Strategies for Coping with Recession

When money is tight, managing partners at many law firms are confronted with the problem of how to preserve their firm's culture and values. At meetings and retreats this author has facilitated, partners openly discuss the implications of the continued economic downturn that may result in fewer clients, lower revenue, reduced profits, and, ultimately, the need for fewer attorneys at the partner and associate levels.

There is no question that earlier recessions have forced many law firms to make dramatic and, often, drastic changes. Managing partners are concerned that the difficult business decisions that have to be made when planning for a recession will erode the sense of loyalty and close working relationships that once existed between partners and between partners and associates. This article describes several strategies that a managing partner should consider when developing a plan to survive a recession.

Short-Term Plan

The complexities of life during a recession require all law firms to engage in some type of strategic planning, at least for one or two years. Such planning may be described as the process where a firm, assisted by the firm's administrator, formulates its immediate goals, and methods it will use to achieve those objectives. When properly conceived and implemented, the planning process will enable lawyers to reach consensus on shared goals, identify qualitative and quantitative benchmarks, and develop an action plan that includes timetables and lawyer accountability for performance.

In this initial phase of the process, the managing partner or management/strategic planning committee should survey all or a representative number of lawyers to obtain perceptions about internal and external developments that will have an influence on the firm. The types of issues usually addressed during this aspect of the process may include:

1) The firm's culture: its philosophy, objectives, and current guiding plans;

2) The manner and method of firm governance, organization, and administration;

3) Partner/associate relationship: the ratio of associates to partners, classes of partners and associates, criteria for admission to partnership, communications among and between partners and associates, etc.;

4) Firm economics: partner satisfaction with gross revenue and net profit, individual net income, hourly and billing expectations from partners and associates, etc.;

5) Areas of practice management: Are services delivered in a quality, timely, and profitable manner?;

6) Firm resources and capabilities, strengths and weaknesses, reputation, and position in the marketplace;

7) Business development: willingness and ability of attorneys to sell legal services and cultivate new prospects; and

8) Assessment of the market and forecast of the political, social, and economic trends that will affect the firm and its clients.

The Firm's Database

Once the firm's current position is determined, the next phase of the process involves analyzing the database to highlight the key internal and external factors affecting the firm. For example, the managing partner should be especially interested in focusing on the following:

1) Firm's strengths and weaknesses;

2) Competitive advantages and disadvantages;

3) Number of partners and associates, and their ages; anticipated changes in the partner complement (retirement, withdrawal, etc.);

4) Administrative personnel/staffing requirement;

5) The extent to which the present partner compensation plan is a disincentive to achieve the firm's short-term objectives;

6) Main client sources: income from principal clients and substantive areas of practice over the past three years; any factors that will affect client volume either favorably or unfavorably;

7) Inventory of unbilled time, accounts receivable, costs advanced;

8) Billable and nonbillable hours of partners and associates; and

9. Health problems or personal idiosyncrasies of partners (as they may affect individual performance).

While the essential fact-gathering may be readily accomplished in-house by lawyer management, there are situations where the firm may be better served by electing to retain the services of an outside consultant to assist in the overall strategic planning process. For example, the firm's lawyers may be disgruntled as a direct result of management's lack of control over specific practice areas. Or a firm may have expanded too rapidly without due regard for the market, or over-invested in personnel, equipment, or facilities.

In such circumstances, partners may be more willing to discuss their views and grievances with an objective outsider rather than firm management. An experienced law consultant can expedite the short-term planning process. Familiarity with the economics and dynamics of law practice assists the consultant with interpreting partners' responses in view of a firm's financial and management information, procedures, economics, and political trends.

Identifying Objectives

The information obtained from partners and a firm's database will enable planners to formulate strategies for presentation to the partners in each of the key areas that were highlighted during the analysis. The following is an abbreviated presentation of marketing plan objectives and strategies that may be prepared for a hypothetical law firm.

Objectives

1) Serve well and economically the firm's existing clients (this objective is probably the most important);

2) Increase the number of quality clients in targeted industries and practice areas;

3) Increase firm revenue and net profit;

4) Identify and market strengths or unique services the firm may have to offer. This may include its ability to handle complex and multidimensional problems, expertise in one or more substantive areas of the law, or expanded services through branch offices;

5) Increase the firm's exposure in the marketplace and enhance its reputation in the community;

6) Develop and maintain relationships with potential sources of referral, including individual and firm memberships in clubs, political, social, and alumni activities and associations, etc.;

7) Cultivate and ensure the firm's image as a 'good citizen' through pro bono and other civic work.

Strategies

1) Remedy situations where the firm is perceived as weak or understaffed;

2) Market the firm's strengths and expertise to existing and prospective clients;

3) Assign responsibility for dealing with prospective new clients to specific lawyers;

4) Meet with existing major clients to determine their satisfaction with the firm's representation, and whether there are additional services that may be required (some firms use a client evaluation questionnaire);

5) Cultivate potential referral sources;

6) Sponsor and participate in seminars (including CLE, trade associations, and client seminars);

7) Develop and use a firm resume. This may be a general firm resume, or resumes of individual lawyers, specialty groups, or branch offices. Tailor resume use to the perceived interests or needs of particular or prospective clients;

8) Participate in selected service, political, social, and alumni organizations and activities;

9) Organize internal programs to keep lawyers informed about marketing activities; and

10) Publish informational memoranda and pamphlets on new areas of law.

Marketing Efforts

During recession, a firm's marketing efforts assume greater importance. Marketing activities should be coordinated by a strong committee, rather than implemented in an ad hoc manner. Partners should be accountable to the committee for their business development efforts. Personal marketing plans should be developed for those attorneys who have demonstrated skills or the potential to generate new clients or to proliferate work from existing clients. Variable hourly budgets of time devoted to business development activities by these attorneys should be recommended. Their billable and marketing goals must be adjusted accordingly.

Selected partners and senior associates should be encouraged to become active in at least one professional organization or activity. Others may be encouraged to seek and fulfill appropriate speaking and writing opportunities with professional and business forums. Partners and associates should become actively involved in at least one civic, charitable, or community activity. Members of the marketing committee should be available to counsel lawyers in their selection of activities and proposed commitment of time.

The marketing committee should establish and implement an organized program for client development with the goal of having one-third of the firm's clients using at least two of the firm's services. Selected partners should be designated to meet with clients having significant potential for additional fees, either through growth of their own operations or their ability to refer business. Opportunities for cross selling of legal services should be pursued in order to further 'bond' the client to the firm. To accomplish this, partners must invest time to understand the client's business as well as its legal needs. Partners must review with appropriate lawyers what is involved in cross selling their legal services. Introductions of client executives to appropriate lawyers should be arranged. Partners should meet with clients periodically to determine their legal needs. They should survey clients to measure client perceptions of the firm, determine the client's expansion or contraction in particular areas of work, specify work in practice areas needed by the client, and determine other areas of legal expertise the client might use if the firm had the expertise.

Partner Time

Much of the marketing work cannot be done on partners' personal time. The firm must realize that marketing time is just as important as fee-producing time. An effective marketing program may produce fewer individual billable hours, but it will increase the firm's potential total billable hours, fee income, and profitability. Firms must be selective in determining which attorneys are able to carry a heavier workload of billable time and which attorneys may be most productive by devoting a portion of their time to effective marketing efforts. Hand-in-glove with this philosophy is the notion of partner accountability to the marketing committee for time devoted to marketing activities.

Managing the Firm's Culture

A major component of the planning process is the ability of the managing partner or the management committee to 'manage' the firm's culture to satisfy partners' expectations and the firm's needs and priorities. If, during the initial survey process, partners indicate that they want the firm to become larger and more profitable, they must be willing to undertake activities that will influence the future of the firm to accomplish their expectations. Specific activities to be performed by individual groups of partners must be recommended and monitored by the management committee. Typically, it is not easy to change a firm's culture. However, partners may be more willing to modify established behavior patterns when a firm is in a crisis situation.

Modifying the Partner Compensation Plan

Partner compensation plans may have to be modified to reward certain partners for their total contribution to the firm and to encourage them to do the things they do best, in ways they can do their best and that are in the firm's immediate and long-term interest. If a firm overemphasizes the billable hours concept, then partners may eschew marketing or other management activities in order to record a higher number of billable hours. Partners' talents should be recognized and a well-conceived and implemented compensation plan will be a positive incentive to accomplish the firm's objectives.

Cleanup of Dated, Unbilled Time and Accounts Receivables

The firm should consider providing a one-time 25% discount credit for cleaning up of accounts receivable and unbilled time that is more than 180 days old. This collection may provide a cash flow stream of operating capital that may not otherwise have been available. To the extent that this plan is implemented, it is imperative that these monies not be distributed to partners. This extraordinary action plan should be undertaken by the individual lawyers who provided the services with the approval of the managing partner or the management committee, and not by the firm's administrative staff.

Downsizing

A contingency plan for survival should include a program for downsizing the professional and administrative staffs. This program may be implemented over a three- to nine-month period. Often, firms are reluctant to terminate employees, especially at the professional level, even if those employees have not been productive or there is insufficient client work. The timing of layoffs is frequently as important as the decision to terminate individuals. The managing partner and management committee must consider this step carefully and weigh the pros and cons of their decision. Consideration must be given to minimizing the loss of desirable, and potentially valuable employees, maintaining an esprit de corp among remaining personnel, keeping 'street talk' favorable, managing public relations, and explaining the retrenchment strategy to the remaining professional and administrative staff.

Implementing the Plan

Implementation is frequently the most difficult part of the process. It is recommended that the plan be implemented through the firm's existing organizational structure, i.e., the managing partner, the management committee, the strategic planning committee, heads of substantive practice areas, etc.

Individual partners should be assigned responsibility and held accountable for the satisfactory implementation of each phase of the plan, in accordance with an agreed upon timetable. Partners responsible for the implementation phase should report to the managing partner, the management committee or the strategic planning committee, or other group designed to oversee the planning process. Problems and/or progress should be reviewed on a routine basis. Ongoing assessments should be made to determine the most appropriate strategy to be followed. Status reports should be provided to the other partners on progress and/or problems in each phase of the plan in order to keep them apprised about the planning activities. The implementation phase must be monitored to assess the effectiveness of the plan and to recommend corrective action to be taken, as required.

Conclusion

It has been said that during periods of prosperity, law firms are successful in spite of the management abilities of partners. However, during a recession, good lawyering is not enough. Business skills and acumen are essential. Sound management practices are required to manage a firm's resources, ensure adequate cash flow, and develop and implement the marketing and planning process. As difficult as a recession may be for most firms, the attention to the management process necessitated by the recession forces the better-managed firms to recognize opportunities, implement action plans, and assume risks that will provide their lawyers with the framework for building stronger and more successful law firms.

---

Joel A. Rose is a certified management consultant and President of Joel A. Rose & Associates, Inc., in Cherry Hill, NJ. He performs and directs consulting assignments in law firm management and organization, strategic and financial planning, lawyer compensation, the feasibility of mergers and acquisitions, and marketing of legal services. Rose may be contacted at 856-427-0050 or [email protected].

When money is tight, managing partners at many law firms are confronted with the problem of how to preserve their firm's culture and values. At meetings and retreats this author has facilitated, partners openly discuss the implications of the continued economic downturn that may result in fewer clients, lower revenue, reduced profits, and, ultimately, the need for fewer attorneys at the partner and associate levels.

There is no question that earlier recessions have forced many law firms to make dramatic and, often, drastic changes. Managing partners are concerned that the difficult business decisions that have to be made when planning for a recession will erode the sense of loyalty and close working relationships that once existed between partners and between partners and associates. This article describes several strategies that a managing partner should consider when developing a plan to survive a recession.

Short-Term Plan

The complexities of life during a recession require all law firms to engage in some type of strategic planning, at least for one or two years. Such planning may be described as the process where a firm, assisted by the firm's administrator, formulates its immediate goals, and methods it will use to achieve those objectives. When properly conceived and implemented, the planning process will enable lawyers to reach consensus on shared goals, identify qualitative and quantitative benchmarks, and develop an action plan that includes timetables and lawyer accountability for performance.

In this initial phase of the process, the managing partner or management/strategic planning committee should survey all or a representative number of lawyers to obtain perceptions about internal and external developments that will have an influence on the firm. The types of issues usually addressed during this aspect of the process may include:

1) The firm's culture: its philosophy, objectives, and current guiding plans;

2) The manner and method of firm governance, organization, and administration;

3) Partner/associate relationship: the ratio of associates to partners, classes of partners and associates, criteria for admission to partnership, communications among and between partners and associates, etc.;

4) Firm economics: partner satisfaction with gross revenue and net profit, individual net income, hourly and billing expectations from partners and associates, etc.;

5) Areas of practice management: Are services delivered in a quality, timely, and profitable manner?;

6) Firm resources and capabilities, strengths and weaknesses, reputation, and position in the marketplace;

7) Business development: willingness and ability of attorneys to sell legal services and cultivate new prospects; and

8) Assessment of the market and forecast of the political, social, and economic trends that will affect the firm and its clients.

The Firm's Database

Once the firm's current position is determined, the next phase of the process involves analyzing the database to highlight the key internal and external factors affecting the firm. For example, the managing partner should be especially interested in focusing on the following:

1) Firm's strengths and weaknesses;

2) Competitive advantages and disadvantages;

3) Number of partners and associates, and their ages; anticipated changes in the partner complement (retirement, withdrawal, etc.);

4) Administrative personnel/staffing requirement;

5) The extent to which the present partner compensation plan is a disincentive to achieve the firm's short-term objectives;

6) Main client sources: income from principal clients and substantive areas of practice over the past three years; any factors that will affect client volume either favorably or unfavorably;

7) Inventory of unbilled time, accounts receivable, costs advanced;

8) Billable and nonbillable hours of partners and associates; and

9. Health problems or personal idiosyncrasies of partners (as they may affect individual performance).

While the essential fact-gathering may be readily accomplished in-house by lawyer management, there are situations where the firm may be better served by electing to retain the services of an outside consultant to assist in the overall strategic planning process. For example, the firm's lawyers may be disgruntled as a direct result of management's lack of control over specific practice areas. Or a firm may have expanded too rapidly without due regard for the market, or over-invested in personnel, equipment, or facilities.

In such circumstances, partners may be more willing to discuss their views and grievances with an objective outsider rather than firm management. An experienced law consultant can expedite the short-term planning process. Familiarity with the economics and dynamics of law practice assists the consultant with interpreting partners' responses in view of a firm's financial and management information, procedures, economics, and political trends.

Identifying Objectives

The information obtained from partners and a firm's database will enable planners to formulate strategies for presentation to the partners in each of the key areas that were highlighted during the analysis. The following is an abbreviated presentation of marketing plan objectives and strategies that may be prepared for a hypothetical law firm.

Objectives

1) Serve well and economically the firm's existing clients (this objective is probably the most important);

2) Increase the number of quality clients in targeted industries and practice areas;

3) Increase firm revenue and net profit;

4) Identify and market strengths or unique services the firm may have to offer. This may include its ability to handle complex and multidimensional problems, expertise in one or more substantive areas of the law, or expanded services through branch offices;

5) Increase the firm's exposure in the marketplace and enhance its reputation in the community;

6) Develop and maintain relationships with potential sources of referral, including individual and firm memberships in clubs, political, social, and alumni activities and associations, etc.;

7) Cultivate and ensure the firm's image as a 'good citizen' through pro bono and other civic work.

Strategies

1) Remedy situations where the firm is perceived as weak or understaffed;

2) Market the firm's strengths and expertise to existing and prospective clients;

3) Assign responsibility for dealing with prospective new clients to specific lawyers;

4) Meet with existing major clients to determine their satisfaction with the firm's representation, and whether there are additional services that may be required (some firms use a client evaluation questionnaire);

5) Cultivate potential referral sources;

6) Sponsor and participate in seminars (including CLE, trade associations, and client seminars);

7) Develop and use a firm resume. This may be a general firm resume, or resumes of individual lawyers, specialty groups, or branch offices. Tailor resume use to the perceived interests or needs of particular or prospective clients;

8) Participate in selected service, political, social, and alumni organizations and activities;

9) Organize internal programs to keep lawyers informed about marketing activities; and

10) Publish informational memoranda and pamphlets on new areas of law.

Marketing Efforts

During recession, a firm's marketing efforts assume greater importance. Marketing activities should be coordinated by a strong committee, rather than implemented in an ad hoc manner. Partners should be accountable to the committee for their business development efforts. Personal marketing plans should be developed for those attorneys who have demonstrated skills or the potential to generate new clients or to proliferate work from existing clients. Variable hourly budgets of time devoted to business development activities by these attorneys should be recommended. Their billable and marketing goals must be adjusted accordingly.

Selected partners and senior associates should be encouraged to become active in at least one professional organization or activity. Others may be encouraged to seek and fulfill appropriate speaking and writing opportunities with professional and business forums. Partners and associates should become actively involved in at least one civic, charitable, or community activity. Members of the marketing committee should be available to counsel lawyers in their selection of activities and proposed commitment of time.

The marketing committee should establish and implement an organized program for client development with the goal of having one-third of the firm's clients using at least two of the firm's services. Selected partners should be designated to meet with clients having significant potential for additional fees, either through growth of their own operations or their ability to refer business. Opportunities for cross selling of legal services should be pursued in order to further 'bond' the client to the firm. To accomplish this, partners must invest time to understand the client's business as well as its legal needs. Partners must review with appropriate lawyers what is involved in cross selling their legal services. Introductions of client executives to appropriate lawyers should be arranged. Partners should meet with clients periodically to determine their legal needs. They should survey clients to measure client perceptions of the firm, determine the client's expansion or contraction in particular areas of work, specify work in practice areas needed by the client, and determine other areas of legal expertise the client might use if the firm had the expertise.

Partner Time

Much of the marketing work cannot be done on partners' personal time. The firm must realize that marketing time is just as important as fee-producing time. An effective marketing program may produce fewer individual billable hours, but it will increase the firm's potential total billable hours, fee income, and profitability. Firms must be selective in determining which attorneys are able to carry a heavier workload of billable time and which attorneys may be most productive by devoting a portion of their time to effective marketing efforts. Hand-in-glove with this philosophy is the notion of partner accountability to the marketing committee for time devoted to marketing activities.

Managing the Firm's Culture

A major component of the planning process is the ability of the managing partner or the management committee to 'manage' the firm's culture to satisfy partners' expectations and the firm's needs and priorities. If, during the initial survey process, partners indicate that they want the firm to become larger and more profitable, they must be willing to undertake activities that will influence the future of the firm to accomplish their expectations. Specific activities to be performed by individual groups of partners must be recommended and monitored by the management committee. Typically, it is not easy to change a firm's culture. However, partners may be more willing to modify established behavior patterns when a firm is in a crisis situation.

Modifying the Partner Compensation Plan

Partner compensation plans may have to be modified to reward certain partners for their total contribution to the firm and to encourage them to do the things they do best, in ways they can do their best and that are in the firm's immediate and long-term interest. If a firm overemphasizes the billable hours concept, then partners may eschew marketing or other management activities in order to record a higher number of billable hours. Partners' talents should be recognized and a well-conceived and implemented compensation plan will be a positive incentive to accomplish the firm's objectives.

Cleanup of Dated, Unbilled Time and Accounts Receivables

The firm should consider providing a one-time 25% discount credit for cleaning up of accounts receivable and unbilled time that is more than 180 days old. This collection may provide a cash flow stream of operating capital that may not otherwise have been available. To the extent that this plan is implemented, it is imperative that these monies not be distributed to partners. This extraordinary action plan should be undertaken by the individual lawyers who provided the services with the approval of the managing partner or the management committee, and not by the firm's administrative staff.

Downsizing

A contingency plan for survival should include a program for downsizing the professional and administrative staffs. This program may be implemented over a three- to nine-month period. Often, firms are reluctant to terminate employees, especially at the professional level, even if those employees have not been productive or there is insufficient client work. The timing of layoffs is frequently as important as the decision to terminate individuals. The managing partner and management committee must consider this step carefully and weigh the pros and cons of their decision. Consideration must be given to minimizing the loss of desirable, and potentially valuable employees, maintaining an esprit de corp among remaining personnel, keeping 'street talk' favorable, managing public relations, and explaining the retrenchment strategy to the remaining professional and administrative staff.

Implementing the Plan

Implementation is frequently the most difficult part of the process. It is recommended that the plan be implemented through the firm's existing organizational structure, i.e., the managing partner, the management committee, the strategic planning committee, heads of substantive practice areas, etc.

Individual partners should be assigned responsibility and held accountable for the satisfactory implementation of each phase of the plan, in accordance with an agreed upon timetable. Partners responsible for the implementation phase should report to the managing partner, the management committee or the strategic planning committee, or other group designed to oversee the planning process. Problems and/or progress should be reviewed on a routine basis. Ongoing assessments should be made to determine the most appropriate strategy to be followed. Status reports should be provided to the other partners on progress and/or problems in each phase of the plan in order to keep them apprised about the planning activities. The implementation phase must be monitored to assess the effectiveness of the plan and to recommend corrective action to be taken, as required.

Conclusion

It has been said that during periods of prosperity, law firms are successful in spite of the management abilities of partners. However, during a recession, good lawyering is not enough. Business skills and acumen are essential. Sound management practices are required to manage a firm's resources, ensure adequate cash flow, and develop and implement the marketing and planning process. As difficult as a recession may be for most firms, the attention to the management process necessitated by the recession forces the better-managed firms to recognize opportunities, implement action plans, and assume risks that will provide their lawyers with the framework for building stronger and more successful law firms.

---

Joel A. Rose is a certified management consultant and President of Joel A. Rose & Associates, Inc., in Cherry Hill, NJ. He performs and directs consulting assignments in law firm management and organization, strategic and financial planning, lawyer compensation, the feasibility of mergers and acquisitions, and marketing of legal services. Rose may be contacted at 856-427-0050 or [email protected].