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You thought you saw this coming and now there is no doubt
that the client who has represented 15 to 20 percent of
your practice for the last few years is cutting back drastically
on your legal services.
If this scenario describes your firm’s situation
then several steps need to be taken.
Prevention/preparedness
First of all, the departure of a major client should
never be a surprise. It is your job to see to it that
the company’s decision makers are in frequent
consultation with their attorneys—you.
Some of that consultation must concern itself with
the prompt payment of attorneys’ fees. All too
often a long silence from the client is followed by
a notice of bankruptcy which leaves your firm (now known
as unsecured creditor) with one or more months of unpaid
invoices not to mention the loss of future business.
Secondly, a good offense is the best defense. One or
two large clients should not dominate the firm’s
income statement. Vulnerability to shifts in the client’s
perception of the firm, to economic distress in the
client’s industry has to be measured and monitored.
A firm largely dependent on one industry or on one or
two clients should concentrate its marketing efforts
on diversification and upgrading the next lower tier
of clients.
Personal Impact
Assuming that, despite best efforts, the firm is now
facing a significant revenue loss, partners’ reactions
will run the gamut from disbelief and denial to hasty
action. Commonly, all partners will realize that their
personal incomes and future plans will be altered and
that their families may be impacted. For those attorneys
who worked closely with the client there may be a loss
or change in friendships. If the client left for another
firm, attorneys many feel a loss of self-esteem or firm
prestige. Then, if staff have to be let go another difficult
scene is in store.
A more serious impact may impend if a great deal of
income has been lost and one or more partners have been
idled by the client’s departure. The still fully
employed partners will be faced with the need to “carry”
those partners for a period of time while they regroup.
The strain on partner relations can be tremendous and
considerations of splitting off can loom.
Business Impact
Dealing with the loss of a major piece of business
can be handled either positively or negatively. Staff
can be given the impression that the firm is crippled
or that new avenues of opportunity are opening up.
The first step then is communication within the firm.
Everyone who may be affected (ranging from termination
to the possibility of small raises this year) needs
to be told what has happened and how the firm expects
to deal with the loss. Knowing that the office grapevine
went into operation moments after the event, the firm’s
management must immediately begin planning and then
communicate those plans to the affected staff so that
the wrong people don’t begin work on their resumes.
Plans can take essentially two forms—contraction
or business development.
The first reaction of partners may be to cut staff
in order to alleviate the strain on their personal incomes.
Another motive is the opportunity presented to go back
to “the old days” when the firm was small
and open collared. Issues under the contraction scenario
range around which staff members to let go. The principal
thrust should be to retain and re-train good staff members
(associates, paralegals, and secretaries) and eliminate
marginally productive people. This is also a good time
to ask for new levels of billable hour productivity
or administrative involvement from partners and staff.
As Kottter says in Leading Change, what really
can bring about positive change is a good crisis1.
Do not reduce the ratio of support staff to attorneys
too drastically. Also be careful of laying-off paralegals
and asking attorneys to do that work and clients to
pay for it at higher billing rates. The associates on
staff were hard won through extensive recruiting and
training efforts and their career futures need to be
safeguarded to the extent possible. At the same time
the associates will recognize that the specialization
they were burning midnight oil to master may now be
diluted and that advancement may be slower for the foreseeable
future.
In short, contraction of the firm needs to be dealt
with through open communications of realistic expectations
on everyone’s part.
The second way to handle loss of a major client is
new business development. Here is a warning: if the
firm is in financial distress as a result of the client
loss and a state of shock reigns, do not expect to wake
up the next morning as premier marketers or to instantly
attract stand-in clients. The best clients are won over
a long period of time—months, even years. Also, it
costs money to do marketing, usually in the form of
lost billable hours. Nevertheless, establish a timeframe
and marketing plan and adhere to it. Then establish
a line of credit and prepare to weather for a period
of eight to fifteen months the dip in income and productivity
with no noticeable marketing results on the horizon.
Keeping in mind the adverse circumstances under which
the firm renews its marketing efforts, this is not the
time to pioneer new areas of legal practice. Concentrate
on developing or shifting legal work that they are able
to do to the affected attorneys. Retraining may be required
but should be minimized. It is unwise to try to isolate
the problem as one belonging, for instance, to the asbestos
litigation department, and expect those attorneys to
remarket and retrain themselves.
Cohesiveness and team spirit must prevail if business
development is the direction the firm chooses to take.
1. John P. Kotter, Leading Change.
(Boston, MA.: Harvard Business School Press, 1996) 35.
Top
Luciann Leraul, CPA, MBA is the founding
principal of Law Firm Management Services a CPA firm
specializing in law firms based in San Francisco, CA.
She can be reached at 415-205-3555 or luciann@lfms.biz.
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