Staying Ahead of the Talent Curve—part 2
| Publication year | 2023 |
| Pages | 08 |
Staying Ahead of the Talent Curve—Part 2
Talent Solutions for Colorado Law Firms
BY GENE COMMANDER
This two-part article explores sustainable law firm business growth strategies to counter the troubling shortage of affordable and productive talent that is jeopardizing Colorado law firms' continued prosperity. Part 1 showed that economic, demographic, and professional trends are contributing to a shrinking supply of talent, and traditional law firm business models are inadequate to address these challenges.[1] This part 2 shows how small and midsize Colorado law firms can gain a competitive edge by building forward-looking business models and magnetic law firm cultures that enable these firms to successfully attract and retain highly productive talent.
Adapting to a New Era
Colorado law firms have entered a new era of uncertainty,[2] in which attracting and retaining affordable, productive talent is among their toughest challenges.[3] As explained in part 1, firms are facing economic uncertainty, a shrinking supply of talent, and volatile demand for legal services. This new era could represent a tipping point for business operations in law firms of all sizes.[4]
Meanwhile, a nationwide price war for talent[5] is driving up the cost of doing business for Colorado law firms, as Denver-area firms are increasingly integrated into the national legal economy. Many small and midsize firms in the state are suffering from the rippling effects of the price war for associates, paralegals, and business management staff that has been sparked by the Denver branch offices of national law firms.
Baby boomers (ages 59 to 77) are rapidly exiting the labor market, and younger talent is embracing career opportunities other than law firm jobs.[6] Within the next two generations—Gen X (ages 44 to 58) and millennials (ages 27 to 42)—there is an insufficient supply of talent in the pipeline with a strong grasp of the business of law to fill the baby boomers' shoes. And slumping undergraduate and law school enrollment[7] suggests that too few Gen Zers (26 years old and younger) will attend law school and commit to a lifelong career in private practice to fill the ballooning talent gap. With diminished bench strength, Colorado law firms will struggle to navigate the financial and professional challenges they will face in the next three to five years.
This collision course between supply, demand, and the cost of doing business shows signs of producing a more lasting brand of disruption to the business of Colorado law than firms have experienced during prior volatile business cycles. And traditional law firm talent strategies are ill-equipped to manage the challenges of this new era for three reasons.
First, the organic growth strategies that served law firms well for decades—hiring rookie lawyers and making significant training investments while expecting this talent to devote their careers to the firm—are incompatible with today's labor market, unless coupled with new talent strategies. Indeed, 15 out of every 20 newly hired associates leave their firm.[8] Second, the lateral hiring—poaching—strategies that have proliferated in recent years often fail to meet one or both sides' expectations and raise serious financial and professional risks for firms. For example, nearly half of partner-level lateral hires depart within just five years.[9] Third, outdated law firm compensation strategies that fail to recognize firms' shifting business needs, vision, and cultural values can break down quickly when firm finances get tight.
The leaders of Colorado's law firms should instead embrace innovative smart growth strategies. Doing so certainly will not be easy or inexpensive in this new era. But firms that adopt this forward-thinking perspective will be better positioned to level the playing field with national firms, preserve their investments in human capital, and sustain the prosperity they have enjoyed during the past decade.
Smart Growth Strategies: An Overview
Smart growth: This simple term describes a game-changing form of business growth that is repeatable, ethical, responsible, and rewarding to all law firm human capital while also serving the best interests of firms' clients, the legal profession, and the communities in which firms do business.[10]
When measuring the financial strength and sustainability of a law firm, the number of attorneys, their hourly rates, and the firm's total gross revenue do not tell the whole story. These raw numbers are merely a snapshot of the business enterprise at a single point in time (e.g., fiscal year end). The long-term economic viability of Colorado law firms of every size will boil down to their ability to generate sufficient profits per equity partner (PPEP). It is the key ingredient that keeps talent together year after year.
Economic growth—not austerity—is usually the most effective way to counter inflationary trends like those buffeting the US economy and the legal profession.[11] Law firms, for their part, cannot hope to sustain and grow their PPEP by slashing expenses. Human capital, facilities, and technology costs are found at the top of the law firm expense column for a reason.
Unfortunately, law firms routinely settle—often by default—for short-sighted talent recruitment and retention strategies. Any perceived benefits from those flawed practices are often wiped out by the lost opportunity costs, wasted time, and reputational damage law firms experience when their human capital walks out the door. When law firms stop making the right investments to attract, develop, reward, and retain productive talent, they will cease to thrive because firms that lack the bench strength necessary to consistently meet their clients' expectations will struggle to retain the high-quality legal work that generates sufficient PPEP. And without sufficient PPEP at their disposal year after year, law firms occupy a precarious financial and professional position indeed.
Drilling Down on Smart Growth Investments
As part of long-range planning efforts, future-focused law firm business leaders should explore the opportunities presented by three practical smart growth strategies when their current means and methods fail to solve their human capital problems:
■ establishing nontraditional staffing relationships
■ exploring strategic mergers and acquisitions (M&As)
■ fostering a magnetic workplace culture.
As a brief preface, all of these strategies will require Colorado law firms to take an honest inventory of their vulnerabilities and explore transformative changes to law firm business operations. Such inquiries are unappealing to attorneys who hold fast to traditional mindsets. Certainly, it will require courage, time, and expense—along with some personal sacrifice—to fashion law firm business strategies that will consistently produce operational excellence in this new era. But doing so can make the difference between mere survival and lasting prosperity for the firm. The biggest question: Are Colorado law firm leaders ready, willing, and able to be the catalysts for change?
Nontraditional Staffing
Law firms generally do not have the luxury of maintaining a bullpen of talent to field unanticipated client projects. But it is standard for law firms—like companies in other industries—to staff up temporarily to meet client needs when large, profitable opportunities arise. Law firm business leaders recognized long ago the cost effectiveness of hiring short-term and even quasi-permanent part-time employees and independent contractors to perform both legal and business management projects.
Yet most law firms stop short of making the additional investments that would truly integrate the talent into the firm and ensure the talent becomes a valuable part of the business enterprise and workplace culture. Instead, firms skimp on the level of respect and reward that should be provided to this vital piece of the human capital puzzle and, predictably, the value of these relationships is short-lived. Going forward, these one-off staffing strategies may not be scalable due to the shifting labor market and shrinking talent pool.
Future-focused law firm leaders should supplement their organic growth strategies by adding productive talent to their bench strength through sustainable part-time, shared time, and work-to-hire roles for experienced associates, special counsel, paralegals, and business management staff These commonsense employment strategies, if managed appropriately, do not require significantly more onboarding or professional development efforts than the investments law firms normally make when they hire new talent to fill traditional full-time roles. Moreover, compensation levels in nontraditional staffing relationships are often less than levels for similarly qualified traditional hires.
According to McKinsey & Company, one of the by-products of the Great Resignation is a growing supply of capable human capital that is willing to reboot their careers and reenter private practice in a hybrid career capacity, given the right incentives.[12] This talent pool includes caregivers (such as Gen X and millennial parents) and "do-it-yourselfers" who thrive on autonomy (professionals who value meaningful jobs and fair compensation but prioritize flexibility).[13]Nontraditional staffing strategies will enable firms to tap into a large cadre of female talent who prize flexibility[14] and to provide the type of family-friendly workplace that is often attractive to parents and caregivers.
Creative staffing strategies allow law firms to not only reach alternative pools of affordable and productive talent but also bring in talent with specific expertise that can help firms improve their competitiveness, or talent with advanced technology skills...
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