Whether a multistate firm with hundreds of attorneys, a local or regional firm with several dozen or a solo practitioner, a good chunk of law firms have something in common: all legal and little operational expertise can make for a bad business model.
If practicing law was a singular discipline, running a successful firm would be as simple as an open-and-shut case. But operating a firm as a business requires proficiency in accounting, billing, human resources, marketing and clerical staff to achieve prosperity.
And lawyers, it turns out, are generally not experts in best business practices, say managing partners of two law firms in the region and an independent administrator and consultant of multiple firms statewide. The challenge, then, is for lawyers to yield to nonpracticing operational personnel to execute critical functions that ensure success.
“We probably should all have business degrees,” says Jennifer Compton, who in January was named managing partner of the Sarasota office of Shumaker, Loop & Kendrick, which was founded in 1925 in Toledo, Ohio, and now operates eight offices in six states with 285 attorneys. “When you are a group of lawyers, I don't care if it’s two or 200, we are usually pretty strong personalities. We all went to school for a really long time, and we're not usually the type of people who will blindly accept what someone says. I think we are less nimble in reacting to changes in the business environment.”
To ensure business success, says Elizabeth Miller, a Tampa-based independent law firm administrator with more than 20 years of experience in all areas of business management, certainly requires the attention of managing partners — but not necessarily micromanagement by them. That, she says, should be left to the operations administrators, albeit under the oversight of the firm’s leadership.
Miller has written the book, literally, on successful business management of law firms. She is the co-author of “From Lawyer to Law Firm — How to Manage a Successful Law Business,” published in 2017.
“You can't just rent an office and put a shingle up over the door and say you are in the law business,” says Miller. “You may have a law firm, but you don't have a law business.”
Founded 95 years ago, the Fort Myers firm of Henderson, Franklin, Starnes & Holt operates offices in Bonita Springs and Naples with 55 attorneys and a total staff of 130. Managing Attorney Russell Schropp says running the firm as a business has been an evolutionary process, with managing practitioners gradually yielding to the operational professionals.
The firm’s governance structure includes a management committee that oversees, but doesn’t manage, day-to-day operations.
'Without money, you don’t have a law firm because all that will be left is you.' Elizabeth Miller
“We have been gradually transitioning to where we listen very closely to the business managers in the firm,” says Schropp. “Attorneys like to practice law, and that's what we're trained for. So when it comes to the day-to-day operations and some of the key business operations, we’ve gradually gotten used to the idea that those decisions need to be made by those professionals.
That model is more easily attainable for larger firms with deeper resources. But solid business practices are no less important to smaller firms. Chief among them, says Miller, is a regular billing regimen that helps ensure the revenue stream in what is exclusively a cash flow business.
“One of the big mistakes firms make is in their billing procedures,” says Miller, adding she often finds firms have no set protocol for accounts receivables. “People pay their mortgage on time and their car payments on time because they know when they are due every month. If they don’t know when to expect a lawyer’s bill, they don't pay it (in) a timely fashion. I am adamant that billing closes at the end of the month, and by first of the month is available for attorney review and then they go out on the fifth of the month like clockwork.
“It does make a difference in getting clients to pay on time because they know when they are getting the bill. Without money, you don’t have a law firm because all that will be left is you.”
Without clients there is no billing cycle to begin with, so recruiting business requires effective marketing. Marketing strategies must be tailored not only to the individual market, but also to the type of client the firm serves.
Because its offices are in diverse markets with unique local characteristics, Compton says marketing Shumaker’s services is largely left to the discretion of the local office — with oversight by the firm’s management committee to ensure brand consistency. An emphasis on union labor and employment law that would be employed in Ohio and North Carolina, for example, would not resonate as much to prospective clients in Florida, where private sector union activity is less prevalent.
Also, as a nearly century-old name in Toledo, Shumaker has less need to promote its brand there than it does in Sarasota, where it arrived in 2009.
Regardless of the marketing strategy, Miller advises firms to pay close attention to return on investment in its advertising efforts, which she says is a common mistake.
“To spend $7,000 a year on advertising if you don't get one client, that shouldn't go on for 12 months,” says Miller. “That should go on for 90 days at the most before a change is made.”
Websites and blogs are effective tools, she adds, providing they don’t come off as self-aggrandizing. Prospective clients want to know more about what an attorney can do for them and less about their personal achievements.
“I have worked with attorneys who on the first page of their website is nothing but their education and credentials, and a potential client will just pass on that,” Miller says. “What they really want to see is what can you do for them.”
Managing personnel is also a challenge for firms resistant to an ever-evolving labor environment. Firms governed by legacy partners have not been as eager to embrace virtual staffing, for example, as have younger attorneys, says Miller.
“Paralegals or support personnel you would pay a full-time salary, provide workspace, benefits, parking and sick time are things many firms can’t afford anymore,” says Miller. “Rather than over-staff and pay somebody to look out the window and watch grass grow, there are virtual paralegals and contract attorneys they can use when there is a crunch. The finances of law firms have changed. A lot of them are feeling it, although a large firm probably doesn’t feel it as much.”
Importance of diversity
Although it’s a medium-size firm, Henderson, Franklin is one of the largest locally owned firms between Tampa and Miami. Schropp says having 55 lawyers practicing in a variety of disciplines in a firm with centuries of combined institutional knowledge provides the luxury of a diverse skill set among its management.
Still, the firm employs a chief operating officer who manages day-to-day business and financial operations. Beneath him are non-practicing managers operating areas such as human resources, IT, accounting and marketing.
“We do have some attorneys in the firm who have a real good sense of business acumen and background that I rely on,” says Schropp. “Our firm is fortunate from a governance standpoint, which is set up with a four-member executive committee advising me, and we’re large enough and diverse enough to hire our own non-attorney operations personnel. We have great diversity and expertise in the non-attorney realm.”
In general, though, Compton says law firms tend to fall short on best business practices.
“Law firms are probably behind the curve and catching up,” she says. “As a business, the people who are managing are usually practicing lawyers, and while they may be very skilled at delivering legal services, they're likely not as skilled on the business operations side and keeping up with trends.”
And although she has risen to the highest ranks of Shumaker, Compton says the industry lags in diversity. At Shumaker, two of nine management committee members are women, which, at 22% Compton says, “is great for law.”
“We see a lot of our clients are huge proponents of diversity, and that's where we as an industry are struggling to catch up,” Compton says. “In terms of rising in ranks and partnerships, the industry is averaging about 17% in terms of diversity, which is abysmal. There is no grand conspiracy, it's just the way it has been. We have a lot of work to do to catch up.”