The Two Most Important Lessons Learned from 25 Years in the Law

I turned 55 this week. That still looks like a typo. And reaching this milestone – if it is one – reminded me of where I was 25 years ago.

On my 30th birthday, I deposed a building contractor in connection with a pro bono lawsuit. I was a junior associate at the L.A. office of Skadden Arps. The client was Covenant House California, a homeless shelter that focuses on helping runaway teenagers, and its director at the time, Fred Ali. Covenant House was involved in a real estate dispute with its landlord, who refused to return Covenant House’s substantial deposit when the organization vacated the premises. We were suing to recover the funds. The landlord countersued, claiming that Covenant House had substantially damaged the property before vacating.

The deposition was memorable. It mostly involved looking at dozens and dozens of pictures of soiled toilets and other bathroom fixtures. The contractor used the photos as the basis of his damage claims.  After a lengthy series of particularly gruesome pictures, I asked, “Your job isn’t all glamour, is it?” The building contractor laughed, as did the court reporter.

At trial, we were able to show that all the damage reflected in the photographs took place after Covenant House vacated the premises. I was the second chair. The lead attorney was Robert O’Brien, then a mid-level associate at Skadden. The judge ordered the landlord to return the security deposit and pay accumulated interest and awarded substantial attorney’s fees.

The landlord opposed the attorney’s fees awarded on the grounds that attorney’s fees shouldn’t be recoverable by lawyers working pro bono. In 1995, that wasn’t a settled issue in California. With the assistance of a few amicus briefs, the court issued a written opinion affirming the right of pro bono counsel to collect attorney’s fees if a contract provides for such fees. A few months later, as a token of Covenant House’s appreciation, Robert and I each received a replica of a sculpture (pictured here). Mine is one of the few objects that I have retained from my days as a practicing attorney.

Fast-forward 25 years, and as a consultant to law firms, my week has been focused on helping firms with succession planning, lateral partner questionnaires, speech coaching, and strategic planning. Many of these issues either didn’t exist in the law or would have been hard to predict even a short time ago. Fred Ali is now the President and CEO of the Weingarten Foundation. As such, he is one of the leading figures in philanthropy in Southern California. Robert O’Brien is now National Security Counsel to the President.

So what can be learned from this nostalgic look back? Some of you might be thinking that Fred and Robert have done more with their careers in the last 25 years than I have. Undoubtedly true, but obvious.

Two less obvious lessons stand out.

First, in a world that is rapidly changing, and where it is easy to get stuck in the minutiae of day-to-day work, including business development activities, what sticks with you over time are the causes you have pursued. If you seek to represent people and organizations that do things that matter to you or that you admire, you are far more likely to attract and keep the clients that you most want.

Second, embrace change. When I left large law firms to start a consulting firm, a lot of people thought that was crazy. And now, law firm partners are more likely to see leaving the law as a sign of intelligence. That is an oversimplification and gives far too much credit, but what is true is that the law and the world are changing too rapidly to tie your happiness and fortune to the status quo not changing.  Who knows, 25 years from now, and potentially a lot sooner, large law firms could disappear as independent entities, subsumed by even larger accounting firms.

Those who work as, and on behalf of, lawyers are fortunate to have careers that can span decades. Here’s to the next 25 years (or even more).

How to Talk to Your Law Firm Partners About Succession Planning

This decade will see an unprecedented increase in the inter-generational transfer of law firm ownership. This a demographic reality that is directly tied to the aging population of law firm owners and equity partners. Many firms perceive the need for succession planning but don’t know how to begin an internal conversation about it within the partnership.

First and foremost, don’t wait for some special occasion to start discussing the future of your firm. Succession planning should be a part of any strategic planning conversation, and this conversation is not about kicking anyone to the curb. It’s about ensuring the well-being of clients, staff, and the legacy of the practice as time goes on.

As a business consultant to lawyers and law firms, I see that the first mistake many partners make is that they conceptualize the work of a lawyer as a switch with two extremes: you’re either billing fifty hours a week or you’re lying in a hammock somewhere, sipping a cocktail and forgetting all you ever knew about the law. And that vision of work makes it difficult to initiate a conversation with a colleague about succession planning.

One of the most important messages to convey to a partner who will be reducing their role at the firm is that succession planning doesn’t automatically mean that their story is coming to an abrupt end. Many succession planning arrangements involve gradual reductions in an attorney’s hours and responsibilities. This allows partners to serve as leaders and mentors to the next-in-line, while passing on certain duties and freeing themselves a bit from the grind.  Moreover, it is possible for senior lawyers to maintain a small portion of their practice.  They don’t have to turn the dial to zero if they don’t want to and if the firm sees value in their continuing to serve clients.

If you’re a junior partner looking to start this conversation, recognize that you’re not just working on behalf of the firm, but you may be doing your colleague a favor by asking them what they might like to have taken off their plate. Far too many firms find themselves scrambling as senior partners experience health issues or other sudden life shifts that impair one’s ability to continue practicing. Protect what your firm has built and give your colleagues a chance to adjust their work life by initiating a conversation about succession planning.

And don’t be surprised if the more senior lawyer has avoided thinking about succession planning either out of fear or because they don’t know how to figure out what to do with themselves if they are no longer coming to the office on as regular a basis. The good news is that there are proven techniques for helping firms and their senior lawyers transition work in a humane, orderly, and effective manner. But that process isn’t likely to end well unless a colleague takes the initiative to begin a thoughtful, empathetic, and strategic conversation about succession planning.

A Law Firm’s Best Friend Can Be Its Banker

When did you last talk to your banker? Do you even know them by name or are they one of countless vice presidents who work for Bank of America, Wells Fargo, or other enormous financial institution?

Your banker needs to understand your business well enough so that they can move quickly to help you if the need arises. And like any important relationship, it needs to be cultivated. If you haven’t spoken to your banker in years, don’t expect them to rush to loan your firm money or extend or increase a line of credit just because you feel panicked over cash flow. If you want to grow your firm strategically and cushion it from disaster in tough times, you need to have a solid banking relationship.

Five Steps to Make a Banker an Ally

1.  Establish a relationship with a business bank that understands law firms.

A business bank is one that makes most of its money from collecting interest payments on bank loans and lines of credit. Avoid retail banks that make most of their money from checking account fees and lending money to consumers. Over the past five years more banks have established departments that specifically service law firms.  Find out what kind of experience your bank has working with law firms.

2.  Cultivate an ongoing relationship with at least two key people at your bank.

It seems that every other person at a bank is a vice president, so it can be a bit tricky to find out just how much authority your contact actually has. Make sure that your primary contact has enough juice within the bank to approve a loan or line of credit that is sufficiently large to make a material difference to your firm. To find out how much authority they have within the bank, ask who at the bank has the authority to approve lines of credits and loans, and what role does the person you are talking to have in that process. Likewise, bank employees move and transfer jobs, so it is best to know more than one influential person at the bank.

3.  Find out what your bank specifically needs to provide certain services.

For example, different banks require different amounts of documentation to approve a line of credit. All require business tax returns for 2-3 years and most also want to see personal tax returns from at least some partners. Moreover, banks have different guidelines when determining whether to lend a law firm money. Find out what your specific bank requires and what financial indicators they use BEFORE you need the money. This is a conversation you should have months and perhaps years before you intend to borrow the money.

4.  Make your banker aware of your business plans.

I recently worked with a firm that wanted to elevate someone new to the ranks of equity partner. Given the size of her ownership share in the firm, she needed to borrow more than $750,000 to buy into the partnership. But the firm’s bank didn’t provide loans to support partnership buy-ins because the bank considered such loans to be personal loans. Moreover, when I called other local banks, almost all said that they wouldn’t make such a loan unless it was part of having the firm’s overall banking relationship. In other words, if the law firm changed banks, as part of such a move the bank would be willing to include individualized loans to folks who became partners and needed to fund their partnership buy-in. This is a conversation the firm should have had with the bank well before it decided to offer the equity partnership.

5.  Be aware of the covenants you have made to the bank.

Financial institutions impose different reporting and financial performance requirements on borrowers. Some may require a law firm to remain profitable in order to maintain the loan or line of credit. Some business banks require a line of credit to be paid back in full with interest every 12 months before opening up a new line of credit. Likewise, understand the risks that individual partners face should the law firm default on the loan or line of credit. In the event of default, the bank may make all partners jointly and severally liable. These are the kinds of terms that can sometimes be negotiated when you establish a new banking relationship or when you seek to obtain financing. But once you sign on the line that is dotted, your contacts at the bank are unlikely to be able to change these requirements. So at a minimum, review your documentation and make sure you understand what you have promised the bank in terms of financial disclosures and profitability in order to maintain your loan or line of credit.

A good banking relationship is instrumental to the growth of a law firm. And in difficult times your banker can be the difference between the firm surviving or closing its doors. Too often, however, law firm leaders treat the banking relationship as an afterthought. Don’t make that mistake.

A Strategic Approach to Law Firm Cybersecurity

How much should law firms spend to ensure that their computer systems aren’t hacked, and that they maintain the confidentiality of their clients’ information?

A recent survey of AmLaw 200 firms suggests that they spend a little less than 2 percent of their revenues on cybersecurity.  This estimate is likely to overestimate their actual expenditures. If the 2 percent figure were accurate, it would be in the same ballpark as what large law firms spend on their annual market efforts.

The 2% figure comes from a survey that was conducted by a consulting firm, Chase Cost Management, in connection with a conference attended by Chief Information Officers of large law firms and others from the world of law tech. The survey was completed by a third of conference participants. As such, it isn’t a random sample, and the survey results aren’t scientific.

Nonetheless, the survey does raise two particularly interesting strategic issues for leaders of law firms. First, the survey results suggest that clients are pressuring law firms to spend more on cybersecurity. Thus, if your firm represents institutional clients, you should be prepared to face some questions from clients about your cybersecurity plans and infrastructure. Likewise, firms that handle especially sensitive data, such as client credit cards numbers or personal medical information, may need to be extra vigilant. Second, 75% of survey respondents indicated that that they had purchased some kind of cyber insurance. In my experience, mid-sized and boutique law firms are less likely to have paid for such insurance. Moreover, insurance is only one part of an effective cybersecurity plan.  Given that many cyberattacks take advantage of human error, training of law firm personnel is also critical.

Too often lawyers tend to bury IT issues and leave it to their IT departments or outsourced tech person to figure out.  Here, it would be a mistake to bury the budget for cybersecurity within the IT budget. Cybersecurity raises issues that go to the heart of a law firm’s professional responsibilities to its clients. The risks of malpractice and bad publicity are manifest.

Law firms should therefore take steps to ensure that adequate attention is paid to cybersecurity issues. And that means shining an organizational light on the subject. From a strategic planning perspective, law firms should create a separate line item on the operating budgets to report expenditures for cybersecurity. And that line item should include projected expenditures for insurance and training.

Different law firms face different risks. But it isn’t hard to foresee that even small and mid-sized firms will become targets. That is why law firms should take steps now to make cybersecurity a regular and specific part of their operating budgets.