Austrian economist Joseph Schumpeter developed the theory of creative destruction to describe how something good, and even much needed, can come out of a tragedy. The theory suggests that some businesses must die and paradigms must be “swept away” in order to make room for new ones that will better survive the future.
This is a concept found in nature. For example, we know that left to their own devices, forests will burn down from time to time to clean out the forest floor and force a renewal. While it might feel heartless to apply the same principle to business, the thought is out there none the less. Earlier this year, CBC business columnist Don Pittis wrote “Covid 19 may be the catalyst of a painful but useful economic transformation”. A recent article by the Economist advised that “What is in little doubt is that the COVID-19 crisis, which has turned so many people’s lives upside down, will eventually produce a wealth of new business opportunities.”
We know that some businesses are thriving during this pandemic. A fair amount of this success is probably luck (who knew plexiglass would be all the rage this year?!) But history has repeatedly shown us that the flip side of crisis can indeed be opportunity. And if that’s the case, then why not for law firms? If there was ever a business that needed a silver bullet right now, it’s the legal industry, as we are facing a range of challenges:
- The pandemic, of course. Hopefully the only one in our lifetime but who knows?
- The largest lawyer retirement in our lifetime.
- Here in BC, we’ve facing the end of the PI cash-cow.
- The challenge of finding Associates who will stay with and want to take over our firms.
- The ability to attract and keep “good” staff members. Paralegals are one of the most needed positions in Canada right now.
This is all occurring during a challenging economic period, thanks to Covid. Here’s a snapshot of the ramifications in Canada so far this year:
- This was one of the worst springs for home sales in 40 years. Mortgage delinquencies are expected to rise dramatically, house prices could drop by 20% and it’s expected to take until mid 2022 to recover.
- Retail lost 25% of sales this spring. We’ve seen bankruptcy or insolvency proceedings involving household names such as Reitman’s, Aldo, David’s Team, and Cirque du Soleil to name just a few.
- The entertainment industry has been devastated. Here in BC, we lost six months of what in 2019 was $3.2 billion in revenue from the movie industry.
- Manufacturing sales have declined by 30%, as have exports.
- Unemployment in Canada rose to an unprecedented 13.7million in May, although there’s been some rebound as the economy opened up again. But many businesses just didn’t survive. In the US, The Economist predicted that 4/10 American jobs lost in the pandemic will never return.
The fallout from this pandemic will affect our lawyers, staff and clients for some time to come. We need to do longer-term planning. We need to cut costs, and by that I do not mean slashing budgets but rather, changing some of the ways in which we operate. Here’s where, and how:
- Rethink Your Work Spaces
Shortly after the pandemic began, two of the largest accounting firms in BC asked everyone to come in and empty out their office/desks. Now, everyone is expected to work remotely. If they want to go into the office, they are assigned a workspace for the day. Is this a temporary situation? A recent Harvard study suggested that 16% of professionals who are currently working remotely will remain working remotely after the pandemic…permanently. Other research has suggested that number could go as high as 30%.
In those circumstances, going forward do we really need all of the office space we currently lease? That’s an important financial question, as rent is usually the second more expensive line-item on law firm expense sheets…right after wages and comp.
Shifting from the full-on everyone in the office model to a hybrid of some in-person, some remote takes careful consideration. Existing lease agreements may put these plans on hold for a while. But this can provide the time needed to plan the shift.
- Rethink Your Work Flow
During isolation, lawyers kept pretty busy but staff, less so. This was at least in part because lawyers couldn’t find a rhythm to working with staff remotely. Whether to improve our work processes going forward to accommodate for some remote work, or simply to make us more efficient, consider doing a workflow analysis project.
Workflow Analysis is a formal process of documenting and rethinking the way we do various elements of the practice of law. It’s generally done by specific service. For example, you might analyse workflow on a workplace investigation. Other groups could look at how to prepare for a discovery, how to do a commercial conveyance, etc.
The process results in an outline identifying each and every step: who is responsible for it, how long does it take, what’s the outcome, what happens next? Then consider whether steps can be missed or amalgamated, who really needs to do each activity, and when. This could result in fewer steps, or in a different order, or with different people doing any given step. The goal is to better streamline a process.
Sometimes, this results in the creation of reusable resources such as checklists, better precedents, etc. Ultimately, firms will find that some practices might be in a position to be more streamlined than others. They might require less support staff, and become more cost-effective than before.
Incidentally, many other industries study workflow as a standard part of their business. Examples include transportation, manufacturing, the school system, and healthcare to name a few.
- Rethink How to Support Your Practice Areas
You will probably have noticed that certain areas of law seem to be more in demand these days, directly due to the pandemic. Employment and labour and Family Law are two such examples. But what you might not realize is that demand for different practice areas is fluctuating all of the time. Sometimes that shifts are bold: when securities are down, it’s really down. When insolvency is up (and that time is quickly upon us), it’s really up. Often, the shifts are more subtle. You might not sense them because you aren’t studying your data closely enough. A good marketer will help to fix that.
Why does this matter? Because when you better understand the up and down cycles of your practice, you can reallocate resources ahead of time to accommodate those shifts: more resources to practices on the rise, less to practices on the decline.
This is about carefully monitoring data to better manage practices around marketplace realities.
- Rethink Your Marketing
You don’t have much choice on this one because our old ways of marketing aren’t all accessible to us anymore. Dinners and hockey games aren’t happening. We can’t sponsor an event that isn’t occurring. We can’t speak at a conference that has been cancelled. In the absence of these marketing outlets, marketing must become more about the client and more specifically, about contact and content.
Contact: Start making courtesy calls to your top clients – clearly off-the-books calls to ask them how they are doing and what’s keeping them up at night these days. Reach out, even if you don’t know what to say. Clients always remember the law firm that took the time to ask them how things were going during tough times. And your next question (is there anything I could be doing for you right now to help out) might actually result in some legal work.
Content: Lots of firms are pumping out content. But few are producing content truly meaningful to their clients. Instead, lawyers are producing the content they want to produce. You should get some ideas for more client-relevant content through your courtesy calls.
Other Marketing Ideas? For years we’ve known that one of the most beneficial marketing tools we can employ is the client survey (or audit), yet few firms do them. Another great marketing focus is more direct and specific goal-oriented practice group marketing. That’s when you focus attention on a particular legal discipline and clearly show the firm’s expertise to specific target markets. This could be through content like webinars, articles, podcast; to advertising; etc.
Also, try focussing more on cross-selling your existing clients. This could involve staying in touch with past clients, who can be an excellent source of referrals or repeat work. It could also involve taking the time to teach all of your lawyers about your various practice areas so they can be more effective salespeople.
And finally, this is a great time to take care of some marketing housekeeping. Clean up the reports on which you make your business decisions. Better organize your practice areas. Improve your website content. Document your RFP, sponsorships and other processes. Do some marketing training. Walk everyone through how to create a personal business/marketing plan. Do all of those things that you know you really should do, but never seem to have time for. And best of all: if you have a marketing person in your firm, these activities don’t cost any money.
What Covid may be teaching us is that we don’t need to spend as much money on schmoozing or travel that we thought was critical to our business model. This isn’t to say that we stop marketing. Quite the opposite. We should invest in marketing professionals that can help us to take our marketing to the next level in terms of relevancy and effectiveness.
- Rethink Your Staffing Needs
As I just referenced earlier, not all staff were able to maintain their productivity when forced to work remotely. This is for a number of reasons:
- Old workflow processes just didn’t work as well with remote workers. They needed their files handy, and more senior staff nearby to guide them.
- The lawyers couldn’t find a rhythm of overseeing staff remotely so the lawyers sent them less work to do.
- Some employees simply didn’t have the level of discipline or maybe the environment to maintain a remote work practice.
Many firms did what they could to keep everyone on the payroll during isolation. As everyone returns to work, we must face the reality that there may be continued pockets of isolation needed. We can expect this uncertainly to be around until we all get vaccinated. We need to reconsider how to run the business whether staff are in the office or at home, because they could be either place on any given day. Having to isolate for a few days or weeks should not mean that productivity suffers.
It starts with assessing each practice area to determine the staff support truly needed. And that might change after a group has gone through a workflow analysis process. This is not about trying to do with less staff working on exactly the same processes. Instead, try to rethink, retool and redesign your work processes so they require fewer staff members if at all possible.
The second assessment is of the staff themselves, to determine if you have the right people in place. Workers should be adaptable to and productive in either work or home environments. They should ideally require minimal oversight. And incidentally, oversight doesn’t need to come from a lawyer; it can come from a more senior staff member.
- Reconsider the Trajectory of Associates
The road to Partnership is difficult. Approximately one in seven Associates in big firms make it to Partner. It cost around $300k per Associate to get them to fifth year, at which point they actually start to make some money for their firm. It’s at that point – the fifth to eighth year –that most Associates leave their firm.
At the same time, there is increasing evidence that some Associates don’t see Partnership as their career goal. So where does this leave law firms who depend on Partnership as the golden carrot? In a desperate need for a new model that will work with the next generation of lawyers.
Perhaps Partnership doesn’t have to be the only game in town. What if an Associate had the option of another route that would give them what they need: a decent living, respect, a degree of autonomy, support when they need it, and access to firm infrastructure? Consider the following options:
- Permanent Associate
- Permanent Associate but called a (non-equity) Partner.
- A lawyer, on contract.
You’ll need to ensure there is clarity around the role, expectations, compensation and benefits in each instance. And Associates are going to want the option of moving between positions should their decision change. So, if there are requirements in the lead-up for any role, those will need to be clarified as well.
Finally, rather than dictating the role of each Associate, make the decision in collaboration with them. Learn more about what each Associate wants from their career and see if there’s a way for the firm to provide that to them. If being a Partner means a 2200-hour year and they aren’t prepared to go there, they will understand that opting instead to be a contact Associate will pay less. But if that role better aligns with their needs, they will be happy to have the position.
- Rethink Your Leadership/Management Structure
The greatest profitability comes from ensuring everyone in the firm focusses on their core competencies. Yet for years, law firm Partners have struggled with the concept of letting go of day to day management and entrusting it to professional managers. If this experience teaches you anything, it should be to surround yourself with competent management so you can focus on what you do best, and what brings in the most money: the practice of law.
Firm leaders should lead, not manage. They should not decide where to buy paperclips, what to serve at a client event, or what the office Christmas card should look like. Instead, surround yourself with competent people who can make these decisions well. Executive Committees or Managing Partners may wish to be kept more informed of day to day occurrences; and may even be more involved in certain eventual decisions that they feel need the blessing of someone from the Partnership but not a full Partner vote.
Take the time, effort and money to hire and keep really good professional management staff. You’re going to pay for it anyway in either salaries or lost billable time. Why not opt for the option that has the highest chance of being effective, and increasing firm profits.
What should lawyer leaders do then? They should set vision, approve policy, police lawyer behaviour, stay on top of firm financials, cheerlead practice groups and individual lawyers, thank staff, support a robust training and experience program within the firm, ensure succession is happening properly, approve changes to the practice group list, guide expansions, and make decisions about new lawyers and entry into the Partnership.
We need to better train Partners and leaders on their role. Consider getting coaching for incoming Managing Partners, Practice Group Leaders or other leadership positions. Don’t assume a great lawyer will be a great leader; better to assume they won’t and will need help in learning to do the role well. If you doubt that this is needed, reread Norm Becal’s book about the fall of Heenan Blaikie which specifically references a lack of leadership training as a significant contributor to the firm’s downfall.
In closing, change is scary, particularly for lawyers – we know this about your personality type. So instead of change, think of this as adapting or evolving over time to the shifting world around us. Don’t think of it as creative destruction: think of it as creative productivity improvement. And understand that in every crisis, opportunities can emerge for those who are bold enough to seek advantages through change.