What Law Firms Can Teach Brokers

Learn how firms use professional administrators to manage their businesses more effectively.

November 1, 2006

Once upon a time, lawyers ran their firms by the seat of their pants, relying on their legal and rainmaking skills to bring in clients but struggling to master the intricacies of running a business.

About 20 years ago, however, partners in law firms saw the light. Today law firms big and small are almost always overseen by professional administrators who keep an eye on the bottom line and don’t let the partners waste time debating what the color of the office walls should be.

Law firm administrators say real estate brokers can learn from the path they’ve cut, because the two industries are more alike than different, starting with the similarities in the “product” they sell: professional competence. Just as they do with brokers, “people choose lawyers, not firms,” says Patricia Groff, director of administration for Butz, Dunn, DeSantis & Bingham, a 13-attorney firm in San Diego.

Lesson 1: Hire an administrator

An influential 2004 study by a professional services marketing firm, Greenfield/Belser Ltd., found that a key factor differentiating success from failure for law firms was the presence of nonlawyer executives with the authority to run operations in a businesslike manner.

Such executives tend to have various titles (CEO, executive director), and their roles vary. Some are strong executives who chart strategy. Others are strictly administrators.

In general, attorneys know they’re better off practicing law and leaving operations to people from accounting or management who know what they’re doing, say law firm administrators. “Hiring business professionals with operational and financial expertise is important in getting the organization to think and act more like a business,” says Robert Gray, practice management director at Stoel Rives, a 350-lawyer firm in Portland, Ore.

Lesson 2: Give administrators a say in affiliations

Administrators given strategic roles might even weigh in on attorney hiring decisions. That might seem heretical in a real estate brokerage context, because it would be tantamount to giving someone who didn’t come up through the sales ranks a say in the affiliation of sales associates. But it can make sense to include a non-practitioner as part of the decision-making process.

In one instance, Groff consulted on the ramifications of hiring someone from another firm for a key position and passing over in-house attorneys who had expectations of advancing within the firm. The partners knew what they were looking for in terms of legal ability, says Groff, but they lacked perspective from a human relations standpoint, which could have helped them look at a new hire in terms of cultural fit.

Groff told the partners: “Here are the questions you need to be asking yourselves” about how to evaluate the right person for the job.

In addition to her expertise, the partners valued her candor and objectivity, which she says she was able to bring to the matter because she didn’t have an ownership interest in the firm.

Administrators can bring other objective tools to the table, such as “behavioral interviewing.” A technique some brokers are already using to help evaluate how well a candidate will fit into their office culture.

Groff’s firm, for example, puts a premium on being family-friendly. So, instead of asking candidates whether they think spending time with their families is important, Groff says she asks candidates specifically what activities they’ve done with their families in the past three months.

Groff also brings expertise in conducting background checks, verifying résumés, and other forms of due diligence that law partners, like brokers, typically don’t have time or the best background to do.

Lesson 3: Let administrators handle organizational fit

Gray says he gets deep into the hiring process at his law firm by scouting out and wooing not just individual lawyers but whole practice groups from other law firms, something that had traditionally been done by the partners. Practice groups are divisions within law firms that specialize in certain areas of law such as real estate or corporate tax.

A real estate broker who expands by acquiring another company or recruiting a big group of salespeople from another brokerage might also leave the task of blending systems and corporate cultures to a professional administrator.

When Michael Sikora was chief operating officer at a law firm that was the product of four mergers, he moved with dispatch to make people feel they were part of a unified organization. He got the firm to adopt common policies and procedures, combine information systems, and identify chains of command. “The challenge is how to create a unified culture that enables the firm to operate and be successful,” notes Sikora, who’s now COO of Milbank Tweed, a 550-lawyer firm based in New York City.

Lesson 4: Hand over retention to administrators

Sounding a lot like real estate brokers worried about losing their top producers, Sikora says law firms are paying much more attention to keeping the right people once they get them than they were five years ago. The reason is pure economics: It’s a big financial hit every time they lose an associate to another firm.

Just like real estate brokerages, says Sikora, “we’re in a war for talent in this industry.”

Sikora spends a lot of time on retention because of how much it matters to the bottom line. “It makes a tremendous difference to the economics of the business if we’re able to retain an associate for five, six, or seven years as opposed to three years,” he says.

To keep his strong performers, Michael Nannes, chairman at the law firm Dickstein Shapiro in Washington, D.C., has adjusted his management style so that in everything he does, he communicates his appreciation for their work. He calls this an aspect of leadership. And leadership is key, because you lose people if you aren’t communicating leadership to them, he says. “People take their lead from you on so many things that you think are small and insignificant.”

He endeavors to be upbeat and friendly and to create a warm atmosphere. He learns lots of names and says “it matters to people when you have a good word to say to them.” One time, he spontaneously put his coat on the shoulders of a secretary during a fire drill. “I got e-mail about that,” he says. “It resonated with people.” It was a statement, he says, that “the leadership cares about you.” At the same time, he says, you have to be careful about what you say and how others might take a joke or comment as politically incorrect.

Another dimension of leadership is aligning behavior and compensation with core values. “People want to know what their organization stands for, what it’s about”; otherwise, they’ll start looking elsewhere, Nannes says.

His firm identified its core values (loyalty, integrity, and so on) several years ago and put them on mouse pads. Now annual awards are given to recognize people who’ve done things to further core values at the firm. For example, bonuses were handed out last year to partners who’d made a substantial contribution to the firm’s commitment to diversity. Also, he doesn’t let people, especially the leadership, get away with behavior that’s inconsistent with core values. He speaks to them privately to bring them back into line.

Nannes is a big believer in empowerment. He deliberately floats new ideas, suffers through the initial rejection, and waits for others to bring the idea back to him. It's important, he says, to “recognize how much others want to participate in the process of leadership.” He creates opportunities for junior people to get involved and feel a part of the team. If associates aren’t on a committee but want to have an impact, “don't exclude them; find a way to be inclusive,” he says.

He backs his people on minor decisions they've made, even when he doesn’t agree. He’s less frequently the court of last resort these days as word has got around that he stands by decisions others make.

Nannes has confronted issues big and small. Some time ago, published associate surveys put his firm below the middle of the pack in terms of job satisfaction. So he conducted a survey of his own. “I asked them to hit me between the eyes,” he says. The result was a report he wouldn’t want the media to uncover. Many, but not all, of the suggestions were adopted. The end result: The firm topped an American Lawyer associate satisfaction poll two years later. As for the small stuff, “don’t let little issues fester too long,” he says. “Make a decision, put it to bed, and move on.”

Or have some fun with the small stuff. When it was being debated whether to allow jeans on Fridays, it was decided to let people pay for the privilege, and the proceeds are now donated to charity.

Lesson 5: Parcel out decision making

Gray has worked in both corporate and law firm settings and sees strengths and weaknesses in the partnership model—the most common way law firms are organized—when it comes to decision making.

Things that need to be corrected drag on longer in law firms than in corporations because partners can’t collectively make decisions as fast as a CEO. In law firms, “decisions are discussed and vetted. No single person is empowered with absolute authority,” he says.

Real estate brokerages that are structured as partnerships face the same slow decision-making process. But the good news is that the partnership structure makes it harder for a powerful CEO to impose a bad decision on the firm. “In corporations, you see some colossal errors made because power is vested in only a few; that doesn’t tend to happen in the partnership model as frequently,” says Gray.

For brokers, the key is to give managers latitude to make operational decisions, reserving for themselves strategic decision making. (For more on this topic, see What to do when, page FB14.) With sufficient decision latitude, administrators can quickly resolve small issues without involving the broker or partners.

Lesson 6: Pay attention to numbers

The typical lawyer or real estate broker isn’t trained in accounting or financial management. Something as simple as retaining earnings for future capital expenditures will be a revelation to some. That same 2004 Greenfield/Belser survey that found law firms do better if they have professional administrators at the helm also found that financial planning is another key to success.

According to Groff, lawyers tend to focus narrowly on cash on hand and are clueless when it comes to profitability analysis. “Waiting until money starts getting low or stops coming in the door is usually too late to start confronting tough issues,” she says.

Law firms that take financial management seriously tend to employ cost-center accounting methods, looking at a few key metrics, such as revenue per lawyer, profit per partner, and profit margin (ratio of net income to gross revenue). Cost-center accounting is a way to assess performance when an organization maintains divisions, like human resources, that don’t directly generate revenue. Profit-center accounting measures the amount of profit to a company from divisions that contribute both revenue and expenses.

If they’re not already using cost-center accounting, brokers should consider it, say administrators, because it can help managers assess the cost-effectiveness of non-revenue-generating operations, such as office space. After looking at their books, for example, brokers might decide to shrink their office space to cut real estate costs given the extent to which sales associates are mobile today.

Bonus lesson: Adopt what fits

Not everything law firms are trying applies to real estate brokerages. For example, law firms today typically expect their attorneys to bill 2,000 hours a year each, and if a firm isn’t coming within 95 percent of that target, it’s considered inefficient. Given the very different work environment for sales associates, employing such a standard makes little sense.

But there are plenty of other lessons to take home.

Harley Rouda Jr., CEO and managing partner of Real Living in Columbus, Ohio, the fourth largest brokerage in the United States, according to REALTOR® Magazine’s 2006 “Top 100 Companies ” survey, is a strong proponent of bringing in experts from management specialties to run his company.

“A top-notch financial person, for example, can help your company budget better, understand cash flows, and better predict future months’ performance,” says Rouda.

In the end, running a brokerage and running a law firm are both about managing people. “You really need to pay attention to the people who are the assets of the organization—maybe to a greater degree than in other kinds of companies,” says Sikora.

Ready to Go Sales Meetings

 

Create meaningful sales meetings fast and free with the help of prepackaged sales meetings at REALTOR® Magazine Online. You’ll find agendas, activities, and handouts on more than a dozen topics. A Facilitator Resources section offers ideas for running fun, effective meetings. And it’s all free to NAR members at REALTOR.org/realtormag. Here are some of the ready-to-go meetings you’ll find:

Better time management

No matter how you slice it, there are still only 24 hours in a day, and you have to spend at least some of those hours sleeping.

It’s no fun laying your head on the pillow at night feeling you didn’t get enough out of your day—whether it’s enough productivity or enough fun. Good time-management skills can help, but many sales associates have a real challenge taking control of their unstructured days. This sales meeting will give your associates the time-management tools they need to make their days more rewarding.

Start by asking salespeople to complete a time log before the meeting to track how they’re spending their time. Handouts give salespeople tips for using their time more efficiently, and activities help them set priorities and minimize interruptions. If even one time-challenged associate takes these tips to heart, you can chalk this meeting up as an hour well spent.

Better listing presentations

How can a well-conceived sales meeting help your associates win more listings? Turn to the listing presentation meeting agenda, and you’ll have the answer.

One activity helps salespeople identify their strong points and better sell themselves. Role-playing scenarios give salespeople a chance to think on their feet when they’re confronted with, say, a tech-loving seller or a seller who’s leaning toward going FSBO. There are 15 tips for making listing presentations more successful. And other handouts offer tips on pricing and guidance for sellers on how to prepare for the sale.

Negotiating differences

You’ve seen it numerous times: The sale of a house seems to teeter over a small dispute—say, the fate of a light fixture or a swing set.

Buyers and sellers in the thick of a sale are famous for throwing rationality out the window. That’s one of the reasons your sales associates need expertise in negotiation.

In fact, good negotiators can bring your company more listings, more quickly convert those listings into offers, and more reliably turn those offers into sales. So spend an hour helping your associates beef up their skills at the negotiating table.

This sales meeting will teach your associates to sort emotion from logic, read nonverbal cues, and work through scenarios that might throw lesser-prepared salespeople for a loop.

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