From a one-way street to a roundabout
This article was first published in the November 2018 issue of PLC Magazine
Steve Nelson of The McCormick Group discusses the challenges currently faced by law firms, and the impact on the career path of a chief operating officer.
2008 was not only the year of the recession, but is also known as the year that the legal sector began to change dramatically. While there have been a number of changes relating to technology, cyber security and business development, the key development resulting from the recession has been the complete re-evaluation of client engagement.
Clients are taking a far more comprehensive view of their external counsel retention, not just in terms of billing rates and alternative fees, but in the way that their work is handled, ranging from billing practices, composition of teams, and the reporting of other events that might affect the engagement of the firm as a whole. Many clients are imposing guidelines that address issues such as information security, conflicts, staffing and communications protocols. As a result, law firms have had to develop a complete infrastructure devoted to ensuring that client work is handled properly, while still maintaining profitability.
Changes in law firm management
While these changes are the direct results of the new client-focused era, the importance of satisfying clients has also led to several other developments at law firms such as:
* Diversity and inclusion programmes, driven by clients that are unhappy with law firms’ progress in that area.
* Lateral partner integration programmes, driven more indirectly by clients that want a broader team of lawyers working on their matters.
In addition, because of the increasingly competitive environment, some firms have hired strategy-related officers to focus on the firm’s growth strategies, such as mergers, or chief talent officers to focus on bringing in the best talent available, including both practicing lawyers and managers.
As a result, the old law firm management structure has had to adapt. In the past, law firm management was reserved for a very small group of c-suite executives (that is, senior officers whose job titles contain the prefix “chief”) reporting to a chief operating officer (COO) or an executive director. Before 2008, these would be limited to a chief financial officer, a chief information officer, a chief marketing officer and a chief human resources officer. Occasionally, there would be a chief administrative officer, who tended to handle matters like facilities and support services.
Need for wider skillset
During that time, the firm’s COO primarily had to master inwardly focused disciplines, such as finance, facilities, human resources, and sometimes partner compensation. But now, because of client demands, the management of law firms is increasingly driven by external forces. Today’s COO needs to have a solid understanding of matters such as:
* Legal outsourcing.
* Alternative fee structures.
* Legal project management.
* Client feedback and communication.
* The factors involved in corporate selection of external counsel.
As a result, the career path to the COO position is changing. In the past, the most popular route was through finance, since an understanding of profit and expense, tax, and partner compensation issues were paramount to the successful operation of law firms. While a deep understanding of finance is still important, a deep background in internally focused finance is not enough. Now, a law firm COO has to handle both the inward and outward-facing challenges that law firms face.
Alternative routes to COO
As a result, there are many more routes to the COO position. The following disciplines appear to be the most relevant:
Pricing. While the majority of law firm work continues to be done on an hourly basis, the amount of work being done through alternative means is increasing. This is particularly evident at firms with larger clients. In addition, costs professionals are increasingly being used in hourly rate situations, either with regard to rate increase inquiries or in terms of how matters can be more efficiently staffed. And, of course, they need to respond to discount demands in a way that balances client relations and profitability. Given that costs and pricing require a strong financial background, those professionals with experience in this area have set themselves up well for future consideration as a COO.
Legal project management. Many law firms have adopted project management principles that have been used in many years in the corporate arena and in other professional services. Even at firms that do not embrace project management principles entirely, a greater emphasis is placed on efficiency in general. This is inexorably related to pricing as firms have to ensure that all legal engagements are being handled on an efficient basis. In a recent study for a client carried out by The McCormick Group, the majority of the top pricing officials in the US have a title that includes legal project management.
Value. Many observers believe that pricing is not the proper term to use, because it is provider-facing rather than client-facing. For this reason, some law firms use the terms value interchangeably with pricing and legal project management. However, at the same time, many firms assign the chief value officer with the responsibility of engaging with clients on a variety of engagement-related matters that are unrelated to pricing, such as billing practices, staffing and communications protocols. Therefore, professionals who focus on client value are an even stronger fit for a COO role.
Client relations. At some law firms, professionals with the title of chief client relations officer have identical duties to the chief value officer. At other firms, this is viewed as more of a business development-focused role, which involves handling client feedback interviews and addressing client concerns generally. Individuals with this experience, particularly if combined with strong financial experience and background, can be very appropriate COO candidates.
Practice management. In the US about 35% of the top 200 law firms have professionals in charge of the operations of major practice groups, reporting directly to the practice chairs. This trend is also starting to take hold in the larger UK law firmsMost of those firms have chief practice management officers who oversee all of these professionals. Some firms combine practice management with pricing, legal project management and value into a chief practice officer role. This role is an ideal stepping stone to the COO position.
Strategy. A number of law firms have chief strategy officer or chief of strategic initiatives positions. These professionals can have a variety of responsibilities, including considering mergers, creating new office or practice groups, lateral partner hiring and participating in law firm networks. These professionals are addressing many of the key issues facing law firms today and, particularly if the candidate has a strong financial background, they could be a very strong contender for a COO role.
Innovation. A number of firms have key roles focused on innovation. While that can mean different things to different firms, these professionals are focused on using technology and knowledge management to drive efficiency. In many ways, this is closely related to legal project management.
With the explosion of key roles within law firms, today’s COO has an even more challenging set of responsibilities. However, the good news for firms is that there are many talented professionals with the experience and skill set to meet those challenges.
Steve Nelson is the managing principal of The McCormick Group, an executive search firm based in Arlington, Virginia, US.
© 2018 Thomson Reuters (Professional) UK Limited. This article first appeared in the November 2018 issue of PLC Magazine, published by Practical Law, part of Thomson Reuters (Professional) UK Limited, and is reproduced by agreement with the publishers.
