Practical Tips On Mechanics and Economics of Employing Graduate Lawyers…

On 11 August 2015 I posted a suggestion for improving the job prospects of Graduate lawyers, hopefully improving their stress levels about getting a job.

In that post I mused that the median starting salary for Graduates in NSW of $55,000 might be seen as a barrier to the economic viability of an employment decision by some Principals in small firms.

It certainly need not be, and in this post I will provide some pointers on how I approach this with my clients in firms throughout Australia and in New Zealand.

Many of the points will not be news at all to managers in larger firms.

At the outset I should say very clearly that it will be very hard to create a mutually satisfactory relationship with a Graduate lawyer if a firm allows them to meander or waft around the practice unfocussed, expected to both learn and somehow benefit the firm through some mysterious amalgam of osmosis and effluxion of time.

Unfortunately this approach is exactly what happened in the past in far too many small firms, leading unsurprisingly to mutual disappointment in many cases.

Reviewing the KMS client small firms currently employing graduates successfully, all have the team members on WorkPlans™, working on actual client files closely with more experienced practitioners.

Graduates certainly need training, but the main body of training should be in real world situations, assisting others meet the needs of the clients. In addition there will be ad hoc and formal training away from the files, including Continuing Professional Development.

The essence of a KMSWorkPlan™, for a practitioner of any experience, is that it focuses the agreed inputs of the individual to where the firm needs them, at the same time as meeting the needs and interests of the team member.

For the newly-graduated team member there will be many areas of KMSFirmTime that are relevant for more experienced practitioners that are not relevant to them.

For example, it will be a rare (but certainly not non-existent) Graduate that will have a lot to contribute in the areas of Precedents and Knowledge Management, Supervision and Training, Mentoring, and certain types of Marketing.

Looking at the WorkPlans of current Graduates in KMS client small firms I have put together a sample that interested readers are welcome to have. I’m happy to provide it to interested firms who email me at Graduates@lawfirmprofit.com

For the purposes of discussion I have used a modest average work day of just 7.5 hours net of all private time, that the sample Graduate would be employed to work for the firm, and be expected to capture details of all activity, whether that be ClientTime™ or FirmTime™.

I am very aware that many Graduates are expected to work significantly longer days than 7.5 hours, but I wanted to use the shorter day to emphasise my point about the economics.

After allocating almost 350 hours a year of FirmTime™, mainly to formal and informal training, the Graduate in my example still has six hours a day on average to invest in assisting more experienced lawyers with appropriate tasks on their client files, further learning all the while.

Exactly how firms choose to charge various types of work to various clients does not make much difference in practice to the economics of having a Graduate on board. As more and more firms move away from having large slabs of their services charged by the hour, there will still need to be systems for calculating even an approximate relationship between all costs of having any employee and the revenues that proper utilisation of that employee can generate.

In my current example, drawing on current practical experience in client firms, such revenues should be in the region of $175,000…details are set out in the sample WorkPlan™ referred to earlier.

Two points should be noted.

In the sample I have used a notional hourly rate of $175, and have assumed that across the first twelve months only 75% of the Graduate’s effort invested into client files will make it into a bill rendered to a client.

I regularly see Graduates doing far better than this, depending on their own abilities, and the training and supervisory skills of those they work with, but believe being conservative is a safe route in this planning.

I would also suggest setting fee contribution targets for month one at 50% of the standard WorkPlan™ calculation, and month two at 80%. This builds in extra time for the team member to get up to speed.

I believe it is important for a Graduate to learn early how to prioritise work, coping with competing demands of clients and others, and working comfortably despite having at all times a healthy backlog of client file work. The supervisor must take a very active role in ensuring that this happens.

No doubt some supervisors have a bit to learn themselves to make these relationships work well, but for my part, having available a keen, smart, Graduate to assist with relevant tasks on my files is a very useful option, allowing my own focus on tasks much more worthy of my experience.

From experience, it is not likely that an lawyer will meet annual WorkPlan™ targets reasonably set if they don’t have a healthy backlog at all times, enabling them to do a full day’s work pretty consistently while meeting all the reasonable (and sometimes unreasonable) deadlines.

Finally for this post, I suggest protecting your sanity, and doing the right thing by the Graduate, in insisting that only their best efforts be presented to you for review. Your role should not be in fixing obvious errors. A useful “acid test” is to require the employee to “warrant” that they would be happy for their work to go to the client or to the Court in the state it is presented to you.

Why don't small law firms employ more graduates?

How The Legal Profession Can Improve Employment Prospects For Law Graduates…

Once again the debate is re-ignited about the future employment prospects of law graduates. The Report described below canvasses previous research, and it is extensive but often incomplete. Many recommendations have been made over the years, including restricting the flow of new graduates!

The Working Group established by the Law Society of New South Wales in June 2014 carried out considerable work and provided a 29-page “Future Prospects Of Law Graduates” Report to Council in late April 2015.

The eminent Working Group drew on a wide range of available data, but concluded that a lot more useful data is needed, and indeed four of its nine Recommendations related to a perceived need to improve data.

There seems to be a marked mismatch between the perception of, “…anxiety within the Legal Profession and law schools about a lack of employment opportunities for law graduates”, a key finding of the Report, and one conclusion of the Report that, “…it appears that NSW law graduates are not (my emphasis) exceeding new entrants to the NSW Profession”.

A recent survey of law students drawn upon in the Report indicated that at least 50% of students report feeling stressed most or all of the time about finding a relevant job after they have graduated.

Whether or not there is a real problem with employment prospects for law graduates in NSW or the wider Australian market, my concern is that an obvious area of opportunity to widen potential jobs for graduates has not been dealt with meaningfully in the Report.

The problem has not in any real depth been addressed from the perspective of increasing substantially the potential private practice positions available to graduates.

There is a Recommendation to develop strategies to increase participation by firms, and other potential employers, in Law Society Graduate Employment and Summer Clerkship programs, but it does not in my view go nearly far enough.

At present, involvement in these programs is quite modest, and mainly by the larger firms, and the Working Group acknowledges this. A very quick scan of the list of firms participating in 2015 reveals almost no small firms.

At any event the particular program is of relatively narrow scope. It can be improved no doubt, but frankly small firms would be better to spend all or part of the Annual Participation Fee of $770 on highly relevant training they can apply year in year out.

What is not addressed is that the vast bulk of private law firms in NSW (the main potential employers) is made up of small firms, with 4 principals or less, and around 75% of firms have just one Principal. There are many thousands of these firms and great potential to employ more graduates.

If the creation of increased job opportunities for graduates is a desired outcome, I would have thought that a dramatic improvement in targeted training for small firms across the State (and country) in how to effectively use graduates would need to be the order of the day.

With the median starting salary for NSW graduates at $55,000, there is an obvious perceived barrier for smaller firms if they do not understand exactly how to manage the dynamics and economics of employing graduates.

They need specific training to show them what to do, so they have the confidence to take the plunge and employ graduates.

For most small firms, employing a graduate cannot be altruistic. The application of the graduate’s abilities, alongside others in the firm, to a client’s challenge, has to provide a reasonable return. In addition to the short-term benefit, there will be a longer-term strategic benefit from those graduates who remain with the firm. More experienced lawyers who have proven themselves and understand the firm’s culture are gems indeed.

When the Principals of these firms read in the Report, and in comments in legal media, that, “…lawyers - from recent graduates through to senior partners – have to play a new game in which the rules for forging a successful career are still being established”, it does not give them increased confidence to become the employer of a graduate.

What they do need is relevant practical examples of how small firms just like them are already successfully employing graduates, and making them important parts of their teams, dealing both with today’s economics and building legal talent for the future.

They do not need to hear yet again that, “… pricing pressures, globalisation, new technologies and shifting demographics have altered the legal services market”.

We all know that the Profession continues to change rapidly, but many of the major trends in the Legal Profession are for the time being impacting firms outside the small firm group.

Of course some are vigorously using technology, and lower-cost offshore resources, and many feel pressure on pricing, but for the vast majority of smaller law firms these are frankly not presently barriers to employing graduates.

Anecdotally, many of the small firm Principals perceive that the “better” graduates get employed by the larger firms, and that the candidates left for them to pick from are somehow less than ideal, perhaps needing more scarce resources applied to them to make them “useful”. This is simply not the case. The quality of candidates available to small firms is quite exceptional.

The main issue in my experience is confidence, and we need to create programs to create or restore a healthy level of confidence in as many potential small firm employers as possible.

The target audience needs programs that teach:

Sensible pricing approaches…where the “billable hour” is much less relevant…

Sound marketing approaches, to increase enquiry for services and reduce pressure to get new instructions at almost any cost…

Practical people management skills…

Modern budgeting…

Accurately tracking “performance”…

Supervision and training skills…

How to provide appropriate feedback and maintain motivation in employees…it’s way more than the simplistic (and almost always ineffective) bonuses!

Most, if not all, these areas are ones in which many Principals in small law firms can do with training in any event.

There are many challenges to small law firm profitability, and most of the answers lie in the management skills of the Principals. My observation from the 1330-plus firms I’ve been involved with is that where the Principals have the right ambition, and are willing to improve their skills, they reap the rewards in improved Professional satisfaction and in profitability.

Ongoing strong profitability is important because it greatly assists with the financial health of firms, helps reduce stress, and allows firms that wish to take more sensible commercial risks to do so.

Certainly the more profitable smaller firms these days almost always have much greater than average leverage between Principals and employees, and successfully managing that dynamic requires improved management skills.

Smaller firms tend to find it more difficult to employ managers with the right skills, and often operate with a delicate balance between Principals’ skills and greater experience brought to the table by proven consultants, across the necessary range of disciplines.

It should be noted that the Working Group did try to draw on wide contributions, including seeking contributions from Regional Law Societies, but its references to consultation in the Report do not make any reference to Management Consultants working with the Profession, in firms large or small.

Many of the small law firms I’m involved with employ graduates very successfully, but I’m very aware why many say they do not.

Improved, cost-effective, training may well be a big part of the answer to creating greater employer participation, increasing opportunities for graduates and, over time, reducing stress levels.

The right sort of training will also be very relevant to small law firms getting proper returns from employment of Law Clerks, Paralegals, Conveyancers, and even the more experienced lawyers.

It will be interesting to see if targeted training of the required type is developed.