ROSEVILLE, CA—Law firms may bristle at the idea of being compared to chain restaurants or multi-location retailers, but restructuring expert Jim Haslem thinks the legal profession can draw a number of lessons—and operating principles in terms of their office space. “There are differences,” Haslem, a principal with Huntley, Mullaney, Spargo & Sullivan here, tells GlobeSt.com. “But law firms are selling services at retail, so the discipline and the systems that multi-unit restaurants and retailers routinely use are also applicable to law firms.” That being said, he adds, “I've seen that law firms are less disciplined in terms of how they manage their multiple locations.”

That less-disciplined approach may extend to where and when to open multiple locations, says Haslem. “When things are good, law firms are inclined to open an office in, say, Phoenix, and you wonder what were the metrics in supporting that decision, what were the metrics in negotiating the lease,” he says. Just as important, he adds, are “the metrics you used in determining the efficiency of that office, and whether the lease should be renewed, renegotiated or allowed to lapse and have the firm relocate or engage the landlord in negotiation leading to termination of the lease.”

These are the kinds of decisions multi-location retailers make all the time, in order to maximize the profitability not only for each location but also for the entire portfolio. “That should be a regular part of the business routine,” Haslem says. While some law firms may be doing this already, “historically, they have not.”

Nor have law firms paid much attention to the opportunities available to them in negotiating leases. “You have to actively manage the portfolio,” he says. “You want to avoid signing the lease, putting it in the filing cabinet and then not looking at it until it comes time for renewal. Active management would be regularly taking a look at the performance of all of your leases at all of your locations and identify which sites are performing well and which are performing not so well.”

In the case of a law firm, Haslem says, “you're looking at the revenues for each office, the trendline for the headcount and also, what's going on with the lease in terms of the rent burden and the occupancy costs. You want to add up all of the occupancy costs and compare those to the revenue for each location. When you go through that exercise, you begin to see that the occupancy cost is a significant factor in the cost structure of the office.”

That's more easily overlooked when, as in the case of law firms, “the profit margin tends to be pretty darn good,” says Haslem. “For retail and restaurants, net profit may be in the single digits. Therefore, the occupancy costs can make the difference between surviving or not.” 

On the other hand, he says, a law firm has to contend with not only ongoing debt service but also scenarios such as, say, a practice group being recruited by another firm. “That source of revenue has moved to another firm, but the fixed costs of that office have not.”

And while the nature of law firms means that their per-employee space requirements are greater than those of many other businesses, and although firms have tended be “kind of sticky” in terms of remaining at the same location for both branding and convenience factors, technology is giving them a little more ability to be nimble. Accordingly, Haslem says, “If you increase the portability, you increase the ability to relocate if you need to.” A fair number of firms, in New York City and elsewhere, have downsized in recent years, “whereas 20 years ago, that was pretty rare.”

Working with building ownership is an essential component of managing a law firm's portfolio, Haslem says. “In the restaurant business, we have a saying that the landlord is your silent partner,” and the same principle applies in the legal sector. Law firms may not think of their landlords in that same fashion, but it applies because “he is sharing in funds that otherwise would be available to distribute to the law firm partners.”