March 2007

Just posted in the Wall Street Journal Law Blog:  a prediction that 2007 will bring "lots more associates," lots more hours and more revenue for law firms.   These are conclusions from Citibank’s soon-to-be-released Managing Partner Confidence Index.  The Journal’s post attaches several slides from the Index.  So we have an expectation of more hours from a record number of associates, being paid record salaries by their firms, which have raised hourly rates to cover the record salaries. 

When you read stories like this, did you ever wonder where those additional hours for the current and record number of new associates come from?  Do firms have some hidden reservoir of hours that they can unleash on demand?  Of course not.  Does the notion of "make-work" ever creep into your thoughts when wondering about such things?  How can it not?  Sure, some firms may have more work, but measuring classes of new associates by the hundreds cannot be the answer, since it is unlikely that the "new work" is at the low end of the ladder.

What is so disturbing about articles and blog posts like those provide by WSJ is the absence of any discussion about clients of the law firms surveyed.  It is almost as if the firms view themselves as independent of their clients, where the firm’s economic interests are the trump card. 

I’m thinking of starting an over/under pool on when clients wake up and smell what they are actually being fed by their large firm service providers.  Anyone care to hazard a guess?

PS–Check out the reaction of Susan Hackett, General Counsel of the Association of Corporate Counsel here.

From Seth Godin: 

Most marketing (and most business) is usually like this:

Do this and get that.

Figure out what you want, figure out what you need to do to get it, and go do it.

From there, Seth shares some thought about his Dad and the good things he did for people.  His Dad benefited from the positive side of the "what goes around comes around" maxim.  Read the full post here.  The punchline:

It’s been a consistent approach, and it sure seems to work. Consistent as in all the time, not just when it’s convenient. It works for a factory in Buffalo but it also seems to work for others… for successful marketers all over the world. Now, more than ever, it’s easier to give even when it seems like you’re not going to get. The happy irony is that this turns out to be a very effective marketing approach, even though that’s not the point.

Exactly.

Ten days ago, I posted a pithy note repeating a speaker’s declaration that the billable hour was dead.  Never in my wildest dreams did I expect that post to generate the level of comments it did, especially since I have railed against the billable hour on so many other occasions.  See some of my posts here.  But if this topic interests you, please read the comments to the post and check out this post by Ron Baker on the Verasage blog

The only point I want to make in response to Ron’s lengthy comment is the paragraph he begins "Pat and Moe."  Ron, I don’t agree with a single thing Moe wrote.  But as we have discussed, I think any seller, if it announced it would only give work to those who would agree to do it on a flat fee basis would find a number of takers.  The converse is not true.  When offering a client an AFA, most clients have one of three reactions: (1) they try to figure out how much the matter would cost on an hourly basis and use that as a basis for comparison; (2) they simply exclude you from the candidates for the work because you’ve created an apples and oranges comparison for them; or (3) they ask for your hourly rates.  The point is that both sides of the equation–seller and buyer–need to be willing to engage in the process.  Who leads is less important that the commitment to participate.

My friend Dan Hull has a short post reminding us of the International Business Law Consortium (which Dan’s firm and my firm, courtesy of Dan, are members of).   That reminder, by itself, is a good thing.  But the better part of Dan’s post is his link to a prior post on the IBLC.  His prior post, comparing expanding US and UK law firms to "a spastic hamburger franchise, is a must read for anyone doing business internationally (which has to be almost everyone these days).

  

So, to Dan’s point, Big Mac?  Or perhaps something a little more, umm, tailored to your desires?

Seth Godin got me thinking.  He does that to people.  He is, as he describes himself, an "agent of change."  And I like nothing better than change, so maybe that’s why I am such a fan.  His recent post, Thrill seekers, divides people into two categories–thrill seekers and fear avoiders.  I can’t better his description of the people in these categories, so let me just use his words:

Thrill seekers love growth. They most enjoy a day where they try something that was difficult, or–even better–said to be impossible, and then pull it off. Thrill seekers are great salespeople because they view every encounter as a chance to break some sort of record or have an interaction that is memorable.

Fear avoiders hate change. They want the world to stay just the way it is. They’re happy being mediocre, because being mediocre means less threat/fear/change. They resent being pushed into the unknown, because the unknown is a scary place.

Seth than asks why not call them risk seekers and risk avoiders?  Good question. His answer?

So why not call them risk seekers and risk avoiders? Well, it used to be true. Seeking thrills was risky. But no longer. Now, of course, safe is risky. The horrible irony is that the fear avoiders are setting themselves up for big changes because they’re confused. The safest thing they can do now, it turns out, is become a thrill seeker.

"Now, of course, safe is risky."  What a powerful insight.  Think about a child standing next to a merry-go-round.  Because its safe.  After all, centrifugal force will not cause you to fly off the merry-go-round if you aren’t on it.  But now the merry-go-round is picking up speed and you have to get it on it or you won’t survive the taunts of your friends.  The safe spot is now risky.  As the world changes and our business changes, safe is risky.  If fear paralyzes you because you are a fear avoider, you just stay the same in a world moving by at a faster and faster pace.  Safe, but ultimately sorry.

sharp knifeThanks to Tom Kane, I was referred to a post by Pamela Slim in  Escape From Cubicle Nation (by the way, I love the blog’s subtitle–"How to go from corporate prisoner to thriving entrepreneur").  The post is "The key to small business success: be the sharpest knife in the drawer."  It’s a wonderful story–Pamela’s mother buys her a sharp knife for Christmas and suddenly Pamela is left wondering how she survived without it.  She offers her insurance agent as an example of someone in business being a sharp knife.  Pamela goes on to offer 5 rules for staying sharp, all of which influence the quality of customer service.  Rather than repeat them all, check out her post.

As I mentioned in my last post, Bruce MacEwen had asked his Adam Smith, Esq. readers to vote in a poll on the value of Profits Per Equity Partner (PEP).  As of now, fully half of those participating voted that PEP was of no value and another 20% said that while the number was at one point informative, it has outlived its usefulness.  By my count, that’s 70% rejecting PEP as a useful tool.  I would be inclined to bet that Bruce’s readers are among the more financially literate in the profession, which puts some real muscle in this result.

On the other side of the fence?  Ed Poll.  Check Ed’s thinking here.  While I usually find myself agreeing with Ed, that is not the case on this issue.  I just posted a comment explaining myself.  But here was the punchline:  Two firms with identical PEP.  One has massive unfunded retirement liabilities and the other does not.  Are they equally healthy?  Of course not.  Now adjust the example.  One firm has PEP of $1.5 million and massive unfunded retirement liabilities.  The other has PEP of $1.1 million but its retirement liabilities are fully funded.  Which is healthier?  Which is a better bet for the future?  The one with lower PEP.  The number just doesn’t show anything about a firm that any savvy partner needs to know before deciding to move her practice.

I recently expressed some frustration with use of Profits Per Partner or Profits Per Equity Partner as a benchmark for firm performance.  Bruce MacEwen takes the issue further in today’s Adam Smith, Esq. post "Is PEP The Proper Measure Of Success?"  Bruce cites a piece by Guy Beringer, a senior partner at Allen & Overy, published on the firm’s website.  Mr. Beringer expresses this conclusion:

    It is my belief that PEP is not merely an inappropriate star by which to navigate, it is in fact a dangerous and undesirable metric for the legal profession to follow.

Bruce MacEwen concurs with this judgment:

From an economic and financial perspective, PEP is a consummately manipulable figure, even more slithery than a public corporation’s quarterly earnings releases, but the hyping of which (as with quarterly earnings) can lead to a variety of antisocial behaviors with toxic unintended consequences.

Bruce then follows with a discussion of alternatives, which I heartily recommend.  He ends with a poll to elicit his readers’ views on the issue.  I look forward to seeing the results.

Larry Bodine’s post on his discussion with Mayer Brown’s Director of Global Communications, Doug Kramer, got me thinking.  In case you missed it, Mayer Brown fired 45 partners–men and women who have sacrificed for the firm and who have families to feed and kids to put through college.  The reason?  Well, Mayer Brown’s profits per partner were only $1.1 million per partner.  "When we rank 51st, well behind our peers, it raises a big issue in terms of attracting top talent and keeping it," Kramer said.  Kramer went on to say that  "we badly want to keep our best talent and attract the best talent, and PPP is a key metric that the marketplace looks at.  So when we’re 51st compared with other firms that we’re just as good as, we had to take decisive action."

This got me thinking.  Is PPP really the metric partners look at when moving firms, or is it just a convenient statistic for American Lawyer to use to "rank" firms.  Seriously, If publicly traded companies manipulated their stock prices the way major law firms manipulate their profits per partner numbers, every senior corporate executive would get to do the perp-walk and the chance to spend a few years at Danbury Minimum Security prison.  PPP is a joke.  And what’s more of a joke, lawyers either are so stupid that they can’t see behind the manipulation or they know how meaningless the statistic is, in which case law firm managers are fools for running their firms based on a bogey everyone knows is so malleable.  Seriously, senior firm managers really have to ask themselves, if a prospective partner is attracted to them because of their PPP and doesn’t know how the firm’s "stock price" is so easily manipulated, do they really want such a fool as a partner?  And if partners choose to move to firms based on factors other than PPP, then why are law firm managers so myopic that they don’t focus on the truly relevant factors?

Kramer tries to justifies Mayer Brown’s move by saying clients are offering empathy.  Don’t take that too far.  They’ve all had to cut employees.  That doesn’t mean they don’t laugh behind your back at the legal industry’s amateurish economics.  (Haven’t we all heard clients lamenting the very profit per partner altar Mayer Brown just paid homage to when faced with another round of staggering hourly rate increases?)

My perception?  Mayer Brown just killed whatever semblance of institutional loyalty that might have existed.