MP Has Advice for Keeping Law Firms from Missing Budget Projections: Leaders, Take a Pay Cut!

A blogger at ABA Journal picked up some unheard of counsel for leaders of law firms that miss their proposed budget projections a few years back  No, it’s not “take a hike” (at least, not if you could do the right thing, and “lead your people, by walking behind them.”).  It’s actually  that you should take a pay cut.  And if you’re not willing to do that, then, noted the advice-giver he quoted, kindly take a hike.

Hard-working, revenue-producing partners, as shareholders, are not getting the performance they’ve been promised and deserve, said ex-MP Edwin Reeser, writing for Am Law Daily.  This warrants serious measures…like a pay cut.   The blog appeared in 2009, the midst of the unprecedented economic downturn–as did Reeser’s piece,  but it’s still pertinent today—even more so, when firms are playing catch up and facing new, streamlined rosters and revamped economic and IT infrastructures.

An ex-law firm leader in his own right, Edwin Reeser, at the time of his article, was a business lawyer who was managing partner of the Los Angeles office of Sonnenschein Nath & Rosenthal. Reeser reasoned that the way for firms to demonstrate faith in their own budget is to hold themselves accountable where it may matter most to them: in their level of compensation.

Taking cuts in their own pay would not only rectify the situation, he explained. It would also show the firm–and the world–that the firm’s leaders stand behind their budget projections. When leadership partners stand behind their budget projections, “the process will deliver a budget that will finally confront reality.”

Reeser says: “It’s time for the talk to take a back seat to the walk that will instil confidence” in leaders who are asked to keep in mind the best interests of the firm.”  Those unable to do that, he says, should step aside and let more competent leaders lead…those who “take the responsibilities of leadership seriously.”

“BigLaw has witnessed significant shortfalls in budgeted net operating income for many firms,” Reeser notes. The outcome has been stagnant or reduced distributable partner income, revoked job offers, deferred start dates, summer programs that have to be cancelled and reconfigured partner positions.  “Is anybody keeping copies of annual budget and forecast income memos, taking notes, and comparing management’s promises to actual results?” he wants to know.

Reeser’s buck-stops-here approach emphasizes that, if firms—specifically Big Law firms–fail to bring the budget into line with the usual practices, i.e., layoffs and partner deequitizations, at that point, the voluntary reduction in the pay of all persons in positions of leadership, up to a maximum of 20%, should come into play.

Less than that, he says, “doesn’t have enough [of an] incentive” and more seems too much of a disincentive.  “Build in incentives for superior performance if necessary,” he adds, but, truly, it should be enough for you, as leader and partner, to want the best for your firm, and, in some scenarios, may ensure your firm’s survival.

To read more, go here: http://www.abajournal.com/news/article/law_firm_leaders_should_meet_budgets_or_take_a_pay_cut_ex-mp_says/  

and here

http://amlawdaily.typepad.com/amlawdaily/2009/08/accountability.html

-EM

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