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Law Firm Management

Managing the Unmanageable

Law firms can be peculiar work environments.  To start with, lawyers tend to be quite intelligent and very independent, and often have very well-developed egos.  Add to that mixture that lawyers are professionally trained to argue with each other and usually work in a high-stress environment for multiple clients with competing priorities.  Finally, keep in mind that law firms typically operate as partnerships, without the more hierarchical and well-established structure of corporations.

There is a well-known book about managing law firms originally published in 1995 and titled: “Herding Cats: A Handbook for Managing Partners and Practice Group Leaders.” That kind of says it all.

With that background, you may not be surprised to find out that there has been an unwritten rule in many (if not all) law firms since the beginning of time, the existence of which will be routinely denied by every partner.   That rule may be summarized as follows: “Provided that your billable hours are high enough and you have a very large and transportable client base, none of the other rules apply to you, except for the rule about not stealing trust funds and (more recently) the rule about not engaging in sexual harassment.” 

This rule is an off shoot of the golden rule that applies to all business, being that “whoever has the gold makes the rules.”

The application of this rule can be somewhat subtle, but it explains a lot of things. 

For example, it explains how some firms have partners who yell and scream at associates and staff, poisoning staff morale and causing expensive turn-over, but somehow never get called to account.  It also explains how one partner who I ran across openly referred to their associates as “peons”.

It also explains how some partners who are supposed to participate in certain firm programs or events always get a pass if they simply do not feel like showing up, or how others take off on vacation on short notice dumping all their work on their already over-worked associates, while rarely suffering any adverse consequences.

Sometimes these bad behaviours do get called out behind closed doors at the partnership level, and perhaps a financial cost to this bad behaviour is imposed.  I have known partners who have done the math and determined that the after-tax cost of the penalties imposed as a consequence of such bad behaviour is less burdensome than the inconvenience of complying with the rules, and thus decided to simply continue the behaviour. 

You may wonder why the penalties are rarely onerous enough to modify the behaviour.  The answer is that there is always another mathematical calculation being done by everyone concerned in the background. This is the calculation of the financial cost of the partner leaving the firm and taking his or her billings and clients (and possibly associates and staff) to another firm.  The new firm will typically not, at least initially, be concerned about much beyond the dollars which will come with the partner.  (Now there are exceptions, of course.  I came across one story about a partner from hell who was so awful that even the unwritten rule could not save them.  This partner was encouraged to leave a firm and their application to join another well-regarded firm was rejected by a wise senior partner of the new firm who somehow could just smell the dysfunction and was not prepared to put up with it. But no need to worry about that partner, who managed to find a spot in another well-regarded firm.)

The biggest problem with managing law firms is, unsurprisingly, lawyers.  If you couple the large egos and competitive nature of lawyers with their well-known lack of aptitude or training for business, and mix it in with a lack of structure, you will often have a problem.   Add to that the unwritten rule that if your billings are high enough and you have a large client base, you do not have to follow the rules, and it amazes me that law firms function at all.

So, how are law firms managed?   Most law firms have a “managing partner”.  You may wonder why, given the issues referenced above, anyone would ever want to be the managing partner of a law firm.

There is an old story about the highest-ranking lay person at a religious congregation who had overall responsibility for many aspects of the operation of the congregation’s facility and the religious services.   This man was very capable, but his people skills were somewhat lacking, and although the facility ran smoothly, he was universally hated.  Members of the congregation would routinely disparage his character using words which I will not repeat here.  When asked why he continued in the job if everyone hated him so much, he said “for the honour, of course.”

This story always makes me think about the managing partners of law firms.  Not that managing partners are universally hated.  I am sure that some of them are quite beloved, even if I never met such an individual.  And, in the interest of full disclosure, I was the managing partner of a law firm for a while, and I am certain that there must have been at least one of my partners who appreciated me.  Maybe.

The reason that this story makes me think about managing partners of law firms is that it is supposedly a great honour to be the managing partner.  The leader of men and women.  The first among equals, etc.  On the other hand, in my experience the honour comes with much grief, which is not hard to imagine if you again keep in mind that lawyers are the only people who go to school to learn how to argue with each other.

I suggest that the answer to all of this is that lawyers should practice law and leave as much of the management of the firm as possible to professional managers.

Medium size law firms always grapple with the issue of just how much of the management work should be done by the managing partner and how much of such work should be delegated to a professional manager or a management team.  The argument is often made that the smaller that the firm is the less that it can afford to pay professionals for management, and so firm management becomes something that the managing partner does in his or her “spare time”.  

The first managing partner of the medium sized law firm with which I spent most of my career, was quite typical in this regard, and he did just about everything.  With his only support being a small and unsophisticated accounting staff and an equally unsophisticated office manager, the managing partner managed the entire firm until it grew to a size of over 50 individuals, including 20 lawyers. 

After the original managing partner and several other senior partners left the firm somewhat abruptly, the younger generation which took over were quite cognizant of their lack of management experience and were very receptive to obtaining advice from management professionals.  Thus began a process which ultimately resulted in the firm having first class professional management and limiting the involvement of the managing partner and other partners to the greatest extent possible.  In my opinion, moving in this direction was the direct cause of a great deal of the success which that firm subsequently enjoyed.  Furthermore, on the occasions when a managing partner tried to take back more of the management role from the professional managers, the results were never good.

Of course, there are some aspects of firm management which must be kept with the lawyers, including providing industry knowledge to the process of setting strategic direction for the firm as well as elements of risk management and regulatory compliance.   But for the most part, in my view the more that can be downloaded to professional management the better.

The typical response of partners in smaller firms to the suggestion that professional managers should be engaged, whether on a full-time or outsourced basis, is “The big firms can afford that, but we can’t”.  But simple math proves this is a fallacy.

Let’s take the example of a managing partner with an active practice billing at $600.00 per hour who works 1,500 billable hours a year and devotes 1/3 of her time to firm management.   The firm loses revenue of $300,000 per year, or it loses the equivalent time spent on practice development.  The same $300,000 will pay for a great deal of professional management.

Furthermore, lawyers are not exactly famous for being great businesspeople.  The odds are good that professional managers are going to do a much better job than a lawyer moonlighting from his or her practice to manage the firm.   Also, good managers do things that save money which lawyers would never find the time to do.

When the pandemic struck, my former firm, having had professional management that had previously developed a formal disaster recovery plan and had also invested in robust technology, was able to quickly and efficiently move lawyers and staff to work remotely.  I cannot imagine a managing partner running the firm in his or her spare time while practicing law having prepared so well and implemented procedures so quickly and efficiently.

So why are so many lawyers seemingly convinced that they should hold onto as much control of firm management as possible?  If, like the fellow in my story they are also doing it “for the honour,” they most likely are not tuned into the grumblings of their partners. And lawyers do grumble about whoever is in charge.  It is in their nature.

In my recent series of articles, I have been writing about some of the systemic challenges facing law firms, such as addressing challenges arising from the focus on billable hours and the impact of such challenges on issues such as mental health and work-life balance.  Of course, there are many other existential threats to traditional law firm practices, including threats arising from disruptive technologies and changing values. 

If even firms with strong professional managers are having difficulty enforcing simple rules, determined by the partnership, against partners with high billings and a large transportable client base, it makes you wonder how well-equipped law firms are to deal with the real problems facing the profession.  In my view, they are not well prepared, and nothing short of a fundamental change in how law firms are managed is required. 

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