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Newsletter Robservations in Law 18 October 2022

First in series on ways in which lawyers tend to be their own worst enemies when it comes to managing their small-medium firms.

Successful leverage is NOT the privilege of big law firms only!

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In assessing factors improving chances of law firms being genuinely profitable, structure is definitely important, and in discussions involving experienced commentators the issue of “leverage” usually pops up early on.

 

Leverage in the most practical terms is the number of full-time equivalent employed lawyers to principals.

 

There are few absolutes around why this ratio is important, with firms being so infinitely varied in areas like work types, locations, market sectors serviced, culture and financial plans, but generally it is considered that firms with better ratios have the best opportunity to be more profitable because:

 

·      they should find it easier to generate total revenues that leave a bigger gap to those firm expenses that are relatively fixed, and thus total expenses, and...

·      there are fewer owners relative to the resulting profit, so a larger slice of pie for each.

 

The National Profile of Australian Solicitors 2020 reported 16,393 private law firms operating in Australia.

 

Of those firms a whopping 82% were sole practitioners (no other lawyers), or firms with only one principal (and at least one employed lawyer).

 

Firms with between 2 and 4 principals made up another 10%...so those two groupings accounted for 92% of the firms in Australia.

 

Nationally, the employed solicitors to principals ratio in 2020  was 1.5:1.

 

The firms with the highest, and supposedly, best, ratio were firms with 40 or more principals, at 3.3:1.

 

At the other end of the spectrum, unsurprisingly the ratio in the 82% of the firms mentioned above was actually below 1:1, at 0.7.

 

It accords with many observers’ perceptions of the profession that profitability is greater in the larger firms, and low to non-existent in the smaller ones.

 

However, it does not need to be the case, for example, where a firm with only one principal has a number of employed lawyers and other team members who generate significant revenues, and is relatively well managed.

 

It should not be a controversial thought for most readers that a firm with apparently good leverage can be utterly devoid of profit if not sensibly managed. More employed lawyers doesn’t translate automatically to good productivity, or even enough work to allow for good productivity.

 

Some of the firms in Australia with the best profitability per principal are sole practices, after allowing for a reasonable notional or actual salary for the principal.

 

So, a key question arises. How best to get to a very good structure, with very good productivity?

 

The answer in my long term Robservation is a principal who has learnt why well-functioning leverage is so valuable, and both knows how to go about it, and is sufficiently well-organised, and well supported by internal and external management resources, to consistently have done what needs to be done.

 

The principal must understand that he/she is first and foremost a business operator, and be committed to acting as such, limiting inappropriate involvement in client file work.

 

It should go without saying that a principal who is regularly bogged down with client file work, such that he or she cannot lead the firm and work closely with its management resources, will not be able to pull it off.

 

All systems have to be well-designed and operating well, with all key players knowing their roles and executing them.

 

Marketing and business development, work allocation, engagement management, fee disclosure, credit management, file velocity management, risk management, pricing, talent acquisition and retention, and business management involving IT, premises, insurances, finances...all need attention with requisite skill, and the right people resources have to be in place.

 

It’s easy to see why so many practices in the 82% grouping can’t make it happen, with an average of under one employed lawyer to assist the principal in generating the revenues that will allow for robust financial health, and buy the principal plenty of time to lift his or her head to plan and adapt and actually run the practice on the front foot in all critical respects.

 

Of Coaches, Trainers, Mentors and Consultants...and important distinctions...

Of Coaches, Trainers, Mentors and Consultants...and important distinctions...

 

I’ve been giving  some of my contacts a heads up about Coaching Advocates, https://www.coachingadvocates.com, a terrific organisation relatively new on the scene, that provides coaching across the world for lawyers and executives by a team of legal people who are certified coaches.

 

I have an affiliation with Coaching Advocates because our service offerings to lawyers are complementary...and, in particular, our “By lawyers, for Lawyers” fundamental positioning.

 

One reaction I’ve had, which I probably should have anticipated, is to the effect of, “But Rob isn’t coaching lawyers what you’ve been doing for decades”?

 

If you’d asked me that a year or more ago, I would have answered with a very strong, “Yes”.

 

However, in discussions with the Directors of Coaching Advocates where we canvassed what I do for lawyers that they don’t, it became very clear to me that coaching, mentoring, and consulting have very different purposes and methodologies.

 

I’ll let Lara Wentworth, one of the Founders of CA, explain.

 

“At Coaching Advocates, we’re passionate about helping individuals and organisations think differently and do better. 

As lawyers coaching lawyers (and executives), our mission is to modernise the way law firms and corporates work, creating a more sustainable and healthy work environment for staff without compromising on the bottom line. 

We show our clients how they can achieve success and high performance without having to sacrifice personal happiness, health, and fulfilment. 

We help our clients create supportive teams and coach individuals to increase their self-awareness, express their individual talents and styles, and become more effective leaders and team members. 

The end result? A work force of professionals who enjoy successful careers, make valuable contributions to their organisations, and lead fulfilling lives both inside and outside the office.

 

Where coaching differs most from the consulting work with lawyers that Rob has been doing for more than three decades is that coaching is about helping individuals and teams identify their internal obstacles and learn how to manage and overcome them. So, in that sense the coach does not “instruct” or “advise” a person on what to do, but rather, they use proven techniques to elicit a person’s own strengths and resources, so that the person can define the direction and map out the best way forward. 

 

Knowing and believing in the power of collaboration, the Founders set out to bring together a global community of like-minded professional coaches and trainers dedicated to helping organisations and individuals:

 

·       challenge the effectiveness of traditional practices;

·       reframe limiting mindsets;

·       and implement necessary change.

 

We established CA in 2020 and are now a global team comprised of 12 lawyers turned professional coaches spread across 5 continents and 7 countries. Each of our coaches is, or has practised as, a lawyer or within the legal industry, working across multiple practice areas and industries, and in various countries around the globe.

 

We have an intricate understanding of your world and the pressures imposed on you both professionally and personally. 

 

Each of our coaches has completed rigorous training programmes across a variety of coaching methodologies and specialities, including: ontological coaching; neuro-linguistic programming; Positive Intelligence; Whole Person coaching; Positive Psychology; team coaching; high-performance coaching; and Enneagram coaching”. 

  

The Lawyer's need for eyes on the ground...c'est la vie!

 Similar themes run through many aspects of life...

A common refrain I hear from lawyers in small and medium-sized practices is that while they personally are very busy, and their employees all seem to fluctuate from busy to very busy, liquidity is tight.

Any cash reserves are dwindling fast, or the overdraft facility is yet again looking more like a fully-drawn loan. Drawings are meagre at best.

Stress levels are definitely way beyond comfortable, even useful, stress.

Essentially the enquirers I get in that category, wanting to have a chat about how I can help, range from being mystified, to disappointed, and even angry.

They have conceded to themselves that “something” must be wrong, but haven’t been able to determine just what it is, and have therefore not had any basis to formulate a useful plan of attack.

In my interest of dressage riding we have a well-known term for what is needed to identify where things aren’t quite right, so a decent plan can be set up to fix the biggest problems first...the ones that really matter right now, and will be essential building blocks into the long-term future.

We need really experienced “Eyes on the ground”. 

It’s not a question of whether we should ever have arrived at the situation where we can’t figure out for ourselves what is wrong and rectify it. No blame needs to be assumed or assigned.

The really is we have, that’s where we’re at, and trying to sort it ourselves has, for whatever reason, not worked.

We need some experienced help to watch what we, the horse and I, are doing, and suggest where either or both of us need to make adjustments.

The exciting thing about dressage riding, and legal practise, is that what the owner of the experienced “eyes on the ground” will suggest you do is never rocket science, and can be implemented relatively easily for vastly improved results.

The feeling you get from turning each corner and feeling the change in the horse is enervating.

Very seldom do you actually need a completely new horse (although many an owner has been told they do by well-meaning friends and those so-called experts who really aren't).

Someone immersed in the problem who is busy and stressed will be best at recognising there has to be a problem with the way things are being done, and far from the best at knowing what needs to change and how to go about it.

The first step is to chat with someone demonstrably experienced, not to get your answers, but to identify that you would be comfortable working with them, and confident that they will be able to provide common sense, workable, solutions for your particular circumstances.

Reviewing testimonials and talking with current and former clients of the practice coach, or dressage coach, will help crystallise your confidence.

If parts of your firm are not yet firing on all cylinders post the massive disruption of the pandemic, it may well be the right time for your “Eyes on the ground”.

Rob Out and About…August 2019

For NZ readers, College of Law NZ, “The Business of Law”…there are 2 in-house sessions available year round…

“Maximising Financial Performance and Profitability” link ZH2019-MAXF and “Acquiring New Business and Fee Generation” link ZH2019-AQBUS…I am delighted to be presenting five of these sessions in Auckland, Wellington and Christchurch from August 26^th to 29^th…

At present I have some limited slots that week to meet with representatives of firms for an introductory chat over a coffee…feel free to email me to explore the possibilities… robk@lawfirmprofit.com

I’m delighted to have been asked to deliver a session on “The Critical Drivers of Profitability” at the 7^th Managing Partners’ Forum…Boutique and Small Firms, on 15^th and 16th August, at Werribee, Victoria.  The two-day program looks superb and the learning/networking combo at a terrific venue a great opportunity. More here

The Critical Need For Small Law Firms To Make a Real Profit

I’m very much enjoying writing a series of short articles for “The Australasian Law Management Journal”, aimed at the Principals, and other managers, of the smaller law firm.

The Journal is a publication of Law Management Hub, an initiative of a committee of the Legal Practice Section of the Law Council.

The Law Council of Australia represents the Australian legal profession on national and international issues, on federal law and the operation of federal courts and tribunals. It works for the improvement of the law and of the administration of justice, and represents 65,000 Australian lawyers through their bar associations and law societies and Law Firms Australia.

The third article link is here...published early April 2019...

The Critical Need To Make A Real Profit

The first two articles were published in October and November 2018, and can be found at these links:

The Critical Interplay Between People Management, Productivity, and Profitability  

The Relationship Between Profits and Fair, Reasonable, and Proportionate Fees

Very privileged to be asked to join an impressive list of 12 speakers at the inaugural Small Law Industry Summit in Sydney on Thursday 14 March, 2019.

Full day Agenda can be found at https://www.leap.com.au/summit/#agenda

Incredible value at just $86.36 plus GST for Early Bird registration, with 6 CPD points available, and 50% of ticket sales go to a very worthy charity.

"The Small Law Industry Summit will convene some of the legal community’s most prominent thought leaders to discuss key issues of leadership, risk mitigation, practice management and innovation, high-performance cultures and the fundamental role of technology in shaping the future of the legal profession. Takeaways and extensive networking opportunities from each session can be applied to the challenges and opportunities you face within your team, your firm and the industry".