Every law firm, regardless of size, must be organized for two purposes: first, the professional practice of law to provide legal services to clients; second, the purpose of organization is for the internal management of the law practice. This discussion focuses on practice organization and internal management.
Every law practice requires a formal (legal) structure, such as a sole practitioner, partnership or corporate (shareholder) form of organization. Within the legal structure, there should be an overall management structure for the delivery of services. Every law practice requires administrative systems for such activities as client accounting/financial management reporting, word processing, information retrieval, and the like. Proper administrative systems should be in place for controlling the acceptance of new client matters, avoiding conflict of interest among clients, developing and monitoring the case plan (and hopefully the case budget), and controlling critical dates. Indeed, the lack of proper systems, or the non-adherence to these systems, has major malpractice risk potential.
Among other characteristics, the Agreement should include provisions setting out duties and responsibilities of the owners. It should set out a basic compensation scheme which provides for compensation to those partners who are responsible for not just the client bilabial hours but also for doing other things important to the overall health of the firm. These activities include, for example, training associates and supervising support staff. While these activities may not directly generate partner income in and of themselves, they help provide the setting and framework in which income can be generated. Over the long term, particularly when considered in the context of malpractice risk avoidance, these activities are just as important as bilabial hours and possibly more important.
It is just this simple: law firms with a clearly defined management structure with duties and responsibilities delineated, do not have the malpractice claims problems experienced by firms which do not have such a structure.
In addition to defining management, other important characteristics of the Partnership/Shareholder Agreement include: definition of income distribution, death or withdrawal, disability, retirement, ownership/capital accounts/voting, new partners, and ownership of clients and files.
Another beneficial work-in-progress report that many systems are able to provide is a summary report reflecting the unbilled time and cost investment for each case or matter. This report also should be sequenced by billing lawyer, with subtotals printed for each partner's cases.
When clients ask us to analyze their financial performance to identify underlying problems and recommend solutions, this is one of the key figures we develop. In our experience in working with private law firms, it is not unusual to observe realization performance in the 70% to 80% range. Well run firms achieve realization in the range of 80% to 90%. Very well run firms, with good management and controls in place, will often exceed 95% realization.
A proper system also should be able to provide an analysis of collection variances. Collection variance is the difference between time value billed and the amount that must be written off as uncollectible.
Experience has shown that it becomes increasingly difficult to collect a bill that is 30 days or more past due. Therefore, in order to facilitate timely collection, a proper system must be able to generate monthly reminder statements for invoices that are 30 days or more past due.
Effective control evolves around first having the information to inform management that adverse trends are developing (such as revenues below plan or expenditures above plan, etc.) and secondly, taking the appropriate action necessary to correct problems. A proper system can help meet the first objective by providing a monthly income statement that reflects, for the current month and through the fiscal year-to-date, the results of operations compared to the plan.
The new client might turn out to be unsavory, financially weak, or otherwise undesirable. The firm's reputation may become tarnished as a result. Such unsavory clients often sue the firm in order to obscure their own shortcomings. The situation wherein a partner can accept a new matter for any existing client, unchecked by any screening may also present problems for the firm. The partner may overestimate his or her ability to perform or supervise the new matter. Too frequently, for example, a lawyer accepts a matter in an unfamiliar area and assumes it is just another form of litigation. The notion that a firm can be all things to every potential client does not serve law firms well today. This is the reason that many small and mid-sized firms have experienced so many claims in recent times.
Many progressive firms have abandoned the former practice of individual autonomy in accepting new clients or new matters. The goal is to improve the quality of clients (i.e., upgrade the practice), avoidance of claims and deadbeats, and improve collections and profitability. These firms often utilize a New Business Committee (Case Acceptance Committee, etc.) charged with determining where the firm should take on specific new business opportunities. Any lawyer who originates prospective new clients is required to consult with the Committee before committing the firm. Disputes arising between the originating lawyer and the Committee are resolved by a Management Committee.
With a New Business Committee in place, there are several steps in the New Client Matter Intake process. The first task involves a thorough investigation of the conflict of interest database. This database must be kept current with the names of individuals, corporate officers and directors, a considerable undertaking for most firms.
The second step involves completion of a New Client Matter Memorandum. The Memorandum should be reviewed and initialed by the New Business Committee or its designated member. It is preferable for the originating lawyer to personally meet with the Committee and discuss the new client matter.
Thirdly, once the New Business Committee has given its approval, circulate a copy of the Memorandum to all lawyers in the firm. It often is appropriate to circulate the Memorandum on a weekly basis. These weekly reports of new business often are the firm's last line of defense against possible conflicts of interest because no system is immune from errors. A conflict of interest database, for example, will not always yield the identity of a potential conflict every time the database is searched. The database may not be current, the searcher may be inexperienced or just not alert as he or she should be at that time.
Last, a formal policy and procedure should be in place for prospective clients that are declined representation by the firm (and in those situations where the client has declined the firm). A precise letter should be written to the declined party confirming that the firm has not accepted any responsibility and clearly stating that the firm will not be representing the party. If appropriate, warn the party to obtain counsel promptly.
We recognize some of these ideas will not be workable in the solo practitioner firm. However, a Conflict of Interest database should be maintained, used with each prospective new client, and kept current. Regardless of firm size, declination letters should always be used when a firm does not accept a prospective new client.
Of course, when the new business is accepted, firm procedures should be in place to ensure and follow- up on written engagement letters, acknowledgment letters signed by the client, and any agreed-upon retainer fees.
A starting point for managing cases, irrespective of whether they are litigation or non-litigation matters, is the Case Inventory List. A basic case inventory identifies the partner responsible for the case, lists the lawyers, paralegals and others assigned to the case, and provides a characterization as to the type of case.
The most basic case inventory would include a summarization of the status of the case to date, indicate pending critical dates and activities that will occur, and identify the most recent activities that have taken place and the next steps planned on the case. The case inventory must be current, it must be in writing and/or in a computer database to facilitate updating, it must be updated regularly, and it must be timely monitored and reviewed by the responsible partner.
We are aware of many firms who scorn case status meetings as costly or bureaucratic. Properly done, these meetings can be cost effective from the standpoint of managing the lawyers' work in a particular team or practice group. The meetings might be held weekly or bi-weekly for an hour (or whatever amount of time is required) to discuss new and ongoing cases. Lawyers assigned to new cases should be involved at meetings where their cases are discussed. This can be an excellent method for both training and quality assurance. Among the other benefits of regular case status meetings: (1) they can generate creative ideas at the time they are needed most, at the beginning of the case; (2) this can be an excellent way to teach younger lawyers how to evaluate what a case is worth through repeated discussion about what each lawyer considers the strong and weak points of a case; (3) they are well suited to major cases or projects that benefit from many ideas; (4) it strengthens the bonds between the lawyers in the firm/team/practice group because they get a chance to share ideas; and, (5) it reduces the feeling of being solo practitioners working under a common roof. Instead, they learn to respect each other and develop a sense of each other's strong points, which increases collaboration in the long run.
It warrants repeating, case status reporting and regular case status meetings are the essential ingredients of any effective case management system.
The most fundamental calendar control system consists of an individual lawyer diary (pocket or wallet type, desktop calendar, computer-based calendar, etc.) to keep track of appointments and firm-wide master calendar to facilitate tracking client activities to be used by all professionals in the firm. The idea is to develop a system to keep the calendar updated and to ensure redundancy (i.e., keeping a dual system such as the individual lawyer calendar and the firm-wide master calendar).
Proper maintenance procedures are critical to ensuring the integrity of the calendar control system. Procedures must be documented in writing, training and orientation sessions must be conducted, and the entire process monitored to ensure that deadlines are entered into the calendar/docket, regular reminders/ticklers are placed into the calendar, another person in addition to the lawyer responsible for meeting the deadline is aware of the deadline, critical tasks are removed from the system after they have passed, and a history of critical dates is maintained.
Given the availability of computer technology and a number of good calendar control software programs today, many firms make effective use of a computer-based system. The primary advantage is that the basic information need only be entered once and it can then be sorted in a variety of formats and sequences (such as by lawyer, date, location, department, etc.). An added feature of the software can facilitate scheduling meetings among groups of people by examining their respective schedules for conflicts. Even more advanced calendar control programs can incorporate "fast track" rules where, for example, a complaint filed in a particular court jurisdiction can result in the statutory due dates being automatically calculated by the program once all the data has been input. Many programs can incorporate internal tickler reminder notices based upon the rules established for each particular practice group.