This session was entitled “Profitability: Evolving Over the Long Term.” That said, the panel and audience discussion covered a range of issues relating to the financial management of law firms. The session was moderated by Anthony Licata (CFO, Dechert LLP). The panelists were Daniel Sheeran (CFO, Duane Morris LLP), Eldean Ward (Head of Revenue Practice, IntApp) and Patricia Williamson (CFO, Strasburger & Price).
[These are my notes from the 3rd Annual CFO/CIO/COO Conference presented by The New York City Bar, the International Legal Technology Association and West LegalEdcenter. Since I’m publishing them as soon as possible after the end of a session, they may contain the occasional typographical or grammatical error. Please excuse those. To the extent I’ve made any editorial comments, I’ve shown those in brackets.]
- What are the prospects for profitability? The panel and the audience agreed that flat profits are the “new black.” No one was able to point to data that indicate the old-style rising profits are still possible giving current economic realities.
- On the Revenue Side, what’s the best investment a firm can make?. Dan Sheeran believes that the single best investment a firm can make on the revenue side is to invest in its future partners. They are a better bet than laterals. Patricia Williamson would invest in an overhaul of the firm’s marketing model and strategic planning model. She would bring in external experts to help evaluate the efficacy and potential of the firm’s individual practice groups.
- On the Cost Side, what would you love to do?. Admitting that this was a hypothetical situation, the panel agreed that the single best way to cut costs in a meaningful way is to reduce the number of underperforming lawyers. Primarily, this means taking a harder look at the partners. Does the compensation model match the contribution they make to the firm? How should a firm compensate service partners versus rainmakers? Another big challenge is striking the right balance between underperforming partners and up and coming associate stars. The panel felt that they would spend their time and effort encouraging the younger lawyers rather than the lawyers in the middle tier.
- Managing Multiple Offices. The panel believed that opening new offices for strategic reasons still makes sense. We’re in a relationship business so there’s value in having lawyers located close to their clients. Even new technology cannot substitute for face-to-face interactions. However, there are real problems with doing that strategic analysis effectively. One panelist said that it was impossible to predict how well a new office would do over the long term. [I wonder if this is more a reflection of how law firms have traditionally analyzed new office opportunities.]
- Technology and Business Process. Eldean Ward reported that there was a real range in the appetite of lawyers and practice groups for adopting new technology or overhauling their business processes. He suggested that people who work more away from the office tend to be less interested in business process. [They are also probably more interested in the technology.] Ward also mentioned that he was struck by some of the similarities between the software industry and the legal industry. However, while his industry has adopted technology to help manage their sales, he isn’t seeing anything comparable among law firms. Ward described Salesforce as the “spinal column” of IntApp.
- How should a firm grow? While every firm likes to grow organically, firms are equally tempted to simply “buy” laterals and their book of business. The panel discussed the real challenges in constructing compensation models for laterals that provided the right incentives and safeguards to increase lateral success and minimize risk to the firm. That said, some acknowledged that practice group leaders sometimes “fall in love” with lateral candidates and are not always willing to adopt a hard-headed approach to lateral recruitment and compensation. [This points to the huge influence individual partners/owners can have when there is insufficient shared understanding within the partnership of the right way to proceed with respect to lateral hiring.]