No one knows what to expect. But the near term is not good – or worse depending on who you talk to. I reached out my longtime friend and collaborator, Patrick McKenna, to see what we could learn from leadership partners about what law firms are doing and how they are thinking. We canvassed about 25 managing partners (or equivalent) at firms with more than 500 attorneys. Here are 7 key insights from their thinking together with a few of our observations:
Q. What is the toughest issue so far?
A. The first is clearly keeping up with office closures. Between safety concerns and government demands, we are facing a number of real-time decisions. The trend is moving to a remote workforce and we have largely moved to this model. But we always have a few partners with a need to be in the office – and these situations are less than optimal.
The next issue will be cash flow and revenue – when and how badly will they be hurt. Cash flow may slow due to the simple reason a work from home workforce processes bills slower.
Big M&A deals are slowing as strategic, midsize deals keep going – and litigation flounders. But our labor and employment is through the roof and a few corporate lawyers are talking to clients about the potential death of the buy back.
Many law firms are drawing down credit lines now to prepare and manage cash flow.
The Mad Clientist also notes virtually every cybersecurity practice is experiencing surging demand.
Q. Are there any areas of discretionary spending (staff functions that have tended to ‘put on weight,’ nonessential projects that seemed like good ideas at the time, etc.) where you feel we should be making budgetary cuts?
A. There haven’t been too many cutbacks so far. We are all-hands-on-deck trying to get on top of coronavirus. We have brought over staff and support to help bring together resources for clients. Most discretionary projects have been stopped as these resources have been deployed to coronavirus response centers, teams, and initiatives.
The definition of strategic, must-have, and nice-to-have projects varies widely. There are as many firms doubling down on client-facing initiatives (client feedback, client service programs, and business development initiatives) as are cutting back.
Law firms are clearly placing bets on what they need to do to keep their clients through this period and when it is over.
Q. Are there any areas (supplier contracts that could be renegotiated, tasks that could be automated, meetings that could be held without travel, moving resources to less expensive locations, etc.) where we could be more creative and far more cost-effective in how we operate?
A. We are conducting most internal and external meetings virtually at this point. It’s interesting to see the attorneys who just jumped into video without thinking much and the others who wanted a lot of support. These attorneys are not the people who you thought they might be.
I think travel will be reduced for quite some time – which will change how we relate to clients, but less so on each other within the firm.
Q. Given that in times of economic adversity ‘cash is king’ – are there actions that we should take to better enhance and preserve our cash flow (ensuring that all WIP is billed in a more timely manner, putting extra attention into collecting receivables, reminding clients that are slow to pay, and discontinuing representation of those clients who are not paying their bills)?
A. The bigger concern is looking forward. We have clients with big issues related to their large workforce and business continuity. We had client deals in process suddenly put on hold. We are burning hours quickly and a few of these clients are going to be facing real cash flow and solvency issues. There is more concern with billing and collecting the current work – but we also have to realize these clients may be paying in longer time frames – this is why our conservative balance sheet will help.
Some firms have asked partners to take an immediate 10-20% compensation reduction to create extra wiggle room.
Q. What can we now do (in a more proactive manner) to get closer to, add value, and enhance the relationships we have with our key clients – that we have not found sufficient time in the past to do properly?
A. We are almost in a continuing dialogue with our top clients right now. We have probably had more ongoing communication with these clients than we have had in years in just a couple of weeks. I hope the communication patterns stay this way almost as much as I want this pandemic to be contained and over. There are a whole group of partners and associates really stepping it up. Even the typical underperformers are busy because many partners are throwing work their way – and it seems so many people understand non-delivery is just not an option in these times.
Q. Is there something we should be doing (perhaps differently) about where and how we market our legal services (to reduce our reliance on a few marquee clients or a few practice areas or offices) and the client industries that we choose to target (some industries, like makers of hefty durable goods, are already in free-fall and may be particularly vulnerable to wide-scale bankruptcies)?
A. I think it’s important to have marquee clients. The only smart way to reduce over-reliance on a few marquee clients is to create more marquee clients. I even notice more coronavirus help and response is going to a specific subsection of the client base – and they are by and large our larger clients. At the end of this crisis, I am hopeful we will end up with bigger and stronger relationships with more of these larger clients. We should be smarter about picking our industries because some have been having problems for years while others are growing rapidly. But right now, so many industries need and want help and it doesn’t seem like the time to start weeding them out.
Q. What has been the biggest surprise you have seen or experienced so far?
A. There are a few. Our staff has been great. They are part of our response team and really stepping it up to support the attorneys and keeping our quick response going. They are also crucial to getting new information and insights out to clients. The next big surprise is the fear. Almost everyone sees fear in this rapid acceleration. So many people think something really bad is going to happen – and most will tell you they don’t know when it will happen. This is unnerving for almost everyone. Finally, we have a few partners coming out of their shell. Partners who were on the cusp of underperforming are stepping it up.
Q. What would you recommend to other law firm leaders now?
A. I recommend you stay in touch with your partners, update them way more often than you think necessary. They want to know someone is on watch and guiding the ship. They also want to know all this extra effort is valued. It is not typically part of law firm culture – but is a critical element to keeping things on the right track in times like these.
I also recommend watching hours and headcount. This is a balancing act – no one knows if demand is going to snap back or be long delayed – I recommend my colleagues be all over this equation.
Finally, double down on clients. They will remember who jumped in headfirst to help – and the firms who really outdid themselves.
A Silver Lining?
On the upside, the coronavirus situation will introduce opportunities and major improvements:
- Digital medicine will soar as the pandemic teaches the urgency of being able to help from a distance
- Once businesses realize they can survive with fewer face-to-face interactions, the entire airline industry may be reborn as something new
- Education is about to undergo a radical transformation as we witness the digital classroom being implemented on a global scale
- People are sharing thoughts, ideas, and strategies on staying calm, working from home, and managing through a crisis – may this be a lasting lesson and trend
Necessity drives innovation at a practical level. We will see tremendous innovation come out of this. Many of these managing partners thought the worst part of this crisis will last a month or so. Let’s all hope they are right.
Be safe and be well.
Patrick J. McKenna
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