Few lawyers these days would argue with the proposition that the practice of law is not only a profession but a business as well.

(Darwinian selection has thinned out many of the contrarians over the past few years anyway.) And like any business, every law firm needs some form of structure to perform the basic functions of management.

"Management," as used here, is what law-firm consultants usually call "governance" - that is, the formal structure the firm has set up in order to make policy decisions, set a long-term direction for the firm and manage financial decisions.

Ultimately, in a well-run firm, this governance structure is responsible for performing the five basic management functions identified by management guru Peter Drucker: planning, organising, staffing, directing and controlling.

Size determines structure
If you talk with lawyers in firms around the world about governance, two things quickly become obvious. First, the size of the firm seems to be the most significant influence on the form of management structure that any firm will adopt. Second, there seems to be a much greater variety of management structures in use in law firms than within the general business community.

According to law-firm consultant Tom Clay of Altman Weil, "Size does play a big role  not only in the form of governance, but as firms increase in size, it makes the communication and interaction more difficult."

Every partner votes
Smaller firms tend to favour a democratic form of governance. Typically, every partner votes on every management decision. As firm size increases, it soon becomes obvious that this system is too cumbersome to be practical once a firm reaches mid-size (usually around 12 to 15 partners).

Kabala & Geeseman, a 17-lawyer firm in Pittsburgh, is representative of the typical small firm. With six shareholders, the firm enjoys a democratic governance structure common to many firms its size.

Margaret McClave, the firm's executive director, reports that she and the shareholders meet frequently to conduct the business side of the firm. "Most of the time it works very well," she says. "Everyone has been in on the discussions and had their say. Decisions are made together."

To governing by committee
The most common arrangement for mid-size firms is governance by a committee, variously called the executive committee, the management committee, the policy committee or some equivalent.

Firms of this size have too many partners for each to be involved with every decision. The committee members serve, in effect, as delegates for the rest of the partners. Governance by committee embraces the best features of a representative republic.

Tom Bickett, director of administration at 26-lawyer McQuaide, Blasko, Schwartz, Fleming & Faulkner, believes his firm's four-person board of directors effectively facilitates the management of the firm. The board meets monthly to make management decisions; all administrative and operations decisions are delegated to Bickett.

Day-to-day administration
"With a firm this size, you need some kind of administrator to carry out not only the policy but also the day-to-day business of the firm," he says. Bickett directs all the financial, accounting, facilities, personnel, operations and MIS functions in the firm, as does McClave in her firm.

As in many firms this size, if the board is faced with a decision involving a substantial expenditure of funds, a shareholder meeting will be called to get input from all.

In the interim, all shareholders typically receive regular reports from the board, such as board minutes and financial statements. This arrangement is quite common among firms of this size.

Mid-size firms vary in how one is selected to serve on the committee, how long one's tenure is and how much actual decision-making authority the committee may exercise without consulting with the partnership at large. Permutations among these three variables produce a hodge-podge of management systems in firms.

It's the people that count
If all this emphasis on management structure has you believing that an effective structure is the secret to a well-run law firm, pay heed to Tom Bickett's cautionary note: "No matter what form of organisation you have, it really depends on the people."

Adds Altman Weil's Clay: "Structure is given more importance than it deserves. It's the philosophy of management and the leadership that are key."

Nowhere is this more true than in the large firm. Large firms typically organise in a more hierarchical fashion, thus placing a premium on leadership.

The 340-attorney Dechert Price & Rhoads is fairly typical of a large firm in the US. Governed by an 11-person policy committee and led by an elected chairman, the firm also has lawyers in charge of each of its practice areas.

In order to ensure continuity and cohesion, "Dechert Price has a tradition of consulting all the partners about their positions across a broad spectrum of issues," says the firm's executive director, Bernhard Witter. This system provides stability, ensures that no "panic" decisions are made without the input of the partnership, and at the same time delegates the day-to-day management of the firm to a workable body of representatives.

Emerging trends
Certain trends are emerging that will affect law-firm management into the coming decade. Here are some of the key trends along with some predictions about the future of law-firm management:

• "The rapidly growing role of technology will play a more significant part in the way law firms organise themselves," says Dechert Price's Witter.
• According to Kabala & Geeseman's McClave, not only are more firms beginning to see the essential role of administrators and are delegating to them more and more administrative functions, but also there is an accelerating trend toward actually giving them power in addition to their authority.
• More and more firms are changing to newer forms of legal organisation  the personal-services corporation, limited-liability partnerships, professional corporations  and eschewing the traditional partnership form. Rationales include tax benefits, greater liability protection and increased flexibility.
• There is a discernible shift away from the billable hour and toward flat fees, value billing and other forms of alternative billing arrangements, which in turn require the firm to organise more as teams and less as "solo practitioners who share the same letterhead."
• "Changes in client expectations will determine that firms become more market driven and that they have a much greater understanding of their own cost structure," says Dechert Price's Witter.
• Increased competition, the shift from a seller's to a buyer's market, and accelerating change all place a premium on firm structures that are at once nimble, team-based, cost-effective and client-driven. One immediate indicator of these trends is the increasing number of firms that are reorganising from legal practice areas (tax, real estate, litigation) and instead going to market-driven practice groups (banking group, telecommunications group, transportation group, health-care group, etc), that draw on the expertise of multiple legal specialists with an interest in and specialised knowledge about the vertical market in question.
• The increasing trend of law firms to adopt "best practices" from the wider business world  such as competitive benchmarking, total quality management (TQM), re-engineering, formal quality-improvement programs  will lead to more team-based structures, more sophisticated roles for support staff, the expansion of professional management roles for non-lawyers (a more respectful label for this class of professionals is needed), the advent of formal human-resource departments in law firms, and more partnering with vendors, suppliers and professionals in allied fields.
• More and more firms will begin investing in training for their attorneys  training in supervisory skills, training in management and, above all, training in leadership.
• Law firms will begin to recognise that compensation and reward systems are not just mechanisms to distribute revenue but play a key role in reinforcing effective behaviors and extinguishing ineffective ones. We'll begin seeing redesigned reward systems that encourage attorneys to act in concert as an organisation rather than the "eat-what-you-kill" systems so prevalent today, which reward the "everybody for themselves" theme.
• Client surveys will become more frequent and more sophisticated.

In short, the one thing we can all count on is accelerating change. The smart law firm in the coming decade will recognise that formal law-firm management is no longer an option. Market forces alone will place pressure on all firms to take steps toward professional management. Those that don't will wake up one day like the late New York law firm Lord, Day & Lord and realise that they are not longer in business.

By Lawrence R. Richard
Copyright © 1996-2000, Altman Weil, Inc.

All rights for further publication or reproduction reserved.

Altman Weil, Inc. is a global legal consultancy headquartered in Newtown Square, PA, USA (www.altmanweil.com).