“Some things are clearer from a distance.”
20 years ago, I didn’t know very much about law firms, though I was curious and knew law firms were important, at least to students attending law school. Thus, why not dig into the primary vehicle for a successful and rewarding legal career?
That was my reasoning back in the fall of 2004 when I first taught a course called “The Law Firm as a Business Organization (B573).” As a junior professor, it was an early win for my career. Foremost, the students gave it strong reviews, which enabled me to teach it again in 2006. Second, it put me in direct contact with practicing lawyers, as I invited them to class to bring color to the assigned readings. Third, it launched some novel and original research that earned me tenure and opened doors to do challenging applied work in the legal innovation space, including Lawyer Metrics, the Institute for the Future of Law Practice (IFLP), and Legal Evolution.
Now, for the first time in 16 years, I am teaching the Law Firms course, prompting much reflection. See 2022 Syllabus. What’s changed more—the law firm market or my perspective? It’s a close call.
The content of my class covers topics of significant interest to Legal Evolution readers, primarily because the class is constructed as a series mini-case studies. In many respects, the entire class is applied research in which the “practical problem” we’re solving is lack of quality information to help students understand and navigate their careers. See Post 001 (discussing applied research). Because this is evergreen content for LE readers, I’m sharing some the best stuff as we go.
Today’s essay is Part I. It starts with my thesis that the modern legal services market is complex and confusing because we tend to start with large law firms and, in turn, get stuck there. After briefly discussing this pernicious trap, I share two mini-case studies of lawyers in Small Law (guest speakers from Weeks 2 and 3 of class). Finally, having served up these interesting and easy-to-follow stories, I’ll salt in some reliable business theory and frameworks, supplied in part by one of course’s main texts, Jack Newton‘s The Client-Centered Law Firm (2020).
The result, I think, is the beginning of an accurate and navigable picture of the modern legal services market.
I. Let’s get the confusing stuff out of the way
The novelist Nadia Hashima once wrote, “Some things are clearer from a distance.” When the Moon is Low (2015). Law firms definitely fall into this category, owing in part to their smart and ambitious owners and, in part, to a regulatory regime overseen not by legislatures or executive branch officials, but, on a part-time basis, by busy and harried supreme court justices who are trained to look backward for answers. See Post 287. Thus, akin to what Darwin discovered in the Galapagos Islands, the legal profession has become a remote ecosystem that’s evolving separate and apart from the mainland.
One of the most important examples of this phenomenon is the confusing and counterintuitive insight that very few large law firms, despite being celebrated in the legal press for their impressive financial results, are “firms” in the sense of conventional business theory. Instead, what looks like a firm is, in fact, a confederation of individual partners building and running leveraged practices in various complementary and adjacent legal specialities. Despite 20+ offices and $1+ billion in annual revenue, client allegiances seldom fully attached to the firm. As a consequence, a large part of law firm management and leadership is the care and feeding individual high-performing partners. Further, as firms have become bigger and more impersonal, money has become the primary tool to keep them in the fold. This is corroborated by the continued growing spread of compensation among large firm partners. See Andrew Maloney, “Partner Pay Is Still Spreading Out as Lawyer Mobility Accelerates,” Law.com, June 6, 2022 (noting spread in AmLaw 200 has reached new high of 9-to-1).
20 years in, I better understand the economics and peculiarities of the legal services market that drive the confederation model. Indeed, I’ve developed some grudging respect for some its virtues, including the scale and stability necessary to recoup one’s large investment in a law degree. It also has weaknesses and vulnerabilities, which are likely to grow more acute in the years to come.
That said, if the goal is to understand the modern legal services market, large law firms are the wrong place to start. Thus, I’m pushing them aside until Part II, which I’ll publish in two weeks (10/9).
II. Small Law and the giant sigh of relief
Although smaller law firms don’t attract much attention in the legal press, they’re an excellent place to learn about modern law practice, primarily because it’s not too hard to find lawyers using sound business principles to build dynamic businesses that deliver ample financial rewards.
It’s also worth noting: When law students see Small Law done right, they breath a giant sigh of relief. This is because (a) the combination of financial rewards, personal autonomy, and positive impact is very attractive, and (b) the required skills are within reach of virtually anyone currently enrolled in law school.
The best way to illustrate this point is to tell the stories of two of my Small Law guest speakers, Masah Samforay and Tony Paganelli, both of whom started their own law firms several years after graduating from Indiana Law.
A. Mini-case study #1: Foray Law Firm
Masah Samforay (Indiana Law ’05) is the founder of the Foray Law Firm, which is a multi-office law firm (Chicago and Houston) specializing in family law.
Although Masah grew up in Terra Haute, her mother and father immigrated from Sierra Leone to take advantage of college scholarships. The plan, however, was never to stay in the U.S. When Masah and her sister reached the 7th grade, their parents enrolled them in boarding school back in Sierra Leone. That ended less than two years later when the country erupted in civil war. Thus, Masah and her sister returned to Terra Haute to finish their schooling.
When it came time to attend college, Masah ended up at nearby Indiana University, graduating in only three years with a B.A. in Psychology and minors in Afro-American Studies and Biology. Although she was offered a full-ride to Howard Law, one of her undergraduate professors, Frank Motley, was also the admissions director at the Law School. Motley persuaded Masah that Indiana was the better choice. (Motley, now retired, showed up for our class. Hearing Masah’s story, he was beaming with pride.)
Masah was a student in my fall 2003 Corporations class, which was my first semester at Indiana Law. Notwithstanding all my rookie mistakes, Masah still connected with me on LinkedIn, which is how I got periodic updates on her career.
1. How valuable is your experience?
From a student perspective, one of the most important insights from my Law Firms class is that early career courtroom experience can open a large number of career doors. This is because no amount of paper credentials can compensate for a daily diet of standup time in front of a judge and jury. Masah paid her dues working as a prosecutor for four years in the domestic violence unit of the State’s Attorneys’ Office in Will County, Illinois.
Although Masah never envisioned herself as a litigator, she was surprised at how much she thrived in the courtroom. Some of her peers took notice, as one day she was contacted by a prominent attorney known throughout ChicagoLand for his large fathers’ rights family law practice, which was powered by extensive TV advertising. Although Masah had just received a promotion at work, joining the law firm would nearly double her pay. As a recently divorced single mom, it seemed like the right time to make the move.
During our class, Masah recounted the story of being thrilled with her high associate salary but absolutely terrified by her lack of knowledge of family law. To compensate, she carefully studied the files before heading to court, including a second-chair role in a status conference with a local judge that took place within the first week or so on the job. As the two senior attorneys clashed with one another, Masah was in the awkward position of having to periodically correct them based on the contents of the file. Finally, the judge (a female) asked the two senior attorneys (both male) to please be quiet so she could get the information she needed directly from Masah.
Masah recalls thinking to herself, “Wow, these lawyers don’t really know how to litigate. Once I learn family law, I’m going to be very good at this job.” The state court judge went on to become one of Masah’s mentors.
2. Process and marketing
When Masah took the job at the prominent fathers’ rights firm, some of her closest attorney friends told her, “Make sure you study his processes — that’s what makes his firm so profitable.” At the time, Masah did not know what they meant, but it didn’t take much time for her to figure things out.
Masah described the owner of this firm as a “brilliant brander, marketer, and business person” who found a relatively lucrative family law niche that could support a large leveraged practice of 20+ attorneys. However, the longer she practiced with the firm, the more she wanted to try out a different model that she believed would be a better fit for her clients and thus a better fit for her.
During our class, Masah recounted a key moment when she knew it was time to start her own firm. “My boss asked me to attend a black tie event on the Southside of Chicago. Of course, it was attended by a lot of Black professionals. Then it dawned on me — these folks want me to be their lawyer. That’s why I’m here. I can do this on my own.”
A short time later, Masah and the firm’s only other Black associate left to start their own firm. “It didn’t take long, maybe a couple of months, before we replicated our income at the firm.” In the early days, a lot of business came from billboards along Chicago’s Southside freeways that displayed the pictures of the two Black female lawyers who specialized in family law—it was a sizable market niche that had not yet been filled.
A few years later, Masah and her partner realized that they had incompatible goals regarding the firm’s growth. Thus, like two skilled family law lawyers who had seen it all, they dissolved the partnership and remained good friends.
Masah renamed her practice the Foray Law Firm. Why? Because it’s one less syllable than Samforay. This provides a window on Masah’s no-nonsense personality.
3. Building the business
Masah’s strong suit is her ability to bring in clients. How does she do it? Foremost, she’s laser-focused on the welfare of her clients. In her mind, she’s there to help them navigate a difficult and traumatic life event with as much dignity, speed, predictability as possible. Yet, these good intentions are delivered with a communication style — a combination of empathy, expertise, and confidence — that’s very quick to generate trust.
As the good results piled up, and word got out in the Chicago Black community that Masah Samforay and her colleagues were a reliable go-to resource, referrals became more important than billboards.
Today, Masah runs a leveraged practice that requires experienced family law attorneys to meet her standards of communication and responsiveness. Masah has a combination of income, professional satisfaction, and control that’s very appealing to my students. Yet, in the bubble of law school, it never occurred to them that the road to what they wanted could run through family law or a similar PeopleLaw practice.
In terms of practice management, Masah shared two observations that are likely of interest to LE readers.
First, in 2018, Masah acquired a Chicago-area law firm that pioneered the use of flat-fee retainers in family law practice. See “NuVorce, LLC Announces the Foray Firm’s Acquisition of Its Business Operations,” Newswire, Aug 15, 2018. Although Masah was initially more interested in the client base, she soon realized that a flat-fee retainer had enormous advantages for both the client and the lawyers.
Recalling her days at the fathers’ rights firm, Masah noted the friction that occurred every time a client was asked to pay for the next phase of litigation. Yet, as Masah observed, it’s not that hard for an experienced practitioner to estimate the timing and cost of a complete end-to-end divorce or custody dispute. Thus, why not offer a monthly retainer until the matter is resolved? The clients, as she learned, appreciate the predictability and the smoothing of payments. And the lawyers appreciate fewer tense conversations over money. “It’s been a game changer for our firm, because it’s enabled us to focus on efficiency and outcomes.”
Second, Masah confided to the class that she has hired and mentored several young associates over the years but ultimately concluded that she’s better off operating a leverage model that distributes work among several experienced family law lawyers. Fees are shared based on clear, objective criteria. In the meantime, Masah’s long-time office manager, who Masah views as her most critical asset, handles the firm’s technology and workflow. The result is a stable, clockworks law practice that benefits all stakeholders.
B. Mini-case study #2: Paganelli Law Group
Tony Paganelli (Indiana Law ’95) is the founder of the Paganelli Law Group, an 18-lawyer firm with significant experience in both high-stakes litigation and corporate law. Its tagline is “Small firm. Big Impact.”
For this case study, it’s important to note where my students are coming from. At the beginning of the class, I polled students on their career ambitions, including what’s most important to them in their future work lives. As it turns out, the trapping of prestige (large firm, big city) only appeal to a small minority of the class. And although work-life balance is important, all students seem to understand the need for tradeoffs, particularly early in one’s career. However, what’s a make-or-break attribute for the vast majority is “the need to respect the people and place where I work.”
On this topic, my students and Tony Paganelli were very much on the same page. Indeed, Tony frames much of his professional journey as coming to appreciate the value and power of firm culture.
1. Strong résumé, rough start
Tony grew up in Lake County, Illinois, just outside Chicago. He attended University of Notre Dame, where he went from being on academic probation as a physics and aerospace major to making the Dean’s List after switching his major to government. Thus, Tony fit a common law school profile.
Tony was an excellent law student, eventually becoming managing editor of the Indiana Law Journal. He also benefitted from strong mentoring relationships with local judges, where he worked as a clerk for virtually his entire time in law school.
Despite an excellent résumé and references, Tony struck out during on-campus-interviews (regaling the class with many funny stories, including his car breaking down en route to an interview and hitchhiking the rest of the way to Indy). After graduating without a job, Tony’s best option was to return to home (Lake County, IN) to work for a family friend who ran a small general practice law firm.
According to Tony, this was his first exposure to a high-quality law firm culture. During leaner months, Tony’s boss (whom he also called his mentor) stopped taking a draw so Tony could be paid and stay current with his student loans. Eventually, this method became unsustainable, as the practice slowly failed financially. Thus, his mentor informed him that the only way for him to stay was to switch to an “eat what you kill” compensation formula. Although Tony could not afford to take the leap, as he was not yet fully developed as a lawyer, he greatly admired how his mentor treated everyone in his orbit, including Tony, clients, and law firm staff. Indeed, this was something that Tony wanted to replicate.
At the next firm, Tony had the opposite experience. Although the firm had no shortage of sophisticated litigation work, it had a very bad culture. So bad, in fact, that the firm eventually imploded, resulting in protracted litigation among the partners.
2. Finding culture, making partner
Fortunately, Tony’s next law firm (Sommer Barnard) was an excellent culture fit. Tony described it as a “hippie culture” where the founding partners left their jobs at larger firms after they realized they could still produce the same quality of work without many of the painful formalities of a larger partnership. Tony acknowledged that this is where he became a fully developed lawyer, eventually being promoted to partner.
By 2008, Sommer Barnard had reached an awkward size (~70 lawyers) for attracting the right mix of clients. Thus, Tony and his partners concluded that their best move was to merge into a much larger firm (Taft) that was already competing for work on a national scale.
For the next several years, Tony developed a speciality in high-stakes TROs and injunctions. As he shared with the class, this was a “service practice” in which most of the work came from internal partner referrals. Although it generated an excellent living, Tony had ambitions to develop his own client base.
3. Paganelli Law Group
Tony may not have started his own firm but for a personal circumstance that caused him to immediately prioritize his family. His 11-year-old son was afflicted with a medical condition that evaded a clear diagnosis. Tony’s practice routinely required him to travel on a moment’s notice to argue on behalf of clients. At the same time, Tony’s spouse was a successful corporate executive who also maintained a hectic work schedule. Something had to give.
Tony and his spouse talked it over and concluded that now was the time to start his own law firm, as this would enable the work-life balance needed to focus on their son’s health. So in early 2013, Tony hung his own shingle, turning a spare bedroom into Paganelli Law.
Since that time, the firm has grown from a solo practice to a 18-lawyer firm with several practice areas. Regarding his success, Tony credits his spouse for believing in him before he ever believed in himself.
Here, it’s worth noting that Paganelli Law Group (PLG) is an unusual firm with many unique operating principles. According to Tony, PLG centers its culture around two main ideas. First, “quality law/quality life,” which was a saying at Sommer Barnard. Second, employees are the most expensive and important asset, so treat them the way you would want to be treated. As a result of these ideas, “work-life balance and family emphasis are woven into the DNA of the firm.” Conversely, he’s learned that the right professionals will reciprocate by protecting and promoting the firm’s long-term interests. Thus, in its current form, the model is sustainable.
Another interesting PLG operating principle is that, at least for now, Tony is 100% owner. Moreover, this is true despite the fact that another attorney has surpassed Tony as the firm’s largest business generator and several other attorneys generate enough work to support their own leveraged practices.
For lawyers and law students socialized into the importance of titles and prestige, it takes considerable effort to digest how and why this model works. Based on our conversation with Tony, here are a few reasons.
Foremost, most attorneys don’t enjoy the minutiae of shared governance, including taking on the risk of signing a large, multi-year lease. Tony, on the other hand, enjoys virtually all aspects of law firm management. Second, on a day-in-day-out basis, being treated as a partner may be more important than the actual title (this approach extents to junior lawyers and staff). Third, in practice, the entire organizational structure is flat, as evidenced by the firm’s website, which lists all 18 attorneys and 10 staff in alphabetical order. Tony’s picture doesn’t appear until the fifth row. Further, his title is “Attorney,” which is the same as Monica McCloskey (Indiana Law ’21), who recently joined the firm. (Monica travelled down to Bloomington to attend the Law Firms class with Tony.) Fourth, and perhaps most important, other firms struggle to match PLG’s combination of income, autonomy, and work-life balance.
As 100% owner of the law firm, here are some examples of Tony’s management priorities:
- A very large budget for high-quality catered food. Eating together builds and sustains culture.
- The very best technology. PLG is a 100% Mac shop. Good tools make it easier and more fun to do great work.
- Whenever the projected work load for a practice exceeds 125 hours per attorney per month, Tony begins the process of hiring another attorney. Otherwise, “quality law/quality life” is an empty slogan.
- Tony fired the firm’s biggest client because it mistreated his staff. It turned out to be a large morale boost for the firm. Tony reported that the lost revenue was made up within two months.
Suffice to say, a committee of lawyers is unlikely to be this wise.
Finally, a word about economics. PLG has a completely transparent operating formula that rewards business generation and performing and collecting on legal work. There’s also a portion of revenues allocated to overhead, which includes his time to manage the firm. In many respects, this is the formulaic approach that is relied upon in the confederation model. Yet, in a law firm with 18 lawyers and 10 staff, Tony reports that it works extremely well, as everyone is comfortable discussing how to fairly allocate credit. This is made more likely by the fact that origination credits are matter-specific rather client-specific and permanent.
Regarding clients, Tony is a fervent believer that an engaged and satisfied workforce is the best long-term approach to client satisfaction and law firm profitability. Further, the quality of his workforce (on par with Big Law) and low firm overhead (much lower than Big Law) gives PLG a significant competitive advantage.
To corroborate his story, Tony presented a series of photos that chronicle the growth of PLG, including its current 2022 expansion plan.
III. Salting in some business theory and frameworks
The philosophy of my Law Firms course is to lead with case studies and then salt in some reliable business theory and frameworks.
I use this approach because stories are easy to follow and my law students (like all lawyers) are extraordinary good at pattern recognition. In many respects, the purpose and value of the business theory or framework is to classify or explain a pattern that the student has already accepted as something real and important.
A good example is the law firm flywheel (right graphic) from Jack Newton’s The Client-Centered Law Firm. It’s noteworthy that the flywheel concept is introduced in Chapter 4, which carries the provocative title, “Don’t Put Your Clients First.” Jack is making the enormously important point that by putting your clients first, you never reach more foundational questions regarding impact on staff and efficiency. What do you really gain by delivering unsustainable heroic results? Cf John E. Grant, “Responsiveness is the Death of Productivity,” Agile Attorney, July 29, 2022.
Conversely, if you put client experience at the center of your firm (i.e., the core goal), the result is a virtual cycle of favorable client reviews & referrals >> more clients >> better reputation in the market >> more revenues. Obviously, none of this is controversial. The larger point of Newton’s book, however, is the top part of the diagram: investing in more resources and better firm processes is the most reliable way to way to supercharge the client experience, thus speeding up the law firm flywheel.
Drawing upon the above case studies, one example of Newton’s more resources-better processes point is Masah Samforay discovering that a flat fee monthly retainer was something that significantly improved the client experience while also reducing the time her attorneys spend on billing. A second example is Tony Paganelli proactively hiring more attorneys every time one of his practice groups hits the 125-hours-per-month threshold.
Finally, reading the first six chapters of Jack Newton’s book in conjunction with the Samforay and Paganelli case studies enabled me to see for the first time why business fundamentals are so salient to small firm practice while larger law firms — particularly the confederation model — struggle to embrace and execute strategies that are so common to other large businesses.
In brief, The Client-Centered Law Firm is less about building a law firm than building a large and prosperous law practice. Here, it’s crucial to point out that Jack Newton is the founder of Clio, which is the leading practice management software solution for solo and small firm lawyers (and also a well-run and widely admired company). Thus, for the overwhelming majority of Jack’s readers/customers, the law firm and the law practice are functionally the same thing.
That said, when you have a diverse collection of law practices, as in a confederation model, and the type of clients varies widely, things get a lot more complicated. My client typology, originally introduced in Post 005, illustrates the point:
The experience and expectations of a corporate client are going to be very different than a client seeking a divorce or a worker injured on the job. Likewise, building a practice with Types 5 and 6 clients takes us into the realm of legal operations and procurement, where work is allocated based on many additional factors, including detailed RFPs and whether a bad outcome might cause someone to lose their job.
In terms of client service, the Foray Law Firm and the Paganelli Law Group have size working in their favor. Strong interpersonal relationships and cultural norms reduce the need for formal rules and hierarchy. Conversely, larger organizations with multiple offices require the construction of systems to make and communicate decisions and manage the myriad details of project execution, particularly for large, sprawling matters. Imagine how difficult this becomes in a large confederation model when a partner is trying to maintain a portable practice.
In my 2006 Law Firm class, one of my students wrote his final paper on Dunbar’s Number, which is a concept attributed to the British anthropologist and evolutionary biologist Robin Dunbar. According to Dunbar, there’s a cognitive limit to the number of stable relationships any primate can maintain. Further, the limit appears to be a function of the size of the neocortex. See Robin M. I. Dunbar, “Co-Evolution of Neocortex Size, Group Size and Language in Humans,” 16 Behav & Brain Sci 681 (1993). Beyond this limit, peer pressure and group norms are no longer effective for maintaining group cohesiveness. For human beings, Dunbar’s number is roughly 150. Id (basing 150 number on neocortex size combined with corroborating examples from history and anthropology).
Obviously, most large law firms are well past Dunbar’s Number, which suggests that innovative law firm governance is destine to be a critical part of the legal industry’s future. Aided by some additional Law Firms case studies, this is a topic I’ll take in Part II.