Picking up the pieces after a firm fracture or break-up

By Thomas Berman, Principal, Berman & Associates 

The period beginning with the Lehman Brothers bankruptcy and the subsequent economic meltdown has not been particularly kind to a large number of law firms in the US and around the world. Certainly some have continued unabated in their practice (depending largely upon the resiliency of that practice and what its areas of focus may be).

Some law firms have been unable to manage very well '¨in this period of time and have consequently shut their doors, been absorbed, had their ‘best and brightest’ hired away or had senior lawyers simply retire until there was nothing recognisable left of the firm.

Of course, when a firm fractures or implodes, it '¨usually relates in some fashion to the issue of economics (expenses rising, along with the concomitant diminution '¨in revenues), although many other factors may be involved '¨as well.

Those partners, associates and of counsel involved with the fracture or break-up (who have not actually engineered the break up over their departures) are then left on their own to find new homes, start new practices with others or make other plans for their own practices.

Residual billing credit

However, technology isn’t the sole or even the primary force driving the growing number of firm fractures and/or break-ups. One of the problems facing many firms is senior lawyers still holding onto residual revenues (billing credits based upon work generation in the past).

This relates to clients who they have brought in or (as is often the case) they themselves have inherited. Other lawyers in the firm may have actually done the legal work for a particular client for many years, but the residual credits continued to flow to that individual who was there first.

Many of the firm break-ups in the past three years in particular have been the result of the individual lawyer who actually provided the services being no longer willing to continue to pay a portion of fees to someone who was years away from actually having performed those legal services '¨for the client.

When times were good and there was plenty of income, these concerns were handled delicately and the lawyers were glued back together (at least temporarily) by extra cash bonuses, such that all was forgiven for the moment. The records show that the circumstances and the perceived inequities are never forgotten, however. When things '¨are not so rosy, these payments become a source of continuing irritation.

In reality, when firm fractures occur, in most cases the junior partner becomes the beneficiary of the new attorney-of-record letter, while many of the firm’s lawyers end up going their separate ways.

Reconfiguring the practice

Whatever the reason for a fracture, break-up or implosion, there is one positive aspect to these circumstances: the opportunity to reconfigure and manage the practice differently. Based upon that proposition, the questions to consider include:'¨

• What kinds of practice elements from the old firm might qualify for alteration?

• What kinds of things might qualify for change and/or renewal?

• How can the firm go about making these changes and what’s the timeline for the changes?

• Can the new firm do things differently to avoid the mistakes of the past? '¨

I’ll try to answer some of these questions in the second part of this column. I’ll also discuss the options afforded to lawyers who have left a practice and are re-establishing themselves.

tberman@bermanassociates.net