Building good behaviour

One of the managing partner’s chief tasks as law-firm leader is persuading other partners to follow proper procedures. Embedding a positive risk-management culture across professionals and support staff will reduce the cost of client-service delivery and improve profits.

Much has been written on leadership in a professional-services environment and how to manage and motivate partners. Achieving the objective of running the firm as a business, while at the same time nurturing the qualities and values of partnership in the delivery of client service and managing risk, presents a huge challenge for the managing partner. This article sets out to illustrate the power of proper client engagement and good risk-management procedures in improving profitability.

Is profit maximisation a primary objective of a law-firm partnership? Money may not be everything, but in today’s war for talent, paying partners and associates in line with the market is crucial for retaining and recruiting talented lawyers to grow and sustain the business. Equally, generating increased revenues to cover this cost base is a challenge. On anything other than insignificant projects, clients will not readily accept that hours multiplied by rate equals amount invoiced from their professional advisers. Therefore, there is no doubt that making the right choices as regards the clients for whom we work, and the way we work with them, are of key importance in improving profit performance.

Client contact

Client-relationship management (CRM) has always been recognised as important by forward-looking and successful partners. It forces the question at the outset: are we completely comfortable that the relationship with the client, relative to what the firm is being asked to do, is one of trust and mutual respect? There needs to be an open dialogue with the client on the scope of the work we will perform: the likely cost, broken down into components – preferably consecutive ‘milestones’ – and the billing arrangements. This discussion needs to occur before work commences, but need not be lengthy unless there is a problem, when, of course, debate is needed to determine a mutually-satisfactory starting point.

Dialogue of this kind can be very revealing. The good client will of course negotiate, but at the same time, will give the lawyer a full appreciation of their parameters, their budget and their expectations. Of course the lawyer needs to ask the right questions, and then listen carefully so he can communicate to the client how he has interpreted the project and how it will be managed, including reporting and other aspects of the delivery mechanism. Once there is a meeting of minds, the end product is an engagement letter that picks up these key points and forms the basis of the contractual relationship, signed by both parties.

Bad clients will over-simplify scope and be evasive about agreeing a contractual framework. Their objective is to keep control of the relationship firmly in their hands, and they will only give the lawyer what they deem appropriate. Trust and mutual respect are not key features of their agenda. In such situations, and where (almost inevitably) the firm then has difficulty making a client pay for services, the engagement partner will usually say he ‘knew that client would be trouble’. The managing partner should periodically remind his lawyers that the firm has scarce resources, which should be used to serve those clients who appreciate what is done for them and will pay.

Attitudes to engagement

All too often I hear client-engagement letters dismissed with the sentiment ‘all very well in practice, but the nature of legal work is that one cannot predict outcomes and therefore an engagement letter is worthless’. This superficial response is nonsense. What is required is a contract that reflects what is being done for the client. Of course some engagement letters will have to scope the early stages of the assignment, with subsequent milestones being updated by later discussion and exchanges of correspondence. In this way the key contractual relationship and the method of working with the client is established ab initio and the scene is set for transparency in the relationship as the assignment proceeds.

The managing partner plays a key role in ensuring the concept of client engagement is understood and embraced by his partners. One might imagine a profession that provides legal services to clients would be switched on to the need to manage its own contractual relationships formally and properly. Unfortunately, all too often some lawyers still rely too heavily on what they see as the trust surrounding a professional relationship. But this is in a world that has moved on, and where legal professionals increasingly find themselves in disputes over payment, or at worst on the wrong end of a malpractice suit.

I recently asked a magic-circle firm partner to tell me the single most important aspect of their transformation into an LLP. The response was immediate – forcing all partners to write engagement letters. My point here is that many lawyers crave LLP protection, without facing up to the fact that this status is worthless if it is not supported by proper contractual arrangements.

So what techniques can the managing partner employ in this arena? All individuals are motivated by greed and fear (not just law firm partners!). Both techniques come into play in changing culture. Engagement procedures are primarily about maximising revenues, while at the same time protecting the firm from the financial drain of what I term ‘troublesome practice matters’ (TPMs). Both have a fundamental impact on profitability, and I will now turn to how we make engagement procedures work to the financial benefit of the firm.

Running risk training

Regular (at least twice a year) and compulsory risk-management training for all lawyers is essential. The delivery of this training should be based round ‘war stories’ – problems incurred and near misses – with the names removed where appropriate, as these will cover the hot spots. The war-story format draws partners like moths to a flame, and when partners attend, associates follow. These training sessions should be chaired by the managing partner, as a visible support to the risk-management team.Hearing about real problems that might have been avoided is very persuasive. It delivers a strong message and offers the greatest likelihood of achieving discipline and embedding the firm’s procedures.

TPMs are hugely costly at a number of levels. Instead of lawyers spending time earning fees, they are transformed from being revenue generators to being costs. PI insurance deductibles leave many of these costs with the firm, with the burden of administering the process with an insurer also a significant disruption and cost. In addition to the financial impact, do not underestimate the debilitating effect TPMs can have on morale and performance. The most worrying feature is that they often arise due to dysfunctional behaviour within the firm, leading to failings such as missed deadlines or work not handled by the appropriate specialist. Many of the issues giving rise to TPMs can be avoided through better communication, a key aspect of which is the engagement process.

However, the main thrust of the message to partners during risk-management training should not be to pick obsessively over past mistakes, but to embed positive behaviours towards all client relationships. TPM illustrations are no more than a strong and persuasive way of delivering the message.

Client clarity

I will now turn to the importance of setting the right tone at the outset of any client engagement. Scoping is very important – especially in an environment where, to remain competitive, we may have to offer something approximating a ‘fixed fee’ arrangement. Being crystal clear on the work covered by the fee, and what is outside the scope, including a dialogue on the items that may trigger additional fees, are vital to achieving the right framework and being able to bill effectively. While the primary thrust of this article is the positive impact good risk management has on profitability, I would observe in passing that the firm is much more likely to achieve a liability cap when there have been open discussions with the client on the respective responsibilities of the firm and the client.

A key role of the finance team is to pursue partners on unbilled work-in-progress and unpaid accounts-receivable balances. My senior finance people closely monitor unfulfilled promises, and focus, in particular, on partners that are reluctant either to bill, or to pass responsibility for pursuing unpaid bills on to the firm’s credit-control function. When this happens, we check it isn’t that the partner has failed to contract properly with the client. This enables us to take positive steps to educate individuals, and also ensure that the financial impact of any shortcomings is reflected in personal-performance statistics – and, ultimately, in the performance element of the partner’s remuneration.

Secretarial support

However, I prefer carrots to sticks as motivational tools. Lawyers are busy people. Often the assignments they work on are time critical, and they should have upfront help with the client-engagement process, either from a junior lawyer or their secretary. In this environment, a secretary is needed with the intellect and training to initiate file opening; working with the partner to transform what has been agreed with the client into a final-draft engagement letter using the firm’s templates.

Continuing in this vein, how promptly are lawyers recording their hours? However good our engagement procedures might be, this benefit will be dissipated if we don’t follow through. Ideally lawyers should record their time each day. The secretary has a key role here. If there is a routine each morning, whereby the secretary records the previous day’s hours, with descriptions, and releases it to the system, three objectives are achieved simultaneously.

In the first instance the partner has led by example, and can insist on his team performing similarly. Secondly, work-in-progress is ‘live’ and the engagement team is alerted to billing points and potential issues that need to be raised with clients when, for example, scope is being extended relative to an initial agreement. Finally, the secretary is much more involved and can play a valuable role in reminding his or her boss, and the wider team, of the need for client communication and/or billing when a milestone is reached.

The role of secretary has changed beyond recognition, largely due to technology. For example, the younger generation of lawyers touch-type; more and more communication with clients is directly by e-mail rather than letter; everyone has voicemail; and travel arrangements can frequently be handled more efficiently by the traveller him or herself online.

Today’s secretary needs the qualities of a specialised personal assistant, who can be the link between the partner and his engagements; the back-office finance team that handles the processing and follow-up of the partner’s key performance measures, and also the client. He or she must have appropriate numeracy and technology skills, and partners owe it to themselves (and the firm) to delegate properly – give responsibility to their personal assistants, ensure they are trained properly, and then hold them accountable where appropriate.

My conflict-checking team is able to give a good assessment of how individual partners perform in this respect. The quality of information gathered at the file-opening stage is visible to them, and they are often the brunt of criticism when files take a long time to open. When they analyse the reasons for delays, time and time again the root cause is partners not delegating and communicating with their secretaries, and the consequent secretarial frustration is palpable. The flip-side is that partners who help their secretaries raise their game in this area perform better and engender loyalty, both from their personal assistant and their team.

Understanding client finances

When client feedback on firms’ performance is sought, the big issues tend not to be around the professional aspects of service delivery (e.g. quality and responsiveness). All too frequently frustration is expressed, either because billing was later than expected, or because the amount billed came as a surprise. Managing client expectations in this area is an important element in building long-term relationships and avoiding the risk of losing revenue. Too often lawyers don’t take the time to understand how the client budgets and conducts its business, and the implications for how we should account to them.

A simple example is that if a client is approaching their year end, they will probably appreciate receiving an up-to-date bill with the work done in respect of that accounting period. By the same token, the client will not appreciate a bill relating to a previous financial period once the books have been closed, and for which there was no warning. Work-in-progress is not like fine wine. It doesn’t improve with age. Where a substantial bill has to be agreed with a client, don’t put off discussions. The longer you wait, the poorer the client’s recollection will be of all the hard work the firm has performed.

In this context, partners need to remember that with larger clients, where they may be dealing through in-house counsel, it is in their interests to work with and prompt them; thereby avoiding the risk of the firm suffering from poor internal communication in the client’s organisation. An assessment of this dynamic is best made at the engagement stage, communicated to the support team and followed through. Remember that the client principal may only be using in-house counsel as a delivery mechanism.

Cash is King

Only cash is real! Proper engagement procedures should take from the partner the burden of pursuing receivable balances. Where there is clarity on the terms and conditions underlying the client relationship, an important by-product is that the engagement team should find agreeing fees with the client more straightforward.

Once the fee has been agreed, the bill is issued, and from that time on the follow-up should be between the firm’s accounts department and that of the client. This has two benefits. It frees up expensive lawyer time from what should be an administrative task, and where it operates properly, it dramatically improves the speed with which cash is received from clients.

Every pound lost in billings and collections is a pound that comes straight off the bottom-line profit, so my concluding message is ‘good work for good clients’, with an emphasis on the latter. Clients with whom we have a first-class relationship, based on the engagement team taking the time to fully understand the nature of the client’s problem and respond efficiently and appropriately, will become recurring clients. A strong recurring client base is a huge contributor to profit. Engagement procedures become embedded and straightforward; administrative hours are saved; and financial returns maximised, which in turn helps the firm to remain competitive on pricing. Good risk management is at the foundation of successful and sustainable professional relationships with the clients you wish to retain and build.

Neil Woodcock is global chief operating officer of Salans. He can be contacted at nwoodcock@salans.com