Law Practice Management Tip of the Week

Administrators in the more progressive and better managed law firms play a critical role in planning and conducting firm retreats.

The law firm retreat provides an opportunity for attorneys to meet for a reasonably lengthy and uninterrupted period of time, at a location away from the office and the pressures of business. Some firms use the opportunity to inform attorneys about developments and trends in areas of practice, while others devote the time to specific problems. Overall, the retreat enables attorneys to become better informed about the firm’s policies and operations, and to develop a closer relationship with one another. With proper planning, guidance and establishment of ground rules, the legal administrator can play a pivotal role in securing the framework for the retreat to insure that the firm’s objectives are met. Two crucial areas of pre-retreat activity include selection of planners and discussion topics.

The success of a retreat is directly related to the amount of time devoted to planning the function and obtaining the cooperation of all the attorneys. Selection of the retreat planners should be made by the firm’s executive committee. Smaller firms frequently assign the planning function to one or more partners. Larger firms usually designate a committee of partners to be assisted by the office administrator. Outside consultants may be helpful to firms that are considering topics such as organization, profit distribution, planning, business development and the like.

Generally, the senior or more influential partners (representing different age levels and practice areas) may be selected to coordinate and serve as discussion leaders for specific topics during the retreat. They should be selected for leadership and communications skills, knowledge and insight about the firm, understanding and objectivity, and their ability to generate and control discussions on specific topics.

The administrator should plan to attend all of the sessions held during the retreat, particularly those concerned with finance, personnel, systems and future planning. If the administrator has been actively engaged at the onset of the planning process, he or she is instrumental in assuring that the discussion adheres to the published agenda, recommending well-conceived programs or solutions to problems, or providing information and/or responding to questions.

As a source of financial and management information about the firm and its operating problems, the administrator has an important role in recommending topics to be discussed at the retreat. The administrator should review the firm’s financial, administrative and personnel operations on a step-by-step basis, prior to the retreat, and by analyzing this information, suggest suitable topics. The partners should be provided with firm financial data that includes balance sheets, income and expense statements, attorney-time summaries, unbilled inventory for time and costs, aging of accounts recievable, fees billed and received, and any other relevant information. The administrator should also provide the partners with comparative information about the firm – from one year to the next – on such issues as growth or contraction of areas of practice, increase or decrease in revenue and expense, lawyer and nonlawyer personnel ratios, equipment acquisitions, space requirements and business development.

The administrator can and should play an important role by preparing pro forma financial statements showing the impact of proposed activities on the income and cash flow statements and the balance sheet of the firm. The administrator can be helpful in explaining these reports to the partners, prior to the meeting, to enable them to be prepared and better able to enter the discussions during the retreat.

The administrator should have a role in surveying partners for suggestions and recommendations on subjects to be discussed. This can be accomplished through questionnaires and/or personal visits. The administrator should also elicit suggestions for retreat discussion from the supervisory staff to determine which administrative aspects of firm management require attention.

After selection of the subjects, planners should draft a proposed agenda that will include dates and times for the meeting, location, recommended retreat leaders and attendees. As part of the planning function, the administrator should circulate the agenda, and followup by meeting with partners to clarify ambiguous subjects and elicit additional suggestions for discussion. In establishing the timetable for the agenda, the administrator should include lead questions that may be appropriate for each topic. For example, if the discussion will include methods of improving firm revenue, suggested questions may include: “Should hourly rates be increased or remain the same?” “Should a minimum number of fee producing hours be established for partners, associates, or legal assistants?” “What methods should be introduced to reduce accounts receivable and the inventory of unbilled time and costs?”

After discussing possible sites with other retreat planners, the administrator should recommend the most suitable location for the retreat. Considerations include the objectives to be achieved, the location of the law office(s), the number of participants attending the retreat, whether spouses and guests will be attending along with attorneys, and the costs to make this determination.

Unless the retreat planners have recent experience with the proposed site, the administrator (and perhaps a committee of the retreat planners) should visit the facility to obtain first-hand knowledge about the current accommodations, food, meeting rooms and other facilities. A hotel visited years ago may not be as pleasant as remembered. It is well worth the time and effort to visit the facility. The administrator should arrive at the retreat site early to review all of the details and the timetable for meetings, coffee breaks, food, recreational functions, etc., and should make it a point to know where the meeting rooms and other facilities are located.
It is equally important to review all details concerning programs for spouses or guests who may be attending the retreat. The administrator should insure that the guest program adheres to schedule and that personnel assigned to coordinate the program are capable of handling problems that may arise. If a sightseeing tour is scheduled, the administrator should make certain that spouses and guests are provided with appropriate information concerning the activity.

If prepared material has been distributed to the partners prior to the retreat, the administrator should make sure that additional copies of the materials are available. Also, it is always a good idea for the administrator to be alert to items mentioned and suggestions made, to be followed up on during the retreat or back at the office.

The administrator should publish the minutes or policy decisions agreed upon at the retreat in a timely manner and, following up on a timetable, implement the policy decisions that are made.
By utilizing the recommendations described above, the retreat can be an excellent showcase for a conscientious and professional administrator.

DESCRIPTION OF ALTERNATIVE BILLING METHODS

Discount for Volume Work/Reduced Hourly Rates:
According to recent surveys, discounted hourly rates for volume or routine work is the most common “alternative.” Outside counsel provides a percentage discount based on the volume of work provided by the client. They may agree to a sliding scale with a greater discount as the volume of work increases.
To maintain profitability while discounting its usual rates, a firm must be sure that it has an efficient practice management structure and that it periodically reviews the arrangements to make sure that it is still able to make money at the discounted rates. For example, Aetna uses this method frequently in employment law and employee benefits and problem loan matters. Outside counsel reduce their rates (approximately 15%) in exchange for volume. Aetna also develops a budget and cap for each matter and limits the number of firms assigned to those matters.

Reduced Hourly Rates with an Incentive Bonus:
The firm significantly reduces its standard rates, but has the potential to receive a bonus based on satisfactorily achieving a pre-established result or resolving the matter within a specific time frame. For example, an Aetna surety bond case involving a coverage dispute centered on which of two fixed amounts Aetna had to pay $27 million or $54 million. The firm agreed to a reduced hourly rate to create shared risks and a bonus of 2% of the disputed amount. The encouraged settlement, from which the firm was to receive 5% of the amount saved in settlement, capped at the value of the bonus for successful litigation.
In another example, a client wanted to negotiate termination of lease, but could not pay the firm’s standard rates. The firm agreed to reduced hourly rates and a bonus which was a percentage of the amount saved over the life of the lease (if successful in the negotiations). Another firm worked on a deal in the early stages agreed to charge reduced rates for the work if the deal did not go through, but premium if the deal did go forward.

Fixed Fee for a Project:
Inside and outside counsel agree on the charges for specified matters. This method tends to reward firms that are well organized and delegate appropriately. For example, Aetna uses this method on relatively simple cases from the property/casualty claim company as well as for foreclosures and loan modifications.

Fixed Fee for all Work in an Area:
For example, a firm handled all of a client’s employment litigation in one year for a fixed fee. The fee was based on an analysis of the client’s historical costs for litigation in that area.

Fixed Fee for Expert System:
For example, a firm developed a software program for drafting construction loan documents for a client. The “development hours” for developing the program were preserved in a special account. The client is charged a $1500 transaction fee each time the document assembly program is used.

Budget/Fixed Fee for Various Stages of the Work:
Outside and inside counsel agree on a budget for each stage of a lawsuit. At pre-established checkpoints, they compare the budget with the actual fees billed. Credits and debits are recorded based on the firm’s recorded billable hours, i.e., whether fees were under or over the established budget. At the end of the matter, the firm would be eligible to receive an added payment if the completed work was under budget or might have to reduce the bill if more hours were expended than originally anticipated.
This method usually includes regular meetings with representatives from both inside and outside counsel, as well as a representative from the corporate department for which the work is being done. These meetings provide an opportunity to adjust the budget estimate depending upon how fees up to that point compare to the original estimate and generally, requires task based billing.

Unit Pricing:
This is similar to budgeting for various stages of a case. However, payment is triggered by the completion of discrete tasks rather than by stages of the proceedings. For instance, the pre-trial work may be broken down into such categories as filing answers, taking depositions and answering interrogatories. The client pays a separate set fee for the completion of each task, regardless of how long the task takes.

Blended Hourly Rate:
All lawyers and paralegals are billed at the same rate. This method is most appropriate for long-standing relationships where the client trusts the firm to delegate work to the appropriate expertise level regardless of standard billing rates. It is most appropriate for matters that require lawyers at various levels.

Hourly Rate, Plus a Premium:
The firm and client agree on the hourly rate that the firm will charge for a particular matter. Then, depending upon the results, the firm receives a premium to reward it for providing the client with greater value than the normal hourly rate indicated.

Per Diem Basis:
The firm is paid for the number of days spent on a project rather than by the hour. This approach is most appropriate for larger assignments that demand extensive effort by several individuals. The firm might charge a blended daily rate or daily rates for each individual involved in the project.

Capped Fee:
The client contracts with the firm for a “not to exceed” fee on a particular project. The firm charges its standard hourly rates, but if the final fee exceeds the cap set at the beginning, the firm does not realize its full fees.

Range of Charges:
The law firm and client agree to a range of charges depending upon the results of the case. For example, the firm might charge 125% of its normal rate for a successful result, but only 80% for lack of success. This requires both parties to define success and could lead to an adversarial relationship between the firm and its client.

Reduced Hourly Rates and Contingency:
The firm charges a reduced hourly rate, with a bonus based on result. For example, if both the client and firm agree that a $2.5 million payment would be a good result in a defense, they would receive a percentage of any amount less than $2.5 million.

Combination of Hourly Rates and a Fixed Fee:
The firm charges its standard hourly rates until the nature and scope of the problem are defined. At that point, a fixed fee is set for the remainder of the work.

Hourly Rate for Defense Work and a Contingency Arrangement for a Cross-Complaint:
The firm charges its standard hourly rates for defense-related work and an agreed upon contingency for cross-complaint work. Much of the work required to defend an action is also needed to prosecute the cross-complaint. Consequently, it is difficult to determine how to apportion the time worked for purposes of computing the hourly billing charges.

Hourly Rate for Plaintiff’s Work up to a Certain Amount and a Contingency Arrangement Thereafter:
The firm charges its standard rates until it reaches a certain pre-established limit. From that point forward, the firm receives a percentage of the reward.

Reverse Contingency Fee:
The firm is compensated based upon a percentage of the money saved by the client as a result of the firm’s work. The fee is computed by comparing the client’s potential exposure with the final results. The client pays the firm a predetermined percentage of that difference.

Dedicated or “Rented” Lawyer:
The firm assigns a full-time lawyer to the client for a fixed term. This method is generally used to meet temporary staffing needs. For example, Aetna used this arrangement when it experienced a surge in problem real estate loans. Aetna paid the firm the lawyer’s salary, plus a premium for benefits.

Pure Value-Billing:
This method can be highly profitable to firms that perform unusually risky or high-stakes work. It is typically used for specialized matters and reflects the expertise required to address complex cases. This method requires outside counsel to trust the client’s ability to assess and value the results highly enough to provide fair compensation.
The mechanism for setting the fee must be clearly specified before work begins. Among the factors considered in value-billing are the time and labor involved, the difficulty and complexity of the matter, the level of skill required, preclusion of other employment, customary fees in similar work, the amount of money involved, the results, and the experience and reputation of counsel. The client and firm consider these factors to compute the fee based on the value of the services the client receives.
Provisions for binding arbitration should be established at the outset in case there is a dispute as to the value of the results. Unfortunately, this could set the firm in an adversarial position with its client over the value of the work, which could impair long standing relationships.

Piece of the Action:
This method is extremely risky and requires the firm to “get in bed” with its client. It is most appropriate when there are new opportunities such as start-up companies or unknown artists or entertainers. This method can also lead to significant conflicts of interest between the client and the lawyer. The law firm may lose sight of its need to provide the best legal advice, if that advice could result in a lower financial reward to the firm.
Some firms have structured these arrangements to receive some other form of payment for part of their efforts and take a piece of the action as final payment.

Contractual Retainer Agreement:
The firm charges a flat monthly or annual fee to cover certain types of routine services or advice. In order to avoid confusion, the firm and client must be very clear about what services will be covered under the retainer and what services, if any, could result in additional charges. Although the firm takes a gamble with this type of arrangement, it permits the client to receive more “preventative” advice without worrying about the costs involved. For example, Wachovia Bank as contracted with a few large law firms in an arrangement that allows bank officers to call any lawyer at the firm and get two hours of advice for a set monthly fee.

Lodestar Formula:
Several courts use this mathematically based approach to set allowable fees. It uses a multiplier and relies on hourly rates and other pertinent factors. Use of this approach necessitates agreement by the parties on the factors to be considered before the work begins.Reasonableness with respect to time spent and expenses are the key to this method.

HOW TO DETERMINE WHICH ALTERNATIVES ARE RIGHT FOR YOU AND YOUR CLIENTS
The types of billing methods that are most appropriate for your firm will depend on the type of law you practice and your clients.

Analyze your practice to determine which methods are most appropriate:
Kinds of legal work: Although exact breakdown depends on the firm’s practice, there are basically three kinds of legal work:
1. Unique services (5%)
2. Reputation/Brand Loyalty (20%)
3. Bread and Butter & Routine Commodity Work (75%)

The alternative billing methods that are appropriate will depend on your practice. Determine whether your current accounting and timekeeping systems will allow you to prepare budgets or determine the costs of legal services or parts of services. Survey your clients regarding their needs and preferences. Understand what your clients regard as the strengths and weaknesses of your current billing systems and fees. Understand “pricing” as it relates to value as perceived by your clients.

How to Launch the Project:
Inventory the firm and select clients for prior “alternatives” and successes. Select a test group of lawyers, departments, clients. Analyze the processes, matters, functions that go into delivery of services and break into components. Talk to clients and analyze components for inefficiencies, problems, opportunities. Re-engineer the components and the process for efficiency and productivity. For example: Reassign responsibilities; eliminate functions; use technology; and develop a system.

Develop a pricing plan based upon client preferences or competitor pricing. Make sure that your accounting and billing system can support the alternatives. Test with your clients; revise strategies based upon tests; and keep track of results.

When a firm finds itself in the midst of a management crisis, the place to begin to search for the source of the problem is at the top of the management hierarchy.

This may not be a popular notion or an easy task. The purpose is not to find fault. The point is that an organization does not simply evolve. It must be built in an orderly manner.

The values that are important to a firm have to be defined and centrally organized. The responsibility for these goals must be keyed to an organizational factor, whether this is a committee or an individual. If the attorneys have the necessary energy, talent and drive, and there is enough work for the firm, then the structure must be thoroughly examined for the values that have been attributed to each part.

The style and method that differentiate one form of management from another depend upon factors that include the firm's history, the availability of partners with requisite management skills and their desire to become involved in the process. Equally important are the firm's economic success, size, location of offices, types of practices, client base and differences in the personal and professional objectives of partners.

Leadership:
Any partnership, no matter the size, needs leadership. Good law firm management cannot be achieved until all the partners agree to subordinate some independence to a management partner or an executive or managing committee. The partners must strike a balance between their rights as owners and their responsibilities as citizens of the firm. They must relinquish some personal prerogatives to achieve results that they would not be able to attain on their own. In theory, partnership status accords all parties the same rights and privileges. However, as many firms quickly discover, this is simply not the case in practice. Invariably, partners have their own ideas about how to perform their jobs and they exercise their authority accordingly.
If the firm is to establish a form of governance that will satisfy all of its members, the attorneys must first acknowledge the need for leadership. The partners must also recognize that managing a firm, either as the managing partner or member of a committee, is as important and as difficult as performing client work, if not more so.

In some firms, the leadership role is assumed easily and quite naturally, either because the individual is a founding partner or controls a significant client base. Where the partners are relatively young and inexperienced, the process of "natural selection" may be more difficult, if not virtually impossible. Where there is no natural leader or no one wants the job, the firm must take aggressive action if it wishes to grow and satisfy its objectives.

The smaller firm can establish a democratic form of governance that includes all the partners in leadership. Where this is not practical, the partners face a difficult choice and risk setting up two power centers if the general partnership elects both the management committee and the managing partner. This creates great potential for dissension and divisiveness since the camp will inevitably follow its choice of leadership when given the opportunity. To avoid this, it is preferable to select the managing partner by the management committee.
Generally, lawyers are not recruited to a law firm on the basis of their interest or skills in management. And usually they are not trained for it by the firm. Consequently, skill and interest in management varies greatly.

As a result, any management committee will consist of both good and bad managers. This should not be viewed as an obstacle. For, as relevant as these skills are when selecting an attorney to serve on the management committee, they are not necessarily the only factors that should be considered. It may be as important, or more so, to provide equitable representation on the committee to the different groups of lawyers in the firm.

Manager Qualities:
The leader must garner respect and support, have clout, and wield it when necessary. The leader must possess a rich mixture of judgment, timing and vision. For practical reasons, a junior partner cannot be a successful managing partner.

The managing partner must keep the objectives of the firm in perspective and understand that the good of the firm must come first. The managing partner must be able to make decisions and have them stick, and must want to manage the firm.

Many partners want to have a great deal of "say" in firm operations, but they stop short of following up on their advice or opinions with recognizable action. Such "management by debate" leads many management committees down the proverbial blind alley. It is not the way most lawyers want to conduct business in their professional lives.

The amount of time available for management is limited and must be used wisely. The principal role of the committee and managing partner should be to make certain that the important aspects of the firm's operational activities are being managed. Leaders must encourage collaboration, since this produces team effectiveness, assures improved firm performance and generates the best ideas and options for managing the firm. In the most successful firms, much gets done by teams of partners pulling together.

Assigning the responsibility for various functions should depend on making certain that the managing partner and the committee are charged with those functions that require their specific talent, energy and interest. Among other things, the management committee should:
• Monitor the firm's economic performance.
• Provide overall, long-range planning policy and direction.
• Make certain that systems are established and individuals are responsible for all areas of firm management.
• Make major decisions and recommendations in such areas as lawyer compensation, billing rates, decisions with significant economic consequences, opening additional offices and entering new areas of specialization.
• Communicate with the firm so that the management committee has the benefit of input from other lawyers so it understands the decisions and programs adopted.
It is not necessary for the management committee to undertake all the legwork and analysis regarding these issues. It should, however, evaluate the pros and cons, the effect of each decision on the firm's economics and individual lawyers, and how the decision fits into the firm's other policies and programs.

The managing partner should provide leadership, including maintaining morale; anticipating management needs and recommending ways to fulfill them; supervising the administrator; making decisions on matters that do not warrant consideration by the committee, such as implementing personnel policy; implementing committee decisions by informing the proper attorneys and by following up; coordinating all management activities; and making certain that the systems and individuals responsible for the firm's management are functioning properly.

Responsibility for the following functions can be fulfilled by the managing partner, a member of the management committee, or another lawyer: Overseeing the firm's financial matters and reporting system through the administrator, including preparation and monitoring of budgets, billings, collections, cash flow, analysis of management reporting for time and money, recommending on investment of excess funds, banking relationships; overseeing lawyer career development, including evaluation, training and general work assignments; overseeing legal assistant career development, including evaluation, training and work assignments; investigating, evaluating and making recommendations to the management committee regarding special projects such as acquiring senior lawyers, opening offices, and specialization in new areas; and overseeing firm facilities, particularly expansion or remodeling.
The prudent managing partner will recognize the need to chart a course between the requirements of the practice of law and the needs of those who perform the work.

Good cash flow requires management and financial controls, two disciplines which operate as limitations on the independent actions of attorneys in group practice. This article describes six aspects of law firm management to assist law firms improve cash flow. These factors include: (1) Cash Flow; (2) a Business Plan; (3) Budgets; (4) Partner Compensation; (5) a New Business and Billing Committee; and (6) Partners’ Capital and Borrowing.

Cash Flow: Although principally the result of a firm’s net income flow, with depreciation added back, cash flow is also affected by changes in the balance sheet that do not “pass through” the income statement. For example, increases in assets reduce cash; decreased liabilities, including payouts from capital accounts, reduce cash. Increases in liabilities, including contributions from partners to their capital accounts, increase cash.

Cash drains from payments to partners, acquisition of equipment, repayment of loans, and client advances illustrate those transactions not shown in the income statement, that materially affect cash. Therefore, the Application of Funds Report, prepared internally by the bookkeeper, which shows the effect of net income plus depreciation and balance sheet transactions, requires careful analysis.

Business Plan: A business plan identifies strategic initiatives the firm, its practice groups and individual attorneys intend to implement to reach the partners’ goals. A well-conceived business plan offers a road map for the future. Financial statements record history and will indicate whether you are on or off course, positively or negatively. Without appropriate planning, controlling cash flow and improving financial management are impossible.

Budgets for Revenue and Expense: Budgets follow the business plan and describe the commitments, financial resources and bottom line results expected from the implementation of the business plan. The business plan may identify toxic waste disposal, health law and bank holding companies as areas of opportunity. The budget should project the costs and income from these opportunities. The assumption underlying the budgets in each of these areas should be carefully developed and understood.

Many partners believe that revenue budgets are meaningless because lawyers never know where tomorrow’s business comes from. The answer is that revenues can be budgeted by analyzing your firm’s larger clients, reviewing partners’ relative standing as revenue producers over the last several years and the type of business they produced, and talking to the lawyers responsible for these clients. From these discussions, trends and client needs will be detected, which can be translated into assumptions and revenue estimates. If a firm does nothing more than ask each attorney responsible for a significant client to give an “off the cuff” estimate of billings, it will be able to establish a data base for revenue estimates. Some firms establish financial incentives for those lawyers who reach or exceed their own clients’ revenue estimates. In the absences of sound revenue budgets, management decisions for the following year, i.e., hiring decisions may be made with potentially adverse results, either on the up or down side of the firm’s business cycle.

Expense budgeting is easier because the commitments either are already made or result from decisions which appear to be more within the firm’s control than revenues. However, firms must establish appropriate and reasonable policies to control expenses.

Financial statement analysis records history and will tell you whether you are on or off course, positively or negatively. Without appropriate budgeting, controlling cash flow and improving financial management are impossible. What good is the finest expense budget, if it is not enforced or if the persons affected by it do not have an incentive to live within that budget. People must feel that the budget is “their budget” both in terms of revenue and expenses. All departments and functions of the firm should be involved in the budgeting process. Some expense categories deserve particular attention.

For entertainment and client development expenses, allocate an annual budget to each lawyer, based on his/her anticipated volume of business, past records or other standards. Review their expenditures and hold them accountable. For example, make individual lawyers responsible for paying credit card bills, not the firm.

Controlling client advances is not easy. They are a drain on your cash and their write-offs affect your net income. Every litigator will tell you that filing fees must be advanced. The author has no problem with filing fees, but expenses for court reporters, transcripts, exhibits, expert witnesses, etc., should be paid directly by the client. The same is true with incorporation fees and charges, blue sky fees, SEC registration fees and so on. Part of the problem is created by the cash accounting practices of most law firms, which do not run client advances through the income statement.

Controlling client advances, within reasonable limits, requires toughness. A combination of approaches are needed: (1) don’t permit them at all; (2) insist on retainers or at least deposits to cover estimated advances; (3) bill client advances immediately and apart from fees; (4) record certain advances, i.e., contingent fee disbursements, as expense to reflect them in the income statement; (5) hold lawyers accountable for write-offs; (6) insist that the accounting department not accept requests for client advances in excess of a predetermined minimum amount.

A significant client advance is travel expense. Many large corporate clients have in-house transportation departments which enable them to obtain significant savings. Why not place your travel and lodging arrangements through your clients’ transportation department. The client will appreciate the savings. It will improve your cash balance and reduce the expense to the accounting department.

Converting a revenue budget into reality requires not only the efficient and effective handling of client business, but an effective discipline of billing and collecting for services rendered. Computerized timekeeping and the resultant billing practices resulted in fundamental changes in law firm administration and clients’ billing expectations. For example, it may take a considerable amount of time to prepare a bill in the face of in-house counsel’s demands for detail. Good cash flow requires prompt billing. The chances of collecting a bill in full and promptly are greatly increased by prompt billing. There are more and more clients that want monthly bills! Yet unbilled time inventories seem to be increasing in many law firms. Many financially successful firms require each billing attorney to indicate each month when the matters for which they are responsible are expected to be billed and when collection will be effected. Also, billing attorney having unbilled time in excess of a pre-determined amount for any client matter are called upon personally by the Administrator’s staff to review unbilled time and accounts receivable. If necessary, a member of lawyer management will also make these rounds. In addition, many firms distribute monthly to all partners, a tally sheet showing the unbilled time inventory, total accounts receivable, and unbilled time and accounts receivable over ninety days old of each partner - a little peer pressure seems to do wonders.

The computerized invoice presents an additional opportunity. More firms have initiated the introduction of a system whereby centralized billing, rather than lawyer-initiated and manual billing, is the rule. A problem is obviously the matter of editing computer prepared invoices. If monthly billing, firm-wide, as a rule is the objective; it can be achieved only with the help of a centralized billing system. The computer should be instructed to prepare, monthly, the desired invoice for each client - the billing or responsible attorney reviews this invoice within a specified time limit and then the invoice goes to the client. The same system would be used for the mailing of reminder invoices when an invoice is not paid within a specified period of time.

Partner Compensation: The partner compensation system should provide recognition of lawyers who are prompt in billing and collecting. If the system does not include this component, you should consider adding it. This may be accomplished through the judgmental portion of your profit distribution system. Of course, certain types of legal business do not lend themselves to monthly billing, e.g., probate administration, contingent fee litigation, certain financings, etc. However, in that case you should recognize the time value of money in setting hourly rates and fees. Old accounts, unbilled and billed, should be written off, not necessarily off the books, but for the purpose of determining current compensation. Some firms do this with respect to all accounts over one year old.

New Business and Billing Committee: In the old days, each partner made their own decision whether or not to take on a particular piece of business. Unfortunately, the growth of the business and the eagerness to take on new business, have led to billing and collection problems. The creation of a New Business and Billing Committee which serves several purposes:

1. No new client matter (for a new or an existing client) can be accepted without prior approval of the committee. This committee should meet weekly. Any committee member may approve new matters which cannot wait for committee approval. The committee checks the conflict of interest questionnaire, client credit information, applicable hourly rates and billing arrangements proposed by the responsible attorney.

2. The committee also reviews every invoice in excess of certain amount to audit the amount to be billed versus previously approved or agreed upon billing arrangements and applicable rates. Most lawyers have found this committee to be most helpful in ferreting out clients or matters which should be not acceptable, or only on the basis of a significant up-front retainer. I need not mention the benefits of the conflict of interest review. Finally, it is expected that the review of invoices will produce noticeable results in increasing your firm’s realization of established billing rates and avoid discounting of time or rates.

Most lawyers tend to be tougher in evaluating business prospects, have more courage in billing top rates, and do a better job in advising clients of our billing practice ahead of time, if they have to account currently to a committee of peers.

Partners’ Capital and Borrowings: Many firms have followed an arbitrary rule of thumb which calls for partners’ capital to equal approximately 60 percent of the firm’s investments in fixed assets. Partners add to capital each year and receive interest on this capital account at the average prime rate. To limit bank borrowings to cover short term needs, many firms have been withholding five percent of their annual net income and distributing same to partners at the beginning of the second quarter of their next fiscal year. Cash flow from operations, partners’ capital and the five percent held back enables these firms to reduce their dependency on use of the credit line.

Cash balances should be monitored carefully to maximize return on cash. Most cash should be invested to the extent that firms sometimes have to borrow money short-term. Partners should be on fixed monthly draws which may be supplemented with partial distributions on June 1 and September 1, cash flow permitting, however, partners’ draws should be on the conservative side.

The above financial systems and controls in and of themselves will not produce desired results. The results come from quality legal services, marketed in a common sense way, rendered to clients in a manner that produces the psychic and monetary rewards lawyers seek. Financial planning can only help improve the monetary aspect of this equation. The danger to be avoided is “hamstringing” lawyers with unnecessarily burdensome financial systems and controls that take the fun out of the practice.

The measure of leadership in today’s law firm is the ability to maintain a careful balance between the need to: (1) Encourage each lawyer’s individual initiative; (2) Provide for the much-needed atmosphere of professional camaraderie so typical of the partnership type of law practice; and (3) Plan and implement financial tools of modern business without which the best practice can fail.

Practice management is gaining strength as a discipline in many mid-size firms. Long adhered to in large firms as a way to interact most effectively with clients, produce the client’s work in the most timely and cost-effective manner, and generate collegiality among lawyers, in mid-size firms many managing partners have relegated the practice of law to individual partners, reluctant to impose their judgments on how individual client matters were being performed. This results from their belief that lawyer management should not have to follow-up on partners responsible for performing client work or for managing substantive practice areas.

Practice management and firm management often interact most closely when firm revenue and the net profit available to partners declines. When partners begin to feel the economic pinch in their pockets, there is a greater tendency to view practice areas and individual attorneys as profit centers. As such, the firm management needs to review all of the factors contributing to profitability and to address the following questions:

1. How profitable are our practice areas?
2. Should the firm continue to practice in these areas or redirect its efforts to other areas?
3. Can certain partners and associates be re-assigned to other more profitable practice areas? If so, what training will be required to bring these attorneys up to speed in these areas? If not, what should be done with these attorneys?
4. Should certain partners be assigned accountability for managing particular practice areas?
5. What should be the role, responsibility and level of accountability of the heads of practice areas?

Often, the solution to the problem is development of practice management in the firm, and an increasing number of mid-size law offices have introduced and implemented practice management activities to insure partner coordination, control and accountability over fields of law, areas of practice and client matters.

What is Practice Management?

Initially, a coordinating partner or “practice manager” is assigned to the practice area of law. Generally, under plans and policies established by the managing partner, each practice manager is charged with planning, organizing, and overseeing the proper and profitable handling of work in the practice area falling within his or her jurisdiction. A major function of the manager of a practice area is to insure the timely completion of client work in a cost effective and quality manner. Central to this activity, is the assignment of work to associates or other partners. The partner may delegate assignments directly to attorneys within their field of law or who may be available or possess the expertise to perform the required work.

Even though firm management in most mid-size firms recognize the importance of developing and implementing principles of practice management as a means to insure the high quality service to clients and to improve profitability, implementation varies greatly from firm-to-firm. This is because of lawyers’ personalities and ability, partners’ attitudes towards “being managed,” and the extent to which they are willing to relinquish a degree of their personal and professional autonomy for the good of the work being performed.

Therefore, the qualities of a coordinating partner are important. Clearly, he or she must be a capable lawyer, and with enough time on his or her schedule to take on the administrative details necessary to manage the practice. They must be good communicators, able to interact effectively with all the legal teams producing the work of the department. They must be flexible, somewhat visionary, and capable of handling many diverse personalities in order to keep the practice running as smoothly as possible. Any they must have good administrative backup.

Duties of a Practice Manager:

Each practice manager should be responsible for quality control and cost effectiveness of work performed in their area. This partner should be available to discuss fees and oversee billings and collection of bills in his or her jurisdiction, as requested, and within the framework established by the managing partner. This individual may be expected to coordinate the planning for business development and/or the systematic sharing of client relations within the practice area. Within the system of the office, the coordinating partner should insure implementation of agreed upon policies on billing, collections, retention, and indexing of legal forms, memoranda, opinion letters, and important legal efforts for the practice area.

The partner should become involved with the continuing legal education efforts for the work under his or her jurisdiction. Each practice manager should communicate with the executive committee about the quality, client service, the economics of professional services rendered by the attorneys within the designated work area, as well as for the improvement of such services. This partner should advise on the acceptance of new business, considering such aspects as conflict of interest, ethics, merit and strength of case, time required, ability of lawyers to handle the work, economics of the case, and value to the office. If the practice manager is uncertain whether to accept a case, they should consult the managing partner.

The generic functions performed by each practice manager should be determined by the managing partner for the major areas of the office’s work in terms of managing problems in work assignment, coordinating staffing, setting objectives and review data to appraise results, insuring ethics and quality control, and cooperating with the executive committee. The partner should be encouraged to develop their own style in accomplishing these objectives within the general guidelines of the office.

Weekly, practice managers (and managing partners) should receive a written notice from the office administrator describing every new matter within the practice area that has been accepted during that week. These reports will advise the manager of the existence of new matters within their jurisdiction, along with the identity of the originating partner.

As required, each practice manager should meet with the partners and associates working on matters within the practice area to briefly discuss individual work loads, problems in producing work in a timely manner, schedule conflicts, etc. To facilitate this review, each manager should access the calendars and dockets for statute of limitations dates, other key filing dates, status reports or supplemental miscellaneous information and a record of every matter by the “handling attorneys.” This is where excellent administrative support can really shine.

To the extent that the manager has doubts about the ability of the originating attorney to perform the work (within the manager’s practice area), whether due to lack of expertise or work overload, the manager should discuss the matter with the originating attorney. All client assignments with related questions between the practice manager and the originating attorney that cannot be resolved by the manager should be referred to the managing partner.

The practice managers should review, on a lawyer-by-lawyer basis, client work that is not being performed in a timely or quality manner, or work that can afford more lawyer time. The practice manager should review lawyer production reports monthly, or more frequently as required, to determine the extent to which lawyers are producing the work. Following this review the manager may assign or suggest reassignment of work to other attorneys who are not being utilized effectively. It is especially helpful for the manager to review all write-downs and write-offs of time and accounts receivable beyond certain dollar limits by billing attorney to determine the reasons and justifications for such action. If partners are writing off too much time, it should be questioned.

Frequently, the individual needs of attorneys have to be balanced with individual partner independence in order to be responsive to the firm’s organizational patterns and policies. Applying management techniques to practice areas may introduce to the firm a new aspect on methods for enhancing profitability.

Practice management should not be an arduous task for the mid-size firm to implement. It can be done on a department-by-department basis, each successive practice area learning from the ones that have gone before. At any level, a smoothly running practice will ensure that the firm’s attorneys are being used to the best possible advantage, that the clients perceive that the firm is alert and responsive to their needs, and that the lawyers within a practice group work in a collegial atmosphere.

A firm develops a compensation philosophy that is realistic in light of the partners' personal, professional and economic objectives; the firm's culture and its competitive environment.
Changes in client attitudes, along with the economy and increased competitiveness have forced partners in the overwhelming majority of firms to reexamine their partner compensation systems to ensure that their systems for compensating partners are supporting the firm's immediate and long-term goals and objectives.

Partners in a great majority of firms have realized that "You Get What You Reward." Compensation systems in the more professionally and financially successful firms don't just "share the profits." Rather, they are used as a system for management. The most successful compensation systems place strong emphasis on merit and performance. Systems that promote partner stability and that reward fairly the total fee producing, business generation from new and existing clients and non-billable contributions of partners work best. In today's highly competitive marketplace, the more successful compensation systems reward marketing and cross-selling of the firm's expertise; promote profitability, i.e., realization, leverage, timely billings and collections, etc.; serve the clients' best interests; promote the team approach to the practice of law; and offer incentives to all partners.

It is commonplace, in many firms, for there to be incentives to encourage partners to perform those activities that address the firm's immediate and long-term priorities and objectives. The factors to be rewarded and the amount of the incentive provides the motivation for partners to devote their personal time and effort to perform those activities to enhance firm profitability by marketing the firm, encouraging current and potential clients to utilize the expertise of other attorneys, benefitting from leveraging the work of partners (other than the partner who is generating the client business), associates and paralegals, transition clients to other lawyers competent to perform their work, etc. Hence, for the "good of the firm" partners in many of the more financially and professionally successful law firms have identified and defined standards against which partner performance will be determined.

Examples of these standards are listed below. Interestingly, in the overwhelming majority of these firms, formal weighting is not applied to each of the compensation standards, nor an arithmetical or formula driven approach to analyzing these standards are applied. However, data is gathered about the performance of each partner's contributions and this data is used as a data base to support the firm's decisions about the objective elements to be considered, along with the subjective contributions of each partner. Thus, the total contributions of partners are assessed in "rough justice" fashion by their Management and Compensation Committees, and ratified by the partners.

In a great majority of these firms, compensation reflects each partner's overall contribution to the firm, with minimal regard to the length of time that partner has been associated with the firm. The compensation model in these firms assumes that partners will provide quality services and will work hard. Therefore, no special credit are usually given to these factors, unless of course a particular partner makes unusual "self-sacrifices" in behalf of the client that is well over and above the firm's reasonable expectations of a hard-working partner. The overall contribution of each partner includes intangibles that go beyond being a "good lawyer" and a "hard worker."

The following examples will illustrate this point:
•With good lawyering and hard work being assumed, generating business from existing and potential clients that may be performed by the originating partner or any other lawyer will be a significant part of any assessment of overall contribution to the firm,
•With good lawyering and hard work being assumed, lots of intangibles plus business origination is better than few intangibles plus business origination,
•With good lawyering and hard work being assumed, lots of intangibles and some business generation is better than some intangibles and some business origination, which in turn is better than some intangibles and no business origination, which in turn is better than few intangibles and no business origination, etc.

Further, in the overwhelming number of firms that adhere to this compensation philosophy, it is generally understood by the partners, and reinforced through communications and actions taken by the Compensation and Management Committee, that the firm will not endorse an "eat what you kill" attitude. Instead, the members of the Compensation and Management Committee consider the full panoply of standards agreed to by the partners and assess each partner's performance of each partner against each criterion.

Partner Compensation Standards

1. Client Origination: Contribution to origination and development of new clients clearly need to be recognized by the partners. Obtaining new business is critical to the firm's continued well-being and growth. This particularly is true in the highly competitive market. Consequently, the firm must recognize the obvious importance which attaches to this particular skill.

2. Client Retention: Additional business from existing clients, oftentimes the product of quality work satisfactorily performed by members other than the partner who originated a client account, is critical to the firm's continued well-being and growth. This particularly is true in today's highly competitive market. It, therefore, must be recognized as a valuable contribution to the firm. This trait cannot be measured in objective terms only, since it is impossible in many cases to know exactly what/who was pivotal in expanding existing client business, i.e., minders, binders, etc. Partners must recognize, therefore, the need also to "credit" those attorneys responsible for maintaining and continuing positive relations with existing clients. Performance of quality work and maintenance of solid relationships with clients go a long way in securing the reputation and influence of "rainmakers" within the firm.

3. Quality of Work Product/Timeliness: The need to recognize general efficiency, effort, diligence, competence, dependability and timeliness in handling work, either of a chargeable, firm management or business development nature needs to be recognized. "Quality" includes knowledge of applicable law, imagination, creativity and innovation, ability to write clearly and persuasively, ability to analyze quickly and accurately; good judgment; ability to plan and implement legal strategies; oral communication skills, the ability to handle the unexpected; the ability to negotiate; and the ability to handle complex matters. A partner must be willing to delegate work horizontally or vertically to the appropriate expertise or level of competence to ensure that work is done when it is promised to the client and of course, within deadlines provided by law.

4. Partner Productivity: The partners need to recognize that defining the productivity of an attorney is more complex than simply looking at computer numbers. Productivity is an aggregation generated by the hours the partner works, by the efficiency with which the work is handled, the number of matters handled, the effort generated through working with other lawyers in the firm, etc. This includes the value of time worked and/or delegated to others, the condition of the partner's accounts receivable and work-in-process inventory, the extent to which he/she properly utilizes other attorneys and other firm resources, etc. The notion of "rough justice," therefore, also plays a part in the "productivity" inquiry. It goes beyond "billable hours."

5. Seniority: The partner must recognize the importance and value of tenure and/or seniority within the firm. A lawyer's value to the firm over the years and his/her contribution to firm growth and success cannot be overlooked. Seniority is not age alone, nor is it only the number of years a lawyer has been with a firm. Rather, it means the number of years the partner has spent developing and maintaining clients, building and enhancing the firm's reputation and participating in the training and development of a cadre of lawyers who produce for the benefit of all the partners in the firm.

6. Firm Management and Leadership: Contribution to firm management, including efficiency and effectiveness in handling management assignments, is critical to the firm's future and must be recognized. These are major responsibilities and our long-range success depends upon the skill and success of those people involved. The responsibilities of management require large amounts of time be devoted to the task. Management responsibility in the firm, however, also includes practice management, recruiting, marketing, as well as the handling of "mega" pieces of work. A partner involved in firm management responsibilities must treat the work with the same importance he/she would treat client work. While the partners must recognize these factors, to the extent that certain of these management responsibilities are tangibly recognized by the certain of these management responsibilities are tangibly recognized by the firm, these duties should be given some weight in determining the compensation. This factor should be limited to the managing partners and in special circumstances, to those partners designated by the partners.

7. Compliance with Firm Policies: Partners must recognize willingness to abide by the policies of the firm. This includes:
a. Abiding by policies to keep time accurately, to turn in time sheets promptly, to follow policy on billing, collections, etc.
b. Turning over client management and other controls to other lawyers when appropriate.
c. Contributing to the equitable and efficient distribution of work assignments and client contacts.
d. Specializing and developing expertise in particular areas to complement other abilities of the firm.

The partners are expected to take specific note of partners' noncompliance with firm policies.

8. Personal Relationships and Teamwork: Practicing a team concept, including participation in, and cooperation on, firm committees, etc. is expected, client sharing, client introductions, and overall promotion of harmony and goodwill among firm members is critical and absolutely expected. These include:
a. Maintaining good working relationships with both legal and nonlegal personnel.
b. Lending personal support and enthusiasm to all personnel.
c. Respecting each lawyer's professional and management judgments and good faith; withholding all criticism except as necessary for management decisions; and the management of that side of the process in a private setting.
d. Respecting others' contrasting views and respecting each partner as a person.
e. Promoting and cross-selling other firm lawyers.

9. Partner Participation in Firm Activities/Functions: Partners are obligated to attend firm social and professional meetings, participation in those management decisions and activities which appropriately fall upon partners and participating fully in the "drudgery" side of the business.

10. Lawyer Development and Delegation of Work: Time and effort in working with younger lawyers to increase their professional skills must be rewarded. This includes the training and development of associates and paralegals.

11. Professional and Community Activities: Contributions that enhance the firm's image and prestige through maintaining good relations with other lawyers, speaking at CL programs, publishing, participating in bar activities, and assuming bar and community leadership positions must also be recognized.

Partners acknowledge the importance of being visible in civic and/or charitable matters in the community and within the bar, because it is the right thing to do, it assists in developing new work, and assists in fostering leadership training for young lawyers. However, these activities should be performed with the knowledge and "approval" of partners, according to a budgeted schedule, as required.

When selecting the most appropriate compensation plan, partners are cautioned that the lawyer compensation practices of other firms may not be satisfactory for their own offices. The fact that certain plans are in use, does not indicate that they may be suitable elsewhere or even that they work well for the offices that use them. As a law firm evolves, time will bring changes to its partners and in their values and goals. What pleased the founding partners may not necessarily be welcomed by the new order. This is a natural and inevitable course of events. The firm that succeeds in establishing a sound compensation plan is one in which partners view decision-making as a dynamic process, and understand that their system for partner compensation is not etched in stone.

Is management something that your partners do when they have time available from the “real work” that lawyers are supposed to do or has the management function been defined and the role of the lawyer managers determined and agreed to by the partners?

Where does the management process rank along with the time devoted to fee producing or business development and client retention activities? If partners are unwilling to factor into the compensation system, the time devoted by other partner(s) to manage the firm, there will be little incentive for any partner or group of partners to take the time away from their client production and business generation activities to manage the firm. Also, placing a partner in charge who wants to be managing partner or is the most senior partner or lacks an adequate volume of client work and therefore does not have the respect of the partners may be a serious mistake. Experienced lawyer managers recognize that power in a law firm is exercised, never claimed.

“People skills” are one of the most important characteristics of a good lawyer manager, whether a managing partner or member of a management committee. Without these skills, sooner or later, even the best technician will fail. Hence, partners with good interpersonal skills will know when to seek assistance from other partners who may be better able to deal with technical problems.

This article discussed the role of the executive committee and managing partner in managing all areas of the law firm other than the practicing of specific professional matters.

In a law firm, most lawyers, including the lawyers on the executive committee, want to practice law. The amount of time they are available for management is limited and must be used wisely. To the extent the firm’s executive committee, or its managing partner, become involved in management activities that can be performed adequately by others, they frequently will be taking time from the management jobs that must be performed by them. While there are a number of functions that an executive committee should fulfill, its principal job is to make certain that all of the important phases of the firm’s activities are being well-managed, not to manage them all by itself.

There are some management functions that should be performed by the executive committee or by the managing partner and which normally should not be delegated. There are others that may be performed by the executive committee or the managing partner, but which also may be performed by individual members of the executive committee or other lawyers in the firm.

Where responsibility for these other functions is placed, should depend on making certain the executive committee and the managing partner have the time to perform the functions that only they can perform before they take on other functions and on which lawyers have the talent, energy and interest to perform them.

Lawyers are not initially recruited to a law firm on the basis of their interest or skills in management and they are not usually trained by the firm in these skills. Consequently, the skill and amount of interest individual lawyers have in management varies greatly.

Interest in skill and management are relevant criteria in selecting members of an executive committee, but providing representation to different groups of lawyers and possessing good judgment on policy matters may be more important criteria. As a result, some members of the executive committee may be good managers and others may not be. On the other hand, if the managing partner does not have some skill and interest in management, the firm may be in trouble.

Unlike with members of the executive committee and to some extent the managing partner, the firm’s administrator should be a professional. He/she should have the skill, training, experience and interest to do the job.

The Executive Committee

The role of the executive committee should be to monitor the firm’s economic performance and to provide the overall long-range planning policy and direction. The committee should make certain that systems are established and individuals are responsible for all the areas of the firm’s management. The committee should make major decisions or recommend major decisions to the firm. Examples of these decisions include: lawyer compensation, billing rates, decisions with significant economic consequences, i.e., unusual billing arrangements for major matters, opening additional offices, entering new areas of specialization. It is not necessary that the executive committee undertake all the leg work and analysis regarding these decisions.

It should, however, evaluate the upside and downside risks, the effect of the decision on the firm’s economics and individual lawyers and how the decision fits into the firm’s other policies and programs. Members of the committee should communicate with other partners in the firm, associates and key administrative personnel so that the executive committee has the benefit of views from other lawyers in making management decisions, so the other lawyers understand the decisions and programs that the executive committee adopts.

The Managing Partner

The role of the managing partner should be to provide leadership, including maintaining morale of the lawyers as a group and individually. The managing partner should anticipate management needs and make recommendations for fulfilling them. This partner should supervise the firm’s administrator and make decisions that are not sufficiently significant for executive committee consideration. The managing partner should implement executive committee decisions by informing the proper people of those decisions and by following up to see that they have been implemented. The managing partner should coordinate all management activities and make certain that the system and individuals responsible for the firm’s management are functioning properly.

Managing a law firm can be a very complex and time consuming function. Frequently, firms allocate various management functions to specific individuals who may occupy the position of managing partner or a member of the executive committee. However, in many firms, it is not unusual for the managing partner or the executive committee to request the assistance of other lawyers to perform and/or oversee the timely and accurate performance of certain management functions. Typically of these, are overseeing the firm’s financial matters and reporting system through the firm’s administrator. This may include preparation and monitoring of budgets, billings, collections and cash flow. Depending upon the firm’s organization and economic position, the managing partner or executive committee may request that other partners analyze management reports for time and money, recommend on investment of excess funds and banking relationships.

Management Tools

It is the author’s opinion that lawyer management should utilize tools available to manage the firm and motivate its personnel. These tools include, upgrading or downgrading partner status, increasing or decreasing draws, salaries or bonuses, reassigning authority and responsibility among partners for associates, paralegals, clients, billings, management or substantive areas of law and other administrative matters. In many firms, lawyer managers are evaluated on how effectively they have managed the firm and utilized tools to motivate attorneys.

The more successful lawyer managers recognize the value of allowing attorneys to use their individuality and set their own pace to achieve client and firm goals. However, lawyer managers also recognize the importance of developing a law firm into a cohesive unit, rather than a confederation of lawyers consisting of highly individualistic attorneys practicing as sole practitioners sharing facilities and overhead. The better lawyer managers recognize the importance of directing and channeling the efforts of highly intelligent and motivated lawyers into one or more units having common goals and objectives.

To the extent that partners acknowledge the concept of having a unified firm and agree upon a form of firm governance, the role, authority and responsibility of lawyer managers and minimum criteria or conditions of partner performance, the professional and economic objectives of the firm and its partners can be accomplished.

Partners in law firms of all sizes and specialties are able to articulate the benefits derived, as a result of implementing mentor-protege programs as part of a firm-wide career development initiative. However, for a variety of reasons, in a majority of firms, mentor-protege programs have not been implemented with much success.

To illustrate this point, let's take the case of a midsize law firm that is in a dilemma over its current associate complement. The associate "oversight functions" are performed by a committee of partners with assistance from the firm's office administrator.

Most committee members agreed that communications between partners and associates were inadequate. With the exception of discussions about new case assignments, information about the firm, its policies and operations were usually passed on to the associates informally by individual partners with whom the associates worked in an ad hoc manner. Consequently, the quality and quantity of information about the firm communicated to different associates was varied and idiosyncratic. Newer associates sought advice from senior associates about issues about the firm, work assignments and their personal concerns.

It has been the author's experience that many law firms that have attempted to pair associates with partners in a mentor-protege relationship have reported only marginal success. Partners who were designated responsibility for developing and implementing their firm's mentoring programs have reported difficulty when attempting to institutionalize mentor programs on a firm-wide basis. The principle reasons for less than successful results are that most partners are unaware of what their roles should be as mentors, and as proteges, most associates do not know what to expect from their mentors and the kinds of questions to ask without feeling embarrassed, because a partner may think the issue being questioned has not been sufficiently "thought through" and few, if any of the partners are willing to devote their time to fulfill their obligation as a mentor. As a result, associates are frequently apprehensive to approach partners with their questions and concerns, and seek advice from other associates.

Generally, at the beginning of their careers at a law firm, the needs of newer associates are fairly straightforward. They need direction about the firm's culture, work assignments, the firm's policies and procedure. From a team-building perspective, newer associates should be included in the chain of information about the firm, their practice area(s), the firm's plans and initiatives, particularly those that affect their work. From an educational perspective, they need to receive feedback about their performance on work assignments.

As associates obtain more experience at the firm, for purposes of reinforcing their relationships with other attorneys and staff and for building their morale, they want to know how they rate and if they fit in with the firm's future plans.

Partners' Roles as Mentors and Supervisors

Partners can facilitate the mentoring process by creating within their firms a culture by which all lawyers are expected to teach and to learn from one another. In those firms that have implemented effective mentor-protege programs, the mentor serves as a facilitator and source of information rather than as the protege's supervising attorney. The supervising attorney should be responsible for delegating and managing work to assigned attorneys. Inherent in these roles are the training, critiquing and evaluating the overall performance of young attorneys.

The role of the mentor is to offer guidance and counsel to the associate, as requested and as the mentor believes may be needed. Based upon the mentor's experience as a partner and an experienced attorney, he or she should offer information to the associate about the legal profession, along with firm policies and practices and how to build professional and personal relationships with other members of the firm. He or she should advise the associate how to successfully develop personally and professionally within the firm and within the legal community in which the firm is based.

Every mentoring relationship is different because of the unique personalities of the mentor and the protege, the firm's culture, the work environment and nature of legal assignments assigned to proteges. Inconsistent or conflicting expectations of the relationship between the mentor and/or the protege may cause the mentoring relationship to crater.

In many firms, newer associates are assigned to mentors. During their first meeting, the mentor should explain to the protege how their relationship will work, including such information as the nature, scope and parameters of discussion topics. Also, they should discuss any concerns either may have about the time commitment for communicating with each other.

For the mentor-protege relationship to work effectively, the more influential members of the firm must be supportive of the mentor program. Mentors must take their roles seriously, take the time to meet with their proteges and do their best to maintain the confidentiality of their communications

Oftentimes, younger attorneys may be intimidated to intrude upon their mentor's time to ask a question. However, the willingness of the partner to take the time to respond to an associate's question without making the former feel as though he or she is intruding for asking the question, will go a long way for building and reinforcing the mentor-protege relationship.

Associates' Role as Protege

As a result of personal interest, practice areas, mutual interests, personality differences and other factors, proteges may identify another partner whose advice they respect and who is supportive and willing to take the time to serve as the former's mentor. To the extent such a personal and professional relationship evolves, the "initially assigned" mentor should not take personally the younger attorney's decision to seek another mentor and seek retribution. If a mentor-protege relationship does not work for any reason, the associate should be encouraged to identify another mentor.

When selecting a mentor, a young lawyer will be well advised to find a partner whose advice they respect and who will be supportive, willing to take the time to communicate and meet regularly. To the extent the mentor practices law in the same area as the protege, a closer working relationship may be fostered, as the protege may ask the mentor questions about substantive issues.

Generally, it is not usual for a younger attorney to voluntarily select their supervising attorney as his or her mentor. If their mentor is also their supervising attorney, knowing that they will be evaluated by the same person, proteges may be apprehensive to speak candidly to their supervising attorney about issues affecting their working relationship, their desire to obtain work assignments in different practice areas, etc.

Managing and Mentoring Associates

One proven method of managing and mentoring younger lawyers that has worked well in many midsize law firms is to set up a system whereby the associates work closely with several partners and, at the same time, are under the control of a single supervising partner. The associate's mentor may be a partner within the same of different practice area.

In this system, the supervising partner should meet with the associate one or two days a week to review workload, problems and potential conflicts. Each client assignment should have a recommended due date, and the supervising partner should make sure the associate has a thorough understanding of the issues involved. The system involves setting up a uniform method for controlling the work assigned to each associate. This requires the associate to submit a report of their general workload and availability on a weekly basis. The associate should account for the next 14 workdays by estimating availability, and the number of billable hours to be recorded, for the following two-week intervals.

The information should be compiled and reviewed to determine how well the associates are doing in producing their targeted number of billable hours. All write-offs and write-downs of associate time should also be analyzed by the supervising attorney on at least a monthly basis to determine the reasons for such action. If any associate falls short of the estimated hours, the supervising attorney should discuss the matter with the individual on an informal basis.

A copy of the report should be sent to the supervising attorney and to the associate's mentor. This will enable the supervising partner and the mentor to review a summary of their associate's current and projected workloads, assess the availability and productivity of the assigned associate and determine the extent to which the associate is being trained in the types of work he or she wishes to do.

Even though it is recommended that the mentor not supervise the work of the assigned protege, the sharing of the above information by the supervising attorney with the mentor may be beneficial to the associate as the mentor may observe certain activities that would be obvious to him or her, but not to the younger attorney, that may become issues that affect the associate's progress within the firm.

The information provided in these reports and the supervising partner's experience in working closely with the associates, will enable the former to make recommendations about the associate's salary progression. The supervising partner and the mentor should review the associate's monthly billable hours and conduct whatever discussions are necessary to encourage additional effort. However, these meetings should not take the place of formal evaluations. A formal associate evaluation should be conducted by the supervising partner at six-month intervals for the first 18-months an associate is employed by the firm, and annually thereafter until the associate becomes a member of the firm. The overall evaluation process should be coordinated by the firm's Associate Committee along with the associate's supervising partner. The supervising partner should plan to conduct a formal, one-on-one evaluation with all associates, utilizing a written evaluation form as the basis for these meetings.

In many of the more financially and professionally successful law firms, the opportunity of the firm to profit from the transition of clients from a departing senior partner to other partners at the right time has been well established. In these firms, client transition has become a function of management and client development opportunity rather than the age of the departing partner.

Every client, no matter how large or small, usually has one point person who has the greatest role in selecting and retaining the law firm. And every firm, no matter how large or small, is usually connected to each of its clients by one person, almost always a partner, whose links are a little stronger than anyone else’s.

The underpinning of these links most often include: (1) producing high-quality work in a timely manner at fees that are fair to the client and the firm; (2) shared attitudes toward the client’s important issues, i.e., clients whose futures are affected by major social and political issues prefer lawyers who share their values, not merely advocate them, no matter how effectively the lawyer does so; and/or (3) personal ties based on family relationships, shared community interests and personal friendships.

Since there are plenty of competitor law firms that can and do produce high-quality work in a timely manner, at fees that are fair to the client and the firm, successful transitioning of client work from senior to other partners involves numerous components that have to be planned and implemented in an effective and timely manner.

Types of Client Transitions:

There are four types of client transitions: (1) the non-competitive, planned type; (2) the non-competitive, unplanned type; (3) the competitive, planned type; and (4) the competitive, unplanned type.

(1) The Non-Competitive, Planned Type:
Usually this transition occurs because the departing lawyer is retiring from the firm and is eager and willing to help. From the firm’s perspective, this transition has the potential to be the most favorable type in terms of client retention. The retirement may be complete, or it may be a career change to teaching, the bench, a house counsel position or a non-legal position. Once in a while a partner might leave in order to start an in-house legal department for a client. In that event, some of the firm’s work for the client will inevitably be lost to the newly-created legal department, but the firm should be well-positioned to retain whatever work it was doing, and which will continue to be out-sourced.

(2) The Non-Competitive, Unplanned Type:
The non-competitive, unplanned type is almost always because the departing partner may have died or became disabled. While the specifics of this type of transition cannot be anticipated, general preparations for the sudden loss of a partner should include some contingency planning for client transition.

(3) The Competitive, Unplanned Type:
These are the situations where the lawyer is voluntarily withdrawing from the firm, and he or she knows it before the firm. In this scenario the withdrawing lawyer may have the upper hand in the planning process, although the loss of his or her client is not inevitable. The relationship that partner has with the firm, and the continuing relationship of that partner and his or her client will usually determine the feasibility of the latter’s retention of that client.

(4) The Competitive, Planned Type:
These transitions may occur because the departing lawyer has been asked to leave the firm, and he or she likely will continue to practice in the community. Although senior partner terminations are rare, they do occur, and the firm may now have to compete with its former member to retain his or her clients. Usually, the firm knows the lawyer will be terminated before the lawyer knows it, and it can plan accordingly.

Role of the Departing Partner:

The role the departing partner played while servicing his or her clients will affect, to a great extent, the firm’s ability to retain certain of these clients. For example, if the partner managed his or her clients’ relationships so that other partners performed legal work for these clients, and the clients felt comfortable calling and referring work to these attorneys, the likelihood of retaining these clients is considerably better than if the partner retained personal control over these clients, served as the principle conduit between the clients and the firm, and was the sole communications link with the executives of these clients. The below examples describe partner/client relationships:

(1) Primary Personal Contact, Family or Personal Ties:
Sometimes the departing partner is the brother-in-law, next door neighbor or fellow lodge member of the person in charge of legal affairs for the client. In many, perhaps most cases, the personal relationship predates the professional one. This may be irrelevant in non-competitive departures, and may be insurmountable in competitive ones. Sometimes, however, even a noncompetitive departure may give the client the opportunity it has been waiting for ~ to change firms without offending the contact partner.

(2) Personnel Responsible for Producing the Client’s Work:
If the departing partner enjoys the respect of the client, and is the one the client looks to when the work is done, then the firm must be prepared to send another quarterback into the game immediately. Ideally, the client already knows the replacement, has worked with him or her, and has confidence that the firm can continue to provide the service.

(3) Sole Authority on the Client’s Important Concerns:
If the client manufactures widgets in Chile to export to Kenya, and if the departing partner wrote the Chilean-Kenyan trade treaties, then substituting a new lawyer will be much more difficult. Except when it is just impossible to do otherwise, a depth of one in a key position is no depth at all.

Six Transition Strategies:

(1) Plan Ahead:
Anticipating the impact of a key partner’s departure should begin when the client first comes to the firm. Client transition should be a function of management, firm culture and development opportunity rather than the age of a senior partner. The senior partner and lawyer management should develop a plan for the orderly transition of his or her clients (and networking relationships). It should be agreed upon by the partner and the client, so that all know which partners will be responsible for making it happen. Ideally, if the client is of sufficient size and financial importance to justify the investment of lawyers’ time, there should be at least two partners - a client team - who have a personal relationship with the client’s key person or people. Introduce these partners at an early point and do not keep “rotating” faces. If those lawyers are several years apart in age, the continuity will be natural and easier to maintain. When a lawyer retires from the firm, the linkage with someone else will already be in place, and the likelihood of the client leaving will be reduced.

(2) Pay attention to the client’s signals and messages:
Client entertainment is not a one way street. If your client seems to favor one of your lawyers by inviting him or her to the superbox at the stadium or to a charity gala, then clearly, this lawyer is your relationship manager, or one of them, regardless of what you or your other partners think.

(3) Start the transition before the client realizes you are doing so:
When you know the relationship partner’s plans for retirement, commence the transition process at least a year or two in advance, selecting the replacement. The likely new relationship partner should be included in the luncheons, golf outings and other client relation events, as well as in important meetings involving the client’s legal work. Observe carefully how the candidate and the client respond to each other. If the personal chemistry is not working, you will need to try a second or third candidate until the right person is identified.

(4) Keep the current relationship partner anxiety-free:
He or she must be your willing ally in the transition process, not a reluctant or resistant foe. To that end, add rather than substitute a relationship partner. Both the existing and the new relationship partners should continue in those roles, even after you believe the new person is securely established. The partner who knows that he or she is training an addition to the role instead of his or her own replacement will be much more cooperative and helpful. Certainly, the original relationship partner sees what is happening (if he or she is so naive that he or she does not see it, he or she would not be in that role), but his or her eventual departure should be (or appear to be) on a mutually acceptable timetable.

(5) Avoid negative consequences for the outgoing partner:
Compensation is an important component affecting the transition process. Do not reduce compensation because the relationship partner spends less time at his or her task. You want him or her to spend less time so that the new person has the opportunity to work at the relationship. In fact, we are proponents of rewarding the responsible partner for making the successful transition happen. Give that partner a goal to transition by a certain date and provide a bonus or other incentive if the transition goes well. Do not take away the perks that the relationship partner truly enjoys. Buy an extra ticket to the ball game or the theater so that the relationship partner does not experience a tangible and possibly embarrassing reduction in his role in the firm.

(6) Select the right replacement partner, based not only on personal qualities, but also on experience in legal practice areas:
The most capable and charming “creditors rights” practitioner may be a poor choice as a relationship partner for your “Silicon Valley” or “entertainment industry” clients. While it is not necessary that the relationship partner also be primarily responsible for the client’s legal work, it is essential that the partner do at least some of it and know something in the practice area. The new relationship partner can succeed only if there is some common ground with the client. This is not often true when the first relationship partner, or the originating attorney had such experience.

Depth of Personnel:

If the client is big enough, consider having two or even three relationship partners, preferably with two or three decision-makers at the client. The originating attorney should maintain the relationship with the original contact partner at the client and the partner responsible for doing the work should establish his or her own contact person - perhaps general counsel or the client’s CFO.

Direct contact between the client’s staff and the lawyers doing the work should be encouraged. Every contact point between the lawyers and the client can strengthen the relationship. Different partners should entertain and socialize with the client at appropriate times. The original relationship partner can take the client to the ball game and play golf with him, but, the partner who is on the museum board should escort the client to the gala new exhibit opening (with the invitation brokered by the relationship partner).

Establish and maintain multiple linkages wherever possible. If the client and one of your lawyers are both on the Little League board, or active in the Chamber of Commerce, that lawyer should, if possible, have some relationship responsibilities for the client.

Client Relationship as Part of the Firm’s Culture:

The firm’s lawyers should be educated about how much easier and cheaper it is to retain a client than to replace one. Every member of your staff is part of the client retention-transition team. Often your secretaries and other staff will have meaningful interaction with your clients, and in smaller firms, may even be the “originators” for some clients. Therefore, encourage and support lawyers who are establishing both personal and professional ties to clients - even those who are not part of the official relationship team.

“Share” Clients:

Partners should be encouraged to involve a second attorney during initial client meetings and continuing thereafter, with the objective being to have a second attorney in the firm with whom the client would interact on a regular basis, wherever and whenever practicable. To address the non-billable concern of involving a second attorney early on, if that concern is an issue, consider advising the client that billing for meeting will be at a “blended” rate, somewhere above the senior partner’s rate and the combined (two) rates. Depending upon the nature of the matter and the potential revenue to be derived from that client/matter, it may be advisable for the firm to absorb the cost of the second attorney attending that initial meeting.

Compensation methods should encourage originating partners to spread the work around, and not hoard it. Therefore, at least some fee credit should go to the originating partner, no matter who does the work. Further, the compensation system should reward partners for delegating work to others, especially to those who possess expertise in different practice areas, rather than overemphasizing revenue from the personal production of partners, which frequently leads to the hoarding of work outside their areas of expertise and limiting the exposure of clients to other partners in the firm.

Allowing your partners to increase their exposure to and relationship with your clients can increase the risk that a departing partner will take some of them with him or her, but, if two or three partners are responsible for and are in contact with the client, then when a lawyer leaves, the task is to preserve existing links, not create new ones, and that is much easier to do.

Too many lawyers in private practice are frustrated in achieving their personal and professional objectives because of the absence of sound management and administration of their firms.

Many attorneys seem to take comfort in the notion that like the legendary shoemaker, they are too busy with client affairs to look after their own administrative and financial matters.

The primary cause of many of their problems is related directly to their own doing. Many attorneys, highly trained and skilled in substantive areas of law, regard their prime mission in life to be of service to their clients. When this attitude is coupled with the belief that firm administration is a “necessary evil,” the situation oftentimes leads to the negligence of the business affairs of their law firms.

Attorneys join firms to achieve benefits which would not be possible if they were to practice on their own. These benefits include the opportunities to consult with one’s partners, to acquire a diversity of skills, to take advantage of the accumulated experience and reputation of a firm, to attract larger and more prestigious and profitable clients, to benefit from the economy of size through more efficient and effective management practices, systems and services, etc.

These advantages have contributed significantly to the dramatic increase in the number and size of general practice specialty law firms in recent years. From the point of view of an attorney in a smaller firm, growth generally is considered desirable. However, growth does pose problems in the management of individual lawyers, facilities and resources. Attorneys in smaller law firms can keep well informed about their firm’s activities by personal observations and involvement. However, once a group of lawyers reaches a certain size, some formalization of the management processes must be imposed to ensure adequate control over all of the firm’s affairs.

Symptoms of the Need for Better Management:

1. Vague and ambiguous firm economic and practice objectives. In growing law firms vague and ambiguous economic and practice objectives are oftentimes indicative of an absence of direction towards results that are compatible with the personal, professional and economic objectives of their partners. Every law firm that expects to have a profitable practice must identify objectives. These objectives should be formulated and expressed in terms of revenue, firm-size, management structure, type of practice, etc. An important reason for defining objectives is to ensure that maximum effectiveness can be achieved in the day-to-day operations of the firm.

2. Poor or uneven utilization of professional personnel. Adequate control over the utilization of professional personnel is fundamental for a law firm to be profitable. The success that a firm will have in providing quality legal services in an effective and timely manner will be in direct proportion to the firm’s ability to manage and control its lawyer personnel.

The extent to which lawyers may be utilized most effectively, ie., working in certain substantive practice areas as opposed to others, training of associates, managing the firm and substantive practice area, etc., depend on the willingness of the members of the firm to subordinate their personal and professional goals for the benefit of the organization. Unless lawyers perceive that firm management possesses the perquisite skills to manage effectively, there will be little or no organization.

3. The unreasonableness of firm’s overhead costs. Control of overhead in growing law firms is particularly important because many overhead and administrative support costs tend to grow disproportionately to professional activity. Accordingly, firm management must be watchful about the persistent increase of unreasonable overhead that may drain away profit.

Overhead costs are usually the most complained about but frequently the most neglected from the standpoint of management control. Overhead tends to increase more rapidly and to decrease more slowly than the level of professional activities which they support. Regardless of the size of the law office, overhead should be controlled by means of a budget for each type of expense, i.e., nonlawyer employment costs, occupancy costs, other direct and indirect costs, etc. This budget, established as part of an annual financial plan, should represent the total expense required to support the expected level of revenue producing activities.

4. Poor control over cash flow. The impact of management control on cash flow is most crucial in the areas of billing, collections and utilization of lawyer personnel. Payments for administrative and associate personnel, rent, and other overhead items are relatively easy to anticipate. However, the timing and the amount of cash revenue, especially in firms with a high proportion of transactional type matters, must be well controlled, starting at the point where lawyers accept client work. Every hour of billable client work creates an opportunity to receive income in the future.

Three points are important in this connection. The first is the necessity of arriving at a clear understanding by the firm with each lawyer to produce revenue that exceeds their salary or draw, direct and indirect overhead and some provision for retirement. The second is the need of communicating to and obtaining from clients their agreement about the amount to be billed and the timing of billings for fees and disbursements. This understanding should be reached at the time of acceptance of a client matter and confirmed in writing. The third point is that the revenue derived from the representation should be measured against a standard, mainly the time/dollar value of the work performed which represents the number of hours devoted by the lawyer multiplied by the assigned hourly rate. This standard is recommended because the assigned hourly rate should be based upon the number of billable hours to be worked, overhead, profit and/or retirement.

Any client billing not equal to or less than time/dollar value by some agreed upon dollar amount or percentage involves a write-down which, by firm policy, should be approved by some partner other than the billing partner. Because of the myriad reasons for write-downs, i.e., less favorable results, training time, underestimating the fee, etc., a distinction should be made in the management reporting of each.

The billing process should include the systematic review of unbilled time and accounts receivable. Unless a systematized procedure has been designed and implemented to ensure adequate control over billings and collections, cash flow will suffer.

5. Absence of management leads to disorganization. Many lawyers are less proficient in managing their own firms than they are in serving their clients because of the organizational nature of the partnership form of business. Law firms, organized as partnership or structured as professional corporations that function as partnership, may enjoy financial success and growth because of the close association between the client and one or more of the partners who bind the firm to that client. Although the partnership type of organization may be effective for maintaining client relationships, it frequently fails to clarify the differences between the equity position of attorneys and the organizational structure and management obligations of partners. For this reason, a relatively loose organization involving a purely democratic relationship is oftentimes unsatisfactory for handling many of the firm’s internal affairs and for assuring the desired profitability and growth.

The need to make distinctions among ownership, management and professional practice, becomes readily apparent as a firm increases in size. Generally, there are two types of rights and responsibilities involved in a partnership form of organization. The first are those arising from the partnership agreement, which, are proprietary in nature. The second are those arising from the method of firm governance, which includes functional responsibilities of certain partners for managing the day-to-day and long-range planning activities and substantive areas of practice.

Good management practices in a law firm cannot be achieved unless the privileges, obligations and responsibilities of partners are established and agreed upon. Effective management begins with organization. Organization for a law firm begins with the identifications of a managing partner who may function as a chief executive officer, an executive committee that functions in a manner similar to a Board of Directors, or a more representative committee system that receives direction from the managing partner or the executive committee.