Almost every firm collapse can be blamed on one party: the partners. Partners are the bane of law firms’ existence. Funny enough, they’re also the reason a law firm exists. Is it that partners get tired of practicing law, retire or leave, and the firm dies? No. There are 5 major reasons law firms collapse, and we will go into them in detail.
Before we go into that, I want to share with you my story. I was never one of those attorneys who loved the practice of law and had to do it to survive. I enjoyed practicing law, but I loved business even more. As my partners have told me, I’m an entrepreneur trapped in a lawyer’s body, and law just happened to be the business I was in.
I started my firm as a solo attorney and grew it to 22 attorneys where I am currently the Managing Shareholder of. Just as important (to me at least), I don’t bill a single hour. I enjoy growing the firm strategically and my partners thankfully see the value in me doing that (and of course still rainmaking for the firm by keeping and establishing strong strategic partnerships with large clients and other stakeholders).
As a result, I have handed the day-to-day client relationships to my partners who chair their respective departments and they do a better job than I do in keeping our clients happy. But what about keeping them happy? What if they leave? I’m not naïve to believe that they can’t leave and go anywhere else and probably make more money. So why do they stay? The answer to that is at the heart of this article.
The Top 5 Reasons Law Firms Collapse
Unlike what you would expect, you can predict a law firm’s failure. Yale Law Professor John Morley in his seminal work of Why Law Firm Collapse noted that you can’t look to a firm’s revenue to predict its downfall, but rather these X reasons:
1. Those Who Bring in the Clients Leave Or Retire
One of the biggest reasons law firms fail is that the partner who has all the relationships leaves, either to a competitor or just decides to retire. This emphasizes that law is still very much a relationship business in 2019 and relationships are key. Professor Morley found that if the client is a firm client, i.e., it touches various practice areas within the firm, there is a lower likelihood that a firm will lose the client. However, if the clients are concentrated into 1-2 rainmakers and they leave, the firm will quickly dwindle and go bankrupt.
2. Taking Care to Create Lasting Bonds Will Save Your Firm
Partners of course love to make money, but if those are the sole bonds upon which a firm exists on, the firm will eventually collapse. Why? Because there is no loyalty among people who only care about money instead of building a law firm. Professor Morley found that when the finances are strained, informal bonds and culture reign supreme (which they do at any other company, for instance).
At Geraci, we have invested significantly in both partner and associate happiness, from installing a cappuccino maker, having food for our people to unique bonding experiences. All added up, our people trust one another to do their jobs and grow the firm overall.
3. Failure to Inspire Fellow Partners
What happens when you are facing challenges within your own firm? Do you bury your head in the sand, hoping you’ll come out on the other side? When the 3 main partners at Jenkins & Gilchrist were sued for selling fraudulent tax practices to the tune of $81 million, it was going to tap most of the partner’s profits. Failure to build a huge loyalty (i.e., partners came into the firm just for the profits) caused headhunters to pick off partners – after all, the partners could just up and leave, having no bonding or loyalty created by the head partners.
At Geraci, I faced similar downturns by communicating to my partners daily, telling them the problems and then asking for their input, help and support. We got through tough times together as a result, and we’ve grown more than 500% due to us all being on the same page together. Treat your partners as partners, and you’d be surprised at the outcome.
4. Get Out of Your High Rises and Into Basic Offices
Every firm that has failed can blame fixed expenses as playing its part in the failure. That’s because these long-term expenses are a fixed cash drain. In a recession, these fixed costs just add several thousands of dollars of costs needlessly wasted on space. Most lawyers feel they need these luxury towers to attract clients.
Here’s some tough love: your clients don’t care. They DO care that you are a competent and highly effective attorney. Your office on the 30th floor doesn’t impact that.
5. Get A Law Coach To Help You Out of the Tough Spots
One of the findings by Professor Morley was that the destruction of law firms in general are very predictable. To get ahead of these issues, you need someone who has created a strong culture within law firms as well as created a firm whose clients are loyal to the firm and not to an individual lawyer. Further, hiring someone like that can guide you to more sustainable and profitable growth as they’ve lived your life as a lawyer but has also merged the business world in with the legal practice.
At Geraci it was difficult at first to merge these two. I was constantly growing and reinventing myself to be the CEO the law firm needed, which included learning new skillsets. I strongly urge you to do the same and consider hiring a coach to help you navigate the uncertain waters you’re currently facing.
By creating strong non-financial bonds and a strong culture that inspires partners to build something rather than do it all for money, your firm can become one of the strongest and most profitable it has ever been. With a coach, you can go to new heights quickly and more profitably and, most importantly, avoid these 5 major ways that law firms collapse.