The US legal industry enjoyed double digit growth for five decades until the Great Recession of 2008, when demand for services dropped by 5% and outside counsel spending declined by 11%. It was a serious crisis that led firms to forego annual hourly billable rates increases, sever marginal practices, buy out equity partners, suspend promotions, layoff associates, and aggressively move to contain costs. Such measures were unprecedented in an industry that had enjoyed so much munificence for so long.
But law firms are remarkably resilient. It took a mere three years to recover; revenues were $237 billion US dollars in 2009 (the worst year of the recession), and $248 billion in 2011. Revenues are estimated to be $288B by 2018. That’s a 10% increase compared to 8% in gross domestic product over the same period of time.
The industry is that crucial, that fortunate, or, likely, both.
The question is whether the lessons of the downturn were truly learned, or whether law firms will return to the standard operating procedures that had served them so well for so long. They’re still susceptible. General Counsels are still cost conscious, and partnering remains an expensive proposition, though necessary to retain talent. JD graduates have declined by around 15% in the last five years, which may seem a welcome market correction, but could presage a labor shortage. Fixed costs like real-estate are climbing in most metropolitan areas (where medium and large firms must have a presence), as information services have done the same.
Despite the largesse bestowed upon the legal industry, adapting, adopting, and prospering requires carefully balancing nurturing clients, fostering young associates, and minding the business side of the equation. The tension between practicing law and managing the firm is giving way to the realization that the latter had been largely overlooked, only meagerly funded, and often underappreciated.
As is often the case with crisis, reactive and proactive forces aligned to progress, in this case taking the form of admitting a new breed of professionals into the paneled halls: the practice and business manager. The extant pressure led firms to integrate the valuable input of highly trained professionals on business and management decisions such as, economic performance, strategic expansion, succession planning, practice valuation, and growth strategies, among other law firm priorities. Examples of position titles include Team Manager, Practice Manager, Business Manager, and Manager of Operations and Practice Strategy.
Law schools do not teach business management. Nor should they. It’s enough work to get a JD or an LLM and master a practice specialty like tax or intellectual property. And once an associate, the time demands required to elevate to partner simply don’t allow business-oriented rotations. And once a partner, initiation and client relations are plenty absorbing. The practice of law–the time and talent absolutely required of rising or established lawyers–is not conducive to honing the skill set necessary to lead a business.
This is why a partnership between lawyers and businesspeople is a natural fit, though not always a smooth one. It’s not revelatory that law-firm culture evinces a tensions between lawyers and administrators. Such tensions are common in partnership-based organizations and the professional service industry industry, including consulting, accountancy, banking, and academics. Nothing new here. Fortunately, this chasm can be spanned. As with all organizations and industries, the key is leadership.
Professional law firm administrators are growing in numbers and influences because they provide demonstrative value. They bring an array of attributes including advanced business educations, diverse career experiences, prior management responsibilities, and fresh, innovative perspectives unfettered by the way things have always been done. They are skilled in budget management, industry analysis, business development, functional operations, economic trend, market penetration, product release, branding, and a whole host of other business endeavors. But more importantly, savvy professional administrators can surface visions and missions, analyze strength, weaknesses, opportunities, and threats, plot rational strategies, and cross-promote practices. These managers also bring a soft set of collaborative skills necessary to build high performance teams and foster trust.
To build a sustainable business model, law firms must approach their practice and business holistically. The point has come where the former unequivocally requires the latter. Successful organizations are organisms that need a host of supportive, reciprocal organs to survive, strive, and thrive. Law firms are no exception. That means introducing and elevating talented actors who contribute to the business by adding value through metrics other than justifiable timekeeping.
Professional law firm administrators will continue to play a pivotal and compelling role. But the speed and degree at which they are meaningfully integrated depends on the managing partner and management committee to endorse and enforce their role in the firm. The managing partner needs to persuasively articulate the need for strategic growth and validate the critical role of business professionals in addressing that need. Documenting external pressure from clients, competition, and the economy in general—in a fashion that will speak to partners and associates—is key in securing those parties agreement. Even stable and growing firms should not rule out proactive change in the form of sustainable business models shepherded by experienced business professionals.
The legal industry’s future is deeply dependent upon the trust built between balancing the practice of law with the business of the firm. The former serves to advance client needs and defends the law of the land, whereas the latter navigates the firm to a vibrant financial footing and exciting opportunities. A robust, symbiotic relationship between equals is the key to productively deploying resources, creating cooperative and rewarding cultures, and introducing fresh and innovative ways of approaching practice relationships. The recruitment, retention, and promotion of highly qualified professionals is a primary source of value-add, and with the implications of the last decade still fresh, law-firm leadership should act forcefully to fulfill this underutilized potential.
James Bailey is Professor and Hochberg Fellow of Leadership Development at the School of Business, George Washington University.
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