We often hear about legal companies’ cultures. Midsize firms, in particular, take pleasure in its culture, thinking it is stronger than that of their Big Law peers. Culture is a vague concept it may mean everything or nothing but, as we like to say, good culture cannot be identified until one has worked in an environment with poor culture. So, what about a law firms financial success and culture.

As dissimilar as financial indicators and a legal firm’s sense of culture may be, they are also inextricably linked. Additionally, they have an effect on one another.

We’ve seen a lot of legal firms report unexpectedly good 2020 outcomes—surprising not because of the companies themselves, but because of the climate in which they achieved those achievements.

Cost reductions were a factor. While austerity measures were widespread among legal firms, many companies, especially smaller ones, reported avoiding layoffs and furloughs, or anything significant. At other companies, partners assumed a greater share of the load in order to keep associates and employees employed. These methods, along with Paycheck Protection Program financing, aided many businesses in surviving the recession without reducing employment or hours.

As a consequence, not all of those companies achieved significant benefits. Sherman & Howard in Denver, for example, reported a flat profit year over year yet retained all employees. “We are very proud of our reaction. It’s almost become a trademark of our company,” CEO Gregory Densen explains.

Firms make choices based on financial considerations, but also on cultural considerations. And culture is precisely why businesses of all sizes choose not to lay off employees amid a health crisis.

As with law firm economics, partnership entails both quantitative and qualitative elements. Additionally, we saw continuing expansion in the nonequity partner tier throughout the Am Law 200 in 2020, despite the pandemic year.

We understand that creating nonequity partners enables firm leaders to bestow upon outstanding attorneys the “badge of partnership,” as it has been characterized, while deferring giving them a portion of firm earnings until they establish a track record of continuous rainmaking. Promoting attorneys to nonequity partnerships is a good-faith effort on the part of many companies to see such lawyers grow, develop, and be rewarded. That is a cultural difference.

However, we also know that the nonequity layer has been expanding in the legal profession for years, where leverage—another of our holy metrics—determines the number of earnings per equity partner. Thus, the leverage ratio assists in determining the profit per equity partner earned by each equity partner (PEP).

Given this industry trend, it was unexpected to see that the majority of midsize companies had more equity partners than nonequity partners. According to ALM Intelligence statistics, about 80% of firms with 75 to 200 attorneys have a higher equity tier than a non-equity tier. Additionally, many midsize businesses lack nonequity partners.

While nonequity partnership is a well-known concept—and companies do utilize it differently—we know that many firms use it as a temporary rank for individuals pursuing equity partnership or for partners who join the company laterally.

True, many excellent attorneys establish themselves as “income partners” or “service partners.” Despite the competitive drive that many (if not most) attorneys possess, being an earning partner is not a bad thing.

You will generally earn much less than the firm’s equity partners, but you will still do very well. In an uncertain year and in an era when attorneys are more mindful of work-life balance the stability that comes with a position as an income partner is not something to take for granted.

However, based on what law firm executives tell us, the ultimate goal for many continues to be equity partnership. And we find that many attorneys eventually advance to equity partnership in midsize companies. Is the apparent absence of leverage at certain midsize businesses indicative of an underutilization of nonequity partnerships? Does this have an effect on their leverage and, therefore, on their PEP figures?

This takes us back to the subject of layoffs and cost-cutting, which are also significant factors in PEP.

Particular the competitive nature of the lateral market where profitability serves as a tangible, though somewhat idealistic, barometer of what one’s future could look like at a given firm does the compositional disparity with Big Law harm midsize companies competing for rainmakers and new associates?

Would reorganizing their personnel structure and increasing their leverage result in increased equity compensation? And, if it did, would it be at the expense of their culture?

The stratospheric PEP numbers seen at the top of the Am Law 200 are primarily a function of the kind of work and customers received by those Big Law behemoths, but it is also a function of leverage. And the leverage profiles of smaller legal firms are almost certainly worth investigating in more detail.

Rather than replicating the financial choices of a high-performing competitor, it may be more beneficial for midsize companies to examine their own culture. Apart from leverage, is each timekeeper being effectively used, and are they driven to develop connections with important clients?

Are they aware of the expectations placed on them? And, if their function has been rendered useless in the contemporary legal office, how might their talents be repurposed to suit a future-oriented company?

Meanwhile, we are still in the epidemic period, and there are immediate financial concerns. One midsize firm leader, whose company is contemplating hiring lawyers outside of its geographic footprint for the first time, notes that the cost profile of such distant attorneys is unique. Does this have an effect on the compensation paid to the lawyer—or any of the firm’s lawyers?

“Then the issue becomes: Do you adjust your compensation model in response to changes in your cost structure?” As stated by the managing partner. “If I hire a person in Chicago… should I pay him more because I can earn more money from him, and how does that affect my compensation model?”

For these reasons, now is an excellent moment for businesses of all sizes to take a new look at their financials and culture. Law firms may discover that the relationship between the two is more apparent than ever.

The demands placed on lawyers when it comes to legal work are immense, and they are expected to be almost superhuman in their performance. From excessive hours to a lack of work-life balance to inequitable pay, many attorneys battle to thrive within an unsupportive law firm culture a struggle that prevents professionals (and law firms) from achieving their full potential.

Developing and maintaining a law firm culture that values lawyers (as attorneys and as people) and treats everyone equally is essential to the success of your business. Assumptions regarding the inevitability of a toxic law firm culture characterized by intense competition and work-to-burnout remain in the business. However, defying these standards enables legal firms to flourish in terms of its workers, customers, and company.

Law firm culture is the result of a number of interconnected variables that contribute to the firm’s work environment. These variables may include a firm’s fundamental principles, communication standards, attorneys’ time and production expectations, professional development possibilities, social relationships among colleagues, and decision-making style. While this may seem self-evident that a law firm’s culture is the overall culture of the firm—many individuals struggle with the notion.

Consider the following guidelines when recruiting for cultural fit:

From the start, showcase your culture. In your job ad, be explicit about your company’s culture and principles. By providing these characteristics, you increase the likelihood of finding individuals who identify with the model you’re pursuing. This may also assist your business stand out to outstanding new recruits who are attracted to the company’s culture.

Discuss it. By the time you do an interview, you’ve almost certainly determined if an applicant has the necessary experience and abilities for the position. Conduct an open conversation about law firm culture during the interview to ascertain if the candidate’s values match with those of the firm. Inquire about work culture and behavior, such as:

Which kinds of law firm cultures suit you best? Why?

Which kinds of law firm cultures have you found unsuitable? Why?

Consider other viewpoints. Avoid becoming overly fixated on a specific kind of individual who you believe would be a good match for a particular job. Simply because someone does not share your appearance or background does not indicate they will not flourish in your legal culture. Indeed, having lawyers with different views enriches your business with important experiences and points of view.

A strong law firm culture provides a chance to differentiate your business from the competition. It communicates plainly to prospective customers and employees what your company stands for and the principles it upholds on a daily basis.

By establishing a better culture that is aligned with your own beliefs, you may successfully create an atmosphere that supports and motivates attorneys. When individuals feel appreciated, they are more engaged and productive. That benefits both them and your company.

According to several sources, legal firms survived the financial difficulties of 2020 by drastically reducing costs. And, although that approach seems to have succeeded, companies have almost certainly cut expenditure to the bone and will need to refocus their efforts on other parts of the revenue cycle to accelerate their recovery.

As a consequence, collections will almost certainly become an obsession for managing partners and chief financial officers of law firms in 2021. This will be difficult, since many legal firms currently struggle to sustain a robust collection cycle even during good times.

A lot of money should be pouring into a company at this point, but isn’t. Additionally, firms are well-known for concentrating on fourth-quarter collections rather than the whole year, which is not the optimal strategy.

However, increasing collection efforts when a firm’s procedures — and culture — have not developed in that direction may backfire. This is especially true if the company does not already have a strong billing connection with its customers that starts long before the letter of engagement is signed.

Recognize your clientele

While businesses may have a legitimate desire to increase income in the short term, doing so at the cost of customer relationships is not a sustainable strategy. What is required is adaptability and sensitivity to a client’s financial position. It’s pointless to collect a big invoice quickly if doing so contributes to a client’s bankruptcy. That is not how a client-focused company succeeds, and it also makes poor financial sense in the long run.

Rather than that, businesses would be smart to embrace the events of 2020 as motivation to finally solve the collections problem.

Additionally, businesses should ask themselves certain questions regarding each customer, such as the following:

Long-term, what is the value of this customer connection to the company?

Is this a customer whose loss we can afford?

Alternatively, do we want to be recognized as a company that prioritizes profits above long-term customer relationships?

How can we collaborate with this customer to assist him or her in navigating current financial problems and thus strengthen both of us for the future?

What other payment options are possible?

What are our options in this situation?

A balanced approach

The critical point to remember is that a successful collection procedure does not begin when the customer gets an invoice. Rather than that, law firms create the scene to maximize revenue from the outset of a client engagement. There are many areas to concentrate on in order to do it properly.

Agreements on fees. A detailed fee agreement that details how much a customer will be invoiced, what they will get, and payment terms goes a long way toward establishing the foundation for good collections. Additionally, it is critical to tailor pricing agreements to each customer.

Clear, clear wording that defines deliverables and prices benefits not just the entire client relationship, but also eliminates misunderstanding about why a customer pays the amount invoiced on an invoice.

Invoices. Providing customers with invoices that are simple to understand and accurately reflect the job done is just as critical as fee agreements. Sending a bill that contains just the amount owed and a brief one-sentence summary of the services delivered invites a customer to dispute it. Similarly, charging for chunks of time with vague explanations will only raise questions and delay payment. A simple, comprehensive invoice should resolve this issue.

Timekeeping. As previously said, legal firms often lose money simply because it is not properly monitored and invoiced.

Additionally, poor timekeeping results in incorrect bills, irritated customers, and late payments not to mention the possibility of an ethical problem, which no company wants. To ensure successful collections, businesses should cultivate an internal culture that values precise daily timekeeping and implement robust, user-friendly (and ideally cloud-based) software.

Communication with the client. Firms often delegate the responsibility of collecting outstanding bills to someone in accounts receivable. While it is OK for the first or second enquiry, it serves mostly as a reminder. This is not the location where items should be placed if payment is not received promptly.

Rather than that, businesses should use a tiered communications strategy in which the primary relationship attorney is notified for follow-up after the accounting staff makes one or two efforts.

Additionally, the attorney may communicate with the client on a more personal level and evaluate alternate solutions for the client. This is also an effective method of preserving and even enhancing the customer connection.

Solutions provided by software. There are software solutions available to help businesses in increasing the efficiency of their collecting processes.

Among the “must-haves” are the following:

  • Timer built-in
  • Prompts that remind users to input time automatically throughout the day.
  • Assist users in keeping track of all invoiced time, including the amount of time remaining to be allotted.
  • Allows users to segment time blocks into subcomponents.
  • Multiple timekeepers may work on a single issue and rate tables can be customized for clients, practice regions, offices, and responsibilities.
  • Bill approval through electronic means.
  • Charges that exceed a set price are automatically written off while hours spent are tracked.
  • Firms that use all of these techniques at critical points in their customer relationships are much less likely to have collection issues, whether in good or poor times.

Above all, it’s about putting the customer first and meeting their needs, both in terms of legal work and payment facilitation. Additionally, it is not something a business can simply turn to when cash flow is endangered. Rather than that, collections should be woven into the fabric of a client’s interactions with the business at each contact point. Therefore I hope this answers the question What about a law firms financial success and culture.

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