Over the past 12 years, law firm governance has been one of the busiest practice areas for Walker Clark LLC.
The critical issues in a governance consultation can present themselves in many forms, such as: an outdated partnership agreement; a failure to think about succession until it is almost too late; disputes over compensation and the respective rights of partners; the absence of the flexible but reliable internal structures needed to manage change.
However, they almost all involve a profound need to identify and manage internal business risks, which are usually more dangerous than anything that the external market can throw at the firm.
Usually the first step in a governance project, whether a partnership agreement, a full Walker Clark Governance Review, or something in-between, is to conduct a general diagnostic of approximately 50 issues that have been demonstrated to pose substantial business risks. I say "approximately" because our diagnostic inquiry is always carefully tailored to the specific characteristics of each firm.
Usually a relatively small number of issues emerge as the "critical few." They almost always involve internal risks.
As I was preparing one such diagnostic document for a client today, I noticed these words in the introduction. I wrote them in 2006, when we first developed this version of diagnostic instrument. Looking at them, they struck me as having been almost prophetic of events in many law firms since 2009.
The most dangerous business risks to law firms come from within. Law firms seldom fail to achieve their business goals because the lawyers are stupid or lazy, nor because 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.
As I consider the experiences of law firms worldwide since 2009, it appears clear to me that at least two characteristics divide those firms that chronically have failed to respond effectively to changing conditions and those that have not only survived but have thrived.
The first is a vigilence in anticipating and defining the internal risks in the firm. In almost every case of a law firm failure, those internal risks have been more damaging to financial performance and profitability than events in even the most competitive legal markets.
The second characteristic is the courage to confront and understand these internal risks, and to make the difficult decisions need to manage the changes that successful responses to changing conditions require.
To understand fully the strategic implications of governance on 21st century law firms, read Good Governance in Law Firms: A Strategic Approach to Executive Decision Making and Management Structures (Norman Clark, editor: Globe Law and Business, 2014). Click here for ordering information.