Firm fracture or break-up? Opportunity awaits!

By Thomas Berman, Principal, Berman & Associates

Although a firm break-up is generally considered to be a bad occurrence, it may actually provide some great opportunities for change. This can include ameliorating compensation formulas, weeding out unproductive/unprofitable practice areas (and lawyers) and rethinking the actual practice management of the new entity.

It is very difficult – if not virtually impossible – for a law firm with a sizeable population to make fundamental alterations to the way the practice is actually managed. However, a fracture or break-up provides for a substantial lift to the idea of change which, as we are all aware, is never an easy thing to absorb.

Consequently, the partners in the new entity may enjoy a much better chance of altering some basic practice paradigms in the new firm environment. So, the question to be asked is: where should the lawyers in a break-out firm from another firm begin the reconstitution of the firm practice?

The answer of course begins with the intramural contract between/among the new partners in the new entity. This is, in fact, the perfect time to ensure the issues that they were beset with before are resolved as well as they can be.

The important basics of the agreement have to be addressed, including compensation, methodology for new partner inclusion, partner departure of all kinds, a general management structure, adherence to codes of professional responsibility and so on.

Beyond the entity agreement, what are the other prime issues to attend? The first relates to the management and governance of the firm. Figure 1 shows the simplest and, in many ways, still the best structure. The basics must be here, including a clear delineation of authority. It works very well for virtually any sized firm, so it is a good place to start.

Figure 1:  Simple governance structure

The next issue is the structuring of the practice for accountability and transparency, as the new entity must firm up responsibilities and assign duties. The partnership/corporation is the ultimate authority of course. The executive or management committee should be charged specifically with the firm’s policy and planning. Depending on the individuals involved, it may assign different tasks to different members so that there is a clear understanding of responsibilities. The managing principal’s responsibilities will differ as well, depending on his particular skills set.

Practice sections are designed to manage/orchestrate the casework of individual lawyers. They are most responsible for the transparency of the practice and must work in close coordination with the managing principal. In firms with over 30 lawyers, it is vital that the supervision of lawyers and their practices is part of the basic paradigm.

Technology should also be at the top of the list of matters. The utilisation of technological resources is a game changer, providing the new entity with efficiency, clarity, and safety and security in its practice.

Today, a substantial amount of the organisational framework can be accomplished using integrated information management systems. Putting the appropriate information in front of lawyers, staff and managers is key to both managing casework as well as supervising other lawyers and staff.

'¨Opportunity for change

When a lawyer or group of lawyers are starting over, it is critical to get the basics in place so that decisions can be made at the appropriate time and by the appropriate individuals.

In many firms, there is unfortunately little in the way of orchestration and structure. Consequently, they have little chance of survival under the toughest of circumstances. Much of the reason for their demise is a lack of accountability and organisation.

A fracture can actually have a positive result. It remains for those involved to see the opportunities for change and to embrace them. '¨

tberman@bermanassociates.net