Question:
I am a partner in a eighteen – lawyer insurance defense firm in Houston, Texas. There are ten equity partners and eight associates in the firm as well as an office manager/bookkeeper and six other paralegals/legal assistants. We started the practice nine years ago. Other than administrative matters handled by our office manager, the management of the firm is handled by involvement of all the partners. Currently, we are getting more and more frustrated with this method of governance and management. It takes forever to make decisions and the quality of our decision-making leaves a lot to be desired. It recently took us nine months of discussions to agree to get the carpet cleaned. There has to be a better way. What are you finding that similar law firms are doing?
Response:
Your experience and current frustration is what we see in law firms using the “democracy approach.” While it made have been a good approach when you started the firm and were smaller, you have outgrown this approach.
Most smaller to medium sized law firms choose one of the following approaches to governance and management.
- Democracy
- Managing Partner
- Executive or Management committee.
Democracy
This is the method your firm is currently using. Under this method each member of the firm has an equal voice in management or in some cases a voice based upon the number of equity shares held. Any decision must be agreed by all partners, and various administrative tasks may be assigned or rotated among partners or delegated to an office administrator or office manager. While benefits to the partners by participating in firm management is influence and control over their own practices, law firms that utilize this method of governance progress more slowly and at a less profitable rate than firms governed under one of the other approaches to governance and management.
Managing Partner
This approach is probably the most efficient form of managing a law firm. Authority and accountability for all firm matters is controlled by one partner or a tightly knit group of dominant partners. The managing partner is often responsible for originating and retaining the firm’s major clients. The managing partner may receive all work assignments from clients and assign work out to other partners and associates. The managing partner typically determines the partners’ and associates’ compensation and perquisites.
While the other partners may be able to focus entirely on billable/productive legal work, this type of structure is not the best approach for many firms. A major fundamental problem involves partners being “left out” totally of the management of the firm. The managing partner becomes overloaded with firm decisions. Furthermore, as an active attorney, this partner may not be able to devote the time or follow-through on management and operational matters. Since no other partner may be trained in managing the firm, this partner may not feel comfortable in relinquishing power to anyone else. This is a problem which may be especially troublesome if the managing partner dies, becomes ill or disabled.
Some attorneys may be dismayed at the prospect of having their firm dominated by an individual or group of partners. However, if properly handled, this form of structure can be productive, and economically and professionally rewarding. To be effective, the managing partner should maintain communication with other partners. The managing partner should seek advice from other partners (and associates) on matters that will affect them. The managing partner should obtain other partners’ input on decisions, appoint individuals or committees of partners to perform particular functions and require a report of their achievements.
Executive or Management Committee
The executive or management committee is an approach typified by a committee of partners having defined authority, accountability and responsibility. In most smaller firms this committee, frequently consisting of three partners, may be responsible for recommending and implementing policy for the firm, planning for the future, appraising results and recommending corrective action, as required.
A three partner-executive or management committee is the most common configuration used to avoid deadlocks or inaction and to spread the burden of administration among appropriate partners. One of the partners should be designated to chair the committee. Each of the other members may be assigned authority, responsibility and accountability for coordinating and/or performing specific functions. For example, one partner may serve as the financial partner. This would involve responsibility for ensuring the preparation and analysis of income and expense budgets and financial reporting. This partner would oversee attorney production, fees, collections, etc. A second partner may be responsible for the personnel functions including associate career development, i.e., employment, training, evaluation, etc., and implementation of policy for the administrative staff. A third partner may serve as the general administrative partner, and oversee the implementation of administrative policy, systems, information technology (IT), etc. These partners may be assisted by an office administrator, office manager, bookkeeper, etc.
To preserve continuity on a management/executive committee, it is generally recommended that tenure of partners on the executive or management committee be staggered over a two-or-three year period. The executive committee should communicate with the partners regularly or as issues arise. The executive committee should meet weekly, or if that isn’t convenient, as frequently as required.
Meetings with all of the partners and associates should be scheduled monthly or quarterly. Following the departure of the associates, the partners can discuss matters relating to financial and policy issues.
I believe that based on your present situation and past history you should consider a three-member management committee with a governance plan that outlines that responsibilities and authority of the committee and the full partnership. Identify and outline the restrictive decision areas that the require full partnership to weight in on and vote.
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John W. Olmstead, MBA, Ph.D, CMC
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