Getting serious about associate profitability

Associate profitability could be the most important management issue for many - maybe even most - law firms over the next three to five years. One of the central features of  law firms that have managed to increase profits against declining fee revenues has been a serious inquiry into the profitability of the ways in which associates prepare and deliver legal work for clients. These firms understand that the better response to hard times is usually to improve the productivity of fee earners, rather than to get short-term savings by slashing payroll.

Looking ahead to the economic challenges that will continue to confront the traditional law firm, there are three questions that every firm should ask:

  • How productive are our associates? Productivity involves more than working hard. It also involves producing quality legal work that produces a fee. One of biggest risks in alternative fee agreements, for example, is that associate productivity will not support the lower fee that the firm had to accept in order to get the work.
  • Do we have an effective quality assurance system? Or do we merely try to catch and fix mistakes after they are made. In our experience and observation, the biggest single reason for disappointing levels of associate profitability is poor quality assurance.  This factor alone can account for anywhere between 40% and 60% of the lost profit potential in associate work. Firms waste hundreds of hours of associate and partner time fixing mistakes that could have been avoided altogether.
  • What profitability feedback do we give to our associates? Believe it or not, a majority of associates never receive formal, structured, and developmental performance feedback at all - much less about the profitability of their work. It is no wonder that for many associates, the profitability of their work is, at best, a vague concept.  As one associate once told me, "Profitability is the partner's concern.  My job is to do the work the partner gives me as well as I can. If there are problems, she will let me know." These old patterns of "sink or swim" and ad hoc apprenticeship must stop. One of the most important investments that a law firm can make to improve associate profitability is to design and install a serious performance evaluation and development program for associates.

Associate profitability is a partner problem. Blaming and admonishing associates will not solve it. Only law firm partners can lead the associates to being more productive, more efficient, and more profitable in their work.

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