Jordan Furlong has written a very insightful article (http://www.law21.ca/2013/05/design-your-own-law-firm-a-law21-survey/) that is well worth reading because he summarises quantitative evidence that too many lawyers are ignoring the new realities of their markets, to their cost.

My experience of working in law firms over 20 years and subsequently running three law firms has given me some insights into why this is the case.  Why do many partners pay only lip service to the need for client service when the future success of their firm relies on real action being taken?  

I believe there are at least three reasons:

• The short term focus on revenues
• The structure of law firms
• Competition

The focus on Revenues

Few law firm managers would disagree that the reality for most partners and most teams is that their primary goal is increased revenues. That may seem harsh, but an observation of individuals is backed up by what is presented at legal conferences the world over: it’s all about the money. Even the idea that the billable hour is the wrong way to charge clients is sold to lawyers on the basis that firms that ‘value bill’ will generate increased revenues.  

The old professionalism of being a trusted adviser, part of the fabric of a civil society, has almost been lost.  I can think of a handful of lawyers who practice with the interests of their clients as their central calling, but they are the exceptions. Most lawyers have succumbed to the siren call of the modern world – make money – and it is hard to criticise this decision in a cynical world where our skills are often called upon to help others make money, oppress their relatives and exaggerate claims. 

Further, in the “old days”, remembered by those who were partners in the eighties, in many jurisdictions the legal monopoly on conveyancing, and the extraordinarily high fees for conveyancing work, gave lawyers a subsidy that enabled them to pursue justice on behalf of clients and still make seriously high incomes.  Thus property owners, not litigants, subsidised legal incomes and the notion of a civil society guarded by lawyers.  The reforms, to what were perhaps rightly perceived as legal “rorts”, have had unintended consequences.

The structure of law firms

One problem facing those who wish to focus on client service and bring about change in their firms is that it is difficult to be a lawyer and to simultaneously run a firm, and yet most firms are run by practicing lawyers.

The law firm CEO/GM job is known to be a challenging one because your board of directors and your shareholders are also your department heads.  If you are a managing partner, your predecessor is often there to help, but most changes are not what he or she would have done…The lines of authority are insufficiently clear and so leadership, a prerequisite for change, is diluted to the point of impotence.  Hence most law firms are managed rather than led.

Even at a micro level, for example when a managing partner seeks to assist another partner who has dropped the ball on a client or a matter, it can be a source of embarrassment to all concerned, with a grave risk that relationships will be damaged.  Client service is therefore left to the professionalism of individuals rather than being a firm wide issue that can be the foundation of a brand promise.

Until recently the water has been very warm and comfortable for most senior lawyers, but the struggle for senior partnership or to build a profitable practice has been so gruelling that many of those who get there have run out of energy. In larger firms they lack the training, the experience and the time for either management or leadership.  In smaller firms they have the experience of management, often learning the hard way as they built their firms,  but with so much competition it is difficult to become sufficiently profitable to work on the business rather than just in it.

The fact that there are some brilliant law firm leaders is more a testament to their intellect and capacity for hard work than it is a confirmation that the right attitudes and business structures are present. To have those capabilities and also to be a leader capable of inspiring tired senior partners to make potentially expensive changes to work practices before they retire is, in almost all cases, a bridge too far. Hence the appearance of rigidity in the profession and the risk of the warm bath of partnership turning into a cooking pot.

It is easy to criticize senior lawyers, but most large businesses have a momentum and an access to capital that make it easier for senior management to concentrate on management and leadership. Momentum is more difficult to achieve in law firms because we are engaged in piece-work, paid per job.

Lawyers necessarily have a job by job focus, and most jobs are hard work.  Our reputation with our client often depends on how well we managed their last case, and in litigation and negotiation we are in direct conflict with the other side, usually another very smart hard-working person.  On average, we lose fifty percent of the time, which is draining, and of course rather than getting sympathy from our clients, we are usually called upon to empathise with them, if not defend our own performance and our right to be paid.  It’s not surprising that eventually money becomes the main compensation for many lawyers.

Competition

Competition doesn’t just drive prices down; it makes marketing and growth more difficult, expensive and risky. Those who succeed are either very exceptional or they have sacrificed other important areas of their life.

Where there is the potential for momentum, such as in conveyancing and defendant insurance work, price competition is genuine and margins are much lower than in commercial work, again making it difficult to achieve or sustain momentum and to think beyond the next tender.  Extracting profits every year, as drawings, with minimal reinvestment is also a contributor to poor financial performance in subsequent years.

Very successful firms have often created some kind of reputational or brand advantage, such that either price or volume are much higher than competitors’, and this gives them the momentum, profits and energy to manage better. Many exhibit discipline over drawings, a task made easier when salaried partners are paid to do legal work, rather than to bring in clients, because this keeps salaried partners remuneration down.   It’s a benevolent cycle that contrasts with the vicious cycle that so many firms are now finding themselves in.

I think this is a major difference between law firms and accounting firms; accounting firms enjoy repeating instructions as they manage compliance year after year for the same clients. Small law firms are small businesses, and suffer from the same problems as other small businesses: Undercapitalisation, distracted management and proportionately expensive marketing. But let’s not forget that most small business fail. So far few law firms have failed, but very many partners in small firms are seriously underpaid compared to the effort they put in on many fronts. Hence the focus on revenues.

Solutions?

I used to think the solution lay with technology, and there are many case studies in which law firms have vigorously adopted technology and have generated substantial momentum and profits. However, I would now argue that the real source of these firms’ successes is that they had the leadership, acumen and discipline to adopt and implement a well thought out business plan, and that their successful use of technology is a result of those attributes rather than of the technology itself.

I also used to think that access to capital would be a differentiator that would allow a firm to grow and prosper, but experience has shown that the cultural attributes of senior lawyers are almost always too ingrained to allow a different approach to their business: capital invested is extracted as drawings at the earliest opportunity and spent on lifestyle, property and/or children.  Few lawyers have enough faith in their business to invest in it. Most want to get as much cash out as possible. 

Few lawyers understand that high hourly rates and a compliant public are a diminishing resource.  The social capital of lawyers is like Australia’s mineral wealth – indubitably a blessing, but also breeder of complacence and structural weakness.  That complacence is undermining our fitness to occupy the civic leadership roles we all value and, whether we recognize it or not, are paid to fulfill.   

In the long run, unless we can rediscover our role as guardians of civil society, by acting more honorably than other business people, by providing some advice at no cost, by making simple services available at a fair price and by treating our staff as fellow professionals rather than as billing machines, we will not retain our privileges. Of course many lawyers know and act on this. But it is rarely reflected in the culture of our law firms because they are subject to the economic imperatives of competition and the prevailing culture of “more”.

Two images from pop culture come to mind. One, in the movie Troy, Menelaus complains to Hector when Paris cowers at his feet, avoiding death: “This is not royalty!”, he exclaims. Over charging, whether by “value” billing or exaggerated time sheets is not professionalism. Clients know, even when they say nothing. Two, Jerry Maquire is fired when he proposes fewer clients, better service. How many smart young lawyers have left the profession because they are not prepared to adopt the distorting and depressing culture of the billable time budget? How costly, to families and to firms, has the depression of the remainder been?

I know the difficulties of trying change law firm culture. Even from the top it is almost impossible: I have seen the economic imperatives force decisions that no partner wanted to make, but which most partners felt they had to support.

Every law firm is different, and each needs to spend time looking at its business through prisms other than per partner profitability. Each and every firm needs to support the higher aspirations most lawyers have deep in their souls, and to ensure their firm contributes to the standing of lawyers as professionals.

The transition from profession to business has long hurt small firms and has now gone so far that it is starting to hurt the businesses even of “big law”.  We are being eaten by our own greed and blindness. Let’s open our eyes and think about what is enough.

At the same time, both lawyers and legal regulators need to recognise that professionalism is not compatible with unrestrained competition: in a dog eat dog world it is the meanest dog that prospers, but only for a while. Teaching law cannot continue to be a cash cow for universities and entry to the profession needs to be restricted to those who can demonstrate their suitability as professionals. To some extent the market will drive this reform, as seen by the recent decision of Allens to reduce the number of graduates it is willing to take on and train.

All of these elements need to come together in a reinvention of what it means to be a lawyer.  We need to regain the support of the public by behaving honourably, we need to reduce the number of law students being trained, and we need to reclaim the idea that law is a calling for a public purpose.