Like any business, a law firm must deal with risk.  Law firm strategies typically follow one or more of these five patterns:

• Accept the risk and plan for it.

Example: Disaster response plans for a fire, earthquake, or flood

• Reduce the risk by addressing the factors that cause the risk.

Example: Computer-managed financial reporting system that automatically reminds partners of excessive unbilled work in progress or accounts receivable that are long past due

• Transfer the risk

Example: Outsource document management and production functions in litigation cases

• Move away from the risk

Example: Withdraw from a practice area that has become unprofitable for the firm

• Do nothing and hope for the best.

Unfortunately, many law firms pursue the "do nothing" strategy by default. 

Where are your worst risks?

Unlike most businesses, the most serious risks to business success in law firms are often hidden deep inside the organization and its management structures, and not in the external market.

When a law firm fails to respond to a crisis or to achieve a business objective, it is not because their lawyers are stupid or lazy or that the clients are unpredictable.   In most cases, a firm fails because its governance and management structures have failed the firm. When a crisis or opportunity arrives, these structures do not provide the support that any business needs to respond. 

In short, the biggest risks of all may be in the firm's governance and management.

Vulnerabilities such as an outdated partnership agreement, an arcane compensation system,  or the failure to manage professional performance can produce serious, measurable losses, even to a firm of brilliant, hard-working lawyers.  This is a tragedy, because almost all of these losses can be mitigated or avoided altogether.