A medium-sized law firm was hit extremely hard when the primary industry it served was decimated by the global recession. Revenues declined sharply in its core practice as a result of the collapse of its clients’ business.
An ambitious attempt to expand the firm geographically in 2007 was ill timed and required a substantial investment of the firm’s capital that partners subsequently had to absorb at a considerable loss each year.
Compounding these problems, the firm invested millions of dollars into a contingent fee case with an outcome, although thought to be promising, that was delayed by several years as a result of an appellate decision.
The firm’s top-heavy defined benefit pension plan flipped from being over-funded to substantially under-funded as a result of the 2008-9 stock market crash, requiring the annual pension contribution to unexpectedly increase by millions of dollars per year.
These extremely difficult circumstances caused a crisis of confidence among the partners causing some big rainmakers to depart with large books of business. Many other partners feared that the firm might implode if corrective action was not taken immediately.
Firm leaders lost credibility by offering assurances that the worst was over, although more bad news followed on a monthly basis. To forestall additional partner departures, the firm’s Executive Committee awarded bonuses to be paid out of future profits.
Finally, because the firm had been severely under-capitalized before the crisis, the convergence of these multiple financial shocks resulted in the firm essentially becoming insolvent. Firm leaders contacted Altman Weil to develop a restructuring plan to effectively address each of the problems, restore partner confidence, and save the firm.
Altman Weil’s Efforts
An Altman Weil team of strategic and financial experts was immediately deployed to work on the project. After analyzing extensive information provided by the firm, a strategy and integrated restructuring plan was developed that, if implemented, would effectively resolve each of the problems identified within a two year period.
The Altman Weil team created a customized planning model to encompass each of the key variables affecting the profitability of the firm’s future operations and the anticipated financial impact of proposed recommendations.
The restructuring plan recommended changes to the firm’s organizational structure, partner compensation system, branch offices, partner capital program, overhead expenses, equity and non-equity partner requirements, as well as practical advice on how to deal with each of the financial challenges. It contained numerous painful recommendations that the Executive Committee at first found difficult to accept. However, after careful consideration, the recommendations were approved and became the foundation for a dramatic transformation of the firm. The Executive Committee made slight modifications to the plan which was then submitted to the partnership as a whole and was overwhelmingly approved.
The firm immediately began to implement the plan, which not only stopped lawyer attrition, but allowed the firm to recruit many lateral partners in each of its offices. The firm’s profits increased dramatically; the firm is now on sound financial footing; and, the crisis of confidence has been resolved. The firm has enhanced its competitive position and is now seen as a more prestigious firm in its market.