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Management

The Business of Legal Services

by M. Thomas (Tom) Collins

August 2006

The General Motors legal executive who negotiates the deals with outside counsel said, “It is a business, folks. You are the vendor and I am the customer.” Except for the small category of bet-the-company cases, GM is going to do business with the most efficient law firm offering the most value for the dollar.

When you talk to general counsels (GC), they make it clear that law firms have to begin to operate like a business. Those that become more efficient are going to get business and those that continue to operate “their way,” the old way, are going to be on the losing end of the economy. They know which law firms “get it,” and which do not. The GM executive explained, “We know far more about a law firm’s performance and inefficiency than the law firm knows—and that is sad.” GM knows the ratio of partner-to-associate use. They know when partners are doing work that an associate should be doing. They know when the firm doubles up on work that should be done by a single fee earner. When the customer knows more about the vendor’s product and cost structure than the vendor, that vendor is at a material disadvantage.

CFOs and CEOs of corporations are demanding that their GCs become businessmen or businesswomen. That means lowering legal costs and getting the best value from their vendors—that is you.

So what is the answer? Corporate law departments point the blame at the typical law firm organizational structure and accounting methods. The partnership mentality needs to give way to a corporate one and the cash basis of accounting has to return to the dark ages from which it came in favor of modern accrual accounting and associated cost accounting. As one in-house corporate law executive put it, law firms cannot make the grade with only 25 percent of a managing partner’s time.

The research firm of Greenfield/Belser Ltd., and its affiliate, The Brand Research Company, conducted a survey in an attempt to identify the variables that made a difference between law firms that failed and those that succeeded. Their reported findings confirm that culture and management are the keys to success.

Thirty years experience working with midsized law firms had led me to the conclusion that success and long-term survival depends on the development of a “we” culture in the law firm. That takes leadership to align the firm behind a shared vision. It takes consensus building and frequent communication to build and maintain that shared vision. Leadership and communication build a common culture which binds the firm and creates its own sustaining momentum. Visions don’t stick; they don’t unify; they aren’t important if progress isn’t measured, milestones aren’t rewarded and people aren’t held accountable. Doing so takes aggressive management ¾ something that requires more than 25 percent of the managing partner's time.

After 30 years of observing law firm successes and failures, I have my own checklist for a successful Law Practice Business. More successful firms have the following traits in common:

 

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About the Author

M. Thomas (Tom) Collins is one of the pioneer entrepreneurs in the information services industry and is the founder and former President of Juris, Inc. He began his career as a CPA with Price Waterhouse. Today he shares his 30 years of experience working with midsized law firms through his insightful blog www.morepartnerincome.com.