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Business skills education and training needs for law firms.

INTRODUCTION

Whether working as general counsel or working in a law firm, there is a growing need for attorneys to develop their business skills in order to be competitive and survive in today's legal environment. Many law firms have embraced a more businesslike approach to management (Plan Your Route, 2011; Kurens, 2003), and as corporate legal departments come under new budgetary scrutiny, strategic business management is now a necessity for general counsel (Poll, 2010; Simpson, 1994). Law firms must be concerned with marketing, human resources, accounting and finance, ethics, and other business areas.

With more regulation from state bar associations and government agencies, it is critical for attorneys to have a fundamental understanding of how to operate a business. The problem that attorneys face is that law schools do not teach basic business skills. Attorneys may be very good at practicing law but can lack the necessary business skills to run their own firms. A growing trend for law firms is to train the partners in different aspects of the business so that they can effectively run the firm. While some major firms will not talk publicly about their operations, it is clear that firms are devoting more resources to business development than ever before (Hogarth, 2005).

The purpose of this study is to examine the areas of business that have been suggested as important for developing skills that are essential for attorneys' to succeed in today's business environment. The current research will empirically demonstrate the breadth and depth of attorneys' needs for business skills and knowledge.

THE NEED FOR BUSINESS SKILLS AND KNOWLEDGE

Sarbanes-Oxley has led CEOs to increasingly seek General Counsel with at least some experience in finance and accounting, even including some who possess JD/CPA or JD/MBA degrees (Flahardy, 2005). Sarbanes-Oxley, among other have passed laws, makes the need for attorneys to possess skills in accounting and finance more critical than ever. General Counsel must now become better businesspeople by acquiring a solid understanding of their corporate employer's accounting and financial situation (Flahardy, 2005).

Attorneys must also possess finance and accounting skills to better run their own practice. Regardless of whether the attorneys are in corporate, government, or private practice, they all have responsibility for budgeting and financial performance (Reed, 1981). Performing well requires the development of performance measuring policies and systems (Rosenberg, 2002). As an example, it is important that law firms properly administer their accounting and financial practices internally to ensure proper and timely client billing. Failing to bill clients accurately will not only make the firm look sloppy but, more importantly, it will adversely affect cash flow and create tension and credibility issues with vendors, creditors and clients (Rosenberg, 2002). Poor management of cash flow can lead to the demise of law firms regardless of stature and resources (Poll, 2010).

Although law firms can hire outside accounting firms to handle their internal finances, there are several advantages for developing internal staff to handle this task. Using someone who is an integral part of the organization and who, presumably, understands the needs of the firm and is familiar with its client base can provide a distinct advantage over outsourcing (Rosenberg, 2002). For, example, customer service would be more effective, with internal staff handling billing questions rather than outsiders managing this line of communication. Furthermore, many paralegals that bill out their time are intimately aware of the client file and billing status.

Attorneys may develop accounting skills as well as ability to analyze financial information by learning and understanding the language of finance and accounting. Similarly to any profession, accounting has a unique language of its own. Armed with an understanding of basic accounting, attorneys are more able to formulate important management reports, and utilize financial reports. Furthermore, accurate interpretation of reports and financial information from within the firm may provide a competitive advantage. Accounting knowledge and ability enables attorneys to conduct business in a more professional way and enables understanding and empathy with corporate or individual clients especially during times when business is slow or times when the cost of doing business is rising. Examination and cross-examination of witnesses, and expert witnesses is better facilitated when attorneys have a sound knowledge of general business skills. (Poll, n.d.)

Law firms are following trends set by the consumer market when it comes to advertising and branding. With more relaxed state bar rules and court rulings, law firms are marketing in more ways than merely advertising in the phone book and other media venues. Today, law firms are: putting more emphasis on visual impact, less on copy; shortening firm names; focusing on what clients need instead of what the firm has to sell; and using more slogans. From a strategic perspective, they are spending more to support branding campaigns; paying more attention to recruiting; making more diverse media placements, and advertising more (Belser, 2002).

Some of this additional marketing activity may be tied to the increased number of attorneys competing for legal business. (Belser, 2002). Some law firms are hiring internal non attorney marketing professionals and some are hiring outside firms to handle their marketing. Either way, attorneys must now posses the necessary skills to clearly understand the firm's marketing strategies and objectives. Simply listing the name of the firm in the phone book is no longer enough to compete with the innovative marketing plans of the competition. Marketing may still not be a comfortable activity for attorneys, but it is certainly a necessity (Levick & Smith, 2003).

Ethics is another area that attorneys must pay particular attention to if they hope to be competitive. According to Schaller (2002), "It would appear, therefore, that ignorance of the ethics rules, particularly willful ignorance-and given the existence of such a duty, wouldn't it almost always be willful?-is a very weak plea in mitigation. It is hard to avoid the conclusion that one would be as culpable as if one actually knew the rule and acted in violation of it." Since ignorance is not a defense, it is therefore in the best interest of all practitioners to strengthen their skills in all areas of ethics. In fact, ethical lapses have seriously damaged both the professional and business side of several law firms during the past few years of heightened corporate scrutiny and criminal indictments.

Legal ethics education provides attorneys with not only the ability to address ethical questions, but also with a better understanding of how to advise internal staff about the firm's business decision-making process. Understanding ethical rules and guidelines is difficult enough in itself, explaining ethical rules and guidelines to clients may be even more difficult (ArnowRichman, 2001). With a better understanding of legal ethics, attorneys are also able to better negotiate (McClendon, Burke, & Willey, 2010) and avoid disciplinary action set forth by the state Bars and the courts.

Some firms have a partner dedicated to ethics. This 'ethics partner' or 'loss-prevention partner' is responsible for "reviewing new clients and new matters, monitoring ethics issues, overseeing quality-assurance standards and helping the firm to manage and minimize potential damage as a result of malpractice complaints...appointing a professional responsibility partner and enforcing the firm's policy relating to legal liability can give law firms a head start in avoiding claims against the firm" (Lundy, 2002).

This ethics partner may become a regulatory requirement in the near future. Some legal malpractice insurers have already begun requiring firms to designate a dedicated ethics partner. The Attorneys Liability Assurance Society, Inc., is one insurer requiring firms to designate an attorney for this role before they will consider insuring the firm (Lundy, 2002).

Organizational behavior and human resources are other areas where law firms need to develop business skills. Employees are becoming more aware of their rights in the workplace and that obviously includes employees at law firms. As employers, law firms and their clients, must also educate themselves to ensure that they avoid an EEO or emotional distress claim with the potential for punitive damages by one of their own employees; law firms garner very little sympathy from juries when they are the target defendants in the courtroom.

There are several ways firms can become compliant with employment laws and also improve their organizational behavior and human resources skills. One such way is to "involve your associates and staff in decisions that affect them" (Practical Ways, 2000). If employees feel that they are part of the organization, and engaged, they will be more satisfied and less likely to file any grievances. Another way is to "make it clear where the firm is headed. Explain your vision for the law firm and the essential part that associates and staff play in fulfilling that vision. Then, ask them for their input and suggestions" (Practical Ways, 2000). Making employees feel like their opinions count is yet another way to not only improve employee satisfaction but also gain helpful insight for improving business processes and client satisfaction.

Organizational psychology is an increasingly important topic for today's attorney's educational foundation (Epps, 2009). Firms must possess strong skills in human resources so that they can develop and implement company policies and ensure that they are not creating internal problems for the firm. An example of such a problem may be an employee handbook that appears to create a contract of employment and fails to include an "at-will" disclaimer. "Most states recognize a properly phrased at-will employment disclaimer, so firms can now avoid the argument that the terms of the handbook guaranteed employment" (Common HR Headahes, 2005). Having an employment attorney or a non-attorney human resources professional on staff is a way to avoid these kinds of mistakes. According

Depending on the size of the firm, it may not be practical to hire a full-time human resources professional. However, it is strongly suggested that many human resource functions in small firms be outsourced but, to reiterate, if these services are outsourced, the firm must be able to hold the outside agency or contractor accountable for their performance.

THE SCOPE OF BUSINESS EDUCATION

For this study, we wanted to look at the broad field of business skills in the narrow context of legal practice management. Our first task was to divide business education into fields. We began with a plan to examine undergraduate and master's business education programs at fifty major universities. Fortunately, an extensive survey was not necessary since all programs had consistent common elements.

The fields that were common to almost all programs were accounting, finance, marketing, law and ethics, organizational behavior and human resources, operations and systems management, managerial decision making, and strategy. Not all programs had courses with these specific names, but all programs had elements of these fields, often in multiple courses. This is not surprising since all of the programs surveyed were accredited by the Association to Advance Collegiate Schools of Business.

After determining the appropriate scope of business education, we decided to use that scope to identify tasks that could be easily communicated to legal managers. We could not assume that those managers had any knowledge of business or its language, so we developed tasks associated with each of the fields and used web-dictionary definitions to help simplify communications. For this reason, it is critically important that educators carefully review the exact wording of the tasks before making decisions based on responses to the tasks.

Table 1 represents the eight tasks associated with the eight business fields identified earlier.

Research questions

Based upon these eight areas, the research questions generated for this study consisted of the following:

1. Of these key tasks, which require the most knowledge to successfully perform the task?

2. Are there gaps between the levels of knowledge required to successfully perform the tasks and the current levels of knowledge existing within the healthcare industry?

METHODOLOGY

Survey Questionnaire

The survey included sixteen questions on a five-point scale ranging from very low level to very high level. These sixteen questions captured the knowledge needed and the level of knowledge in each of the eight business fields. Organizational and personal demographic information was also collected. Before administration, the survey was pre-tested, first by representatives in the academic community and then by representatives of the Legal management community.

This study follows several similar studies designed to identify health care education and training needs. Kennett, Henson, Crow, and Hartman (2004) and Bruder, Crow, Hartman, Brockman, and Henson (2003) evaluated needs in marketing and strategic management.

The population of interest for this study is legal practice managers in the United States. We decided to focus on lawyers who work in private practices. The authors of this study developed a sample frame by searching for email addresses associated with attorney names and with private practices where possible. The e-mail and internet framework for the on-line survey was provided by Hosted Survey (www.hostedsurvey.com).

An e-mail message, a cover letter in effect, was addressed to the members of the sample, asking them to participate in an anonymous survey provided on the internet. The e-mail message provided the web address where the recipient could link directly to the survey. Respondents were also provided an opportunity to opt out of any future surveys and were offered an opportunity to view the results of the survey.

Sample and Data Collection

Of the 1000 e-mail messages sent on the original mailing, 850 were deliverable. Of the 850 delivered e-mail messages, 67 participants completed the survey--a response rate of just over 8%. This response rate was lower than other similar studies in the health care industry, which ranged from 20% to 30%. The different response rate may reflect the different approach to developing the sample frame or the increased incidence of unwanted emails.

Given the relatively low response rate, several preliminary tests were completed to help assess potential non-response bias. There were no significant differences in responses by "early" or "late" respondents, by two digit zip code classifications, or by the size of the practice.

RESULTS

Respondents were asked to evaluate each of the eight business tasks and rate them according to the level of knowledge required to successfully perform the task. Results in Table 2 show the percentages of respondents who considered the knowledge required to manage the task high or very high.

Not surprisingly, almost all of the respondents felt that attorneys in private practice needed to have high or very high levels of knowledge about organizational behavior and human resources. Finance, strategic management and law and ethics were also rated as very important, with these five categories viewed as important by three fourths of all respondents. In fact, well over half of the respondents identified high or very high needed levels of knowledge for all business tasks.

Next, the authors asked respondents to describe the existing levels of knowledge among lawyers about the eight business tasks. Results are provided in Table 3. Standing in stark contrast to the broad need for high levels of knowledge about business, respondents reported very little existing knowledge about business tasks. In the category about which lawyers said they knew most about, law and ethics, only 11% said lawyers have a high level or very high level of knowledge. In the task about which they knew least, accounting, only 2% said lawyers have a high or very high level of knowledge about the task.

Combining the two tables (Table 1 & Table 3) allows us to highlight gaps in knowledge. Table 4 presents the needed levels of knowledge and existing levels of knowledge. The gap in knowledge is the difference between the percentages of respondents who described the level of required knowledge as high or very high and the percentage of respondents who described the current level of knowledge as high or very high. Please note that this is not a variable obtained from respondents since we did not directly ask about gaps in knowledge. The authors of this study do think it is an interesting and informative way to summarize the data.

Reading from the table, 88% of the respondents said that lawyers need high or very high levels of knowledge about organizational behavior and human resources to effectively manage Legal practices. Only 4% actually have high or very high knowledge about marketing. This is the largest gap among the business tasks, followed by the gap in knowledge about Finance.

DISCUSSION AND IMPLICATIONS

Based on previous studies of health care managers, we expected gaps in knowledge, but were surprised by the depth and breadth of the gaps. Attorney respondents reported very broad and deep deficits in business knowledge. Although the questions were not directly comparable to questions asked in earlier health care industry surveys, there was still a very obvious greater need for business skills among these respondents and large gaps between business knowledge needs and current knowledge.

This may have been because this current survey was completed with respondents primarily involved in private practices. The questionnaire was directed to attorneys in private practice and questions referred to attorneys in private practice.

The high level of need expressed may also reflect an industry in transition. As legal and business interests continue to clash, new laws may lead to a rapidly changing market place, new types of competitors, and rapidly evolving technology. This high level of uncertainty leads to increased risks and lawyers may be more sensitive to the need for business skills.

The most obvious implication is the need for expanded business training and education for lawyers. The needs are too broad and too deep to be handled with short seminars or individual courses. Lawyers appear to recognize very clearly that they need significant expansion of their business knowledge and skills.

One way to prepare for the future is to persuade law schools to include a curriculum for business which is becoming more common (Ring, 2010) although not the norm. Law schools must be able to prepare new attorneys to enter the workforce with more than a modicum of business, ethics and technology skills. "Today, the large law firms have continued to fill the legal education gap themselves, now with extensive formal training programs, including extensive skills training, rather than on-the-job training" (Friedman, 2005). This trend may not continue in the future as competition increases, hourly billing rates decrease and client demands for lower expenses force firms to streamline services and resources. Moreover, small firms and solo practitioners simply cannot afford to hire specialists in strategy, marketing, human resources, organizational behavior, ethics, technology, etc.

RECOMMENDATION FOR FUTURE RESEARCH

As previously mentioned, one way to provide the needed business education is to further expand the courses offered in some existing law programs. Alternatives such as mini-business-school programs are another current option to consider (Egan, 2011). Future research should focus on which factors involved with the various types of available programs (e.g., horizontal and vertical integration) are most successful. Future research should also focus on the financing of business education for law students, especially in today's economic environment where firms budgets for training may be more limited as pressure for profitability increases (Littman 2010). Since the need for business education has been established, research questions should focus on the stakeholders involved and the risk and rewards associated with funding. Exploring which parties are financially responsible, and capturing return on investment are pertinent areas of focus for future studies.

CONCLUSION

Many practicing attorneys do not believe that legal education meets the needs of the changing legal profession. This may soon change as the demands of the legal workplace continue to change. A few law schools are considering offering courses in business. While we don't need radical changes in a law curriculum that has worked for a long time, legal education must be brought into closer alignment with the need of law students to hit the ground running when they begin to practice law (Friedman, 2005). Negotiating a contract for copier or technology services, interviewing and hiring staff, providing benefits and making decisions on leave, vacation, employee pregnancy, disciplinary action, and unemployment and workman's compensation claims are only a few examples of the vexing challenges attorneys face in their workplace. It is apodictic that most, if not all, practitioners would rather not have to deal with those internal business issues.

As the business world continues to change, it is important that attorneys possess the skills necessary to help an organization run its business effectively. "It's no longer banging out a contract. It's learning the nuances of a business decision, learning how to handle human interaction and, more importantly, understanding the company's financials" (Flahardy, 2005). Thus, a critical consideration all stakeholders must entertain is how to educate partners and associates to provide the information necessary to gain business skills.

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About the Authors:

Steve W. Henson is an Associate Professor of Marketing at Western Carolina University, where he has served as Associate Dean, MBA Director, and Graduate Programs Directors. He has published in The Journal of Health and Human Services Administration, The Journal of Business and Industrial Management, The Journal of Marketing Management, The Journal of Personal Selling and Sales Management, among others.

Bruce D. Berger is an Assistant Professor of Business Administration and Law at Western Carolina University. He has a BS degree from the University of Pennsylvania Wharton School of Finance, an MBA from the University of Miami and a JD from the University of New Hampshire Franklin Pierce Law Center. He is an active member of the Florida Bar where he practiced for 24 years. He teaches Business Law and co-teaches a Strategy Capstone course that is based solely on experiential learning pedagogy.

Jeff Foreman is an Assistant Professor of Marketing at North Georgia College and State University. He received a B.A. in Finance from Appalachian State University and his PhD from Georgia State University. His general research interest is in marketing and public policy and he has published in journals such as the Journal of Business Research.

Steve W. Henson

Bruce D. Berger

Western Carolina University

Jeff Foreman

North Georgia College and State University
Table 1

Eight Tasks Associated With Key Business Fields

Accounting is the process of managing the recording, reporting, and
analysis of financial transactions of a business.

Finance is the process of acquiring, investing, and managing
resources such as offices and equipment.

Marketing requires defining target markets, selecting market positions,
and managing product, pricing, communications, and channels decisions.

Legal and Ethical Issues include tort liability, contracts, labor law,
agency and organizational law, and ethical decision making.

Organizational Behavior and Human Resources includes staffing issues
such as hiring and firing, and management issues such as leadership
and motivation.

Operations and Systems Management focuses on managing the processes
that produce and distribute products and services.

Managerial Decision Making is the use of research design and
statistical tools to improve decision making.

Strategic Management is the process by which an organization
determines its long-run direction and sets goals and objectives._

Table 2

Needed levels of knowledge

Task                         High Level   Very High Level   Combined

Organizational Behavior         39%             49%           88%
and Human Resources
Finance                         58%             24%           82%
Strategic Management            49%             32%           81%
Marketing                       43%             34%           77%
Law and Ethics                  51%             24%           75%
Operations and Systems          46%             19%           65%
Management
Accounting                      47%             16%           63%
Managerial Decision Making      45%             14%           59%

Table 3

Existing Levels of knowledge

Task                         High Level   Very High Level   Combined

Law and Ethics                  14%             3%            17%
Operations and Systems          12%             0%            12%
Management
Marketing                        7%             0%             7%
Managerial Decision Making       5%             1%             6%
Finance                          6%             0%             6%
Strategic Management             4%             1%             5%
Organizational Behavior          4%             0%             4%
and Human Resources
Accounting                       4%             0%             4%

Table 4

A Gap Analysis of Business Education Needs

                             Need    Existing   Gap

Organizational Behavior       88%       4%      84%
  and Human Resources
Finance                       82%       6%      76%
Strategic Management          81%       5%      76%
Marketing                     77%       7%      70%
Accounting                    63%       4%      59%
Law and Ethics                75%      17%      58%
Managerial Decision Making    59%       6%      53%
Operations and Systems        65%      12%      53%
  Management
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Author:Henson, Steve W.; Berger, Bruce D.; Foreman, Jeff
Publication:International Journal of Education Research (IJER)
Article Type:Report
Geographic Code:1USA
Date:Mar 22, 2012
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