Walking dead: The deadly symptoms of zombie law firms

Many firms congratulate themselves that, despite all of the problems of the past few years, they are still in business and making money. But, if you look more closely at some of them, you can see the horrible truth. They are not growing. They remain dominated by old thinking that is not fit for today’s changing world. They are probably already in a slow decline. They are the walking dead. It is this complacency, inactivity and fear that are the bugs that turn us into zombie firms.

There are a range of factors that are threatening law firms today. Below are some diagnostic tools which you can use to find out if your business has been infected with the deadly bugs that may turn it into a zombie law firm.

1. Financial health

The obvious starting point is the financial heath of your firm. Have you loaded up the business with debt? Are your working capital requirements constantly being stretched by slow billing, irrecoverable work in progress and extra credit being taken by your clients? These factors will kill a business if it becomes impossible to find further credit to cover the funding gap and partners do not have enough commitment to the firm to put up more capital.

Are you reacting to these pressures by cutting costs? You can only reduce your overheads so far and, in doing so, may damage your service delivery, demotivate staff and starve your business of investments that will generate growth.

There are already many walking dead firms whose banks will eventually lose patience as another rent or tax bill falls due. But, these financial issues are the consequences rather than the causes of the bugs that can infect a legal practice. What should really be scaring us is complacency and inactivity.

2. Partner engagement

Think about the partners’ meetings that you have attended. Are there passionate debates about the strategy options to push your business forward? Or is there little debate and lots of colleagues surreptitiously checking their Blackberries?

Are any decisions made? If any are made, are they made to appease as many partners as possible? This approach means that no difficult decisions are likely to be made, as each decision is fudged in the name of partnership consensus rather than voted for in the best interests of the business as a whole.

Some partners still find it difficult to understand that the interests of a group of partners is not always aligned with the interests of the business. An inability to make decisions will create a vacuum in the progress of the firm.

Too often, this reluctance to make decisions is linked to a reluctance by partners to be managed or be involved in management. This may derive from complacency, a belief that professionals ?do not need to be managed or the view that the firm has prospered for years without professional management (at least until recently), so they can continue to survive by hoping for the best and sitting out the recession.

In the past, most of us made a decent living simply by being competent practitioners. The dynamic few who adopted traditional selling techniques and sound management and business principles were the ones that enjoyed great success.

3. Firm management

Does your firm embrace modern management and business principles? Do you empower your leaders and encourage them to lead and manage? Or do you allow any partner who fancies a go at management to take the reins? Do you resent a leader who pushes you beyond your comfort zone?

While there are many talented lawyers who can lead and manage, as lawyers, we are not trained in these skills. And, many firms compound this problem by declining to pay for management training, refusing to see this as an investment.

As a profession, we suffer from a lack of internal management skills. The solution is to introduce professional managers. But, fresh thinking is no guarantee that your business will suddenly become ?more successful.

A common issue remains that some firms treat their professionals as administrators rather than managers. So, the talent that is vital to the business is stifled. You must let those with the skills to lead and manage to do their jobs, otherwise the business will wither and may enter a slow spiral of decline. You need to encourage and reward talent in both your fee earners and support staff.

4. Succession planning

Does your firm promote talent and have a pool of active junior partners? Are there ambitious young assistants knocking on the door of the partnership?

Are you actively managing succession by encouraging and promoting the young bloods and managing the path to retirement of the older partners, while maintaining and passing on their goodwill? Or, do you have a group of older partners clinging on to clients and to as much equity and influence as possible?

Another issue is whether senior partners are using the firm as a cash machine until they retire. But, if they are, can you blame them? Annuity rates are dropping. Savings have been eroded by inflation and pension values are declining. That is before you even think about how many of your partners have taken on a second or even a third family.

Succession issues must be grasped and dealt with. But these problems ?can be institutionalised by your profit-sharing arrangements.

5. Remuneration

How is your business structured? Are you still shackled together in a lockstep system? Is this because you have always used this model and nobody likes change? The traditional lockstep that is still used by many of us is no longer fit for purpose in the modern world.

In the past, we entered the lockstep at a low point when we would normally have few financial responsibilities. Over the years, as we took on commitments such as mortgages and the cost of educating our children, partners rose up the lockstep and our income increased. We would then spend some years on the plateau and, as the end of our career came in sight and our financial commitments (such as school fees) decreased, we agreed to go down the lockstep until we retired.

In the past, there were far fewer financial pressures on our firms and partners than there are now. There was plenty of work around and, while recessions occurred, they passed quickly. The availability of work meant that we had little incentive to go out and find new work and many of us, as junior partners, inherited substantial practices from our outgoing senior partners.

That world has disappeared. We have had five years of economic gloom and face many more years of economic uncertainty. We live in a marketplace where three significant UK law firms – Cobbetts, Attars and Semple Frazer – can go bust in three weeks. Even when the economy improves, the level of work enjoyed by us prior to 2007 is not going to return. The new entrants to the marketplace will make sure of that.

There are currently too many of us and not enough work. That brings down the price that we can sell at and puts pressure on us all to find new sources of income. This new reality is going to continue and we have to address this situation by looking at how we operate our firms and how we can improve the performance of our businesses.

One part of the solution is for us to restructure our businesses so that new blood is welcomed, rewarded and promoted. The lockstep must be replaced by a more corporate approach to remuneration.

But, changing your firm’s structure is not going to be enough to keep you away from the abyss. The days when, as ?lawyers, we could expect to guarantee growth in our income simply by doing good work for our clients are gone. In today’s rapidly-changing market, technical competence is not enough.

The leaders of our firms – which means all partners – need to understand how their businesses work. In addition, all lawyers need to develop selling and management skills. We now need to perform against a wide variety of criteria. To encourage and develop these skills, they need to be measured and rewarded. A lack of effective performance management will just exacerbate all of the issues highlighted above.

6. Performance management

Are your people motivated solely by the rewards that they receive in cash? Do your people value being treated fairly and having their contributions recognised? People want to be rewarded fairly and transparently. We often worry more about the differential between financial rewards given to others than the figure we receive.

People want to know what is expected of them and how they are performing against those expectations. We believe that, if we have done well, our achievements should be recognised by our managers and peers and then flow through to our reward package.

So, do you link rewards to performance? Is performance measured by more than just bills delivered? Underpinning your reward system must be a fair and transparent performance management system.

Have you introduced appraisals that are taken seriously and carried out in a professional manner? Have you introduced balanced scorecards so that there are regular discussions between managers and the partners that they manage about the performance that is expected of them? Do you employ professional managers to bring out the desired skills in your partners and staff? Any reward scheme will be undermined and not work if partners do not have faith in the way in which their performance is assessed and can see how it is linked to their rewards.

The setting of rewards is one of the most difficult tasks that management have to undertake. Do you put the decisions about your partners’ rewards in the hands of their managers, who they know and speak to them regularly about their work and who will know their practice and their performance? Or do you rely upon a group of ‘wise men’? Is this a group of partners who are not involved in the day-to-day management of the business and who may know little about an individual partner’s practice or performance?

It is important to ensure that the assessment of performance and division of rewards is undertaken by those who have the skills and information to undertake these tasks. That means that there must be a link between your performance management system and rewards. Those responsible for performance management must be responsible for the allocation of rewards.

Your performance management system must involve your managers agreeing with your partners clear objectives at the beginning of each financial year. During the year, there must be regular meetings, perhaps using a balanced scorecard system, the appraisal system and informal meetings, at which your managers will discuss the partner’s progress against their targets. That information must then flow into your reward process.

Look in the mirror

The symptoms we have identified above are all within your control: ?

• the will to make decisions;

• management that is empowered;

• succession planning;

• a modern business structure; and

• performance management that is ?linked to reward. ?

These will guarantee sound finances and a profitable business. But, ignore them at your peril. How many of these bugs have already got into the lifeblood of your business? Is your firm now in the twilight zone? You may not be worried by these challenges and have no fear that your business could become a zombie firm. ?But, that may be a sign that your firm ?is already infected.

There are so many of us who still have to take our heads out from under the covers and challenge the bogeyman. In the masterpiece Hammer horror film The Plague of the Zombies, a mystery bug infects locals in Cornwall, turning them into mindless zombies. The evil squire practices voodoo rituals but our hero, bold Sir James, takes him on and brings the plague of the zombies to an end. In 1966, all films, even horror ones, had a happy ending.

Today in films, as in business, there are not so many happy endings. We must all actively manage our businesses and embrace change so that we can fight complacency, inactivity and fear. Take on the causes of the plague that create zombie law firms.

Guy Vincent is a partner and the former managing partner at UK law firm Bircham Dyson Bell (www.bdb-law.co.uk). He specialises in legal and management issues facing law firms.