Lessons for big law firms from sole practitioners

Big law firms enjoy many benefits and there are huge efficiencies to be exploited from being well resourced. A multi-lawyer business model ought to lead to much greater profitability than most sole practitioners can expect. However, partners in big firms are often insulated by advanced systems, professional management and the comfort of co-workers, causing them to lose sight of some of the harsh realities facing sole practitioners.

There are at least three areas in which lawyers in larger practices can learn from the experiences and working methods of sole practitioners and smaller law firms.

1. Cashflow management

Sole practitioners are brutally aware that they will quickly run out of money unless they manage their work in progress, bill promptly and chase unpaid invoices persistently. Large law firm partners sometimes leave these matters either
until the last minute or to somebody else.

In order to gain a greater sense of personal accountability, some firms employ a ‘name and shame’ approach to highlight poorly-performing partners, while other firms align individual drawings to specific cash collection targets. The lesson is to create a compelling line of sight from the firm’s overall financial and cash collection goals to the day-to-day work and objectives of individual members.

2. Learning and development

Few lawyers are able to devote much time to their own continuous development. In large firms, partners rely on a professional training department to provide holistic development programmes, but it is often hard to get busy partners to attend them.

Such ease of service can lack individual engagement. It also seems easier to bail out of events at the last minute when the firm’s money is being spent rather than one’s own. By contrast, conscientious sole practitioners know that training and development will not happen unless they invest in it personally and therefore take that investment seriously.

This is not just a financial dilemma
but also a cultural one. What is needed
is a sense of personal accountability
allied to a strong motivation to develop and improve. The message here – as many firms have found – is to strengthen the culture of discipline and learning
in their firms, supported, of course,
by suitable systems and resources.

3. Profits and drawings

Sole practitioners know that this year’s profits result just from their own past efforts and can only be extracted to the extent that cash is there. Sole practitioners operate by default on
an eat-what-you-kill (EWYK) basis and some large firms continue successfully
to operate profit-sharing systems based (at least in part) on EWYK principles.

Many small firms with several partners operate by sharing profits equally. All over the world, firms of all sizes still operate on some form of lockstep or equality arrangement that embodies the principle of true and equal sharing in a partnership.

There is however a growing global trend to base some or all of partners’ profit shares on performance in terms of both effort and outcomes. It is here that the principle of distributing the current period’s profits can come under strain as firms try to work out how much credit (if any) should be given to efforts that have not yet resulted in a successful outcome.

Take business development activities. The small firm has no dilemma here. If efforts are being made to win work or develop business, no financial benefit accrues to the sole practitioner until
and unless those efforts are successful. By contrast, bigger firms sometimes argue that credit should be given for
such efforts in advance of success.

One answer, of course, is to only financially recognise such efforts as and when measurable outcomes are achieved. But, while that may (and probably should) work in the context of marketing and business development, success is often difficult to measure in financial terms in areas like training, team building and management activities. Here, an assessment has to be made about each partner’s overall contribution to the success of the firm. In this context, credit for effort can be given if the firm is satisfied that the expenditure of time and effort has been devoted to valuable contributory activities rather than just captured on a timesheet.

Comfort zones

The concierge-style comfort zones enjoyed in large firms have many advantages as they allow partners to devote the majority of their energy to the practice of law. It is, however, easy for these partners to lose touch with the harsh realities that sole practitioners face. This can lead to irresponsibility in the management of budgets and fees and
an increasing expectancy that the firm
will provide for partners’ every need.

The lesson from small firms is that it is important for firms of all sizes to strive to establish a sense of immediacy and personal accountability that help to bring their partners closer to the hand-to-mouth cash demands that sole practitioners face every day.

Nick Jarrett-Kerr advises law firms worldwide on strategy, governance and leadership development (www.jarrett-kerr.com)