What’s Ahead for Law Firms?
Profits-per-partner is a top concern of law firm leaders, based on the results of a survey of those who joined us for the Managing Partners Leadership Series on January 28th and 29th. James Cotterman, principal with law firm consulting leader Altman Weil, presented a range of issues that managing partners and their leadership teams must address, ranging from changes in the profit model to alignment of compensation programs and planning for the exit of valuable boomer partners.
“Based on the excellent feedback received on the surveys, we plan to continue bringing law firm leaders together to share ideas and information,” said Cresa’s Managing Principal Barbara Liberatore Black. Cresa, Kaufman Rossin and SunTrust co-sponsored the event.
Cotterman shared results of Altman Weil’s 2009-2013 Law Firms in Transition surveys, revealing that a dramatically increased number of respondents believe that changes like more price competition, more commoditized legal work, more non-hourly billing and more contract lawyers are permanent changes in the market. Kaufman Rossin principal Ronald S. Friedman, CPA, also presented a preview of a study the firm will be conducting among South Florida law firms, tracking revenues, expenses, and performance in the local market.
Rethinking the profit model
The topic of rethinking the profit model sparked particular interest and discussion. Cotterman shared a Harvard Business School model that presents service to clients across a spectrum, ranging from providing efficient solutions to common problems (where profit drivers are high volume and high leverage) to “rocket science” solutions for “bet your company” problems, where law firms can charge premium fees and achieve high margins for addressing complex and difficult issues.
If firms find their sweet spot in the higher volume, lower profit margin work, Cotterman counseled, more specialized matters need to be referred out, even if they come from current clients. As firms move toward the higher margin, premium work, some clients need to be left behind in order to preserve profits.
Encouraging partners to counsel clients toward trusted colleagues in more suitably priced firms may be a challenge for law firm leaders, but must be done to improve firm profits.
Strategies for the non-equity tier
Another important issue was strategies for the non-equity tier, where the data shows that lawyers promoted from senior associates produce less profit at this level. Recommendations for this level include moving exceptional attorneys at this level up to the equity tier and transitioning others out to staff or contract roles. This also is an excellent part of a retirement strategy, as older attorneys take this role during the time they transition their clients.
The post-seminar survey showed that, in addition to questions about profits per partner, law firm leaders are very concerned about billing and collections, occupancy costs and succession planning. Future seminars in the Managing Partners Series will address these issues.
Janet Altman is a Marketing Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.