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Lessons Learned From a Firm Breakdown

The line between bad strategy and a law firm collapse is as thin as a noose. Yet law firms practise bad strategy on a regular basis. Take heed from the lessons of a very public breakdown.

A client recently gave me a copy of Norman Bacal’s book “Breakdown, the Inside Story of the Rise and Fall of Heenan Blaikie”. I was familiar with the story, having lived through it as a horrified observer in 2013. I also met Norm a few years ago when we were both speakers at the same conference in Toronto: him on how a firm implodes, me on succession planning.

His book was published in 2017, but I believe its lessons are worth remembering.

It’s a fascinating book not simply due to the reasons for Heenan’s collapse, but even more so for the journey through the process. It demonstrates how devious and sometimes subtle a growing disaster can be. So, while I’ll speak to some of the issues that brought the firm down, it is well worth the read to truly appreciate the details of the rise and fall of the firm. The lessons are more memorable when you truly understand the full context of each of them. I also found the book to be well-written: easy to follow, not too pedantic, with a good pace of progression.

What Took Them Down?

  1. They stopped managing according to their values. Heenan Blaikie was built on a very clear set of values. Leadership practised those values regardless of the economic implications. This created what Bacal calls the “Heenan tax”: the reality that everyone would be a bit less than happy with their compensation, but overall extremely happy with the culture of the firm. And a happy firm is ultimately a profitable firm. Which they were, for a very long time.
  2. They went off-strategy, with no viable replacement. The co-managing partners of the firm practised a consistent strategy of flexibility and marketplace adventure. In my view (admittedly from the sides) they were not reckless: they took measured risks that allowed the firm to take advantage of markets, practice-wise as well as geographically, for the benefit of the firm. When leadership changed and the economy shifted in early 2013, the new leaders quickly abandoned those strategies, but replaced them with nothing. Instead, they focussed on austerity measures. Good strategy is like an RRSP portfolio: it’s chosen for its effectiveness in the long-term. If we sell everything off whenever the market turns, we’ll soon find we have no investment left. And that’s exactly what happen to the firm.
  3. Their leadership lost the trust of critical partners. According to the book, some less-than-stellar decisions of the two departing managing partners finally caught up with them around the same time as the firm switched leaders. Unlike their predecessors, the incoming leaders had no leadership training and no time to learn. Then the economy turned. The two new leaders disagreed over strategy – publicly. It was only a matter of time before their credibility within the firm eroded. And a lack of confidence in leadership subsequently caused a number of key partners to abandon ship until the leak was too great to recover from. It was a predictable cascade that was in freefall before anyone with power tried to call 911.

The Final Straw

What’s the biggest difference between Heenan’s and all other firms still alive and kicking today? Heenan Blaikie experienced a perfect storm: a series of bad decisions on top of each other during a particularly bad economic downturn.

All businesses go through peaks and troughs. Hopefully we create enough financial and emotional credit during the good times to get us through the bad times. But it still takes powerful, honest and positive leadership to get a firm through the rough times. The vision must be implanted and some resulting successes must be experienced in order for Partners to trust leadership to stay the course and ride out the rough times. If there is a change in vision or strategy, or distrust in the leadership, those rough periods can too easily bring a firm down.

The other issue here is that unfortunately, too many lawyers have no vision. They focus only on the evidence of today or the past. This can make them good lawyers, but bad business people, and difficult as partners in a law firm that is operating not simply for today, but for the future.

Lessons Learned

  • Set and keep to your values. This is the cultural glue that holds a firm together. If you don’t have values, you don’t really have any glue. If you have values and don’t run by them, you don’t have any glue. If you have values and run by them, you have a strong point of differentiation in the marketplace: you can attract and keep the very people you need to run the type of firm you want to run. What a great foundation for a profitable and enduring practice.
  • Have a strategy, then keep to it. Most firms don’t have a strategic plan, let alone annual business objectives. Business without strategy is like driving a car without a destination. Once you have your values in place, figure out what you want to be five or ten years out. Then create annual business goals (and a corresponding operational/marketing plans) that take you closer and closer to that vision with every year. The plan isn’t etched in stone. It’s expected that you’ll need to make adjustments in implementation according to the marketplace, shifts by your clients, and adjustments to your resources. It’s less likely you’ll need to make drastic changes to your longer-term vision for the firm. If you do, understand that you are eroding your brand and your culture.
  • Take leadership seriously.
    • Many firms identify in advance the individuals who will be managing the firm (such as a managing partner, an executive committee). Ideally, these individuals would receive training to help them do the job well. That might include training in how to read a financial sheet, or involvement in a Managing Partners’ forum. Pick your leaders and take the time to train them in advance of their new role. Determine their skills deficits for the job (we all have them) and fix those deficits. Most importantly, understand that firm managers should also be firm leaders. Leaders inspire, encourage, show vision, form the backbone of the firm. It’s not good enough to simply manage the firm…you have to lead it.
    • Firms may also have professional managers in place (such as an administrator, an accounting, head of HR, marketing professional, etc.). Hire these people carefully, then let them do their jobs. Don’t second-guess them (but do challenge them regarding their recommendations). Listen to them: engage them in executive meetings as appropriate. Listen (and respond in a timely manner) to their voice mails and emails. Don’t ignore their advice or over-ride them in executive sessions.

It all seems pretty logical to anyone standing on the sidelines. Because it is. Running a law firm with all of its personalities and competing agendas and motivators can be challenging the way operating a business without a policies and procedures manual is. But once you’ve established (and shown you are prepared to stand by) the ground rules, management suddenly becomes so much easier. And ultimately, safer.

It is telling that the 323-page book spends 239 pages describing the rise of the firm, leaving only the last 84 pages to detail its fall. And isn’t that the way of most things: they take forever to create, to build, to nurture. They take very little time to destroy.

Comments

  1. Remarkably insightful Heather.

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