January 13, 2021
Law Firm Risk Management Goals for 2021
Here it comes again, that dreaded thing: New Year’s resolutions. Yes, just when all of us were ready to turn the page on 2020 and embrace a new year with new possibilities, so far, the turmoil does not seem to have disappeared so quickly. And it likely won’t for a while. But that does not mean that we should continue to wait to right, or steady, our collective ships.
On the law firm front, in a year full of law firm transitions, departures, and dissolutions, more change is surely on the horizon. But this is still the perfect time to add a critical item to your list: Set the goal of reviewing your law firm’s risk management in a systematic way this year. (There is a lot of insightful thought leadership about how goals or challenges are more effective than resolutions anyway.)
If you approach this goal the right way – with specific, concrete tasks – it doesn’t have to interfere with your other critical path tasks. Just making a start on these issues is often the hardest part. Here are four categories of law firm risk management – analyze one each quarter:
Your Firm’s Partnership Agreement. For a law firm, most risk management issues begin with the firm’s partnership agreement. For many law firms, the partnership agreement is a static thing, created at the firm’s inception and never updated, or in some cases never again reviewed, after that. But the firm’s organizing documents (partnership agreements, shareholder agreements, and related documents), when properly drafted and updated, can foster good management and better relations at the firm. The process of developing and drafting the partnership agreement can itself be a powerful organizing exercise: You are likely to consider and to resolve significant questions regarding how the firm works or should work.
So for the first quarter of 2021, ask yourself: Is your firm’s partnership agreement up to date? Does it reflect and govern your firm’s current reality, or is it outdated and inapplicable for the firm’s current issues? What best practices and governance details have changed since the partnership agreement was drafted? Would the firm benefit from a fresh look at those issues?
Your Firm’s Strategic Plan. In our practice with law firms, we frequently confront a stark reality: if your firm has a strategic plan, a clear vision of what you want to accomplish and how you intend to do it, you’re much more likely to be successful than if you, say, simply continue to do what you always have done and hope it works out for the best. That statement is not radical in most industries, and it shouldn’t be for law firms. And if nothing else, this past year has shown us that no plan is not a good plan. But, for a number of valid reasons, strategic planning at law firms is often not the priority that it should be.
So for the second quarter of 2021, ask yourself: Does your firm have a strategic plan for the next one, three, or five years? Where do we expect your practice to be in five years? Will your most important clients of today still be your most important clients in 5 or 10 years? If not, is that OK or cataclysmic? In what ways has the pandemic forced the firm to make adjustments to these plans or expectations? Are those trends continuing? Would the firm benefit from a fresh look at those issues?
Your Firm’s Operations. For the past several years, we had been advising law firm clients that it would be prudent to expect more change in the legal profession in the next 5-10 years than we have seen in the previous 50 years. Of course, we did not predict the pandemic or any of the other events from 2020 (or 2021, for that matter), but the realities brought on by the pandemic did expose many law firms to fundamental problems with their outdated business models. Law firms whose business plans included a disaster response plan, embraced changing technology, and routinely analyze their business model in terms of its productivity and profitability, have fared the best. Some law firms will benefit from these necessary changes and some will be overcome by them. It’s clear that a continual, clear-eyed, dispassionate review of the firm’s operations is critical to be on the right side of that line.
So for the third quarter of 2021, ask yourself: Are your firm’s operations as efficient as possible? What short-term changes have you made as the result of the pandemic that should be made permanent? Do you have the right attorneys, staff, and technology to support your practice working efficiently? What additional resources should you invest in now to become more efficient? What should you avoid? Would the firm benefit from a fresh look at these issues?
Contingency Planning. For California attorneys, the past few years have driven home the critical concept that contingency planning is not a theoretical exercise for law firms. It is not just Covid-19 disruptions, although that is currently the biggest one. There have been earthquakes, fires, mudslides. Need we go on? It’s not a new phenomenon for California. Still, no law firm can operate efficiently without a go-to contingency plan for continuing operations in the event of a disaster or any unexpected short-term or long-term disruptions.
So for the fourth quarter of 2021, ask yourself: Does your law firm have a practical and effective contingency plan in place? How did it work for most of 2020? Does it need any adjustments? Does it comply with the law firm’s ethical obligations to clients? What are the best practices for law firm contingency planning? How can your Covid-19 adjustments work in other disruptions? Would the firm benefit from a fresh look at these issues?
The Hardest Part is Easy. Overcoming inertia is often the law firm’s greatest challenge in addressing, or even considering, these critical risk management issues. There are good reasons why some of these tasks may not have been addressed in a long time at your firm: the client work comes first, and there may not seem like there is time for the firm to address its own internal issues. Despite that practical reality, consider these issues from another angle. Would you advise any client to avoid or put off critical risk management considerations because they are too busy? Of course not.
The good news is that the first step is a relatively easy one. Simply start to think about these issues in a meaningful way. Engage help if or when you need it, including hiring outside counsel or other professionals to whom you can hand off your initial considerations and who can help you carry these issues through to meaningful conclusions. Wouldn’t it be nice to have these items sorted out properly at your firm when 2021 comes to a close?
Dena M. Roche
O’Rielly & Roche LLP