Law Firm Alert

With each passing day, it becomes ever more apparent that law firms without the right practice area balance are headed for tough, tough times, if not outright failure in some cases.

Most law firms have spent many years fine tuning the composition of their practice areas, as well as of their geographic locations. Unfortunately for most firms, the assumptions under which such fine tuning occurred are now trash. Many formerly attractive practice areas are now of little value. Similarly, many formerly attractive geographic locations are now of little value. And, if the practice area and location mix were not enough of a problem, many firms have capital structures that reflect the overleveraged scenario that so many companies and individuals are now working through.

You know the world has changed when you see some law firms admitting partners primarily so that they can build their capital base. Yes you read correctly; I am seeing firms giving lawyers they de-equitized in good times the “wonderful” opportunity to now become an equity partner…if they will just write a sizable check or sign a large promissory note. My how the world has changed!

Although much of my work for law firms has long been on strategic portfolio balance issues, this blog is focused on restructuring. So, I want to address the issue of the importance of a law firm's restructuring practice to its financial health. And, I want to do so at a level of detail such that this will be a four part series.

Now, even the most casual observer of law firm management knows that having a restructuring practice is beneficial at a time when the economy is down. It is even more important to have one in the free fall we are currently experiencing in this country. But, a more careful analysis would highlight that many law firms with seemingly good restructuring practices are still experiencing problems. How and why this is the case is among the issues to be addressed in this four part series.

The potential importance of having a primo restructuring practice has not gone unnoticed by the attorney recruiters who are matchmaking like busy bees. Even mediocre restructuring practice builders are being inundated with calls. (Note, I did not say mediocre restructuring attorneys but instead mediocre practice builders.) Tragically, many law firm managing partners are ill equipped to know who are today's restructuring lions as opposed to restructuring dinosaurs that have seen their best days.

One wrong "bet the ranch bet" on a new restructuring practice area leader could easily become the final nail in the coffin for a law firm.

And, for the restructuring attorney that accepts the golden offer from a desperate firm, they could easily find their reputation dragged through the mud of an ugly law firm dissolution (and they are getting uglier almost by the day). In the finger pointing that goes on in today’s dissolutions, not even the best attorney is immune from getting shot at in the cross fire of dissolution.

So much is at stake, both for law firms and for restructuring attorneys. The waters are shark infested. None of us have a crystal ball. Few of us even have a map reflecting the current environment. So much has changed, and is changing. It truly is a whole new world!

Coming next: We begin our look at three different law firm scenarios with a look at law firms that don’t currently have a restructuring practice.