Managing Associates – A Key to Profitability by Wayne Cosgrove

When we work with law firms, our goal is to help them improve their profitability. The question partners most often ask us is “how do we manage associates”.  Our response is simple. You don’t. You teach them to manage themselves.

As we see it, partners in a law firm have two main roles – to manage their own practices and to provide leadership within the firm. The problem is, many partners don’t have the time or patience to teach practice management to new associates. In many cases they’re left on their own.

Some of the larger firms have professional managers who develop and manage internal practice management training. Often it is integrated with new lawyer orientation.  Over the years larger firms will likely have developed guidelines for docketing, billing and collection practices which are communicated to and understood by the associates. There’s usually some direct or indirect pressure applied for compliance.

Smaller firms don’t have the luxury of a budget for hiring this type of expertise, so they may have to turn to external resources such as practice consultants for help. While lawyers are accustomed to providing advice for their clients they often resist seeking external assistance for themselves.

This is no simple challenge. The Third Edition of Compensation Plans for Law Firms of the Law Practice Management Section of the American Bar Association, reports that “the typical first full year for an associate usually is an investment for the law firm.  By the end of the third year that investment is nearly recovered.” We have no reason to believe experience in Canada is any different.

There is often a high turnover in associate ranks resulting in a continuing lack of profitability of associates.  That high turnover rate can negatively impact the growth of the firm.  Partners need to know they must become good leaders for associates.  In turn, associates must understand that they must take charge of their own practice management and their own development.  And they need to know what is expected of them, not only in practice management but in other areas as well.  It is important to involve them in setting their vacation schedules and docketing targets which translates into monthly and annual billing targets.

Successful associates will seek out partners who exhibit good practice management skills. They will emulate them and avoid picking up the habits of partners who are not strong in this area.  They must seek out help on practice management issues if not presented to them.

Profitability is about cash flow and cash flow is largely about time management.  Associates need to familiarize themselves with the firm’s accounting system and reporting to monitor their own progress on a daily, weekly, monthly, and annual basis.

It all starts with docketing time.  Most legal accounting systems have an effective time docketing system.  Although the system should sometimes be a costing system rather than a billing system, the capture of time, both billable and non-billable time, is critical to good practice management.  Good habits learned early will pay rich rewards throughout a career.

There’s also the matter of billing of fees.  Work In Process (WIP) is one of the key “pools of assets”, which associates must learn to manage.  Often this is left to the senior partners of the firm. For their own files, associates need to adopt an effective system of billing.  Most often there are pressures on lawyers to bill each month-end but such a system of billing combined with “by the week” billings will be more effective.

Finally collections.  Why work for free?  Associates need to learn early on the importance of retainers.  In some firms, lawyers are successful at getting original retainers but have not developed an effective system of replenishing the retainer.  Where a retainer will not be obtained it is important that the firm have an effective credit approval process as well as a dedicated person to coordinate the collection process.

In the area of compensation an associate must know how the compensation scheme works. Compensation may not motivate associates to produce, but lack of it can demotivate them. New associates, with little control over billings or collections, should know what they are going to earn.  In those cases any year-end bonuses may best be discretionary.

As time goes by associates will generally relate compensation to fees collected.  Simple formulae may cause self-centred behaviour.  As they move towards partnership the same values the partners use for profit sharing should be introduced to associates.

The partners should take steps at the outset to continually integrate associates into the firm.  That would include mentoring, coaching, and involving them in the firm’s planning retreats and monthly meetings. They should be provided with the criteria for partnership.

Firms who have seriously adopted this approach - of keeping their associates in the know - have been successful in achieving more rapid associates’ profitability, sometimes in year one.

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