Law Firm Governance – A Strategic Imperative

The old governance and management structures that continue to exist in some form in the majority of law firms worldwide are frequently significant impediments to operating a business entity capable of providing highly skilled professional services successfully and at a fair cost. In the majority of law firms, the owners are also expected to play significant, time-consuming, hands-on roles in managing the business, selling the firm’s services and supervising their delivery, producing the largest portion of the revenue and-one must not forget- they must also find some time to practice law. The emergence of alternative business structures for law firms in some jurisdictions, combined with the continuing frustrations associated with attempting to make the traditional model work as a viable, cost-effective business structure in a modern business environment, indicate that the traditional law firm may become extinct in the majority of the world well before the end of this century.

Even if the traditional law firm form is eliminated, the demand for legal services, as well as the economic structures and organisations necessary to provide them, will continue to exist.

Meanwhile, even if law firms are an endangered species, they must continue to manage the numerous strategic, financial, and professional problems they face in the here and now.

Thus, effective law firm governance is a strategic need for all law firms and, for some, a necessary survival skill. To describe law firm governance as a skill suggests the role of governance in the 21st century law firm. We define good governance as a foundation and framework by which law firms set and achieve strategic goals, make and execute well-informed business decisions, and respond to the unprecedented challenges of accelerating changes that affect every aspect of the practice of law. Good governance encompasses not only the formal ownership and management structures of the law firm, but also the informal policies and practices by which the firm functions day to day. Good governance provides continuity and stability, but it can also focus attention and resources on the need for profound change Ultimately, good governance is how the firm makes good decisions and ensures that things get done.

As a result of this holistic view of governance, the most strategically important issues include confronting law firm leaders today, their implications for the governance of the firm and vice versa. The focus is not necessarily on what, but  how-specifically, how can better structures, policies and practices help resolve issues that can be critical to a law firm’s long-term sustainability?

How can good governance help a law firm to get the important things done?

  • building an effective structure
  • developing the principles, as good governance is a strategic construct
  • a law firm’s strategy should drive the development of its governance structures,
  • the structures and practices of the governance of a law firm should facilitate, not obstruct, strategic achievement.

We describe the evolution, in recent years, of general principles of good governance in law firms, exemplified by the International Bar Association (IBA, Law Firm Governance Initiative Best Practice Guidelines, published by a working group of the IBA in 2008. Of course, as is always the case with any set of best practices, one must never assume that one size fits all. Good governance therefore is an organising framework for managing the professional practice and the business of the law firm. In selecting from among the various structural options, a firm should try to strike the right balance among highly firm-specific factors. The need to integrate and manage governance structures, strategic objectives, the defining professional characteristics of the firm and business operations is leading small and i mid-size law firms to move away from the traditional approach of lawyers as amateur, part-time business managers and towards the employment of experienced managers to run the business.

The critical but often overlooked relationships between strengths and vulnerabilities in a firm’s governance system and its ability to resolve strategic management problems:

Challenges for law firm governance, begins with an investigation of the typical decision-making processes in law firms. These include: .

  • the usually uncomfortable and frequently avoided issues of managing partner performance: a partner compensation system that supports the firm’s strategic objectives, is fair, and reflects and supports the partnership culture;
  • managing the information that the managing partner really needs to know
  • adopting and enforcing cost-effective risk management policies and procedures; and
  • succession planning and retirement, both from the perspective of the firm and from that of the older partner.

Each of these issues consumes enormous amounts of partner time and attention. Each can have devastating effects on a law firm’s financial performance, reputation or long-term sustainability if not managed well.

Governance Tomorrow:

For the future and how good governance can help law firms to prepare and respond to it we must examine the implications of the emergence of alternative law firms and developments in the regulation of the legal profession for law firm governance. A comprehensive exposition of change management skills and methods are essential part of good governance in 21st century law firms. They are critically important to lead the changes that today’s law firms need to make in order to prepare for long-term success in the future, the faint outlines of which we can just begin to discern, but must quickly learn to understand.

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