By Jim Calloway, Director, OBA Management Assistance Program

It has been impossible to escape all of the news and commentary associated with the changes in our economic landscape in the United States (and the world) in 2008. Bankruptcies, frozen financial markets, bailouts and the largest of all Ponzi schemes dominated the year-end news. Unfortunately the new year promises no immediate relief.

Some veteran lawyers reminded me of the old adage that lawyers thrive in good times or thrive in bad times, as long as they are willing to do different sorts of work. Their confidence is uplifting, even while one wonders just how realistic it is. The large number of lawyer layoffs from law firms during the last half of 2008 has to catch one’s attention, along with the number of law firm hiring freezes. Many with law degrees who migrated to the financial services industry are poised to return to the legal industry. There are a lot of intelligent and accomplished lawyers looking for work right now. Some of them may end up doing the same type of legal work that you do.

So, while we hope for the best, we must plan for the worst (or at least, the bad.)

We all understand the basics of practicing law in a tightening economy. The prudent lawyer will pay close attention to overhead and expenses, as well as accounts receivable. The firm may have to enact policies about how long it can continue to represent non-paying clients. Throughout this year in this Oklahoma Bar Journal space, look for more focus on practicing law in tough times.

There has been a lot written on this topic recently. To start off the year, I have decided to refer you to some of the insightful comments made by some of the most highly regarded experts in law practice management in a pair of great articles.

One of the best articles about recession-proofing a law firm that I have read is called Weather the Storm. It was published in The National, the official publication of the Canadian Bar Association, in its April/May 2008 issue and warned that U.S. law firms were on the verge of battling unprecedented economic pressures. Too bad this publication wasn’t more widely circulated at that time south of the Canadian border. The co-authors are Gerry Riskin and Robert Millard, both partners in Edge International, an international management consulting firm. (Your attention is also directed to Mr. Riskin’s popular blog, Amazing Firms, Amazing Practices, online at www.gerryriskin.com.)

It is my goal to get all of my readers to also read this article. Therefore I will provide you with their list of seven key strategies to recession-proof your law firm and the link to the online version of the original article so you can go there to understand their points better.

1. Display strong leadership

2. Ramp up the frequency of financial data reporting

3. Make hard decisions quickly and humanely

4. Focus practice and client team leaders on short-term action plans

5. Involve your clients

6. Manage internal expectations

7. This too shall pass: Keep a balance with your long-term strategy

Read the rest at tinyurl.com/a8renu.

Small firm lawyers may think this advice only applies to the large firm, but I think the advice is universal. In particular, small firm lawyers and solos tend to delay compiling financial reports. It is critical that you review your financial position frequently during 2009 (and thereafter.) Know who is falling behind on their billing. Know if you are delaying payments to your creditors because of cash flow issues.

Another great article was put together by my friend and colleague Dennis Kennedy. It was published in the November 2008 edition of the e-zine Law Practice Today, which was a theme issue on dealing with an economic downturn and can be found online at www.abanet.org/lpm/lpt/archives/november08.shtml or tinyurl.com/9lfal4. The title is “What Should You Do Now? A Roundtable Discussion on Law Practice in a Time of Great Economic Turmoil,” moderated and edited by Dennis Kennedy, with participants M. Tom Collins, Jordan Furlong, Patrick Lamb, Bruce MacEwen, Patrick McKenna, Edward Poll, Allison C. Shields and Merrilyn Astin Tarlton. I will let you read their biographies in the original article, but Dennis assembled a very impressive group.

The remaining material in quotations is all taken from the above-referenced article.

So how will you know when it is about to get really bad?

Merrilyn Astin Tarlton says, “[I]f you’re watching to see when/if it will crack, you’re too late. That’s like waiting until the pandemic hits your neighborhood before getting vaccinated! Start now assessing the changes that must be made in your practice in order that it may thrive in the future. Admit it, you know what they are. Step back and take a big conceptual look at your area of practice, the industries you serve, the geographic implications, issues related to energy and economics.”

Patrick McKenna notes:

“There are probably a number of obvious signs:

• Your rates become subject of continued discussion
• Number of new matters sent to your firm becomes reduced
• Deals and projects are continually postponed
• Clients stop paying promptly
• Client calls are not being returned
• Invitees don’t attend your functions
• Access to key decision-makers starts to decrease
• You even stop receiving those unexpected RFP’s
• Your phones stop ringing”

That is a pretty scary list! But I think few deny we are in significant trouble at this point, so let’s discuss solutions.

McKenna notes that some immediate solutions include a renewed focus on client needs and wants and considering innovative means of working with clients, even to the extent of letting an associate go work for the client for a time.

Allison C. Shields says, “The key… is to take action based on what the current reality is by planning and taking advantage of opportunities that are arising now. Clients that are concerned about how this economy is affecting their business may have untapped legal needs that can help them to feel (and be) more secure.”

Patrick Lamb states, “In any chaotic situation, there are huge opportunities, so the top priority needs to be having a strategic plan. If you could grow the number of clients and amount of client spend[ing] you capture, wouldn’t you seek that, especially in this environment? But those things are clearly possible if you change your business model. Marketing and business development go hand in glove with the strategic review of your firm.”

Ed Poll agrees. He says, “The best strategy, I believe, is to spend time to develop a strategic plan. The time spent usually is short and worth far more than the cost of the time spent. When you have a plan that you accept and understand, you will be working from a roadmap. When you work from a roadmap, fear and panic are reduced considerably.”

Merrilyn Astin Tarlton concurs. She counsels, “Don’t panic! Figure out which are your most critical resources: specific clients, lawyers, employees, offices, etc. And lock them up. Figure out what you can afford to lose and either eliminate them now (if you can afford to lose them, why do you have them in the first place?) or plan for their elimination.”

I have collected a lot more interesting opinions from experts, but I do not want to overwhelm anyone and I really want you to have time to read the articles I have referenced. So let’s have one more quote from Ed Poll on the fundamentals.

Ed Poll says, “Always, first, look at cash flow. Look to see that collections stay on pace. This is the first telltale sign. Lawyers traditionally have failed to pay close enough attention to this, wanting to do the work. When they turn around to realize that a client hasn’t paid the bill, they are already into the problem so deeply that they feel compelled to continue in the hope that a successful outcome will cause the client to pay the now increased billing. Seldom does this occur. If you have to take a loss, it’s better to take a small one earlier in the representation, freeing up your time to seek a new, better client.”

Finally, while it may be a bit counterintuitive in a credit crunch to discuss credit cards, I think that this is an important topic. I’ve noted before, and will repeat here, that any law firm that represents very many individual consumer clients should accept credit cards. There’s simply no excuse for not allowing your clients the opportunity and convenience to pay by credit card, especially when you are denying yourself the opportunity to receive an attorney fee payment when the client’s bank account may be low.

Another aspect of accepting credit cards is that many people now have ATM cards for their bank account that are also debit cards. So, if a client has convinced you that they have to make regular monthly payments on attorney’s fees, either initially or after a balance has been incurred, why not have them sign an agreement to have the payments charged against their bank account on the day they specify each month? You have a bit more security for the payment and they don’t have to write and mail a check.

Making certain that you have an adequate retainer is very important. I see no objection to receiving a retainer fee by credit card as long as you make sure that the funds are deposited directly to your trust account where they remain until they are earned. You can use your local bank to figure out how to set this up or get information about the OBA Law Firm Merchant Account program for our members by calling (866) 376-0950 or visiting www.affiniscape.com/oklahomabar.

CONCLUSION

Maybe things won’t be as bad during 2009 as many are predicting now. But as the cliché goes, it’s better to be safe than sorry. The immediate future may be tough. We need to be cautious and prudent, but continue to do good work for our clients as lawyers have always done. We should also not forget that economic pressures will add even more stress to many of our clients when often their legal matters are stress-inducing by themselves. So we will likely have some opportunities to be kind and understanding. Lawyers like to be known as counselors. We may have lots of additional opportunities for counseling in the coming months.

Originally published in the Oklahoma Bar Journal Jan. 10, 2009 - Vol. 80; No. 1.