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When it comes to law firm performance, does alignment matter? A recent article by The American Lawyer investigates, positing that the answer is an emphatic yes. Deborah Farone, author of “Best Practices in Law Firm Marketing and Business Development” reports on the topic, citing that recent research demonstrates there is a strong correlation between a firm’s culture and its performance. According to Farone, firms that align their compensation and other recognition methods with their key goals and objectives, demonstrate a high degree of transparency and reinforce their vision with communications are more likely to demonstrate success than those that are merely average.

Alignment applies to large, multi-practice firms and small firms alike. So, how does a firm’s management begin to put alignment into place? According to the article, there are several tactics law firms can follow to begin the process. First, operational and marketing tactics should all be based on a well-defined and articulated strategy. Secondly, strategy must be communicated, up and down the organization. “Sharing strategy both with direct reports and throughout the organization leads to greater loyalty, a shared sense of purpose, and collaboration. The time spent communicating these decisions is an investment that pays off in multiples,” notes Farone.

Farone adds that C-suite members should have a role on the executive committee to provide input in the development of the firm’s strategy and vision. Not only will C- suite involvement build loyalty, these executives will be allies in plan implementation. Additionally, Farone suggests that compensation metrics should be transparent and reward those behaviors that a firm values. Consider rewarding not just for business development activity, but where there is collaboration across all practice areas, (as quoted in The American Lawyer).

During compensation time, Farone recommends looking at qualitative metrics for more than simply self-reporting. Consider asking partners not only to self-report, but to answer assessment questions, such as: “Over the past year, which partner outside of your practice, helped you build your practice the most?” Third-party recognition will give a more robust picture. Lastly, Farone declares that leaders of the firm, practice areas and committees should be those who emulate the values of the firm and further its strategic mission. Bad behavior that goes against firm policies and standards puts the firm at risk, erodes culture and communicates a message that the mission is not a serious one, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

How do successful leaders and firms manage their compensation expectations in a record financial year? A recent article by The American Lawyer investigates, positing that some of the most effective means for managing the compensation expectations of partners include structural elements in their compensation system, leadership techniques, and talented, communicative leaders. Blane Prescott, a consultant for legal consulting firm, MesaFive LLC, notes “some firms suffer morale and trust issues because their compensation process fails to manage expectations. Compensation isn’t just about setting a number and then defending one’s decisions. There are many firms for whom setting partner compensation is a surprisingly easy and smooth process, regardless of whether profits are up or down, because they focus on managing expectations and helping partners to succeed.”

Most firms understand the benefits of talking with partners about performance and compensation, but one important question is, is it better to do that before or after setting compensation? It may sound illogical but talking to partners before setting their compensation produces dramatically better engagement, improved performance in the following year, and more effectively manages expectations. But they only work if firms do those interviews well, and unfortunately, perhaps only a quarter of all law firms meet that standard. Good interviews are two-way conversations, focused on helping the partner to be more successful. They explore each partner’s strengths and weaknesses and include a focused discussion of priorities for the coming year, (as quoted in The American Lawyer).

It is often said it is rare to find great leaders who lack great communication skills. Not all communication skills are the same—some leaders are gifted at talking to groups, while others are fabulous at counseling individuals. The key question for managing expectations is, do firms have leaders (at the firm, practice and office level) routinely communicate substantive information and meaningful analyses (not just highly filtered, quantitative data) to partners all throughout the year?  Are they honest about telling partners when the firm is doing well, and when the firm isn’t? Are they skilled at accurately describing what the challenges are and how to address them? Are they open about the financial data they share, or does it constantly feel like they are just spinning selected facts?, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

Firms are taking a more analytical approach to partner compensation, reports LegalTech News.  While partner compensation has traditionally been calculated in a more subjective manner, experts from legal software producer Aderant posit that “analytical models should be the best practice for determining law firm compensation.”

Dan Ronesi of Aderant argues that although law firms have started utilizing profitability as a metric for the firm itself , many are still hesitant to use this approach to calculate partner compensation.  Aderant cites perceived lack of access to data and inherent differences in profitability between practice areas as two potential challenges to the adoption.

LegalTech News further quotes Ronesi as advising to “locate the profit that one’s generated instead of the revenue that one’s generated,” since revenue, if increased inefficiently, does not necessarily lead to increased profitability.

Ronesi identifies three future trends in firm operations: using better technology to track these metrics, looking at the numbers more frequently to create new opportunities, and increased use of profitability in the compensation models (as quoted by LegalTech News).