Author Archives: Administrator

As the economy struggles to resurrect growth after a prolonged downturn, law firms are also feeling the pinch, as noted in the most recent Peer Monitor index. According to the third quarter report:

While rates strengthened slightly, demand growth weakened. Most significantly, the rise in expenses continues to accelerate. In the third quarter, increases in expenses ran well ahead of slowing revenue growth, sharply curtailing profitability.

The recent trend in increased expenses reflects a slow-down in the cost cutting we’ve seen in recent years, which was largely the lever that raised law firm profitability (or at least kept it from suffering too drastic of a decline) in many firms. Indeed, a significant portion of those expenses involve compensation for legal and administrative staff. The chart displayed here shows the dramatic difference between third quarter 2010 and this past quarter on the direction of key expense items. Compensation and benefits, which together contribute nearly 45% of total overhead expenses, have reversed sharply, nearly wiping out savings from last year.

There is much debate about whether and how much demand is likely to rebound in the coming years. We believe it will rise, but is unlikely to return to the go-go times prior to 2008, at least in the foreseeable future. Without significant growth in the market, in order to continue to increase profitability, firms can either augment their share of the market and/or look for ways to become more efficient. On the second point, many firms have already tackled the low hanging fruit in the form of removing some of the “fat” that tends to accumulate in any successful organization during good times. Going forward, firms will likely need to become more creative about improving the leanness of their business. Are firms now at the point of being forced to rethink the structure of their legal staff and administrative support, instead of merely making it smaller?

To take the pulse of the staffing structure in large law firms, we have just launched the third annual Peer Monitor Staffing Ratio Report. Contact Elizabeth Lilleboe to learn more and find out how your firm compares with the market on these critical issues.

Posted by Lisa Rohrer

For better or for worse, law firms tend to place a premium on individual contributions. Many compensation systems, for instance, reward partners based on origination credits and personal productivity. Clients say they “hire the lawyer, not the firm.” And top rainmakers are kept happy so that they do not jump to competitors. There are still many firms that remain largely a collection of individual practitioners, where true collaboration and teamwork are relatively rare.

But although the focus is typically on individuals, research shows that success in professional services is rarely the sole function of individual effort and brilliance. While there has been little systematic research in law firms, research out of Harvard shows that for another type of professional, investment analysts, performance of star analysts tends to deteriorate when they change firms. Why? Authors Boris Groysberg, Ashish Nanda and Nitin Nohria conclude that context matters.  Context is everything surrounding a professional, from organizational systems and procedures to co-workers. And yet rainmakers and the firms where they work tend to underestimate the importance of these elements.

According to Groysberg, Nanda and Nohria:

Although many companies have ample resources, good systems, and smart people, executives and professionals often forget that every organization works a little differently. The informal systems through which executives find information and get work done are unique to each company. When stars join new organizations, they must learn about the informal networks and build trust with other people before the systems will work for them. However, stars don’t give themselves enough time to get up to speed in new settings because of their egos. They also invest in skills they can use across different companies and don’t care about developing their firm-specific knowledge because companies treat them as free agents.

So even though firms pay big to bring on successful players, in many cases performance actually deteriorates because the star is dealing with different systems and co-workers. In other words, according to these authors, performance is simply not automatically portable from one firm to another.

Importantly, the negative effects on performance can be mitigated when rainmakers move together in teams. So by bringing colleagues with them, rainmakers can often replicate enough of the context of their success to continue to outperform.

More recently, Christopher Rider, a professor at Goizueta Business School at Emory University, showed that rainmakers aren’t the only ones who benefit from colleagues. In studying law firm dissolutions, Rider found that lawyers can leverage relationships with past co-workers to land jobs in new firms. Studying six recent law firm dissolutions, Rider’s research demonstrates that lawyers were more likely to get new jobs in firms where former co-workers had landed – and this finding holds true for partners and associates. These connections were more critical than another type of important connection, law firm alumni networks. The greater influence of work over school ties further indicates that colleagues (and context) are an important component of career success.

Taken together, the research suggests that the bonds between co-workers can be a significant and under-recognized tool for career success among attorneys, whether or not you’re a rainmaker, and regardless of career stage. The people who work in the office next door and the lawyers you meet at the water-cooler are not just people with whom you exchange observations about the weather and the commute– they can provide much deeper benefits to your career. Law firm leaders who recognize that their firms are not simply a collection of isolated individual practitioners may find more success in hiring, integrating, and retaining lateral hires – a process that has traditionally been fraught with risk and uncertainty.

Posted by Lisa Rohrer