INSIGHT: A Tale of Two PPPs, One of Which Your Clients Might Care About

In the pre-Covid19 world, PPP had only one meaning to law firm leaders: profits per partner. And, while it wasn’t the only metric that determined their status in the legal world, it was one they cared about deeply.

Revenue was important, of course, but there was always something slightly crude about competing merely on size. Profitability, on the other hand, wasn’t just about how much money you could make, but about how smart you were in managing and deploying that money. High profit per partner, the conventional wisdom says, defines your ability to attract and retain top legal talent. And those coveted rainmakers are the franchise.

The coincidental fact that having high PPP also put more money into the pockets of the managing partners was mostly viewed as a happy accident: doing well for oneself by doing good for the firm. And, indeed, in good times, high PPP is a pretty good indicator that a firm is healthy and well managed.

But the good times are over.

Beginning in mid-March, as many firm leaders faced the economic fallout of the global pandemic, their decision-making was guided by industry reverence for preserving PPP. If cash was going to be tight, cost cutting had to be even tighter in order to maintain an appropriate level of profits. To do otherwise would be to risk losing valuable rainmakers to other firms offering them better margins on their books of business.

At the same time, the businesses, large and small, who hire most of the world’s corporate lawyers were making their own calculations about how to weather the difficult months ahead. Some had the luxury of thinking about profit margins. Most faced choices of a more existential nature. Virtually none gave a thought to the profitability of the law firms they’d need to represent them.

The New PPP: Paycheck Protection Program

Owners of privately held businesses spent the early part of the spring looking at balance sheets that slashed or zeroed out their own compensation in service of keeping their enterprises running. Key executives at other companies of all sizes faced some of the same dismal math. A new PPP entered our collective vocabulary: the Paycheck Protection Program.

Though deeply flawed in its initial rollout and execution, the intent of this offering from the Treasury Department and Small Business Administration was plain—keep people employed and we will keep you afloat.

This PPP, in its original form, made no accommodation for the draws on profit that owners typically used to pay themselves in lieu of salaries. Only employees on the regular payroll could be paid with PPP funds, if the loans were to be forgiven. Owners were assumed to have understood the risks of running their own enterprises; profitability was not an entitlement or a guarantee.

Even the largest publicly traded companies are reckoning with this notion that growth and profitability are not endless. The public backlash against big corporations who availed themselves of PPP and other funding is likely only a preview of what is to come as the recession continues.

Yet dozens of law firm leaders looked at their own financial performance and decided that they needed to make sweeping pre-emptive cuts to preserve their profit margins. Why?

The answer is not that clients care about profits per partner. Other things matter much more to them. Market research from BTI Consulting tells us that fully 70% of a general counsel’s decision to work with or recommend a particular law firm is driven by the client service experience. Far more than a firm’s technical skill, this is the key driver for developing and keeping business.

Outstanding Client Service Will Make Money

What does exceptional client service look like in the face of a pandemic?

• Firms offering up alternative billing, like flat monthly charges for all their Covid-related services and advice.
• Attorneys stepping up to serve on their clients’ return-to-work task forces, with or without pay.
• Firms using their own staff and database tools to monitor potential actions against clients before the clients even know about them.
• Attorneys preparing business leaders for the litigation that may coming, even if they haven’t yet been retained to do so.

What does it take to deliver this exceptional service? All hands on deck, including the associates, paralegals and administrative professionals who, in some cases, are being laid off to protect profits.

And that’s the problem. While it’s true that proactive service customized to meet the needs of clients in crisis is not particularly profitable in the immediate term, over the long term, delivering outstanding client service to existing clients that leads to referrals will make a firm more money.

Trying to grow solely by enticing reputed rainmakers to make the lateral move to join them — or cutting staff to hold on to the rainmakers you have—is a risky move. Especially when all the data we have tells us that law firms consistently overestimate the value of high-profile rainmaking laterals.

The truth is that law firms can manage to the metrics of both PPPs: They can build the kind of business that generates profits per partner and they can protect the paychecks of their salaried employees who directly serve their clients. But many firms cannot do both at once right now.

It’s clear which model of PPP businesses value most. Will law firms deliver what matters to their clients?

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Debra Pickett is the founder and principal of Page 2 Communications, a boutique PR agency in Chicago that serves law firm leaders. An award-winning communications strategist, Pickett’s background as a journalist and business consultant gives her a deep understanding of both traditional and digital media.