Eventually a law firm reaches a size where it is counterproductive for all of the partners to be involved in every management decision. There should be a role for all partners in the management affairs of the firm (the partnership) but they do not need to be immersed in the day-to-day administrative concerns.

Successful firms have a good governance and management structure in place and effectively manage the firm. A major problem facing many law firms is the lack of long range focus and the amount of partner time that is being spent on administrivia issues as opposed to higher level management.

Last month we continued our discussion on the topic of Characteristics of Successful Law Firms and focused on management as a building block. The fourth basic building block is partner compensation. Successful firms have good partner compensation systems in place.

How much and how partners are paid are probably the two most challenging management issues that law firms face. Many law firms are struggling with compensation systems that no longer meet the needs of the firm and the individual partners. Failure to explore alternatives to failing systems often result in partner dissatisfaction leading to partner defections and disintegration of the firm.

Question: I am a small firm solo owner, I have 4 other attorneys and 5 staff members. I recently hired a full-time bookkeeper and I am wanting to delegate all that I can to her. However, I have heard stories from other firms that have had money stolen as well as other incidents. Do you have any suggestions regarding safeguards?

Answer: .Engagements with numerous client law firms has revealed that many law firms have poor internal financial controls in place to adequately safeguard financial assets. Here is the general process.

Implement internal controls. An Internal Control Plan is the plan of organization and all of the coordinate methods and measures adopted within a firm to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies. The four basic elements considered essential in a satisfactory system of internal control are:

1. A plan of organization that provides appropriate segregation of functional responsibility and duties.
2. A system of authorization and record procedures adequate to provide reasonable accounting control over assets, liabilities, revenues, and expenses.
3. Sound practices to be followed in performance of duties and functions of each of the organizational areas.
4. A degree of quality of personnel (competency) commensurate with responsibilities.

John Olmstead will be participating, along with a panel of others, in an Illinois State Bar Association CLE - Building and Managing the Virtual Law Firm - on February 10, 2011 from 12:00 - 2:00 in Chicago. The CLE will be a live webcast and will be recorded as well. Contact the Illinois State Bar Association for additional details.