About three years ago, I had a well-woman check-up and assumed I would pass with flying colours as an active, fit person. However, when my GP listened to my heart, she said “Do you know you have a very audible heart murmur?”, to which I replied “No. I thought I had a healthy heart”. What ensued was three years of monitoring after which my condition worsened. Last May I had very successful open heart surgery to repair a prolapsed mitral valve. I am now better than ever.

That said, the interesting (and concerning) bit is that I never felt unwell and was completely asymptomatic up to and including the day of my surgery. In other words, I had a serious problem of which I was blissfully ignorant. Fortunately, once I became aware of the red flag symptom (a heart murmur that I could not have diagnosed myself), I was able to get the underlying problem corrected.

In my work with lawyers and law offices, my role is somewhat like that of the general practitioner who comes in and checks the vital signs, looks for and identifies red flags, diagnoses problems and suggests “treatment”. Below are the “red flags” I look for in relation to the overall health and wellbeing of a law office.

Financial red flags

A firm’s financials always tell a story and, unless there is a compelling reason not to review them, I review these in advance of working with a firm. Obvious red flags include lower than normal earnings, higher than normal expenses, significant variability between production by partners (or others), low net profit centre numbers for practice groups, diminishing returns for certain practice areas and so forth. The list goes on. Frequently there is something that is worth noticing and discussing.

What presents as a “financial” problem often reflects non-financial problems. It is the tip of the iceberg, quantitatively verifiable and a good clue as to underlying and potentially more significant issues. Like my heart murmur, financial red flags often indicate appropriate diagnostic and interventional steps.

For example, if a particular lawyer is a chronic under-producer, this could be a symptom of changing market conditions, underlying personal problems, such as burnout, lack of confidence, insufficient resources from the firm, poor team management, business development challenges and so on. Similarly, if a practice group is under functioning, this could indicate poor leadership, inappropriate staffing, inadequate work flow, and so forth. The symptom indicates the underlying problem(s) and failure to pursue it further likely ensures that the condition will worsen over time.

Management and leadership red flags

I often begin my work by interviewing individuals in management and/or leadership positions within a firm. Even with very small firms, somebody is in charge (if only in a de facto manner), and it’s worth getting their view on things. I also interview people in less senior positions because their perspective is often very informative. Frequently, my questions focus on the following:

• What do you see as the most important issues the firm should address in the next two to five years?
• What are the potential risks if the firm were to fail to address such issues?
• What would success look like if the firm were to address these issues successfully?
• What might need to change to achieve success?
• What resources does the firm have to address these issues, including leadership and management capabilities?

As a newcomer to a firm, my neutrality often allows me to hear what people are telling me in a relatively unfiltered way. Getting different perspectives allows me to have a composite view of what is going on in a firm that more likely approaches “reality”.

Typical leadership/management red flags include:

• Long-standing, unaddressed friction amongst professionals and/or management.
• Poor internal and external communication.
• Denial about what is happening and resistance to change.
• Chronic anxiety and inability to identify and implement appropriate changes.
• Outdated management and leadership structures and habits that are stunting a firm’s growth and development.

Personnel and succession planning red flags

The retirement of baby boomers, the increased focus on achieving a more sustainable work/life balance and the chronic shortage of highly experienced lawyers are common red flags for law firms. The problems present in terms of poor workflow management, inadequate and/or ineffective business development (and stagnant practice growth), inadequate or nonexistent succession plans, poor people management, chronic staff turnover and low morale.

If a firm has great leadership, is well managed, has a compelling and timely vision for its future and runs relatively friction free internally, it will attract the brightest and the best talent both now and in the future. Sadly, the reverse is also true.

Strategic red flags

There are many sins that fall under this particular heading and they are often subtle and interdependent. Such “clues” become obvious by connecting the dots between the financial, leadership, management, personnel and external marketplace dots. A firm may have robust current earnings, well-managed expenses, capable professionals, and nevertheless have dark clouds on the horizon which, if left unaddressed, will become increasingly problematic.

Typical red flags I see in this regard are:

• Outdated “strategic plans” that do not take into account current market conditions, demographic changes, increased competition and potential new opportunities.
• An “off-the-shelf” strategic plan that was developed without much thought and which is not tailored to a firm’s real needs.
• Partners, directors and management who lack strategic planning expertise. Although lawyers are smart people with strong analytical capabilities, many struggle to think strategically over time, taking into account current realities and accurately predicting how those will play out in the future. It’s a kind of prescience and creativity that they don’t teach in law schools.
• An inability to articulate, concisely and with conviction, what the strategic vision is for the firm and how it will be achieved. Frequently, if I interview five people in a firm and ask them to state the firm’s strategic vision in one sentence, I get five quite different answers. This is a real red flag.

Culture red flags

As in the wonderful Australian movie, The Castle, this particular red flag is about “the vibe” within a firm. When I walk into a law firm, I start paying attention to its visible “cultural artifacts”. That is, empirical clues about the core elements of the firm’s culture that drive what really happens in the firm. For example, I notice what the office looks like, how people are talking to each other, the speed with which people walk around, the extent to which they make eye contact with each other, whether they smile at each other and listen attentively, how things are organised, interactions between staff and lawyers and so forth. I have learned to be a bit of a “culture sponge” and it serves me well.

With the increased interest in law firm culture, the ability to quickly and accurately identify the core elements of a firm’s culture becomes critical. The old adage that “culture eats strategy for breakfast” is really true. It’s a waste of everyone’s time to suggest interventions or changes that run across the grain of a firm’s culture. It may be necessary to encourage fundamental cultural changes, but the existing culture must be understood first before that can occur.

Culture “red flags” manifest in many ways including unhappy, stressed, resentful, anxious, cynical and under-productive human beings and a general lack of initiative and innovation. This often reflects a misalignment between what a firm says it believes in and what is really happening day to day, creating chronic malaise and perceived hypocrisy.

I hope you never need to have open heart surgery, but if you do, try to pick up the problem early by identifying and responding to the appropriate red flags. Similarly, I hope your firm doesn’t have any symptoms reflective of the above red flags. However, if you notice such symptoms (or someone brings them to your attention), I suggest you get onto them quickly and resolutely. Denial won’t help, but appropriate action will.

Emily Morrow www.emilymorrow.com was a lawyer and senior partner in the United States. She now resides in Auckland and provides tailored consulting services.