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Bar News - July 7, 2006

Practice Management: Is Your Firm’s Culture Inviting Malpractice or Ethics Violations?


There are a number of risk factors that contribute to the frequency of malpractice claims and ethics complaints. Obviously, the most significant and easily identified risk factor is the absence of good practice management systems. By that I mean client screening procedures; calendar systems; conflicts checking; client communication; file management and file closing procedures. But the existence of good practice management systems does not in-and-of itself guarantee that you or your firm is protected from ethics complaints and malpractice claims. The financial health of a law firm, its leadership and management, the quality of its relationships with clients and staff and even the way it compensates its partners are as critical to avoiding malpractice as are procedures and systems.


There are five “cultural” factors, and their indicators, that may be creating malpractice exposure for your firm. The following are practice systems that may fail as a result of the presence of each cultural factor and suggestions for how to address each factor to reduce the potential for trouble.


Short-term view


Cultural indicators: You are practicing threshold law. Your practice is riddled with unhappy and overly demanding clients. You are frequently frustrated and pressed for the time and energy to adequately serve your client base. You spend little time on your own or other lawyer professional development; you don’t know where your practice is headed or whether or not you want to be practicing at all.


Malpractice exposure:

A short-term view typically leads to:

  • Poor client-acceptance habits
  • Too many open files
  • Procrastination, resulting in client neglect
  • Poor client communication
  • Underdevelopment of younger lawyers, possibly leading to retention issues
  • Failure to adequately train and supervise non-legal staff
  • No plan for future firm management and client transition


Risk avoidance:


  • Define policies and procedures for client acceptance, work allocation and client communication
  • Monitor attorney workloads
  • Have a plan for how to deal with unhappy clients and ensure your employees follow it
  • Adequately train and properly supervise legal and non-legal staff
  • Delegate work to associates and staff as is appropriate
  • Establish a plan for transitioning clients and management responsibilities to the younger partners as older partners slow down and retire


Office-space sharers
d/b/a a law firm


Cultural indicators: There are no shared goals for the firm; no leader has emerged; or worse, you are a group of partners that refuses to be managed. Your practice management systems are stand-alone systems (i.e., you don’t share calendars, case management, conflicts systems or trust accounts). Every lawyer does what he or she wants to do; there is no accountability to others in the firm.


Malpractice consideration:


Office sharers d/b/a law firm typically:

  • Have little to no firm management structure
  • Have little to no consistent practice management structure
  • Have an “it’s about me” mindset
  • Fail to establish, enforce or comply with operational policies designed to protect the firm from risk, particularly if they impinge upon individual lawyer performance
  • Do not pay attention to or address the “risky” behavior of other lawyers


Risk avoidance:


  • Develop firm goals that are shared by and compatible with the professional goals of all partners
  • Develop and instill by example an “it’s about the firm” or, preferably, “it’s about the client” mentality
  • Establish, enforce and comply with policies that will minimize exposure to malpractice and ethics violations
  • Elect a leader and agree to be managed
  • Centralize your practice management systems and procedures


Fiscal irresponsibility


Cultural Indicators: You are deeply in debt; you have no idea of where your income goes and are living hand-to-mouth. You are not able to “get” the good cases or manage the good cases you do get because of the “dog cases” you are stuck with. You grab the most lucrative files for yourself; you settle too quickly. Your firm’s monthly cash flow is strained; you sometimes are not able to meet payroll and you may have “borrowed” from client funds to bridge the gap.


Malpractice consideration:


A strain on a lawyer’s personal finances can expose the rest of the firm to malpractice because of lawyers living hand-to-mouth:


  • May not comply with a client acceptance/case screening policy resulting in a practice with unprofitable cases
  • May procrastinate and fail to communicate because the client and/or case are unpleasant and/or unprofitable
  • May hoard work
  • May demonstrate impaired judgment
  • Can lead to the mismanagement of trust account funds


Risk avoidance:


  • Live within a personal budget
  • Hold back a certain percentage (10 to 15 percent) of firm monthly revenue until you have accumulated sufficient cash to fund one month of firm expenses
  • Pay partners a reasonable draw monthly and distribute excess profits quarterly
  • Pay draws and excess profits based on net income (i.e., do not borrow to fund partner draws)
  • Amortize large one-time expenditures over your fiscal year (i.e., professional malpractice insurance, depreciation)
  • Review each potentially new case based on its merit, value and resource requirements
  • Put in writing the terms of engagement, scope of services and fee arrangement and have the client sign it
  • Profitably staff and supervise cases
  • Establish good client billing and collections procedures
  • Properly close the file


Eat-what-you-kill philosophy


Cultural indicators: Compensation system rewards personal performance only. Work is hoarded; no time is spent in business development or the nurturing of young lawyers. Client relationships are tentative. The firm is indecisive and losing ground.


Malpractice exposure:


An eat-what-you-kill philosophy often leads to:


  • Poor utilization of legal and non-legal staff
  • An unwillingness to transition work to junior partners or associates, leaving no time for developing new work from new or existing clients
  • Flat or declining profitability which is the basis for concern about the future of the firm
  • Lawyer defections, exposing the firm to neglect of client matters resulting in malpractice claims and ethics violations


Risk avoidance:


  • Lawyers should be rewarded for their marketing and client development activities; mentoring of young lawyers; participation in management and practice area profitability — in addition to personal performance
  • Implement technology and automation systems that will centralize calendar, conflicts and client billing systems; expedite the workflow and improve internal communication
  • Give younger lawyers as much substantive work as they can handle to further develop their skills; set goals for their development; mentor, supervise and train them
  • Communicate to young lawyers what it means to be a partner or shareholder in your firm; the personal and professional qualities the firm looks for; the performance factors needed to be a successful firm owner
  • Be sure that lawyer partings are as amicable as possible; keeping the client’s interests a priority in the transition


Relationships, trust and integrity


Cultural indicators: Personal agendas take priority over firm interests; there is a history of individual violations of trust among the partners and associate staff; support staff morale is low; the firm has a high employee turn-over rate; personal and professional conflicts are not addressed; lawyers and clients are defecting; too many closed doors and secret lunches.


Malpractice consideration:


Absence of trust and integrity leads to:


  • A stressful working environment; that, when coupled with a heavy workload, may result in lawyer and staff burnout, depression and/or substance abuse
  • The risk of client neglect as a result of frequent employee turnover
  • Poor attorney-client relationships due to the firm being too internally focused
  • Inability to reach consensus and effectively address and resolve firm issues


Risk avoidance:


  • Be a person of integrity
  • Be personally fiscally responsible
  • Be honest
  • Be consistent
  • Pick your battles
  • Speak your mind
  • Confront and solve problems as they arise
  • Be willing to find an alternative solution for an issue if doing so is in the best interest of the firm
  • Regularly communicate with your partners and staff
  • Be a firm of integrity
  • Effectively communicate the firm’s mission, strategic plan and expectations to legal and non-legal staff.
  • Be consistent and disciplined in ensuring performance expectations are met.
  • Be relationship-focused
  • Allow anyone the freedom to discuss firm matters, regardless of how the information may affect others or themselves
  • Establish adequate practice management systems to support the caseload
  • Establish adequate risk management systems to avoid malpractice and minimize “worry” that something is going to fall through the cracks


Valuing relationships, being trustworthy and demonstrating personal integrity, though mentioned as the last cultural factors in managing risk, are the fundamentals to building a healthy law firm. A healthy law firm is fundamental to successfully managing risk. Lawyers must give more than lip service in their mission statement to the importance of these characteristics. They must demonstrate them every day in and outside the firm.


What about you, your practice … do any of these cultural indicators resonate with you? Is your firm exposed to potential problems because of the culture you and other firm owners have created? To find out, take a look at the 10 statements in the box, “Firm Culture Audit.” If your firm cannot affirmatively answer each of these statements, you have work to do. The future of your firm, it relationships, integrity and future will turn on whether or not you have the will to do it.


Suzanne Rose is a practice management specialist in Brentwood, Tenn. focusing exclusively on the legal industry. She has served as the risk manager for Tennessee lawyers on behalf of the Tennessee Bar Association and its endorsed malpractice insurance provider. To contact her, e-mail:


Used with permission from the July 2005 issue of the Tennessee Bar Journal.

Supreme Court Rule 42(9) requires all NH admitted attorneys to notify the Bar Association of any address change, home or office.

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