Given the initial consolidation achieved almost everywhere after the outbreak of the pandemic and the massive restrictions linked to the lockdown, we believe that it is now time to think about the next stage of crisis management and future growth. This should aim at:  

• further operational stability;
• increasing the ability to adapt and learn;
• strengthening the organisational resilience.

The Corona crisis can essentially be seen as a catalyst and accelerator for long-standing trends:

• Increasing competitive pressure and consolidation in the legal market.
• Digitisation of working processes – also in the legal world (the current virtualisation of the workplace being a first example of this).
• Changes in the structure of law firms (starting with office space) and how legal services are provided – which will lead to new business models for law firms.

Being a leader in a law firm means actively dealing with these questions [1] and first of all understanding the time frame in which reactions and adjustments have to take place. Key milestones mark the transitions between short, medium, and long-term measures:

• The end of the lockdown and the associated domestic restrictions.
• The availability of therapy/medication and vaccine.

Against this backdrop, this article examines the short-term measures to be taken until the end of the domestic lockdown in terms of

• Clients
• Positioning & Strategy
• Firm Organization & Leadership

[1] We recommend Chris Zook ‘Profit from the Core’, Harvard Business Review, 2010

1. Clients

Crises are an opportunity to intensify the relationship with strategically relevant clients of the firm and for partners to establish themselves as the central trusted advisor against the competition.

The basis for this is,

• to understand the entrepreneurial challenges of this client group, especially those arising from the crisis.
• to identify the resulting need for legal advice.

Often partners do not understand these challenges in their entirety and with enough level of detail. Very few law firms have aggregated them and focussed their range of services and advisory approach on them. However, this knowledge is essential for a law firm’s ability to adapt and learn in order to emerge from this crisis stronger than before.

The entrepreneurial challenges will lead to a need for advice in the areas of finance, regulatory, litigation, corporate, labour and especially restructuring/insolvency. As many clients operate in an international environment, we feel firms should also consider their capabilities in trade law related matters – a relevant area given  changing trade relations, which is to a certain extent standardized, but in other areas also offers opportunities for high-margin work.

Regarding clients, we recommend as a short-term measure to carry out a portfolio analysis to identify and consider in more detail the strategic clients who account for approx. 80 percent of the firm’s turnover.

• For these clients (or a selection from this group) we suggest setting up a pragmatic Client Listening program. In this program, the partners close to these clients discuss five to ten questions with their contacts regarding the consequences of the crisis for the client, the broader market environment, and further developments.
• The results are analysed by a central team across the law firm in order
• to define and start an action program (lessons learned, consulting services required and market developments to be expected) informed by the client input
• to develop appropriate pricing models.
• Internal and external communication measures support the client listening and the action programme.

2. Positioning & Strategy

The positioning of a law firm determines what the firm stands for and how it differs from its competitors, particularly regarding the following aspects[2]:

• Core target client group and type of relationship with those clients
• Consultancy services on offer
• Quality & Pricing

In the short term, we feel it is important for firms to consider the market relevance of their positioning – even if the resulting consequences, adjustments, and related communication requirements may need to be tackled longer term:

• If the current positioning continues to be relevant in the crisis, firms should focus on not allowing for it to be diluted.
• If the positioning is under pressure, an assessment is required whether this is
• a cyclical problem, i.e. the positioning is sustainable in the long term (e.g. as a transaction boutique). In this case, the firm should be restructured in such a way that it retains its core business and can economically survive the crisis.
• a fundamental problem, i.e. the positioning is no longer relevant. In this case, the partners must jointly revise their positioning and realign the firm.

If the law firm has an unclear positioning, i.e. it serves many target groups that differ in expectations and needs (and thus usually also in pricing and margin), the partners should develop a focused, sustainable positioning, because otherwise, and especially in times of crisis, they can only differentiate themselves on price – which only works if all processes are consistently trimmed for cost efficiency

[2] Here, too, we recommend reading ‘Profit from the Core’.

3. Firm organization & Leadership

The focus here is on ensuring organisational stability (resilience) and financial management.

3.1 Firm organization

We assume that in the coming months, after an initial easing of the lockdown, we might experience varying restrictions, possibly even up to a renewed lockdown.

Regarding the organization of a law firm, we therefore recommend the following short-term measures:

-To define two modi operandi of the firm:

• One that is more in line with the way the firm has been working before the crisis.
• One that focusses on digital ways of working according to varying degrees of restrictions in place.
• The aim is to be able to switch back and forth between these modi operandi as smoothly as possible. To achieve this, it is necessary, among other things, to embed a Flexible Working Policy and to have clear communication protocols in place that set out which mode of work is to be pursued.
  
  – To help partners understand:
  
• the solvency of their clients, critical fee thresholds and how to avoid defaults of payment
• what effects changes in pricing have on the economic situation of the law firm and what acceptable pricing targets are.
• the relevance of prompt invoicing and subsequent management of receivables.
  
  – To set up a dashboard of key business indicators, which informs as promptly as possible about the economic situation of the firm and enables the firm’s management to intervene and act in the interest of the entire partnership. The dashboard should comprise information on:
  
• Utilization
• Realisation (achieved hourly rate)
• Cost multiple (turnover generated with 1 € personnel costs – including a fictitious partner salary)
• Liquidity
  • WIP (services not yet billed)
  • Aged Debt (overdue receivables)
  • Credit Facility (available credit line and its current utilization rate)
• Qualitative and quantitative performance indicators of strategically important clients
• Work pipeline

3.2 Leadership

In times of crisis, when people within the firm often work in isolation, one of the central leadership tasks of the firm’s management /practice group leaders / all partners is to provide reassurance and orientation to counter fears and to ensure internal cohesion and organisational coherence.

We therefore recommend the following short-term measures in this area:

• The establishment of communication formats that allow dialogue between the firm’s management and partners, practice group leaders, partners and associates as well as partners and business services staff and PAs.
  
  – Without such dialogue, internal cohesion and a consistent external appearance is at risk. Limitations to e-mails from the “top”, and similar “one-way communication” are not enough nor the most effective.
  – The communication skills of a law firm as an organization play a central role in managing a crisis effectively.
  
• Training of the partners, including the firm’s management, to lead virtual teams in order to strengthen the resilience and working ability of the law firm.

In our next article we will present our thoughts on medium-term measures – again with reference to clients, positioning & strategy, and firm organization & leadership.

Stay tuned, stay healthy!