Embracing your law firm's risk-averse nature after the financial crisis

Everyone responds differently
in a crisis. Some freeze, others
panic; several try to take charge. Only a few are able to recognise the opportunities to change things for the better. The global financial crisis had a similar effect on law firms - many panicked and found that, after shedding resources to consolidate their positions, they were unable to fend for themselves and were forced to ask competitors to acquire them. They rushed into action
and didn't stop to consider their longer-term objectives.

With the worst of the recession now behind us, the question now facing the firms which survived this self-culling process intact is whether they should start investing in growth again; they will certainly have seen some of their peers announcing bold expansion plans in recent months.

However, following competitors into a 'hot' jurisdiction should never be a stronger driver than the pull of client demand for a physical presence there. Several partnerships have rushed into
new jurisdictions without a realistic expectation of a steady
stream of work to sustain their new offices; they failed to fully consider the risks, with negative results.

It seems that, for law firms, the key to long-term investment success is to embrace rather than battle their risk-averse nature. Partners' business instincts are often leveraged to far greater
effect for clients than they are for their own firms; caution is thrown to the wind when they should be demanding that a thorough risk analysis is conducted for each big investment by their firms.

Of course, there are opportunities which demand swift and decisive action, but that does not mean that risk management
should be abandoned when timing is critical. As with the purchase of any property, you should at least ensure that the roof, wiring and plumbing is sound before signing away your hard-earned income.

So, look closely at the big investment you're about to make as
a firm - whether it's opening a new office abroad, buying in a team of partners with specialist expertise or expanding a business support function. Does it make sense from a business standpoint and, importantly, would you advise a client to do it? Does it have sufficient time, support and resources to succeed in line with the expected investment returns? Have you anticipated and prepared for different scenarios? Are there clear measurables in place to track progress and to manage the project to success?

It's important to be bold and to take risks in order to succeed,
but it's equally important to take calculated steps to ensure that
your firm doesn't fall through the rafters as it builds for its future
in the aftermath of the crisis. The last thing you want on your books
is a money pit which your competitors recognised as looking far
too good to be true.

Until next time,