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Do no harm?

30.08.2012

Very occasionally in reading about law firm management I come across a memorable turn of phrase -I have on many occasions used the late Larry Ribstein's description of large American law firms as "Thinly Capitalised Workers’ Cooperatives" in my sessions on cash flow and working capital.

This month the American writer Bruce McEwen (a.k.a. Adam Smith Esq) has perhaps produced a turn of phrase to rival it.

His short blog post begins with an analysis of the profit performance of the top 50 UK firms reporting this year and makes a point which we often have to make in our detailed analysis of firms’ results -which is that Averages Can Be Misleading. He then uses what we would call ABC analysis to split the data into three groups:

A – firms which are clearly succeeding and prospering

B – firms whose future is unclear

C – firms which appear to be going backwards

A Great Fork in the Road

His analysis then continues the hypothesis that the legal profession is coming to a great fork in the road – either you make the right strategic moves and go rapidly forward, or you don't – and changes in the legal market will make your future decidedly perilous.

In a previous article we analysed the future of the legal profession along the lines of Charles Handy's description of the Sigmoid Curve. It seems to us that the combined forces of Deregulation/ABS, Technology and the apparent determination of the Ministry of Justice to reduce legal costs through the impact of LASPO will significantly change the business model for a wide variety of legal services. Different measures will affect different parts of the legal market, but many firms will be faced with big strategic decisions in a way that they have been able to avoid up to now.

Autopilot "Do No Harm" Management

Or, to use Adam Smith's phraseology "One way it cannot be read, I believe, is to think it reflects the distribution where Autopilot "Do No Harm" Management is a successful or even a responsible approach".

But here's the rub – and one of Charles Handy's most significant points in his sigmoid curve chapter – so long as the data apparently shows that the current model is remaining successful (and remember the headline data is that profit per equity partner is still increasing!) the incumbent management will not feel impelled to take brave strategic initiatives. Autopilot "Do No Harm" Management is precisely what the partnership structure encourages, and short-term and historic data suggests there is little problem. So how can managing partners create the necessary sense of urgency? After all "If The Partners Don't Get It, They Won't Let You Fix It".

Suggestions for Action

Here are a few suggestions which we shall return to in future:

• Ensure that all partners have an understanding of the attributes that are likely to distinguish the successful firms of the future from those in decline (our "independence" series will be addressing this)

• Have partners conduct a SWOT (Strengths, Weaknesses, Opportunities and Threats) and PEST (Political, Economic, Social and Technological) analysis on their departments – they should at least have a view of what is likely to happen in their own world! Then ensure that these assessments are fully considered by the partnership, so that the potential for unpleasant surprises is reduced, or at least the element of surprise is lessened!

• Ensure that your monthly management reports give much greater prominence to the volume and value of work taken on. The long lock-up cycle of many work types means that you need this kind of leading indicator

• Update your budget forecasts regularly – much of industry, and even a few law firms have moved to Quarterly Rolling Forecasts as a key tool of financial control, rather than relying on outdated budgets.

"Autopilot Do No Harm Management" has indeed done no harm for many firms over the years, but it is not the way to manage uncertainty. The level of uncertainty about the future is unprecedented for law firms and risk has to be acknowledged and factored in to the decisions.

Procrastination could prove to be the most dangerous decision of all. As Charles Handy said "if you keep on going the way you are, you will miss the road to the future". (The empty raincoat page 49)

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