Armanino Blog

Has the Time Come to Hire a CEO?

by David Roberts
June 17, 2013

We all know it—it’s tougher running a law firm today.

There’s tremendous pressure from clients to reduce fees, costs continue to rise, the demand for legal services has not grown in years, and the competition for new business is at an all-time high.

Some of the strategic issues that we all struggle with are: How do we increase the bottom line? How do we fairly compensate our business generators? How do we produce the same quality work product more efficiently (which is less revenue and profit to the firm)? What practice areas should we get out of and which ones should we grow? Are we prepared for the retirement of our major business originators? Should the firm expand geographically? What’s the right strategy for the next 5 to 10 years? How do we keep it all together? Should we merge? And on and on and on….

It’s not just tougher today—it’s daunting and it’s different—different than it’s ever been. And, different is here to stay. The basic business principle of supply and demand has been turned upside down (more supply than demand) at a time when the legal industry is at a very mature part of its business cycle (high profits and low innovation).

If we had a crystal ball, we could have seen this coming and made the necessary changes. Since we don’t, the real question is “what’s going to happen next?” Will the flood gates of new legal work simply open up and fix everything? Most likely not. So what will happen? In a mature industry facing these types of significant pressures, “Innovators” move in and change things, usually dramatically. They don’t do what was done before. They break the mold and innovate new processes, new procedures, new technology, new ways to communicate, new compensation models, new fee arrangements, new organizational structures, and new paradigms. Is your Managing Partner, your executive committee, and your firm’s management team ready for all this? If you’re like the majority of firms out there, the answer is, probably not.

Let’s use an example. You’ve probably been asked by one of your good clients, who is facing similar game-changing market conditions, to advise them on what to do. Can you imagine advising them to:

“Take your best producer, who has a lot of political clout within the organization, and promote this person to CEO. This person may not have the formal training or educational background to be a CEO, but they can learn on the job. And, since they will need to continue to produce, they can only be a part-time CEO—maybe 20% to 30%.”

This sounds absurd, but this is exactly how the majority of law firms operate. They take one of the top partners—usually someone who is good at client service and business development—and make them the Managing Partner (in addition to handling their ongoing client responsibility). This is how law firms operated 20 years ago. It’s how they operated 10 years ago and, you guessed it, it’s how they continue to operate today.

If you wouldn’t advise your client to do this, why would you let your firm, your financial vehicle for retirement, be run like this? Most law firms already have really smart lawyers doing really good legal work but, with all the challenges, external pressures, need for change and innovation, isn’t it time to consider hiring a CEO?

A CEO is someone who can help:

  • Develop processes and efficiencies and build the appropriate infrastructure;
  • Develop goals and incentives for administrative managers as well as for professionals;
  • Develop the appropriate metrics;
  • Innovate new ideas, practice areas and markets;
  • Develop and implement a uniform firm wide strategy, and;
  • Solidify a firm-wide culture.

To run your firm successfully, you need someone with the background, training and proven track record to help lead the firm through the changes that are necessary to keep your market share, profitability, and competitive edge. Yes, there will obviously be significant economic, cultural and political issues to consider when thinking about hiring a CEO but, in my opinion, the time has come to begin the discussion. Hiring a CEO will not be right for every firm, but there will be many who could benefit from having the right high-level, experienced CEO help lead their organization through these tough and very different times.

June 17, 2013

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