Is Disruptive Change Really Making a Difference in How Law Firms Approach the Market?

Topics: Data Analytics, Efficiency, Law Firm Profitability, Law Firms, Legal Innovation, Surveys

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How much has disruptive change in the legal marketplace spurred law firms to actually change strategy to confront these challenges? So little that 66% of respondents to a survey conducted in conjunction with the recent Managing Partner Forum (MPF) conference said that their law firms’ strategy has not changed at all in light of disruptive changes.

This surprised me, but really only to a degree. Honestly, a finding like this should be shocking, but when coupled with the results of Altman Weil’s 2016 Law Firms in Transition survey, the shock is significantly blunted.

Altman Weil’s results sadly jive quite well with those from the Managing Partner Forum survey. The Transition survey found that 59% of respondents haven’t done more to change the way legal services are delivered because clients aren’t asking them to.

I’ve written about this phenomenon before, but it is no less puzzling to me the more times I see the same result.

I recently had the chance to speak with John Remsen, Jr, MPF’s president & CEO, about the results of the survey. The survey itself, comprised of responses from about 85 managing partners from around the country and gathered in real time at the conference, is chocked full of fascinating data points, several of which will be the subject of future blog posts. But it was this resistance to change that I really wanted to focus on initially.

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John Remsen

Why do law firms persist in their lack of initiative to pursue proactive change? John and I agreed on a couple of explanations.

First, and most obviously, change is hard; and lawyers, especially don’t like change. Many managing partners, as well as the bulk of the partnership ranks among which they must build consensus, are not focused on a future that is ten or even seven years away. Rather, they’re focused on what will get them closest to retirement. This helps to explain why things like succession planning are getting attention, but issues like underperforming equity partners are not. Sure, Partner Smith may be a bit of a drag, but that hasn’t really hurt profits per partner to this point. If it’s not broke, why fix it?

According to the MPF survey, 79% of respondents said their firms have equity partners who have not developed a book of business. Those same managing partners were also asked how their firms have addressed underperforming equity partners. Fully 59% of respondents replied “We want to do something about it, but have yet to act.” There is recognition that some partners aren’t contributing enough to earn their share, but nothing is being done?

Therein lies a likely second reason for resistance: Change hurts.

Those underperforming partners may not be making a positive contribution, but they are still partners. They’ve “earned” the right to be partners through their seniority or for other reasons. Additionally, there are most likely personal relationships at play.

Separating the Emotional from the Rational

But this is also an area where the emotional should be separated from the rational. Simply because Partner Smith has been a partner for a long time and is a great guy around the office and golf course does not mean that it makes business sense to keep him at equity partner status. That isn’t to suggest that he must be removed from the equity partner ranks or else. Each firm must make a determination with regard to underperforming partners whether the economics and emotional factors justify maintaining the status of these individuals.

Additional data suggests that, while firms may not be actively seeking to address the underperforming equity partner problem, they may be handling it passively. According to Thomson Reuters Peer Monitor, the ranks of equity partners are being replenished at a rate of only 0.87. That means that for every 10 equity partners that leave, fewer than 9 are being brought in to replace them. This is not precipitous realignment, but it may represent at least some effort to manage underperforming equity partners through attrition.

Interestingly, replenishment of equity partners actually nearly mirrors the replenishment ratio for non-equity partners, a class of attorneys that has been very publicly targeted for elimination in many circles.

Sometimes the decision to do nothing can be the right one. So long as that decision comes from a process of discernment and not simply a desire not to act. As the band Rush once said in their hit song Freewill, “If you choose not to decide, you still have made a choice.”