There is more significance to Husch Blackwell’s 6% revenue increase during 2012 than first meets the eye. Am Law Daily, Jan. 16, 2013. While many other national and regional firms’ long-term sustainability is threatened because some partners are allowed to put their personal interests ahead of their firms’, Husch Blackwell clearly has moved to the more enlightened paradigm by which the firm’s interests come first. And as the 2012 figures demonstrate, not only is the firm’s long-term viability strengthened, but the partners ultimately end up with more in their pockets as well.
Like scores of other firms, Husch Blackwell’s history since the recession began in late 2008 was rocky. In March 2009 the firm cut 17 lawyers and 45 staff (AboveTheLaw.com, March 12, 2009), another 10 lawyers four months later (Law360.com, July 16, 2009), and 20 more attorneys including some non-equity partners in the fall of 2010 (AboveTheLaw.com, Oct. 1, 2010; Am Law Daily, Oct. 5, 2010). Gross revenues dropped 3.5% in 2010 and declined another 4.7% in 2011. The trend was clear: fewer lawyers and fewer dollars.
In August, 2011, the firm partnership selected a new Chairman and a new CEO/Managing Partner to begin seven months later on April 1, 2012. Husch Blackwell press release. Apparently they followed Mr. Rogers’ old adage to take the time and do it right. Under the new leadership in 2012, total revenues climbed $16,000,000 or 6%, while the total number of lawyers went down only 1%. Although the firm ascribed some of its additional income to higher billing rates for “more sophisticated work” (apparently M&A and litigation), the math tells you that there must be more to this revenue leap, especially when the number of partners with their higher billing rates declined 3.6% during 2012.
Although Husch Blackwell has about 9% fewer lawyers today than when the layoffs began in 2009, the firm continued to bring in both laterals and new law school graduates throughout the same time period. Hence, the total number of lawyer departures was much greater than the 9% figure suggests. And during the same time, the number of equity partners went down by more than 17%. Clearly, the firm changed its mix by encouraging, inviting or just telling its least valuable attorneys to practice elsewhere. The firm also must have become more strategic about the types of legal work it sought, and found ways for its people to become more efficient and productive. As a result, what Husch Blackwell has now is a lean, mean revenue-generating machine. If you practiced there today, you’d have every reason to think the firm’s future looks pretty good.
Take a minute to think through how that firm must have changed its mix of attorneys. I have no inside information, but it seems clear to me that the leaders must have begun by determining which of its attorneys were the least valuable to the firm—whether they defined “value” as total billings, rainmaking, quality of legal work, managing a practice group, recruiting or developing talent, or most likely, some combination of “Build the Business” and “Build the Firm” factors. Presumably, they then compared each lawyer’s assessed “value” with his/her compensation. Utilizing the old but often ignored standard, “Does this lawyer deliver significantly more value to the firm than s/he costs?” the leadership must have made some very difficult choices about which equity partners should be reclassified and which lawyers simply needed to leave.
Next, Husch Blackwell’s leaders must have held some very honest and straightforward discussions with those individuals about what the firm had decided. Can you imagine walking into the office of an old friend, a colleague whom you had helped out and who helped you with your clients over the years, someone whose spouse or partner you had gotten to know through firm functions, perhaps someone who had been at the firm longer than you, and telling him or her that their future with the firm was either ending or becoming less than it was?
I can promise you two things. First, with some careful thought and sensitivity, those tough talks can be done effectively while preserving the individual’s dignity. Second, if a firm is not having those talks with lawyers who don’t deliver significantly more value than their compensation, the firm is damaging its long-term financial viability. While bringing in laterals with books of business may provide some temporary financial “cover” that can mask this drainage, it does not solve the underlying problem—all it does is add more water to a vessel that leaks. And one day, there will be a Day of Reckoning. Belly of the Beast, Feb., 15, 2012. Besides, why should a potential lateral dilute the value of what s/he can deliver by joining a firm where a fraction of his/her effort would be diverted to compensating lawyers who take more than they give?
Six months after he became Husch Blackwell’s Chairman, Maurice Watson was asked by a reporter, “What have you learned about the firm that you didn’t already know?” His answer was telling:
Our lawyers and partners are looking for some direction about where we ought to be going as a law firm in times that some view as perilous. At the same time, I think there’s a tendency among lawyers at times of stress and uncertainty to hunker down and be conservative.
It is almost innate to do the opposite of what you ought to do. When stocks go up you ought to sell, and when they go down you ought to buy. You want to follow the herd because that’s going to provide you some protection. In fact, it will ensure that you get trampled. Kansas City Business Journal, Oct. 12, 2012.
Will your law firm be trampled? Or are you willing to make the hard decisions to act in the best interests of your firm and fix what’s causing your revenue to leak? As I said, the process may be difficult but with careful thought and sensitivity, you can do this in a way that is effective while preserving the dignity of your colleagues.