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I’ve had the opportunity to work with lawyers in many practice environments over the past 20 years. In my consulting practice I have found that there are a number of risk factors that contribute to the frequency of malpractice claims and ethics complaints. Obviously, the most significant and easily identified risk factor is the absence of good practice management systems. By that I mean client screening procedures, calendar systems, tickler systems, conflicts checking, and mandatory client-communication guidelines, file management and file closing procedures. But the existence of good practice management systems does not in and of itself guarantee that you or your firm is protected from ethics complaints and malpractice claims.
- A firm that is poorly managed at the top exposes itself to the risk of malpractice and ethics complaints just as do the absence of good procedures and systems. This is probably an aspect of risk management that you may not have considered. Ineffective firm management, incompatible practice areas, a culture that promotes individualism over institutionalism (in firms of more than 3 attorneys), failure to train associates and properly supervise them and even your compensation system may expose your firm to malpractice.
- This article will discuss five “cultural” factors, and their indicators, that may be creating malpractice exposure for your firm.
1. Short-Term View Cultural Indicators: No partnership agreement; compensation system rewards only what you’ve done for the firm lately; you spend little time in your own or other lawyer development; you take cases you shouldn’t take, putting other members of the firm at financial risk without their knowledge; you don’t know how profitable your lawyers, clients or practice areas have been over time; you have no transition plan for retiring lawyers; you don’t know where the firm is headed or if you want to be on board at all.
Malpractice Exposure: Short term view leads to:
- Poor client-acceptance habits
- An unpleasant client base with unprofitable cases
- Procrastination, resulting in client neglect
- Poor communication
- Underdevelopment of lawyers possibly leading to retention issues
- Inefficiencies in office operations
- Little, if any, management.
- Poor profitability
Risk Avoidance:
- If a partnership or corporation, agree upon terms of partnership or shareholders agreement and put the terms in writing.
- Develop firm goals, share them with all legal and non-legal staff
- Define policies and procedures to support the achievement of the firm’s goals i.e., client acceptance policy, work allocation policy, client communication policy.
- Effectively manage your firm; i.e., through a managing partner, managing committee or dictator – whatever works for your firm.
- Invest in your most important asset; i.e., your legal and non-legal staff: train and supervise them; delegate work to them and create a professional working environment for them.
- Invest in technology and automation that will support your practice management systems.
- Establish a plan for transitioning clients and management responsibilities to the younger partners.
2. Office-Space Sharers DBA/a Law Firm Cultural Indicators: There are no shared goals for the firm; no leader has emerged; or worse, you are a group of partners that refuses to be managed. Your compensation system rewards personal production only and you have no plan for how the firm will survive your retirement. Your practice management systems are stand-alone systems; i.e., you don’t share calendars, case management, conflicts systems or trust accounts. Every lawyer does what she wants to do; there is no accountability to others in the firm.
Malpractice Consideration: Office sharers dba/a law firm typically:
- Refuse to be managed; i.e., establish policies for the operation of the firm; conform to firm expectations and comply with firm policies which protect the firm from risk.
- Have an unwillingness to refer work to the attorney in the firm who can best handle it; leading to inadequate or negligent client representation and an unmanageable workload for the unwilling attorney.
- Do not have or do not comply with a firm client acceptance policy resulting in unpleasant clients with unprofitable cases.
- Do not invest time in staff training and supervision.
Risk Avoidance:
- Develop individual and professional goals which are shared by and compatible with the goals of your other partners.
- Refer new clients to other partners in the firm that are experts within the area needed.
- Avoid hoarding work; delegate work to the most appropriate level and leverage for improved profitability.
- Your compensation system should not reward personal production to the exclusion of behavior that is needed to have a successful firm; i.e., firm management, lawyer development or client development.
- Establish a schedule of regular meetings at the beginning of the year, enforce attendance, develop an agenda and make decisions.
- Elect a firm leader and agree to be managed.
3. Personal Fiscal Responsibility Cultural Indicators: You are living well above your means; you are deeply in debt, you have no idea of where your income goes and are living hand-to-mouth. Your practice is riddled with unpleasant and unprofitable clients who require too much of your time. You are not able to “get” the good cases or manage cases you do get due to the “dog cases” you are managing. You grab the most lucrative files for yourself; you settle too quickly. Your firm’s monthly cash flow is strained; you sometimes are not able to meet payroll and you may have “borrowed” from client funds to bridge the gap.
Malpractice Consideration: A strain on a lawyer’s personal finances can expose the rest of the firm to malpractice because lawyers living hand to mouth typically:
- Will not comply with a client acceptance/case screening policy resulting in a practice with unprofitable cases.
- Procrastinate and fail to communicate because the client and/or case are unpleasant and/or unprofitable.
- Hoard work. Lawyers may be dabbling in practice areas in which they have little experience in order to get the fee; or, they may refuse to delegate work in order to get the fee.
- Mismanage trust account funds
Risk Avoidance:
- Live within a personal budget.
- Have a personal “rainy-day fund” to help you weather slow times.
- Hold back a certain percentage (10 percent-15 percent) of firm monthly revenue until it has accumulated sufficient cash to fund one month of firm expenses.
- Pay partners a set draw monthly and distribute excess profits quarterly.
- Review a case based on its merit, value and resource requirements?
- Establish good client billing and collections procedures.
4. Environment of Trust and Integrity
Cultural Indicators: Personal agendas take priority over firm interests; history of individual violations of trust among the partners and associate staff; “eat-what-you-kill” reward system; poor “in-firm” relationships, misunderstandings and deceit. Closed doors and secret lunches.
Malpractice Consideration: Absence of trust leads to:
- A stressful working environment that when coupled with a heavy workload may result in lawyer burnout, depression and/or substance abuse.
- A focus on what is in your best interest rather than the client’s.
Risk Avoidance:
A proper risk management program for any lawyer or any law firm must take into account the totality of the practice. Proper client relations and office systems are essential. The personal and psychological side of practice, however, cannot be ignored. Failure to attend to either is running a substantial risk of facing a malpractice lawsuit.
- Be a person of integrity.
- Be personally fiscally responsible
- Always tell the truth
- Be consistent
- Pick your battles
- Be willing to compromise on an issue if doing so is in the best interest of the firm.
- Regularly communicate with your partners and staff.
- Be a firm of integrity.
- Effectively communicate the firm’s mission, purpose and the way in which it wants to conduct its practice and treat its employees.
- Open doors of communication and trust to anyone who needs to discuss firm matters, regardless of how the information may affect others or themselves.
- Develop a firm culture that reduces the high level of stress that the lawyers in a firm experience daily.
- Establish adequate practice management systems to support the caseload.
- Establish adequate risk management systems to avoid malpractice.
5. Eat-What-You Kill Philosophy Cultural Indicators: Short-term view; compensation system rewards personal performance only; there is an absence of practice management systems to support the integrity of the compensation system; firm is poorly managed, indecisive and losing ground. Work is hoarded, lawyers are underutilized and the firm is overstaffed.
Malpractice Exposure: Supports a short-term view of the practice which leads to:
- Poor utilization of legal and non-legal staff which negatively impacts the development of young lawyers
- An unwillingness to transition clients to junior partners or associates which leaves no time for developing work from new and current clients and which threatens the continuing firm-client relationship
- Flat or declining profitability which is the basis for concern about the future of the firm
- Lawyer defections exposing the firm to neglect of client matters resulting in malpractice claims and ethics violations.
Risk Avoidance:
- Effectively communicate the firm’s mission, purpose and the way in which it wants to conduct its practice and treat its employees.
- Lawyers should be rewarded for their marketing and client development activities; mentoring of young lawyers; participation in management practice area profitability – in addition to personal performance.
- Review firm expenses as a whole, rather than as individual practices, and reduce where possible.
- Implement technology and automation in systems that will expedite the work flow and internal communication.
- Develop a professional but pleasant work environment for your legal and non-legal staff; give them as much substantive work as they can handle to further develop their skills; set goals for the development and mentor and train them.
- Communicate to young lawyers what it means to be a partner or shareholder in your firm; the characteristics the firm looks for, the performance factors needed to be a successful firm owner.
- Be sure that lawyer partings are as amicable as possible; keeping the client’s interests a priority in the transition.
Minnesota Lawyers Mutual website, www.prolegia.com.
Firm Culture Audit
- My firm has a long-term view as to the development of our practice.
- My firm has an effective governing structure with the necessary authority to insure compliance with the firm’s policies and procedures by everyone, even the highest grossing partner.
- We (I) am intentional about the cases and clients I agree to represent.
- We (I) always educate my clients about the legal process into which they are entering and the duration of their matter.
- I live within my means.
- My firm lives within its means.
- The firm’s culture allows for communication between owners and employees about matters that affect the firm or the firm’s clients without fear of retaliation.
- I have confidence that all of the lawyers in my firm are competent in their area of expertise, thoroughly prepare for each matter and rarely procrastinate in completing tasks.
- Our firm’s compensation structure rewards performance, but not just in dollars collected.
- My firm adequately trains and supervises its legal and non-legal staff.
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Suzanne Rose is a practice management specialist focusing exclusively on the legal industry; and, more specifically, on the critical areas of law firm leadership, strategic management, practice administration and profitability. Ms. Rose has advised solo practitioners and mid-size firms since 1998. Prior to becoming a practice management specialist Suzanne served as the office administrator for a firm of 20 lawyers in Nashville, TN. Her home and practice are located in Brentwood, TN. Suzanne may be reached at swrose@comcast.net.
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