The most sensational example of key person risk in recent memory is the story of the cryptocurrency firm whose founder died, taking the password to the business's customer accounts to his grave. But, key person risk need not be so immediately threatening to the existence of an enterprise to pose a tangible threat to the bottom line.
Law firms are no strangers to key person risk. Legal practice is a human capital-intensive business. Much of the value of any firm is tied up in the know-how, reputation, and expertise of its lawyers and administrators. What's more, because legal practice is a client-service business, the loss of a key law firm employee can have a far-reaching impact not just on the firm, but also on its individual clients.
Does your firm face key person risk? If so, here are some ideas for mitigating it.
Identify Key Employees
Firms of all sizes should take the time to do some basic contingency planning. A good first step is to identify key employees by thinking through what would happen if each and every employee suddenly disappeared from day-to-day operations. In small firms, virtually every employee poses a key person risk of some sort, from the senior partner responsible for the bulk of the firm's client relationships to the office manager who alone keeps the books and does the invoicing. As a firm increases in size, the number of key persons drops, but the impact of their departure remains equally significant.
Eliminate Unnecessary Risk
Not every instance of key person risk is inevitable. To borrow from the cryptocurrency example above, in many instances it is not necessary for a single employee to hold passwords or have sole access to certain firm files (either on a server or in a file cabinet). After identifying key employees, firms can take simple steps to eliminate these avoidable risks, either by increasing the number of people who have access to critical information, or placing passwords or key information in a safe storage location.
Another way to eliminate avoidable risk is to automate certain tasks that otherwise create a workflow "choke point" when performed by a single key employee. For example, practice management software such as LawMaster can automate time tracking, billing, and financial reporting, so that the firm does not rely on one key person for its ability to collect fees and stay on top of its finances. Similarly, practice management software can be configured to organise and give access to the firm's knowledge base, reducing the risk that the loss of a lawyer would also mean the loss of information critical to a client representation.
Plan for the Worst
After implementing changes to eliminate unnecessary risk, a firm can also develop an emergency plan in the event a key person is suddenly unavailable. Research has shown that simply thinking through how to act in the worst-case scenario reliably leads to more positive outcomes. Planning, and even rehearsing, for the sudden unavailability of a key partner or essential office administrator will help to ensure your firm stays on track even in the event of a tragedy.
LawMaster develops solutions for law firms and legal departments of all sizes. To learn more about how our suite of practice management tools can help your firm stay on track in the event of the loss of a key employee, contact us today to schedule a demo.