Don't Panic: How Struggling Firms Can Keep Partners From Fleeing
A crisis can become an opportunity, if a firm responds well to a challenge.
September 10, 2019 at 01:46 PM
5 minute read
The collapse of LeClairRyan served as the latest reminder that when a law firm partnership finally loses its faith, the party is over. But that doesn't necessarily mean firms can't pull out of a spiral.
Experts in law firm management and dissolution say the right approach to communicating with partners, staff and other stakeholders can make all the difference when a firm is tested—and that sometimes a crisis can become an opportunity.
"There's no reason why a law firm cannot resurrect itself and right wrongs if it has the right leadership, and something more than just money holding the firm and the partners together," said Paul Singerman, a co-chair and partner at Miami-based Berger Singerman who has spent years working on liquidations for law and accounting firms.
LeClairRyan filed for bankruptcy earlier this month and owes nearly $15 million to two secured creditors, according to documents filed in the Eastern District of Virginia. The Chapter 11 filing comes after years of declining revenue, a failed venture with an alternative legal service provider, and an exodus of attorneys.
When the Am Law 200 firm announced in early August that it would dissolve, it became clear that the once-profitable firm had been in trouble for years—and it ultimately failed to navigate the hardship as it bled both partners and profits.
LeClairRyan's efforts couldn't stem the departures and revive the loyalty of its lawyers. But Singerman said times of unrest can also present openings for firms, including the opportunity to hold partners accountable, whether they are former rainmakers who are no longer pulling their weight, attorneys who are being overcompensated given the current financial status of the firm, or others.
"Having the courage to hold people accountable means making tough decisions when there is still time for them to matter," he said.
Like other businesses, law firms will always be subject to good years and bad years, Singerman noted. That's why he said it's so important that firms cultivate a strong culture and leadership team that can excel during a time of success and be strong enough to withstand threats that could lead to failure.
Singerman added that as a firm is taking steps to whittle down its workforce to try to right a sinking ship, it is just as important to let high performers know they are appropriately valued.
"What's never talked about is making sure that the firms are listening to and taking care of and addressing the interest of the performers," he said, noting that if a high achiever loses faith and decides to leave, it will only hurt the firm more. "Instead of spending all of the leadership's and management's time on problem makers and causers, they should also give positive focus to those doing a good job."
As soon as high-performing partners feel like they're not supported and dissatisfaction takes hold, headhunters for other firms will find easy prey, said longtime legal management consultant Brad Hildebrandt, who has experience with multiple law firm restructurings and dissolutions.
"Once you get to that point, you don't have a firm anymore," he said.
Hildebrandt pointed out that there could be many underlying issues behind a law firm's troubles: lack of billing discipline, staff not pulling their weight, underperforming partners, poor leadership and more. By the time many firms call him for help, they are already in too much trouble to be saved—but, if the culture is collaborative enough, it can be the firm's best chance at survival, he said.
"If the partnership wants to stay together then, ultimately, you have a good chance of keeping it together," he said.
Of course, a firm's cultural glue has its limits, especially when the money runs out. That's one reason Les Corwin, the head of Eisner's New York office, emphasizes the importance of managing a firm's debt and finances.
"Your best relationships should be with who your bankers are," Corwin said. He stressed that it is important for firms to not only balance their books, but also to keep a clear line of communication with involved parties, such as primary lenders and unsecured creditors.
"Firms need to know what their whole banking relationship is—who's funding things, and how?" he said. "Always keep [the lenders] in the loop."
Corwin added that it is equally important for a firm to be transparent with its partnership throughout a process of cutting costs or restructuring.
"Communication is key," he said. Adjusting to financial hardship is tough for any firm, he said, which is why it's important to prepare partners and staff alike for tough decisions ahead. "Get buy-in and their commitment—the key people should be locked in," he said.
Then there's that other key group: clients. Hildebrandt said a strong culture through troubled times is also the best way to quell anxieties that can set back efforts to keep and develop business.
"Clients panic when the partners panic," he said. "Once the clients panic, you have big trouble."
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