics, Vitality and Malaise

Occasionally, a demographic chart can dramatize a critical juncture in a firm's history – or forecast a critical juncture in a firm's future. Figure 3, below, depicts a partners-only experience chart.

Figure 3
[IMGCAP(3)]

As an aside, the near bell-shaped curve in the chart can be readily understood in 2003, because it has at least rough correlation with the U.S. baby boomer generation's entry into the practice of law. If an individual law firm's experience curve was simply a reflection of the percentage of the U.S. population entering law schools, graduating and “flowing” into law firms upon graduation, this chart arguably reflects a microcosm of U.S. demographics. Of course, supply and demand does not “flow” in exact correlation to population statistics; neither do individual law firms' business volume, profitability, willingness to invest, or associate hiring patterns.

The next two illustrations, 3-A and 3-B, below, are derived from the same partner configuration shown in Figure 3. However, the two illustrated firms possess very different associate resources.

Figure 3-A
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Figure 3-B
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Firm GHI in Figure 3-A has 67 associates and 72 partners ' at .93 associates per partner, not quite the traditional one-to-one ratio of associates to partners.

In stark contrast, Law Firm XYZ in Figure 4, below, has 18 associates accompanying its 72 partners (a .25 ratio). As mentioned, there may be many other dynamics at work. XYZ may be a boutique, with a multiple-tiered partnership and leverage throughout the lower partner ranks. XYZ may have 50 paralegals and a practice that favors paralegal leverage over associates. But, barring other more favorable dynamics, a chart with XYZ's configuration raises a major red flag ' that without some bold moves and hard work, XYZ's days as a stand-alone law firm might be numbered.

Figure 4
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Should the XYZ firm have foreseen this? If this upside-down pyramid was the result of low recruitment levels over a long term, reducing XYZ's leverage ' the answer should be yes. Figures 4 and 5, below, show the XYZ firm, with identical personnel, 15 and 20 years earlier, respectively. Within the 6-10 year category the numbers of partners and associates were divided to correspond to the ratio in the six to 10 category of Figure 3-B. Fifteen years ago, the XYZ firm had 22 associates and 40 partners, or .55 associates per partner. Twenty years ago, (and just 5 years earlier) the XYZ firm has 26 associates and 24 partners, or a ratio of 1.08 associates per partner.

Figure 5
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Of course, a perfectly consistent demographic flow pattern is highly unlikely. Even without mergers and spin-offs, individuals enter law firms laterally, as well as retire, withdraw or otherwise leave the scene at different ages. This makes it more, not less, critical for firms to look at their demographics often ' for example, on an annual basis, in conjunction with annual planning, budgeting and management review processes.

Conclusion

Demographic analyses, in concert with financial and performance analysis, internal questionnaires and other fact-finding, can help to identify and anticipate a surprising array of law firm management, client service, marketing, economic and strategic planning issues. In this consultant's experience, such analyses have greatly assisted in the identification and understanding of significant associate training and mentoring issues; inconsistent work delegation; workload imbalances; client service and retention issues; cultural or political schisms; and much more. Moreover, analyzing a demographics chart is an unemotional, relatively blameless vehicle for explaining a pressure point in the firm's practice, or other areas of management.

And, while still relatively simple, an experience chart can provide much richer information than an associate to partner ratio.

In law firm management audits and strategic planning, an objective demographic analysis can be a very important analytical tool. On a firm-wide and practice group basis, charting firm demographics can provide a substantive foundation for conclusions about the current standing of a law firm, and sometimes, provide the genesis for startling insights about the short- and long-term strategic position of a law firm, individual office, or practice group.

Lawyer expertise in the practice, in management and in business development can vary markedly, but acumen generally grows and correlates with experience. Unfortunately, very few lawyers graduate from U.S. law schools fully prepared to excel in the practice, let alone in the business of law. Experience ' “time in the trenches” ' is required to advance in: the practice itself; managing the practice; relating to clients, their businesses and legal matters; developing clients; and managing the business of a law firm and a practice group.

Charting a law firm's demographics can help a firm plan for its future, and the same can be said of individual offices and practice groups. One simple use of this technique involves charting a law firm's lawyers based on years since first bar admission.

Analyzing a Law Firm

The 34-lawyer firm in Figure 1, below, has several experience-related features of interest. First, while the ABC firm has seven associates with up to 5 years experience since bar admission, and five more associates with 5-10 years, the firm has relatively few lawyers in the critical production tier between 10 and 20 years. Whether the firm took a hiatus from recruiting, experienced turnover, or began growing more aggressively in recent years, this “gap” could signify workload pressures at the beginning to middle partner experience level.

[IMGCAP(1)]

Second, with the more recent hiring of new associates, the firm's gap between 10 and 20 years could indicate the likelihood of time and resource pressures on training and mentoring. Even with willing and qualified training from more senior tiers, there is likely a shortage of trainers and mentors who can empathize with their mentees based on recent memory.

Third, the firm has strength in its partner demographics between 16 and 35 years. While as stated, abilities and interests vary markedly, this firm has 17 of its 34 lawyers in what are likely to be their peak performing years ' as practitioners, as rainmakers and/or as managers.

Fourth, the strength between 16 and 35 years raises a potential long-term weakness in the firm, as the gap between 10 and 20 years advances over time, toward maturity and potential peak performance years. Without lateral acquisitions or other bold moves, the ABC firm might find itself with a major “gap” between relatively mature and relatively new lawyers, suggesting future pressures on high-level expertise, industryknowledge, client retention and new business development skills.

Fifth, ABC has four very senior partners, and a second experience gap between the four seniors and the upper-middle partner group. If the four very senior partners still have major client followings or practice responsibilities, there could be difficulties in transitioning some clients and/or some high-level legal work ' and the transitions are likely to be imminent.

Of course, all of the preceding analyses rely on indicators, gathered from a single set of information. Therefore, these resultant analytical points are only indicators as well, waiting to be proven or discounted by additional facts and circumstances. However, when augmented by additional facts and analyses, demographics can provide a strong beginning toward a variety of management and strategic planning observations and conclusions.

Analyzing a Practice Group

Consider Figure 2, below, pertaining to a large firm practice group. Here the remarkable feature is that a department with 32 lawyers and a one-to-one ratio of associates to partners has no lawyer with more than 20 years experience. Does this indicate a problem? Maybe ' maybe not. If this is a corporate department just after the spin-off of a cadre of seniors who are major rainmakers, this picture poses a problem ' and more importantly, provides additional impetus for a strategy to address issues undoubtedly arising from the departures. On the other hand, if this demographic chart depicts the cutting edge Biotech Department of an Intellectual Property firm, staffed with lawyers that have earned graduate science degrees before going to law school, this profile might be optimal.

Figure 2
[IMGCAP(2)]

Demographics, Vitality and Malaise

Occasionally, a demographic chart can dramatize a critical juncture in a firm's history – or forecast a critical juncture in a firm's future. Figure 3, below, depicts a partners-only experience chart.

Figure 3
[IMGCAP(3)]

As an aside, the near bell-shaped curve in the chart can be readily understood in 2003, because it has at least rough correlation with the U.S. baby boomer generation's entry into the practice of law. If an individual law firm's experience curve was simply a reflection of the percentage of the U.S. population entering law schools, graduating and “flowing” into law firms upon graduation, this chart arguably reflects a microcosm of U.S. demographics. Of course, supply and demand does not “flow” in exact correlation to population statistics; neither do individual law firms' business volume, profitability, willingness to invest, or associate hiring patterns.

The next two illustrations, 3-A and 3-B, below, are derived from the same partner configuration shown in Figure 3. However, the two illustrated firms possess very different associate resources.

Figure 3-A
[IMGCAP(4)]

Figure 3-B
[IMGCAP(5)]

Firm GHI in Figure 3-A has 67 associates and 72 partners ' at .93 associates per partner, not quite the traditional one-to-one ratio of associates to partners.

In stark contrast, Law Firm XYZ in Figure 4, below, has 18 associates accompanying its 72 partners (a .25 ratio). As mentioned, there may be many other dynamics at work. XYZ may be a boutique, with a multiple-tiered partnership and leverage throughout the lower partner ranks. XYZ may have 50 paralegals and a practice that favors paralegal leverage over associates. But, barring other more favorable dynamics, a chart with XYZ's configuration raises a major red flag ' that without some bold moves and hard work, XYZ's days as a stand-alone law firm might be numbered.

Figure 4
[IMGCAP(6)]

Should the XYZ firm have foreseen this? If this upside-down pyramid was the result of low recruitment levels over a long term, reducing XYZ's leverage ' the answer should be yes. Figures 4 and 5, below, show the XYZ firm, with identical personnel, 15 and 20 years earlier, respectively. Within the 6-10 year category the numbers of partners and associates were divided to correspond to the ratio in the six to 10 category of Figure 3-B. Fifteen years ago, the XYZ firm had 22 associates and 40 partners, or .55 associates per partner. Twenty years ago, (and just 5 years earlier) the XYZ firm has 26 associates and 24 partners, or a ratio of 1.08 associates per partner.

Figure 5
[IMGCAP(7)]

Of course, a perfectly consistent demographic flow pattern is highly unlikely. Even without mergers and spin-offs, individuals enter law firms laterally, as well as retire, withdraw or otherwise leave the scene at different ages. This makes it more, not less, critical for firms to look at their demographics often ' for example, on an annual basis, in conjunction with annual planning, budgeting and management review processes.

Conclusion

Demographic analyses, in concert with financial and performance analysis, internal questionnaires and other fact-finding, can help to identify and anticipate a surprising array of law firm management, client service, marketing, economic and strategic planning issues. In this consultant's experience, such analyses have greatly assisted in the identification and understanding of significant associate training and mentoring issues; inconsistent work delegation; workload imbalances; client service and retention issues; cultural or political schisms; and much more. Moreover, analyzing a demographics chart is an unemotional, relatively blameless vehicle for explaining a pressure point in the firm's practice, or other areas of management.

And, while still relatively simple, an experience chart can provide much richer information than an associate to partner ratio.