Law Firms Adopting the Corporate Style
By AMANDA BRONSTAD
Staff Reporter
It’s the start of the New Year, when many L.A. lawyers assemble in boardrooms to calculate year-end profits and discuss the overall direction of their firms.
Except some of the faces at the table aren’t lawyers.
As law firms have become more like corporations, a growing number of executive directors and chief operating officers are joining lawyers in making the hard-line decisions about strategy and bottom lines. Their roles inch closer to law firm management than in the past, when most non-lawyer managers handled the more administrative tasks of real estate leases, marketing and human resources.
“It has evolved that the non-lawyer chief operating officer or executive director has taken on increasing importance in the firm, including the strategic vision of the firm,” said Seth Aronson, managing partner of the L.A. office of O’Melveny & Myers LLP.
In some cases, an executive director still handles only day-to-day administration. In others, the person works with partners on the opening and closing of offices. But most recently, many executive directors or chief operating officers make recommendations on the profitability and expansion of certain practice areas.
That means assessing which practices, and which lawyers, are profitable enough to retain and which need to go, said Patti Lane, president of the Chicago-based Association of Legal Administrators.
“That’s what it’s all about managing the bottom line,” Lane said.
Large law firms have used executive directors in a more limited managerial capacity for the past several decades, said Edward Poll, principal of LawBiz Management Co. in Venice. But they have become involved more in a firm’s business development, which can include generating revenue from alternative sources as well as improving sales.
“While there was competition in the early 1990s, it wasn’t as severe as it is today,” he said. “You have to struggle to get new business, and lawyers can only do so much. There are phenomenal rainmakers, but they’re not salespeople.”
Many of the new executive directors and chief operating officers are active members of firm management committees. At O’Melveny, for example, Chief Operating Officer Bruce Boulware is one of four members of the Office of the Chair.
And O’Melveny’s profits have skyrocketed to more than $1 million per partner in 2002 from $705,000 in 2000.
Most executive directors manage a host of newly formed corporate positions such as chief information officers, directors of human resources or marketing directors.
“As firms look more to corporate structure, they’ve looked at titles that would be comparable with a corporate structure,” said Charles Woodhouse, executive director of Gibson Dunn & Crutcher LLP.
Until recently, smaller firms have been more resistant to hire an executive director or chief operating officer because of the high salary costs. The salary of chief operating officers or executive directors tops at $522,000 at firms with at least 200 lawyers, according to a survey by the Association of Legal Administrators, and $103,000 at firms with fewer than 10.
“Lawyers frequently feel they know how to run their firm better than anyone else does,” said Marshall Grossman, partner at Alschuler Grossman Stein & Kahan LLP. “And the salary demands of a great executive director can run several hundred thousand dollars a year. In my opinion, though, it’s worth it.”
Alschuler Grossman hired its first chief operating officer, Dana Ellis (photo), last year. He is more involved in setting strategic goals for the finances of the firm than his predecessor.
“I’ve been looking at process improvement, such as how have we been doing it and questioning (why we) do it that way,” he said. “What is the proper amount of head count and resources, for example, to do those things?”
Ellis, who was managing partner of worldwide recruiting at Arthur Andersen LLP’s Chicago headquarters, said strategic planning in law firms is similar to accounting firms, because it involves clients, partners, billable hours and productivity levels. He said one difference at law firms, however, is accounting for contingency fees in the financial planning of the firm.
