April 2008

From today’s Chicago Tribune Business Section:  Seven partners have left  Locke Lord Bissell & Liddell (catchy name, eh?) to create a new firm representing insurance companies in litigation.  The reason?  Pressure to increase hourly rates in this practice area by as much as 50%.

Locke Lord etc., etc. and so forth was formed by the merger of Locke Liddell and Lord Bissell in October 2007.  Interesting quote from Jerry Clements, reported to be chair of the merged firm (though there is no such name listed on the firm’s website): "Any time you do a combination as significant as the one we did, you’re unfortunately going to lose some people who don’t fit anymore."  She added that some practices are "suffering from rate pressures."

My point is not to comment on the firm’s business decisions, because clearly there are winners and losers in mergers of this sort.  Rather, the point is simply to note the acknowledgment that "pressure" on rates is a fact of life in firms like Locke Lord that aspire to compete in the top echelon.  Even in today’s difficult economic times, that rate pressure exists.

Ever since Gerry Riskin wrote his "Doom and Gloom" post last August, I have been paying much closer attention to the economy that I have before, especially to the factors Gerry highlighted in his post.  Regular readers know I have posted frequently on this topic, not only because I think the topic is generally important but also because writing about it makes me think about it.

Anyway, from today’s paper.

1.    "The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for April fell deeper into recession territory, to 62.6 from 69.5 in March and below economists’ median expectation of 63.2 in a Reuters poll.  The April result is the lowest since March 1982’s 62.0, when the "stagflation" period of low growth and high inflation was an issue for Americans."

2.   Gas prices are now over $4.00 per gallon for premium in many locations.  Oil-producing nations are refusing to produce more oil.  Oil closed over $118 per barrel, almost double the price from a year ago.

3.  The stimulus package isn’t going to stimulate much.  Most consumers expect to use it to pay higher food and gas price and to reduce debt.

4.  It costs so much to fuel up that the American Automobile Association is urging its members to leave their cars at home and take public transportation.  (For anyone who doesn’t know, the AAA is the group that likes people to drive cars.)

5.   "The two biggest U.S. warehouse retail chains are limiting how much rice customers can buy because of what Sam’s Club, a division of Wal-Mart Stores Inc., called on Wednesday "recent supply and demand trends."

6.  Summer is coming.  Gas prices will be higher.  George Bush is unlikely to agree to a gas tax holiday or release oil from the strategic oil reserve.  The Beijing Olympics are coming, so there will be no slowing down in China, at least until then.

Does anyone see an end-game here?  I don’t see any short-term change in the economic pressures on our clients.  Quite to the contrary.

Trust me, for a moment at least, that all of the following points eventually will come together.

Every time I have the opportunity, I ask in-house counsel about whether their lawyers conduct formal or informal satisfaction meetings.  Almost invariably, the answer is no.  I always follow up by asking whether the client would find such meetings useful.  With equal frequency, the answer is yes.

From time to time, I ask lawyers whether they conduct formal or informal satisfaction meetings.  Almost invariably the answer is no.  When explaining why, lawyers almost always say the same thing:  if there is anything wrong, my client will tell me.  The gist of their point is that their relationship with their client is special and how dare for me for even implying that something so gauche as a discussion is needed.

Last night, as I am watching multiple channels at once, I am caught by a moment on a Dr. Phil-type show where the husband and wife are discussing their most intimate problems in front of a nationwide audience (and with syndication, perhaps a world-wide audience).  Breakthrough after breakthrough.  The Dr. Phil-type host offers this profound insight:  "your problem is that the two of you don’t talk about your problems" (except in front of this nationwide audience).  He then goes on at length about how every relationship has problems (I think "hiccups" was the technical term) and that only by identifying them and talking them through can you hope to keep them from growing from small problems to bigger ones and, with good and candid talk, put them behind you.  Hardly profound, but most certainly true.

Also last night, I watched two of my kids, within the space of a few minutes, go from being BFFs to being unable to be in the same room to being, once again, BFFs.  The solution, a short but candid talk (with yours truly in the Dr. Phi-type role) asking each to explain why she was upset and what her perspective on the problem was.   The eye-opening moment?  When each saw the other’s perspective, their own assessment seemed "less correct" and their judgment less harsh.

How do these three vignettes tie together?  Many (most?) outside lawyers operate on the premise that their personal relationship with their client is different that all other relationships that exist between people on our planet.  Every relationship has its problems.  Oh, excuse me–every relationship except for that individual lawyer’s relationship with his or her client.  That one relationship is special.  But do the math.  It can’t be that every relationship between every lawyer and every client is "special"–that is, immune from the rules of relationships that apply in every other kind of relationship.  And if not all lawyer and client relationships are special, the question that must be asked by each lawyer is why my relationships are different from all others?  Lawyers are never good at asking that question and it is doubtful that this short rant will cause any epiphanies.  But suffice it to say, until lawyers wake up and smell the relationship coffee, they will be missing the opportunity to "bulletproof" their relationships.  (Click here for a discussion of BulletProofing, a Gerry Riskin term that is more important than ever in today’s difficult economic times.)

Now, does anyone what to discuss being shortsighted?

My partners and I have been touched–and surprised–by the many kind emails we’ve received from so many about our new website.  The substantial majority have been encouraging.  Many have offered constructive input, and we already have made many changes to the Valorem Law Group website based on input we’ve received.  It continues to be a work in progress.

We also want to acknowledge and extend our thanks to several people who featured us in recent posts.  Gerry Riskin, David Maister and Mike Myatt all have featured us in posts.  We’re humbled to be recognized by such thought leaders.

Valorem’s website is now live.  I really haven’t had to put together a website before–it is a lot harder than I imagined.  Anyway, we are trying to be clear about our message and communicate a bit more personality than the ordinary law firm website.  I’m too close to the thing to know if we achieved our objectives.  I would certainly welcome any feedback anyone has to offer.

We were guided in large measure by Sonny Cohen and Jeff Kenny at Duo Consulting.  Duo provided a lot of really constructive input in very positive and upbeat ways.  Needless to say, a lot of the site’s good qualities are attributable to Duo.  The shortcomings belong to me.

Thanks in advance who care to share thoughts, reactions and comments.

     I am thrilled to announce that Nicole Nehama Auerbach will be joining Valorem as a member as of April 14.  Nicole is currently a partner at Katten Muchin Rosenman in Chicago.  Nicole concentrates her practice on all facets of complex commercial litigation, focusing on the strategic development of complex cases in order to posture them for favorable resolution, and when good business deals cannot be had, Nicole tries the case.  She has represented such clients as Miller Brewing Company, the Chicago Bulls, Orbitz, Computer Associates, Cendant Corporation, Scholarships.com, Career Education Corporation, The Northern Trust and Cole Taylor Bank. Nicole has litigated cases in federal and state courts across the country and has handled numerous arbitrations and mediations.

Nicole is a Founder and Co-Chair of Katten’s Women’s Leadership Forum. She founded the Coalition of Women’s Initiatives in Law Firms, a group of woman leaders from Chicago area law firms, which now has 27 members.  She speaks and chairs conferences on women’s issues and  also devotes time to pro bono litigation matters and represents unaccompanied children in political asylum cases and was recognized as one of the 2005 “40 Illinois Attorneys Under Forty To Watch” by the Law Bulletin Publishing Company, and has been recognized as an Illinois Super Lawyer in 2007 and 2008. In addition, Nicole was featured in Vault Publications’ 2006 book, “A View From the Top: Q & A with Legal Women Leaders,” as well as on the cover and in the lead story of the February 2007 issue of Chicago Lawyer magazine.

Nicole is a member of the Federal Trial Bar. She is also a member of the Leadership Council of the National Immigrant Justice Center and the American Bar Association’s Women Rainmakers Section.

Beyond the bio material, Nicole shares our commitment to alternative fee arrangements and to fees structured so that we share our client’s risk. 

Needless to say, Nicole’s new colleagues are thrilled to have someone so incredibly talented join us.  But what makes Nicole’s decision even more profound is that in addition to her incredible legal skills and accomplishments, Nicole is an even more extraordinary person, a person of warmth, compassion and insight.  Mother of three boys, Nicole is an accomplished singer and songwriter and music lover, so the quality of sound around Valorem will definitely be improving.

    You have to love the headline writers at the New York Times and the fun they have with Fed-speak.  Fed-speak is the language the Fed Chairman must use since he can’t utter the R-word.  So Bernanke says today, "It now appears likely that real gross domestic product, or G.D.P., will not grow much, if at all, over the first half of 2008 and could even contract slightly.  We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies.”  The Times headline writers?  "Bernanke Nods At Possibility of Recession."

To quote my 13 year old son, "Ya think?" 

But to my mind, here was the more interest part of the report:

"While not endorsing any specific housing proposals, Mr. Bernanke made clear that the weakness in housing remained the single biggest drag on the prospects for an economic recovery and said that it was up to Congress to act."

These folks are missing the point.  Its not the foreclosures, at least not just the foreclosures.  Anyone who has tried to sell a house most anywhere in the country can tell you that prices are down 25-40% over a year ago.  (Anyone interested on a good deal in New Port Richey, Florida?)  Stopping foreclosures doesn’t restore that lost wealth or borrowing base.  Yet Bernanke is predicting a mild recession and recovery in the second half of the year because of the President’s stimulus package.  People get a few bucks and go to Walmart, which then ships the money to China.  Or they get their check and buy a tank of gas.  Wonder where that money goes?  All of this may temper the markets (how much wealth has everyone lost there?), but it won’t alter the weakness of the dollar and it won’t restore the lost wealth against which people have been borrowing to spend our way out of prior recessions.

I’m hoping I’m wrong here and to be sure there are tons people smarter than me on this and most other issues.  But this blog is directed at law firms, and one has to wonder when clients are going to feel comfortable enough to stop squeezing their law departments and outside counsel?  If it is a good long while (my bet), then the length of the recession is something people really need to worry about.  Because while BigLaw may expect to be able to offset lost deal revenue with increased litigation and bankruptcy work, there is a lot of anecdotal evidence that at least the litigation is not there this time.   And for all those who work at or run firms that don’t measure their revenue in the hundreds of millions, the bankruptcy safety net may not be a safety net at all.

On Monday and Tuesday of this week, I attended (and spoke at) the American Conference Institute program on Controlling Legal Expenses.  Both the speaker roster and the attendees were predominantly inside counsel, with a heavy emphasis on those involved in litigation.  The panels on the entire first day were of a like mind that alternative fee arrangements were the future.  I’ve written before about the Perfect Storm brewing–rising hourly rates and law firm profits meeting a bad economy and law departments facing significant cuts–and that theme echoed from one panel to the next,  Good news for Valorem–that’s what we do, after all–but perhaps not so good for BigLaw and firms slow to respond.  The one thing that I found refreshing was that the inside counsel at this conference appeared to understand that a firm cannot simply say "we’re now offering alternative fees" and be responsive to client needs.  The move to alternative fees requires major cultural changes in the firms, from compensation to advancement of associates.  One other key message:  fee structures like blended hourly rates and discounts are not alternative fees.  The reality is that more and more clients are looking for firms that have embraced economic models predicated on fee structures other than by the hour.  Perhaps this audience was more sophisticated than average, but I don’t think so.  But even if it was, its a harbinger.