May 10, 2007
Recession Resistant Law Firms
A few days ago I wrote the post titled Economic Outlook for Law Firms that included the attention-getting word “recession”. Not that one is looming on the horizon, but as Bruce MacEwen warned on his blog Adam Smith Esq., “….We all know one lies in store sooner or later.”
The May issue of The American Lawyer picks up from there with an article titled Recession Resistant by Peter Zeughauser. The author’s thesis is that law firms are more resistant to a downturn than they were fifteen years ago. He credits this robustness to the following trends:
- Firms have become more businesslike. Management-savvy partners with decision authority have made firms more nimble – able to respond quickly to changing economic conditions.
- Firms are less top-heavy at the equity level, although he is concerned about the income (non-equity) partner trend.
- The new focus on profitability has created financially stronger firms.
- Use of temporary contract attorneys and flexible time arrangements has made operating expenses more variable.
On the other hand, firms that have given up critical mass in strong markets for expansion are likely to feel greater pain in the next recession. He notes that firms that have built “known-for” status and market share will be winners. Perhaps his most important message has to do with the impact of a firm’s Vision and Strategy during recessionary periods. Zeughauser writes:
“Twenty years ago, these [Vision and Strategy] were dirty words in law firms. I remember listening to a leading law firm consultant pooh-pooh the notion of a vision for a law firm at a managing partner conference I attended in the mid-eighties. In boom times, it is relatively easy to survive and even prosper without a clear sense of direction—a sharp focus helps, but it doesn’t determine success. In a recession, a firm without a clear vision and a strategy for achieving it will quickly lose its way. Partners today are much more mobile than they were in the early nineties. In a recession, even the best partners will become insecure and look for a firm that knows where it’s going and how to get there.”
I agree. Accidentally successful law firms will not even see the train wreck coming during an economic downturn. Those with purpose and a plan for achieving it will, in contrast, come out of a recession stronger—picking up talent and clients from the casualties. It, of course, follows that those with a clear articulated purpose also tend to be the best managed. They are the same firms that plan, set objectives, measure performance and hold people accountable.
As a business person, my strategic plans always included strategies for dealing with economic downturns. When others were reacting by cutting advertising, travel cost and personnel, our plans called for increased marketing and opportunistic additions to our team. Savvy business leaders think of recessionary periods as a time of opportunity, mindful that the cutbacks made by those forced to retreat create investment opportunities for the prepared.
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Filed under Operations by Tom Collins
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