Oregon State Bar Bulletin — MAY 2003

Prosper or Perish?
Trends that are changing law firm management
By Cliff Collins

For as long as anyone can remember, the managing partner has been the symbol of law-firm management. But increasingly, firms and legal trend-spotters are asking bold, unsettling, questions, such as: Who will lead law firms in the 21st century? Is the managing partner an endangered species? Will it be 'business as usual' in the years ahead?

Linda Green Pierce, president of Northwest Legal Search Inc., a lawyer consulting and headhunting firm in Portland since 1987, has an idea of what’s to come: 'Less of the democratic, less of the ‘Let’s sit down and talk about it,’ and more of the small, fast-moving leadership team.' Firms will focus on being well managed, or they stand to perish, according to Green Pierce. They will move toward having more of a corporation’s structure. 'The market will change firms — or it will take their clients and their lawyers away. Today, a firm has to gain control of its own destiny or lose ground and perhaps dissolve.

'Historically, all the partners would get together and make decisions everyone could be happy with. It took forever, or decisions didn’t happen at all. Law firms can no longer afford to have that process. They must have a management process in place to make immediate decisions.'

This is a major transition for them to make, because it puts a lot of power into the hands of a few. Sometimes the good of the firm will be at the expense of one or more partners, Green Pierce says. 'Every partner has to buy into a notion that, ‘This is better for the firm, and I may have to change or eliminate my practice.’' The biggest adjustment, she says, is that this new leadership will focus on 'the benefit to the firm as a whole and not to individual partners. That is a huge cultural change.

'Firms are reading in the legal press and being told by consultants about the nature of this incredible market segmentation and competition, but many still say: ‘We will just keep doing what we’ve been doing the last 10 years.’ The market will overrun these firms.'

To keep from being overrun, she says, they must be willing to ask themselves hard questions honestly: Are we competitive in what we’re doing? Should we actively consider a merger since we’re vulnerable to one anyway? Should we get out of a practice area that’s not profitable? Are we listening and attentive to our 'quiet majority' partners rather than the more vocal 'louder minority'?

For all firm sizes, consolidation is continuing, Green Pierce says. It has been especially strong in the last three to four years, but many of the largest deals already have been made. The average large law firm size in 1995 was around 700 lawyers. Today it’s more like 1,200 lawyers.

Joseph B. Altonji a consultant at Hildebrandt International, a national management consulting firm for professional services organizations, believes that 'the legal industry, to a greater extent than almost any other industry today, is undergoing a radical restructuring. In 10 years the present structure of the industry may be entirely unrecognizable.

'As the legal profession remakes itself, there will be some big winners and a large number of losers. Individual lawyers and law firms will be forced to move and compete in new ways. Those that cannot will exit the industry — sometimes spectacularly.'

Writing in WorldLaw Business, in the article 'Why Firms Must Restructure Now,' he predicts that over the next decade we will see:

Most of the larger law firms across the nation are moving away from the single managing partner profile, according to Green Pierce. Instead, they might have a CEO of the firm, generally called the chair. Under the chair are several partners who are managing partners. As an example, she describes Morgan, Lewis & Bockius in Philadelphia. That firm names three MPs: one responsible for anything to do with law practice; one responsible for legal personnel and training (including partners) and one responsible for all operations (such at IT, finance and marketing).

In Morgan’s case, all three, along with the chair, are devoted to full-time operations and do not have any responsibility for practicing law or charging billable hours. Those four make up the management committee and leadership of the firm.

'This is another cultural change for law firms: lawyers in management roles who are not expected to bill hours, but are devoted to the strategic direction, profits and health of the firm,' says Green Pierce. They are charged with protecting and enhancing internal culture and polishing outside perceptions and, thus, have become leaders and not just managers, she says.

Oregon’s biggest law firms represent a range of governing styles, but most seem intent on solidifying their management structures to run more like a business. In an informal survey of the seven largest, a general theme that emerges is firms’ belief that lawyers should be allowed to practice law; let managers take care of the day-to-day worries. But law being a profession — and one traditionally run by partnerships — the current reality is somewhat more complicated than that.

At the beginning of this year, Oregon’s largest firm, Stoel Rives, streamlined its management structure. The firm formed an executive committee of eight members, and discontinued its management committee, which consisted of 12 to 13 members.

'We’re trying to focus the executive committee on true strategic issues, not on the size of the pencil,' says M. Lynn Spruill, executive director. He explains that the firm wanted to get a few of its sharpest minds focused on strategic matters rather than the mundane. 'Portland’s smaller firms probably work in a democratic model. As you get bigger, you simply can’t do that.'

But Stoel Rives hasn’t forsaken all democratic principles. It stayed with having its board of directors and a firm chair, and 'the equity partners still have lots of input and decision-making, particularly (regarding) mergers and acquisitions and adding partners,' Spruill says. The board will 'push forward on something, but the equity shareholders are very much active.'

Another Stoel Rives-size firm that operates in several Western states but not in the Northwest has used a centralized management model for three decades. It consists of an executive director, who spoke on the condition that his name and firm not be identified, and a chairman. 'Routine-type decisions are made on a daily basis, some by the chairman, some jointly (with me),' he said. 'We do have an executive committee; we take some things to the partners. It’s a nice balance, not bogging down the partnership and allowing them to concentrate on (decisions) that are really important.'

The firm’s long-standing philosophy is that 'lawyers practice law — that’s the highest and best use of their time,' he said. 'Our lawyers think others can (handle everyday matters) at a lower rate and do a better job. It became part of the firm’s culture. ... The key thing is what the partners buy into. You have to strike a balance: how to operate the firm with partners. For us it seems to have worked well. The firm has been pretty successful.'

Schwabe, Williamson & Wyatt, Oregon’s No. 2-largest law firm, changed its managing-partner structure last year to a dual leadership model. The firm’s former managing partner, Walter H. Grebe, had seen his own practice reduced to perhaps 10 percent of his time over the 7 1/2 years he served in the position, according to Mark A. Long, current managing partner. 'There was no likely successor, since no one was willing to give up their practice,' Long says.

So Schwabe Williamson talked with consultants and surveyed other firms to devise a solution. The firm decided to split management duties between two people, Long and David F. Bartz Jr., president. 'We meet a lot together. We’ve been able to maintain much of our (respective) practices. It’s not an uncommon model; we’ve found a handful of other firms who’ve done this. We’ve been able to learn from them. The key to our success is communicating with each other.'

The firm, which has offices in Washington and Oregon, moved to 'a more centralized board' of five members beginning in 1994. It replaced an 11-member executive committee. The board is elected each year. 'We empowered it to make more decisions,' Long explains, so the leaders don’t have to go to the shareholders constantly. The partners 'were comfortable with delegating that. It enabled us to be a little more agile,' better able to react to changing market conditions, he says.

Bullivant Houser Bailey’s administrative management structure has evolved over the last three to four years. Especially over the past couple of years, the firm has tried to 'function like a corporation,' says Rebecca Vincent, director of operations. 'It allows for a clarity of roles and the ability to further decision-making. ... We’ve really tried to act, and make ourselves look like, a corporation.'

Operating offices that serve four states, Bullivant Houser has placed 'more autonomy in each office,' with a shareholder in charge at each office. The firm’s small executive committee focuses on day-to-day operations. Bullivant Houser also employs a chief operating officer, a director of information technology, a director of financial services, and a chief marketing officer. The organizational structure includes a six-member board of directors. The board concentrates on 'big-picture issues,' she says, and a strategic advisory committee meets quarterly for 'fine-tuning strategic initiatives.'

The management structure Bullivant Houser used previously 'was too much of a hierarchical structure, (which created) bottlenecks and required more steps,' says Vincent. The firm’s setup now makes for a 'more effective, collaborative management team. It’s more democratic, but more streamlined.'

Over the last three years, Miller Nash has been working 'to strengthen our department chairs and practice-group arms,' says Allan Loney, director of administration. The firm has given more authority to department chairs to make them active in day-to-day management of the attorneys. Practice groups 'are on the ground, and know what’s going on with clients,' and are in a good position to anticipate client needs, he says.

Miller Nash’s administrative structure otherwise has been in place for quite some time, according to Loney. That includes a five-person executive committee that 'functions like a board of directors.' It meets regularly, and members serve rotating, three-year terms. The managing partner reports to the executive committee.

Loney, who reports to the managing partner, oversees the support-staff functions of the firm. Miller Nash is organized under the managing partner, with legal departments. Within legal departments are practice groups. 'Practice groups are pretty fluid,' he says. 'They go across department lines, and can cross department lines. They’re organized by client or by industry. They can shift around to meet changes in the marketplace.'

The firm appoints a committee of partners to handle partner compensation, and the executive committee approves associate and support-staff compensation.

Davis Wright Tremaine has operated the same way since its predecessor firms in Seattle and Portland merged in 1990, says Michael H. Schmeer, partner in charge of the Portland office. Davis Wright is a regional firm with national and even international offices, and its 12-member executive committee, elected by partners as a whole, 'leaves a great deal of autonomy to local offices,' he says.

The executive committee, whose composition is carefully balanced by geographical and individual-age considerations, elects a firmwide managing partner, who also is approved by the firm as a whole. Davis Wright doesn’t have an official headquarters: Its managing partner is in Los Angeles, its second-largest office is in Portland, and most of the administration is done in the Seattle office.

A partner in charge is located in each office. The firm’s chief financial officer is in Seattle. 'He has the respect of every member of the firm and has a great deal of authority,' Schmeer says. Compensation is determined by a share committee. A member of the share committee meets annually with every partner in the firm. The meetings last about 30 minutes, and 'the same person doesn’t interview everyone, and they’re not necessarily from your office.'

Compensation is an open, democratic process. 'That is not what is done in other firms,' he says, explaining that some firms have a couple of people making those decisions, and partners don’t know what others earn. 'I think ours is the most democratic and transparent of any I’ve heard about. It has downsides to it: It takes longer. (But) people generally feel good about it and always feel heard.'

Davis Wright also includes departments, practice groups and committees (pro bono, hiring, etc.) — 'a lot of committees that operate with a lot of latitude. Unless we’re brining in a partner, we don’t have to have other approval. ... We don’t involve the entire partnership in every decision.' Schmeer says there is 'a great amount of communication and activity among the offices. ... We’re not quite a democracy; we’re a republic.'

Just over two years ago, Tonkon Torp changed its governing structure. It no longer has a managing partner. When the firm first started out, it counted nine members; by 2000, that figure had grown to more than 70. For its first 25 years, Tonkon Torp had a three-partner management committee that had the power to appoint its own successors.

The structure the firm adopted in 2000 consists of a five-person managing board elected by the partners. Members serve three-year, staggered terms, with no restriction on being re-elected. The board picks a chair from the board, and hires an executive director. The latter is paid commensurate with partners.

'I like the fact of being able to delegate as much as possible the administrative part,' says Kenneth D. Stephens, chairman of the managing board. 'But I have reservations about whether it’s wise to have an elected board.' He explains that this inherently involves some political implications, but it makes people feel they are represented.

Stephens says his wish or hope for his position would be that the chairman would serve as 'the titular head of the firm, the public representative of the firm, and deal only with broad, policy issues. In point of fact, you inevitably get involved in the day-to-day business. It seems almost impossible to avoid it.'

Tonkon Torp has not delegated to the executive director the authority to discipline or fire people, and, although the executive director attends compensation committee meetings, he doesn’t have the authority to make decisions about compensation, Stephens says.

It would be nice to have a more democratic structure, but the firm, with over 40 partners, finds that impractical, he says. 'Very few if any decisions are made by every partner. We very seldom vote on things other than admissions to the partnerships.'

One of the sentiments in changing to the current managing structure was to free lawyers to practice law, 'and spend less time managing ourselves,' he says. Not all attorneys are necessarily good business managers, Stephens says.

Perkins Coie, with 14 offices worldwide, 600 attorneys and over 200 partners, by necessity has had a centralized management structure in place for many years. Yet the firm, with 60 lawyers in its Portland office, has maintained itself as a partnership, 'for cultural and other reasons,' rather than changing to a professional corporation or limited liability company as some other large firms have, says Steven M. Hedberg, managing partner of the Portland office.

Perkins Coie’s headquarters is in Seattle. Also located there is the firmwide managing partner, one of a four-person management committee. That group runs day-to-day operations and evaluates new business opportunities, but all but the managing partner continue to have their own law practices, as do all other members of the firm, including MPs of each office, he says.

Executive committee members serve six-year terms, and the managing partner’s position is renewable annually. The committee reports to an executive committee, composed of about 20 people representing each office, who serve three-year terms. The executive committee meets monthly to discuss matters such as opening new offices or adding new partners. Each office holds meetings of partners to discuss executive committee recommendations, but partners rarely vote on much except in situations such as when a new partner is admitted.

'In that sense, we have a more corporate model than most partnerships,' says Hedberg. 'In the Northwest, when we started doing this, it was a pretty new and different model. But now it is not unusual nationally. You see more and more consistent management structures. Years ago I think we were unique in implementing this.'

According to consultant Green Pierce, the largest firms are structuring themselves more like corporations, and designating a smaller group of key leaders at the top 'so that decisions can be made quickly, the firm is nimble and it can better respond to opportunities and market changes.'

She predicts big Oregon firms increasingly will to move to a similar model if they haven’t already. They may name a chair or president, depending on how they are structured, and then one or more managing partners, along with strong practice-group leaders.

'Larger, diversified law firms just cannot any longer afford the committees and drawn out decision-making they’ve used in the past. Today’s marketplace is too competitive for that. Mid-size and smaller firms will eventually follow a sized-down model.'

ABOUT THE AUTHOR
Cliff Collins is a Portland-area freelance writer and frequent contributor to the Bulletin.

© 2003 Cliff Collins


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