The country is fixated with whether the 1,000 plus page American Recovery and Reinvestment Act (2), or near trillion dollars economic stimulus package, contains the necessary elements and spending mix to reinvigorate the economy. Equally important to every lawyer’s financial future, however, should be whether their firm, be it large or small, is ready to meet the 2009 economic challenges presented; or, does the firm need to enact a “Law Firm Evaluation and Recovery Act?” In order to answer this important question, firm members may wish to consider a law firm procedures and systems review to take the legal pulse of the firm’s health.
When money is flowing into a law firm and profits and distributions are high, not much consideration is usually given to reviewing procedures and systems that are in place which are essential to a successful firm’s operations and determine what can be improved. However, “Economic distress will teach men, if anything can, that realities are less dangerous than fancies, that, fact-finding is more effective that fault-finding. (3)"
Law firm procedures are those formalized methods in place that control day to day operations, such as billing and accounting practices, operations manuals, intake and engagement rules, conflict of interest evaluation, management of facilities and supplies procurement. Law firm systems are much more complex and controversial. They constitute the issues that form the heart of a law firm, including attorney management issues, training, review and compensation.
A firm procedures and systems peer review can serve as a reality check on the questions of “How well are we really doing?” and “What can we do better?” The peer reviewer’s purpose is not to dictate the future. It is to inventory the present strengths and weakness of the firm, including those perceived by the attorneys and employees, call them to the partners’ attention; and, if asked, suggest alternatives for improvement. The review’s core principle is that, “Each problem has hidden in it an opportunity so powerful it literally dwarfs the problem. The greatest success stories were created by people who recognized a problem and turned it into an opportunity.(4)”
Lawyers are often hesitant to acknowledge that there are a lot of “good” attorneys in their market. Clients start with the assumption they have, or are hiring, a “good lawyer.” They deserve quality representation and should receive no less. However, in order to compete in the new legal marketplace and today’s challenging economy, a lawyer or a firm must be responsive to client needs and develop cost savings efficiencies and practices that will result in an efficient way to compete in the relevant market.
A successful firm must recognize the firm’s strengths and weaknesses and be willing to adopt change in order to maximize efficiency in delivering legal services to its clients. Thus, whether your firm is a one person shop or a multi-office operation, a critical examination of the operational health of the firm is essential to success, as, “Many people dream of success … success can only be achieved through repeated failure and introspection.(5)”
Getting Started – Select A Reviewer
The first step in an effective firm systems and procedures review is for the firm members to determine the willingness of the firm to embrace change and accept that, “The critical power…tends to make an intellectual situation of which the creative power can profitably avail itself…to make the best ideas prevail. (6)"
The next step is to make a determination of whether a strictly internal review will produce meaningful results. An internal review has obvious advantages and disadvantages. It is inexpensive. It can be done on your timetable. However, you often get what you pay for, as often associates, partners and staff are reluctant to discuss real problems, change and challenges. Also, procrastination is a fact of life when undertaking a self critical analysis. To acknowledge the need for change or improvement is often construed as admitting failure or criticizing ‘the boss.” Also, there is a natural reluctance to acknowledge that there is a better way to do what has been done in the past.
Seminars focusing on practice management abound. These can provide an insight into the pertinent areas of inquiry for a firm internal review and suggestions as to what worked elsewhere. However, these seminars are not always tailored to particular needs of specific circumstances. The speakers may drift to “war stories” that have little applicability to the attendee’s issues. There are also numerous regional and national law firm consultants available to firms. These organizations certainly provide expertise in law firm management; but, many firms feel that they are not large enough to utilize these services in view of the attendant cost (7).
An alternative effective concept is a peer review from a non-competing attorney outside of the local community. Even though lawyers often counsel clients to do so, they are reluctant to hire lawyers as a preventive measure. A legal peer review, however, can provide a practical and beneficial insight into the strengths and weaknesses of a particular’s firm’s systems and operations. It is an option that can be much more localized. The peer reviewer should be chosen on the basis of practical experience, a reputation for success and respect in the legal community. The reviewer’s should not mandate change. The desired result of a peer review is to present the firm with an inventory of the existing procedures and systems and allow the firm members to evaluate revealed strengths, weaknesses, opportunities and alternatives.
A key element in an effective peer review is a clear understanding that the engagement will be like any other legal representation. Thus, there is comfort that communications are confidential and that none of the information that is shared with the reviewer will be used to subsequently compete with the reviewed firm. With such agreement, a constructive and critical analysis can take place that will result in beneficial experience sharing and advice.
Does Your Firm Promote An Effective Philosophy?
Most attorneys are proud of their firm and their accomplishments. However, they never thought that they would have worked as hard, had the variety of legal experiences; or, made as much money as they have made. Those same lawyers also realize that there have been rough bumps in the road and disagreements with their clients, partners, associates and employees as to how to do things or not do things.
Achieving just the right blend between a “Numbers” and “People” philosophy, which results in a unique, but profitable, internal business culture is the desirable result. Yet, there is a danger that the same philosophy will result in complacency.
One of my first bosses said, “A client wants to know that the train is on the track and getting to the station. You can be doing the right thing and if the client doesn’t know it, you are not doing do any good in maintaining a good relationship with the client.” That is true. The base line is quality service. That is expected and deserved. If a firm is not providing that, the firm has failed the first test, which centers around an inquiry of whether the firm has instill on a firm wide basis the need to be responsive and let the clients know what you are doing for them. We often loose sight of this and take clients for granted. It is their case and they are entitled to respect and communications about their case.
Another threshold issue is a determination of whether the firm’s philosophy is putting undue emphasis on the number and amount of expected hourly fees in order to meet the rising expense demands and maintaining income, with an unintended result of the firm pricing itself out of the market or producing a high employee, associate and partner turnover. A successful firm’s philosophy must recognize that each partner, associate and employee can contribute. It is a fact of life that not all of us are suited for the same type of marketing activities or practicing in the same area of law. The purpose of the “people aspect” of a peer review should be to examine the role of each person in the firm and make recommendations that avoid trying to fit round pegs in square holes. All firm members are important to the success of a firm and the peer reviewer should seek to determine and document how each and every person in the firm can fit into a vital role for a successful firm. It is also important for a firm to recognize that it cannot always be all things to all clients and when there is an area of law or issue presented that the firm cannot comfortably or cost effectively handle, there is no stigma in associating help from a trusted colleague.
The Peer Review Process
The first step of any legal procedures and systems review is to arrive at a clearly defined expectation of the purpose of the review. In order to achieve this, there must be an acknowledgement from the firm members that there may be a better way of doing things. The result of a review will be both constructive praise and constructive criticism. Firm management must make it clear that this is a sanctioned collaborative process and that all attorneys and employees should take the necessary time to cooperate with the reviewer.
During the systems review segment, the reviewer should interview the firm members and have them articulate the firm’s core values and objectives. A historical perspective of the firm’s growth and client base is important in understanding these issues. There must be a critical examination of the role that each individual contributed to the firm’s success, or shortcomings and the firm’s marketing (8) and compensation systems in order to determine what works, what can be improved; or, what is counter productive. It is also important to examine the identifiable practices that keep the employees, associates and partners productive or promotes dissatisfaction; and, how the firm can better deliver legal services in a cost effective manner. The systems review also should identify whether responsibilities for clients is shared and if the firm fosters individuals in connection with a transition plan, and whether the firm has a single leader or shared responsibilities and the firm members’ reaction to such a management system. It is also pertinent to determine if the attitude of the partners is one of “owners” or “employees.”
The examination of the compensation system is often the most challenging part of the review. The reviewer’s job is not to recommend a particular compensation system. It is to flesh out the perceptions of the firm members as to the strengths and weaknesses of the existing system and to open discussion within the firm regarding alternatives. Billable hour requirements are a fact of life for many firms today. However, those requirements can often lead to the destruction of an organization if they are the only consideration for compensation. Formula based compensation systems are susceptible to the introduction of other factors that recognize individual firm members’ unique contributions to the success of the firm. For instance, even though a compensation system is driven by productivity or origination, consideration of participation in marketing efforts, administrative matters, recruiting of law students, professional development and civic involvement can be important additions that result in a higher overall satisfaction level and perception of fairness. Staff compensation, satisfaction and suggestions are also important factors to be considered in a review. A related issue is examining the existence and sufficiency of a periodic personnel evaluation process that enables a person to recognize their strengths and weaknesses and institute timely corrective action.
An effective peer review also encompasses an examination of firm procedures for personnel training, physical assets, technology, client intake, and accounting issues such as requiring retainers and the process and approvals necessary for write downs and write offs. These issues include an examination of firm personnel and practices manuals, training, CLE policies, engagement letters, docket control systems, library adequacy and opportunities for economies of scale. These issues are the “nuts and bolts” of the practice of law and all are factors in the profitability of a firm.
The peer review process is an option that should be considered by law firms. It is a relatively inexpensive operation that allows an independent examination of the firm’s operations by a respected non-competing attorney. The success of the review is largely dependent upon a commitment by the firm members to take the necessary time and to cooperate with the reviewer and recognition that an open and honest exchange with the reviewer is for constructive purposes. Thus, the results of a well conducted peer review can provide the firm with a critical self analysis and ideas for the future success of the organization.
1) J.D. 1967, Paul M. Hebert Law Center at Louisiana State University. Member, Order of the Coif and the Louisiana Law Review. Charles S. McCowan, Jr. is a partner in the Baton Rouge, Louisiana law firm of Kean, Miller, Hawthorne, D’Armond, McCowan & Jarman L.L.P. He is a member of the Louisiana Association of defense Counsel and the Defense Research Institute and has been the author of numerous articles in legal journals and publications, as well as a frequent speaker at continuing legal education seminars.
2) Economic Stimulus Act of 2008 (Pub.L. 110-185, 122 Stat. 613), enacted February 13, 2008.
3) Carl Lotus Becker, 1873 – 1945, Progress and Power, 1935.
4) Joseph Sugarman, The Best of Business Quotations, edited by Helen Exley, Exley Publications, 1993 at 13.
5) Soichiro Honda, Id. at 19.
6) Matthew Arnold, 1822 – 1888, The Function of Criticism at the Present Time, 1864.
7) Since law firm consultants use various proprietary methodologies, this article will focus on a peer review process.
8) See Article XVI, Rule 7 series of the Articles of Incorporation of the Louisiana State Bar Association and related orders of the Louisiana Supreme Court regarding advertising.