Certain Hours Are More Valuable Than Billable Hours

Many firms continue to act as if billing a particular number of hours is the most valuable use of every attorney’s time. In the grand scheme of things, however, devoting time and resources to strategizing the firm’s positioning in the market can be more lucrative.

Firm leaders, having never been taught to value management time themselves, often bring this perspective to their hiring practices. They make the assumption that what they most need to grow their firms are lawyers who will bill a lot of hours. This approach that focuses only on billing time leads many managing partners to neglect an element that’s especially important now – finding and fostering future leadership.

Successful companies groom personnel for leadership roles over time through the management ladder. Too many law firms, in contrast, wait for a crisis to recognize that they don’t have the skills needed to adapt to market changes or take advantage of industry trends. Firms pay close attention to the legal skills of their attorneys but often don’t prioritize leadership skills or management ability.

This is especially dangerous for smaller firms in today’s market. As the pace of change in the legal industry increases, positioning yourself in the marketplace is more important than ever. And decisions about positioning require leaders who can initiate conversations and reach consensus on a range of thorny issues.

As consultants to law firms, we often see that the time it takes to answer questions about a firm’s positioning and future strategy is often more valuable than billable work.  This includes addressing questions like:

  • Should we expand into other practice areas?
  • Can we grow through succession planning (by taking on the book of a retiring lawyer)?
  • What compensation structure most encourages the behavior we need from our senior partners?
  • Who at the firm has the potential and desire to become a future leader, within the ranks of both lawyers and staff?
  • How do we identify future leaders during our hiring process?

Boutique and mid-sized firms may have an advantage. They should be able to pivot more quickly and precisely than their national competitors. And in today’s market, where large firms have many competitive advantages, the quality and quantity of time devoted to leadership, positioning, and strategy are what increasingly will allow smaller firms to thrive.

Your Most Important Hire in 2021 Might Not Be a Lawyer

The changes that have started to develop this year will manifest themselves more clearly in 2021. This includes the reduced staffing levels we’ve seen as firms became focused on cutting costs, adjusting to remote work, and keeping rainmakers happy during an economic downturn. The pandemic led many to shed practice areas they viewed as more marginal and to cut back on administrative staff, but so far, not enough time has passed for the industry to really see the impact of this trend.

There is, however, a trend that pre-dates the pandemic and is sure to survive it: When corporations hit a certain size, the CEO is no longer on the front lines. Running the place, setting strategy, getting teams to work together, managing finances, and complying with government regulations constitute a big enough job on their own, yet many law firms work on a model that requires equity partners and heads of practice areas to keep billing hours.

This system is becoming increasingly untenable, so firms would be wise to invest more in attracting, cultivating, and supporting managerial talent. In 2021, firms of all sizes will benefit from making managerial talent a top priority. For mid-sized firms, this could mean hiring an office manager or Chief Operating Officer. Having someone who can perform all the important functions of accounting, payroll, IT, and HR for the firm will open up partners to bill hours they would have otherwise spent on administrative tasks. For larger firms, this means challenging the idea that the most powerful people in a firm are necessarily lawyers and, instead, empowering management to make decisions for the strategic growth of the organization.

With so many changes this year to the usual policies and procedures, law firms need to improve the quality of their management. Whether that’s bringing on a professional office manager or even, dare we say, retaining a consultant, the most important hire you make in 2021 might not be a lawyer.

The Dangers of Excessive Optimism

People who see themselves as successful are especially susceptible to overconfidence. Business owners often fall into this category, knowing how optimism has served them well as entrepreneurs. But in uncertain times like these, it’s doubly important not to get carried away betting on best-case scenarios.

In practical terms, this means that owners should plan for scenarios that include losing a third or more of their revenues in the near term, even those that have been generated by historically reliable clients. Many companies are conscious of managing cash flow, but fewer are considering that they may need to depart substantially from their existing business models to make money.

An article posted on the financial industry blog Naked Capitalism connects the dots in a way that accounts for the increased risk of a substantial downturn in business. Notably, it quotes from a recent Wall Street Journal article which details how restaurants, retailers, hotels, and other companies from Medtronic to Vox Media are recalibrating their time horizons:

“Executives who were bracing for a monthslong disruption are now thinking in terms of years. Their job has changed from riding it out to reinventing. Roles once thought core are now an extravagance. Strategies set in the spring are obsolete.”

The extra degree of caution needed also applies to underlying expectations regarding the prognosis for and timing of a vaccine. Experts have expressed some confidence that a vaccine is forthcoming in 2021 and that some of the preliminary experimental results have been promising. It is easy, however, to fall victim to a confirmation bias and ignore stories like this recent article in the San Francisco Chronicle which cites researchers at UCSF with concerns that people are shedding antibodies to COVID-19 too quickly to make a virus practical (full text available via the Benicia Independent). A vast majority of people are rooting for an effective vaccine, which is why we need to be mindful of the possibility that reality won’t conform to our hopes.

None of this information is meant to engender a sense of hopelessness. The unfortunate reality is that, while many sophisticated corporations are taking steps to weigh the risks of undesirable scenarios, many law firms and other professional services firms are not. We wrote early on in the pandemic about the importance of humility. COVID-19 has lasted far longer than most of us predicted in March and April. That fact alone suggests that law firms in particular need to do a better job of examining options and strategies that even a short time ago may have seemed unnecessary.

This Is a Time for Humility

The decisions made by human beings are subject to numerous logical flaws and idiosyncrasies. Unfortunately, COVID-19 and our individual and collective responses to it require us to make prudent decisions despite our flawed reasoning.

There is a lot of research showing that we tend to underestimate risks associated with low-probability but catastrophic events. For example, humans can’t easily distinguish between bad outcomes that are likely to happen one in twenty times and those that take place one in two hundred, two thousand, or two million. This flaw in our thinking is linked to an even more general and systematic one – overconfidence. Whether it’s business owners estimating the chances of their business surviving five years or experts assessing the chance of a rare event, we tend to overestimate what we know.  And this can be a particularly severe problem in cultures that encourage positive thinking and ostracize those who are deemed to be “negative” people.

As a business owner or manager, some anxiety under the present circumstances is a sign of intelligence. But anxiety without some analysis is not useful. So, where should the analysis of your business start?

In our experience consulting with law firms and other professional services companies, two areas of risk tend to get overlooked during a crisis. The first relates to low probability events involving cash flow. For example, business owners tend to underestimate the chances that typically reliable clients will stop paying. We understandably focus on those clients who have a history of paying us inconsistently or who have said something to alert us to the threat of non-payment. That’s why businesses tend to get blindsided when a dependable client suddenly changes course. You should, therefore, run revenue scenarios that include non-payment by some of your best clients. That will help you decide what to do before such an event takes place and how to react once it does.

The second area of balky risk assessment involves relationship management. In a crisis, we tend to shrink our focus to those who are closest to us, and that is true of both personal and business relationships. But weaker relationships have been found to be especially helpful in creating new opportunities and finding new clients. Excessive reliance on your strongest relationships often results in you knowing the same people. And when you know and rely on a relatively narrow circle of people, you are at risk of something happening to a key relationship. That is why you should evaluate your systems and identify key relationships and alternative ways of receiving certain services. For example, if you are entirely dependent on a single person to provide your IT support, consider what will happen if that person falls ill or otherwise becomes unavailable to you.

The list of human logical flaws is long and varied. Papers like Eliezer Yudkowsky’s “Cognitive Biases Potentially Affecting Judgment of Global Risks” have done a good job of cataloging these. But even without delving into the academic literature, you can help your business and the people you care about by being aware that our ability to assess risks is impaired during a pandemic and we should be wary of overconfidence.

This is a time for humility.