Does your law firm have a toxic culture? A recent survey from CareerBliss ranked the unhappiest jobs in America. According to the survey, associate attorneys earned the highest average salary, but their wallets failed to generate satisfaction. Associate attorneys have the unhappiest jobs in America. It doesn’t have to be this way.
Prudent managing partners know that culture is a critical driver of their law firm’s economics & PPP. The cost of turnover is high, and it’s very easy to create a culture in which everyone is working harder, and neither partners nor associates are making more money.
Working harder doesn’t increase profits per partner
In a related report, we outlined how work-life balance can be aligned with a law firm’s profits per partner. If you are already familiar with this concept, skip to the next subtitle.
A common assumption is that PPP is maximized as associates approach 40 billable hours per week. For the vast majority of law firms, this isn’t the case. It’s only the case if no one quits.
When viewed through our economic framework, every law firm has a unique relationship between revenues, costs, and the number of lawyers. In order to maximize PPP, partners must clearly define two business goals:
- Desired profits per partner over the next 2-3 years
- Work-life balance the firm provides its associates
Notice that the second goal isn’t, “Work-life balance that supports the desired level of profits per partner“. That is where a toxic culture starts. An optimal number of associates drives improving profits per partner.
The following illustration simplifies this concept. The top figures represent a range of billable hour objectives for each associate. The bottom figures are the profits per partner generated by the work-life balance of the law firm.
In a simple world, you can improve PPP by having your lawyers bill more hours. That’s true, until someone resigns. There is a cost for every resignation. Partners earn lower PPP, and the law firm’s culture takes a hit.
The high cost of toxic law firm culture
One symptom of a toxic culture is high turnover. It can start with one associate “working too hard”, then quitting. Quitting is infectious, and can plague a firm by either driving down the productivity of remaining team members or leading to additional resignations. Both impact profits per partner.
“Working too hard” might be the root cause of an attorney exiting your law firm, but often, it’s the symptom of a larger problem: associates working longer hours than anticipated.
Using the law firm from our previous example, having your associates work harder may never produce the desired level of profits per partner.
Assuming our example firm required its lawyers to work harder to increase profits per partner, as soon as turnover reached 20%, PPP would remain flat. Why? The cost of losing a productive associate and the time it takes to achieve 100% productivity from the replacement is high. We call this negative leverage (you work 30% harder but you don’t make at least 30% more money).
Negative leverage intensifies bad culture
It’s one thing when associates choose to work longer hours in exchange for financial and professional advancement. It’s another thing to have your associates work harder because one of their colleagues resigned.
Profits per partner are maximized when associates achieve sufficient productivity over the long-term. Short-term spikes in productivity as a result of resignations and/or inadequate demand-planning by partners are a double-edge sword. They might keep your firm afloat for several months, but negative culture could soon rear its ugly head. As soon as that happens, be prepared for a decline in utilization, realization, and even additional resignations. Just as there is no such thing as free money, there is no such thing as free productivity.
Positive law firm culture will improve your profits per partner
Keep your associates engaged. Keep them happy. To maximize profits per partner:
- Clearly communicate productivity objectives that are linked to associate compensation and your firm’s financial goals
- Provide associates with financial and professional upside if they choose to exceed their objectives
- Use analytics to address short-term deviations in productivity and effectively plan around fluctuating client demands
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