Or… We Could Just Fire You Instead

Recently I took a bit of a shot at law firms trying to pretend that their COVID-related pay cuts came with associated reduced working hours.

I’m all for the realities of business and I understand the need to deliver a message in a palatable way (I’m in marketing if you recall). But I’m also for calling a spade a spade.

That said, I think the natural follow-up to the previous article is to look at it from the business perspective: if I was running a law firm (which, thankfully, I’m not) at the beginning of an anticipated economic downturn, then what’s going through my mind and how would I deal with it?

But First, A Quick Reality Check for Young Lawyers

Most young lawyers I’ve had the pleasure of working with have been fairly grounded, hard-working individuals with an appropriate balance of humility and chutzpah.

That said, from time to time someone comes along who seems to think that the world owes them something, or that their natural brilliance (in their own eyes) should propel them immediately into high salaries and complex client meetings with important people.

So, just in case we’re not quite on the same page, here are a few tiny economic pointers that many young lawyers might do well to remember:

1. If you don’t own the firm, then you don’t get to profit from it. You get a salary, and that’s it.
2. If you don’t own the firm, then aside from getting fired your risks are fairly low. You don’t pay the bills, you don’t monitor the finances, and you don’t have to sell your family home in the event that things crash and burn.
3. If you’re so amazing, then go and open your own firm if you think you can do it better.
4. Largely as a consequence of (1) – (3), I have absolutely no obligation to put my hand in my pocket if things go south financially. If I choose to keep the money I’ve made in prior years and just fire everybody right now, then that’s 100% something I can do without feeling particularly guilty about it. If I choose to do anything else, then that’s at my complete discretion and will involve weighing up a tonne of factors you don’t even know exist.

With that done, let’s move on. What kinds of things would be going through the mind of a law firm owner looking down the barrel of a year of reducing income?

How Real is the Risk?

The problem with recent events is, in part, that everyone went insane.

As a result, there was no good way to gauge exactly how bad things were going to get, and even now we don’t really know the answer to that question.

But the first thing I’m going to do is try to assess how real the risk of a downturn actually is. Where will it hit and how hard will it do so? Who are my clients and are they going to be impacted? Will it affect current work or work in the pipeline?

While there’s a little bit of crystal ball gazing here, and novel events make it a bit harder, it’s an important step in the process.

How Big are the Potential Losses?

After looking at the nature of the risk we need to look at the size of it.

If the worst projections come true, how bad would that be for my business?

And, of course, if the most optimistic projections come true, what’s the other side of the spectrum look like?

What are My Reserves?

It’s not normally the nature of firms to carry large amounts of cash unless it’s for specific circumstances. Usually, the partners have drawn on the available profits, although of course different firms have different models here.

So this question is two-fold:

1. What are the firm’s reserves;
2. What are my reserves (or, more specifically, what would I be prepared to do financially for the firm if needed)?

Naturally, the length of time our reserves will last is going to depend on what action (if any) I take.

How Conservative Am I?

Much like any financial advisor will tell you, humans in business have different tolerance for risk.

Some might through caution to the wind, consciously taking no steps to address any potential concerns about the future.

Others will reflexively want to contract, immediately reducing their long term financial commitments at the sign of any trouble on the horizon.

Now if I’ve started a law firm, the chances are I have some tolerance for risk at least. But how far that tolerance extends is going to impact on what decisions I make next.

Do I have Dead Weight Staff?

Law firms are notoriously bad at dealing with HR issues.

As a result, the chances are that I have some staff who, in truth, shouldn’t still be working for me. Probably I was hoping they would just quit if I buried my head in the sand for long enough. They might be underperforming, bad for the team, or just generally a pain in the neck.

On the less savage side of things, there might be some staff who, for no fault of their own, are not yet significant financial contributors to the firm (which doesn’t just mean billing, if you’re wondering) and therefore represent more of an immediate cost than a potential source of driving revenue.

So (and I’m a little sorry to say it) but I’m going to be considering whether this is a prime opportunity to tighten up the team a bit.

And, of course, I’m also going to be wondering if I’ll get sued for doing it.

And Now… I Try to Make a Decision

There are lots of variables in play.

What will happen, and how long will it happen for?

What can the firm weather in terms of revenue drop, for how long?

Are my predictions realistic, optimistic or pessimistic? Is my appetite for risk aligned with which of those I’m going to pick as “most likely”?

What happens if I’m wrong in one way or another? Do I have a backup plan of any kind, and do I need one?

Can I take proactive steps now to mitigate the risks? Can I market better, expand my practice areas, explore new opportunities for growth? Will reducing expenses make any real difference? Do I cut staff, or hours, or wages, or all of them?

There’s a lot going on inside my head – and I’m doing the best to deal with it.

If I’m just one partner among many, then we’re all then trying to talk about it and figure out what the heck is going on as a group. And, as you know, lawyers struggle to agree about stuff sometimes…

Still Sad about your Firm’s COVID Response?

While an employed solicitor is, to some degree, beholden to the decisions of their employer, it’s also a fairly limited set of anxieties to plague you.

And while I know that many lawyers have been battered and bruised throughout all of this recent debacle, largely from decisions by their employers, it’s important to consider this question: what would you have done, and why?

Because when you’re faced with a situation that has no perfect solutions, you just need to pick one and then hope it pans out OK – and expect that some people won’t like it.