Practicing law, running a practice not the same -- Classes try to teach lawyers the business side of private practice

Published in the Sacramento Business Journal January 20, 2012
by Kathy Robertson, Senior Staff Writer

Students go to law school to be lawyers.

Their visions: big bucks as counsel to big corporations, social justice for the poor, courtroom brilliance that convicts the bad guys.

The visions don't include billable hours, client development, office politics or payroll — although those all are needed to succeed in the law business. Law school teaches contracts, criminal procedure, constitutional law, wills and trusts. There are classes in professional responsibility, but next to nothing about how to run a legal practice.

That's a problem, practicing lawyers and consultants say.

The issue has gained new prominence in the slow economy as firm margins tighten and solo or small-firm lawyers struggle to keep their doors open. Facing the worst job market since the mid-1990s, new grads who never considered solo practice may have no other choice.

Many are unprepared.

"There was a time when lawyers didn't think business and law deserved to be in the same sentence — now, they're lamenting they are," said Ed Poll, a lawyer and principal at LawBiz Management Co. The Southern California business coaches firms in strategic planning, profitability analysis and business development.

Not much in law school

In most cases, the business of law is not part of the required law school curriculum.

It may be an elective, or not. Law students are focused on learning law and preparing to take the state bar exam.

The University of California Davis School of Law and University of Pacific McGeorge School of Law — the two local law schools approved by the American Bar Association — offer classes like "Accounting for Lawyers," but the focus is on clients, not running a business.

Lawyers, like doctors, want to practice. Most take the lights, the phone and the payroll for granted. They want to do what they're trained to do.

"Both stink at the ground level," Poll said. "Lawyers think they know it all, can do it all. They can. The issue is: Do they try — and is that the best use of their time?"

The issue hits hardest in solo and small firms where there is less of a buffer from the outside world. It's not easy to hang out a shingle and go at it alone or work with a handful of partners — but that's the way most lawyers practice.

The numbers are expected to grow during the slow climb out of the recession.

About a third of California lawyers practice in solo firms, according to estimates from a member survey released in December by the State Bar of California. That translates to 3,185 of the 9,650 lawyers in the four-county Sacramento area.

Adding small firms with two to five lawyers, the figure goes up to 53 percent, or 5,115.

New class at McGeorge

McGeorge used to have an elective law office management class, but it was discontinued, said Julie Davies, associate dean for academic programs.

"But there is a need," she said.

To address it, a new class called the "Business of Lawyering" started this month. It's taught by Athena Roussos, a solo practitioner and appellate law specialist who's worked at big firms in the past, and Robert Murphy, a shareholder at Kronick, Moskovitz Tiedemann & Girard, one of Sacramento's largest law firms.

"We're supposed to put a limit on enrollment," Davies said. "But I was out of the office for one day and 42 people signed up. There's a waiting list."

The target is students preparing to enter practice in a solo or small firm.

"My law school certainly didn't teach a class like this," said Roussos, who graduated from Syracuse University College of Law in New York state, which does offer a class now.

The focus is practical information, with real examples. In addition to the nuts and bolts of setting up and running a law office, the class will touch trust-fund accounts, conflicts of interest and checks and balances. Students will draft a business plan.

There's information available in the career development center, too.

"For students who think they want to enter the profession on their own, there's some counseling and triage about risk tolerance," center director Lisa Wilkins said.

There's also a popular two-part series — co-sponsored by alumni — on running a solo practice.

UC Davis law school officials were unavailable for comment, but the school curriculum has no required classes that address the issue.

"Part of the problem — particularly for solos — is they have to do it seat-of-the-pants," said Craig Brown, founder of Motivera, a consultancy that coaches attorneys on how to build their business.

Firms tend to do what they've always done in terms of business training, which may not be much. Some of the problem is a basic disconnect between practicing law and building the pipeline.

"I sat down with one lawyer and suggested we make a list of all the potential clients he'd like to have and figure out a way to get them," Brown said. "He looked up at me and said, ‘Wow, that's a really great idea.' "

Poll got a call from a lawyer in a small office who collected a $100,000 settlement fee and wondered how much of a nest egg she should save.

"She's one of the few lawyers asking the question," Poll said. "Particularly for lawyers on contingency, the cash flow statement is the most important document in the house."

One problem is the common practice of emptying company coffers at the end of the year into partners' pockets.

"Proper management of cash makes the company viable," Poll said. "Lawyers go the other way. They take it down to zero and use a line of credit for payroll" until income flows in the new year.

Poll offers two rules: Make sure business debts are paid and figure out how much you have to save until the next big payday arrives.

Law firms step in

Kronick conducts information sessions for new associates, loosely called Law Firm 101.

Firm leaders talk about business operations, management of the firm, staff roles and how to prepare budgets, marketing director Jann Dorothy said.

"For more established attorneys, it's more of an on-the-job training approach," she added. They listen and learn from others, gaining experience in workload management, permissible activities and other matters.

It used to be the legal grind of being an associate led to easy life as a partner. Not any more.

"For the first time in history, we've had partners fired for not pulling their weight, not enough billable hours or origination issues," Poll said.

Lawyers have to make money at all levels, so it makes sense for individual lawyers — wherever they practice — to know their numbers and stay on the positive side.

Some do. There's a natural tendency to pick lawyers with business background to run the place, although that's not always the case.

John Di Giusto, managing partner at Boutin Jones Inc., has a business degree, used to be a certified public accountant and once ran the accounting department at KTXL-TV Channel 40.

"No, most lawyers are not trained as business people," Di Giusto said. "Occasionally that gets them into trouble."

Michael Polis is another accountant and a former managing partner at Wilke Fleury, Hoffelt, Gould & Birney LLP. Once a staff auditor at Deloitte, Haskins and Sells, he worked in the financial planning/mergers and acquisitions units at Foundation Health Corp. long before it became Health Net Inc.

"We have new lawyers come in and talk about expenses, hours expectations and converting effort for your clients into a fee that's efficient," Polis said.

The tough part of practicing in a firm is the switch from early years — when associates crank up billable hours on whatever matter comes their way — to the sixth year and beyond, when partnership looms. Then the yardstick includes client development, business acumen and managing people.

Polis learned some of that stuff in the "old" class at McGeorge that was discontinued.

"It's the class I really remember from McGeorge — 19 years ago," Polis said.

Kathy Robertson covers health care, labor/workplace issues, law, immigration, medical technology and biotechnology for the Sacramento Business Journal.