Clients need outside counsel that can collaborate to solve their problems, but law firms’ increased specialization creates an unfortunate conflict, and many are leaving big money on the table as a result, The American Lawyer reports. Recent NALP plenary speaker Heidi Gardner notes that “when firms get collaboration right — that is, do complex work for clients that spans practices and offices within the firm — they earn higher margins, inspire greater client loyalty, gain access to more lucrative clients and attract more cutting-edge work.”
Gardner notes that even firms that have figured out how to use collaboration to provide the best service to clients—and get paid accordingly—aren’t optimizing collaboration across their portfolios. According to her estimation, at least 70 percent of large global law firms today include collaboration-related goals in their strategic plans. But many of these same firms lack a solid understanding of how collaboration is working across their portfolios and where the gaps are. Simply put, you can’t just state that collaboration matters and hope lawyers change their behavior. You need to set specific objectives, based on a deep understanding of your data and its implications, then hold people accountable for delivering, (as quoted in The American Lawyer).
According to Gardner, in order to effectively implement smart collaboration and deepen these high-value client relationships, you must figure out ways to unlock value that your firm can provide given how deeply embedded you are in the client’s current work. In the article, Gardner lays out data showing that cross-collaboration in law firms yields a level of benefit far greater than anything achieved in a silo. Specifically, Gardner suggests that firms should locate potentially big clients that are only getting served by one practice group and identify areas to expand into other groups that add value for the client. Strategically, she notes that “you want to focus on this high-worth portion of your portfolio simply because adding additional practice groups at this level is worth such a significant chunk of revenue.” Additionally, Gardner recommends pairing junior partners eager to collaborate with more experienced practice group leaders to help further develop collaborative skills across the firm.
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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).
Professor Heidi Gardner of Harvard Law School presented her research at the 20th Annual Law Firm Leaders Forum in early October, where she discussed why law firms should encourage collaboration among firm partners in order to increase innovation and development.
Sean Doherty of Above the Law highlights the key points of her talk, noting two trends that lend themselves to partner collaboration: first, the increasing complexity of law, which requires lawyers to specialize and work in discrete practice groups, and also the engagement in the “volatile, uncertain, complex, and ambiguous (VUCA) phenomena” that is often used to coordinate business spanning multiple disciplines.
As part of her research, Gardner interviewed law firm clients about the importance of partner collaboration within the firms, and found that clients believed that such collaboration increased the efficiency, cost-effectiveness, geographic reach, and innovation of the legal services, as well as led to a more complex understanding of the client’s enterprise.
Gardner posits that collaboration will be largely beneficial to firms over time, despite initial costs. Doherty reports Gardner’s list of benefits from collaboration to include “more successful business development, higher personal productivity, enhanced reputation, and ‘sticky’ (read: loyal) customers.”