Sustainable investors are concerned not only with what companies are striving to accomplish, but also with the way in which those companies intend to operate and the values and methods that will be used by the principals of the companies. Specifically, sustainable investors look for individuals and companies that value and exhibit transparency and honesty and candor in communications among stakeholders; define economic success by social and ecological impact, not just financial results; have an entrepreneurial spirit and culture that encourages and fosters innovation and continuous improvement; and which are truly pioneers in their areas interested in building the fields in which they operate through collaboration and “open sourcing” of methods and ideas. Sustainable investors also tend to be particularly interested in developing and maintaining close, long-term relationships with their investees and providing them with appropriate support and resources throughout the investment period. One way this is accomplished is by matching entrepreneurs with local investors from the same community to develop a sense of shared responsibility and facilitate face-to-face interaction. Enterprises seeking financing from social venture capital funds and other sustainable investors need to understand the criteria that these types of investors use when evaluating potential portfolio companies, a topic that is discussed in a new executive summary in Business Transactions Solution on WESTLAW for clients regarding investment criteria of sustainable investors.
Historically, the management of most law firm had surprisingly little to do with what is really the primary business of the firm: the timely and effective delivery of high quality and valuable legal services to clients. As law firms grew from relatively small enterprises of a few partners and associates to somewhat larger organizations with professional staffs, most found it useful to designate one of their partners as a part-time Administrative Partner. The functions of such an Administrative Partner were largely logistical—seeing to the needs of the firm for office space, secretaries, library resources, basic bookkeeping, etc. The job had almost nothing to do with the practices in which the firm was engaged, the clients that the firm served, or the ways in which legal services were delivered.
As firms grew, the functions of the Administrative Partner were often expanded to include supervision of the non-legal staff, financial planning and budgeting, technology and infrastructure planning, and a variety of other “ministerial” functions. Still, however, firm management had very little to do with the activities of lawyers in their practices. Even when Administrative Partners evolved into full-time Managing Partners and Management Committees were created to assist in running the administrative side of firms, there was only limited nexus between the activities of the firm’s central management and the real work of its lawyers.
This illogical split has begun to disappear in recent years as more and more firms—responding to the dramatic changes that have occurred in the U.S. legal market—have realized the need for strategic focus and have come to view practice management as the essential mechanism for implementing their strategic objectives. As a consequence, at least in larger firms, there has evolved a close alignment of central management with the operation of the firms’ primary business units: their practice groups.
Firm management now typically appoints and exercises oversight for practice group leaders, reviews and approves practice group business plans, relies on practice leaders for input in advancement and compensation decisions, and depends on practice groups for implementation of essential elements of firm strategic objectives. In short, in many firms today, practice management is an integral part of the overall management function, and practice groups are the primary vehicles through with the firms are positioning themselves in the market.
At the same time that law firms have become more focused on practice management, the governance and management structures of firms have become more centralized and more corporate in their look and feel. Today, key strategic and management decisions tend to be concentrated in relatively few hands. Persons holding jobs as “Managing Partners” or “Chairs” of their firms increasingly function like CEOs; Policy or Management Committees increasingly function like corporate boards of directors; and the number and range of decisions reserved for action by the full partnership have been reduced considerably. Additionally, law firms now routinely hire experienced non-lawyers in a variety of key management positions—from Executive Director (or COO) to CFO and from CIO to Director of Human Resources. These non-lawyers are increasingly being vested with authority to manage the affairs of the firm—including, in many important ways, the activities of the lawyers themselves. Moreover, senior non-lawyers are now often included as full voting members of Management or Policy Committees. In short, law firms increasingly look and function like the significant and complex businesses that they are.
Law firm management has long since blossomed beyond being the orphaned after–thought of busy lawyers and a task assigned to lawyers perceived as lacking business generation skills. It is now clearer than ever that a competitive marketplace, and a turbulent overall economic climate, demands careful planning and deliberate action by law firm leadership. This is certainly true for those law firms that have grown to become complex, sprawling global organizations; however, skills for law firm management are essential for leaders of smaller law firms also. In fact, statistics compiled by the American Bar Association indicate that approximately 70% of attorneys in the private sector practice in firms with 20 or fewer attorneys and these attorneys and their firms have consistently been ignored in conversations regarding the development and implementation of effective management practices.
Business Transactions Solution was recently updated to include a new chapter on Law Firm Management (§§4:1 et seq.) that discusses the basic business skills that law firm leaders must have in order to successfully guide their firms including an understanding of effective management and leadership styles and practices, strategic planning techniques, organizational design concepts, organizational culture and technology management. In addition, the chapter also covers a number of the core functions and activities of law firms including operations policies and governance, practice management and support, human resources, finance and accounting, facilities and equipment, supplies, compensation, professional development and training, marketing, risk management and insurance, information technology, office systems and procedures, ancillary businesses and pro bono activities. The chapter also includes checklists for formulating and implementing a law firm strategic plan, duties of law firm executive team members, steps in marketing strategy process, positioning in professional services, marketing roles and activities, topics for law firm marketing training programs and elements of an effective law firm risk management program; a slide deck presentation on leading the small law firm prepared to be used for law firm training purposes; and a selection of articles on various topics relating to law firm management. A fuller discussion of many of the topics mentioned above can also be found in various chapters of A. Gutterman (Ed.), Hildebrandt Handbook of Law Firm Management (Eagan, MN: Thomson Reuters), §§1:1 et seq.
Financing is an essential element for establishing a new business, launching a new product or service, or expanding an existing business through internal growth or acquisition. It is likely that entrepreneurs and managers will, regardless of the size of their businesses, need to venture into the world of finance several times over the life cycle of the enterprise. In that world they will encounter a wide range of participants, including banks, venture capitalists, investment bankers, government agencies, and business advisors, each of which will provide unique resources and experience. Capital suppliers have become increasingly innovative in devising financing techniques that are tailored to their needs and the goals and objectives of the businesses they serve. However, before managers can begin the onerous process of securing funding, they must develop a careful plan for identifying the financial requirements of the business, the terms upon which the company hopes to secure the necessary funds, and the potential sources for the funding. In addition, in order to be effective in raising and managing their capital, managers must also develop and implement financing strategies supported by a wide variety of specific tools such as budgeting and forecasting and a strong internal finance department. Finally, managers should be familiar with certain generic activities that must be completed in every fund-raising situation including preparation of disclosure documents, presentations to prospective capital providers, due diligence and financing documentation.
Key topics relating to financing activities for businesses include the elements and determinants of the capital structure; the determination and classification of capital requirements; development of a financing strategy; identifying and selecting sources of capital and understanding general capital raising activities. This month’s update to Business Transactions Solution on Westlaw includes an executive summary for clients regarding financing activities for businesses that discusses the sources of the cash element of the capital structure; explains the process of determining the capital requirements for the business; explains the process of developing a financing strategy; describes the various sources of capital for a business and the factors for selecting among them; describes the generic activities that must be completed in every fund-raising situation; and describes the form and contents of the documentation for a financing transaction.
The approach that was traditionally been taken by law firms with respect to training and development was generally been limited to lectures on substantive legal areas delivered to be a small group of lawyers—typically junior associates. Law firms failed to approve significant investments in training and for senior lawyers there was a generally presumption that they already knew what they needed to know simply because they had been out practicing for a number of years following law school. While some law firms supported in-house classes for junior associates most of the training occurred by providing financial support for participation in events planned and conducted by outside vendors. While lawyers did have to deal with mandatory Continuing Legal Education (“CLE”) requirements imposed at the state level this did not necessarily lead firms to upgrade their in-house training programs.
Since the late 1990s, however, several changes in the market environment have caused law firms to reevaluate their positions with regard to training and professional development. First of all, the explosive growth in size of the largest law firms made it increasingly difficult for them to continue their ad hoc approach to training and development. Larger numbers of new associates, coupled with more rapid turnover rates for both partners and associates, created challenges for simply relying on on-the-job training and informal mentoring to improve the skills of attorneys. Second, the market confronting law firms became increasingly segmented and competitive meaning that lawyers at all levels required not only stronger specialized legal skills but also an ability to deploy client development and client service skills. As an aside, clients became increasingly reluctant to fund many of the on-the-job training activities that firms had previously deployed such as having multiple associates observe depositions and bill their time or have throwing large numbers of inexperienced transactional attorneys on to a due diligence team in order to learn about “deals”. Third, for several years leading up to the beginning of the recession of 2007–2009 law firms were actually facing a “seller’s market” as they went out to acquire the human resources necessary to staff the growth that they were experiencing and many of these new lawyers appeared to be less interested than previous generations in simply working hard for a chance to become partner as opposed to selecting a firm at which they could obtain the training and experience necessary to prepare them for whatever they chose to do next in their careers.
Each of the factors described above caused law firms to begin to reevaluate their investments in training and professional development. While much of the activity in this area was among larger firms with more resources, training and professional development is an important issue for firms of all sizes and for in-house legal departments. A new chapter (§§ 6:1 et seq.) added to Business Transactions Solution this month discusses the design and implementation of professional training and development programs for attorneys practicing in law firms. Training includes a wide range of organized activities designed to change and improve the practice-related skills, knowledge, or attitudes of attorneys in order to achieve the goals and objectives of the law firm. In order for training and development to be an effective management tool and strategy, law firms must be prepared to make a full commitment of necessary funds and other resources and allocate the necessary time for partners, associates and non-lawyer personnel to actively participate in training programs. Training programs can serve a number of different objectives and each program should include a specific statement of the goals that the law firm is looking to achieve. For example, training can focus on improving the ability of an attorney to perform the job that he or she is presently doing or is being to do. Alternatively, training can be used to prepare senior associates and junior partners to assume other duties and responsibilities at higher levels in the organizational structure of the law firm. In any event, the trainers and trainees must always make an effort to carefully and clearly define the skills that are to be learned and the knowledge that is to be acquired. Other byproducts of successful training programs, such as improvements in attitudes and work habits, are harder to define; however, they should certainly be among the goals for the program. While many parts of this chapter focus on law firm training the materials in this chapter are also easily adaptable to in-house training and development programs. The specialty forms library in this chapter includes an association evaluation form, partnership admission criteria and an associate self-assessment form. The chapter also includes a slide deck presentation on creating and implementing a professional training and development program. Related issues are covered in chapters on law firm (§§ 4:1 et seq.) and law department (§§ 5:1 et seq.) and building and managing client relationships (§§ 3:1 et seq.).