Originally published in BCLMA Topics, Winter 2022 Edition
A fractured partnership, compensation concerns, retention headaches, work delegation issues and a myriad of other significant struggles inside a firm are massively disruptive, stressful, distracting and ultimately, very expensive. In the past few years, we’ve seen managing partners and executive committees who are hard-working and well-meaning but frustrated and tired.
Strategic planning assignments are significant undertakings and sometimes with a lot at stake. Firms invest time and resources to ensure they get it right, and implementation requires long-term commitment to achieve goals.
To get most partners on side, a bespoke plan must:
- Reflect the culture of the firm and desires of the partners
- Be powered by your firm’s data with a professional financial analysis
- Be developed at a pace that achieves a tipping point of support by key partners
- Emphasize implementation of strategies
- Be facilitated by credentialed experts with experience in law firm planning
Every major component of the firm is connected. For instance, if compensation doesn’t reward desired behaviour most lawyers will only focus on current work. When firm governance is unclear or poorly structured, decisions take too long and leadership is lacking or missing altogether. Leadership is fundamental to a highly functioning operation and essential to implementing your strategic plan.
Talent retention is another significant issue lately. When associate retention is low, partners lose the benefits of leverage and spend too much time on billable work rather than mentorship, business development (BD), recruitment, or management. And average costs of losing an associate are now north of $300K, and some suggest more.
Let’s look at some of these issues further.
Compensation model isn’t working for us
Many firms mistakenly decide on a compensation system before developing a plan. This often results in one of two compensation models: An “eat what you kill (EWYK)” formula-based model or an equality model with a lockstep compensation system. Both options have risks.
The EWYK model encourages “lone wolf” behavior at the expense of a team effort or what’s in the firm’s best interest. It can be divisive and stunt growth as only individual effort is rewarded. The equality model can lead to mediocre firm performance and underperforming partners. We’ve seen firms lose high performers under this model.
Instead, we recommend a “subjective merit” model where both qualitative and quantitative criteria are considered in partner compensation. A compensation committee typically evaluates partners’ contributions with the Managing Partner. As a performance-based model, it motivates high performers, rewards good management, encourages team effort and discourages lone wolf behavior. Partners are motivated to do non-billable tasks, help achieve firm goals, and encourage the right partner behaviors, such as firm building and levering work to associates.
Firm governance needs adjusting or an overhaul
Many firms have governance systems that are not advancing the firm’s interests. We have seen the following symptoms when the wrong structure is in place:
- Leadership can’t make decisions
- The firm is stuck and not moving forward
- There is a lack of focus
- Decentralized decision-making without oversight
- Firm-wide confusion of who does what
- No written firm plan
Many firms run as a democracy where partners operate independently and are not accountable to anyone. Firms are hesitant to manage themselves like other businesses with a CEO with authority and responsibility. Instead, committees handle day-to-day operations, including a management committee with little power to execute a plan, if there is a plan.
Indecision results in lower profitability, missed opportunities, high opportunity cost of partner hours spent on slow decision-making, and a loss of good partners who grow frustrated with the lack of firm progress.
The solution is to appoint a Managing Partner (MP) to act as the CEO and coordinate creating a firm plan approved by the partnership. The MP will execute the plan with authority to achieve the firm’s goals. The partnership will evaluate the MP’s performance to recognize the MP’s efforts like any regular business is key. Once this centralized governance system is in place, your firm will become far more profitable and competitive in the market.
Retention of associates is a significant challenge
Retention challenges are causing significant disruption for partners and interfering with firm profits and growth. Of course, associates leave for a variety of reasons, however, firms can recalibrate to better accommodate their needs and desires to win loyalty and a long-term commitment.
The associate experience is not what it was 25 years ago, which is stating the obvious. But we regularly engage in discussions with partners who are either puzzled or inflexible to the needs of today’s associates. Many are looking for alternative career paths, meaningful opportunities for growth, client contact, fair compensation, some flexibility to work from home, robust mentorship, coaching and skills training, and work/life balance. Partner investment in associate development should be baked into annual plans.
Engaging with associates on these issues, welcoming ongoing dialogue and taking corrective action are essential in creating an associate-friendly culture.
Our lawyers don’t know how to develop work
A fulfilling career and an opportunity to earn a greater income usually requires developing skills to attract new work. Again, this investment must be supported by rewarding non-billable time for marketing and BD and skills training. Most associates are interested in learning how to retain clients and win new work and expect firms to support this growth. Without associate participation in BD the firm’s succession plan in rainmaking is hindered.
It takes years to generate work, benefit from referrals and develop a desirable practice. Some leave training too late and provide this support too infrequently. Aside from mentorship, BD is one of the largest investments you should make in associates.
Partners frustrated that associates aren’t participating in attracting new work should revisit their training programs, individual business plans, BD budgets and how they reward participating in marketing and BD and origination of work.
Strategic planning connects all your organizational components and links your vision to your goals and actions to create a high-performing firm with an enduring legacy.
Colin Cameron is a chartered accountant and former COO of a large regional Vancouver-based law firm and founder of Profits for Partners, Management Consulting Inc. Susan Van Dyke has held several senior legal management positions and is Principal of Van Dyke Marketing. Together, Colin and Susan bring 60+ years of vast legal management experience in small to large law firms to their strategic planning projects.