August 2008

True story.

I was interviewing a potential admin assistant.  She was asked why she was thinking of leaving her position as a very prestigious firm.  Her answer didn’t surprise me since I had heard rumors of this–the firm was not that busy and she was the kind of person who liked being busy.  Good answer.  But the next piece of information floored me.  The associates, (and I’m guessing partners too) were typing their own briefs so they could keep their hours up.

Well, I’m sure that ought to make the clients feel better. 

The creativity of lawyers in finding ways to take advantage of clients never ceases to amaze me.

This message is directed solely to in-house lawyers and any business people who might happen along.  If you’re an outside lawyer, press the back arrow on your browser.

I’ve said many, many times that real change on legal fees, on the economic relationship between lawyers and clients will come only when clients insist on it and lead with their feet (taking their wallets with them) when they don’t like the way a firm is treating them.  But don’t take my word for it.  Take a look at Seth Godin’s post, You Get What You Pay For

If you don’t like bait and switch marketing, where promises don’t match the product, don’t buy it.

If you don’t like snarky, angry blogs, don’t read them.

If you deplore the lousy service at big chains or certain airlines, don’t shop there, even if it’s cheaper.

There’s a new asymmetry, with loud consumers able to connect and actually have an impact.

We’re all hypocrites, and we get what we pay for. The market is astonishingly quick at responding to what consumers do (and incredibly slow at reacting to what we say).

Of course, we can always ignore the rest of the world and use the lawyer’s old standby excuse that "the legal world is different."  To quote my wife, "of course it is, dear."  (She utters this when a look that reflects and incredulity that I could be as dumb as I just sounded to her–I only wish there was a way I could capture that look and insert it here. )

When I started practicing law, lawyers would spend their days busily chiseling their briefs into stone tablets.  I remember several times when a client needed a lawyer in another city, I would be told to go to Martindale Hubbell and review the firms in the City and find "the biggest" or one with a great client list.  And so the process of selecting a new lawyer would begin.

A little over a year ago, Mike Dillon described how things had changed since my chisel and stone tablet days.  From the legal thing, is this from his entry, The Way Of The Mastadon:

Let me begin by asking – what is the function of the law firm? My view is that law firms serve primarily as aggregators of specialized legal expertise. The premise has been that by combining multiple legal disciplines you can provide “one stop shopping” for current and prospective clients. This structure previously made sense. If you were an individual or business with a legal problem, it wasn’t efficient nor effective to try to identify an individual attorney with the technical skills that you required. So, you would turn to a law firm and rely on them to direct you to the appropriate attorney within their firm to solve your issue. The problem is that this model relies on growth (the need to add additional attorneys) to maintain profitability rather than focusing on efficiency gains. In this respect, it is at odds with what I need as a client and General Counsel.

As with so many things, the Internet is changing this business model. It is getting increasingly easier to move the aggregation function in-house. To find an attorney in a specialized area, I don’t need to turn to a large law firm. Instead, I send out an email to my network of other in-house attorneys or within professional associations like the ACC and get referrals. Not only that, but I get true “customer feedback” that is more objective than what I would get from a firm. There is now a proliferation of materials available on the web – judicial opinions, legal commentary and press articles that also provide information about attorneys.

This informal information gathering approach naturally will create an effort to provide some kind of ranking system so that information gathering on lawyers is more efficient, complete and unbiased.  There are signs of this happening already, what with web sites like AVVO.  AVVO, like other ratings, suffers from letting the lawyer control his or her own ranking.    For a system to work, the outside lawyer will not be able to have a voice in it.  But beyond that, it can’t suffer from "the Mom syndrome."  You know, "my mother told me not to say anything if I don’t have anything nice to say."  Because then people will be left wondering whether the absence of ratings is because a person is bad or just doesn’t have clients that are participating in the ranking system.  No, the more ruthless and rigorous the system is, the more value it will have.

Some companies already have in-house reviews compiled and use them to inform their selection of counsel.  More are doing so.  We outside lawyers need to recognize this change and embrace it, principally because it benefits our clients and also because it will happen with or without us, and those who oppose it will look like they’re afraid for a reason.  In an email exchange I had on this topic yesterday, one of my clients reminded me of a shared favorite quote that is apropos here.  From a former Army Chief of Staff:  "If you dislike change, you’re going to dislike irrelevance even more."

On Friday afternoon, I played hooky.  I joined my family at Chicago’s fabulous Navy Pier.  The thought started while I was at the top of the Ferris Wheel with a clear view of the skyline.  But it really hit me on the boat ride, where we heard a bit about Chicago’s history.  The captains of industry decided Chicago would be the rail hub of the country.  Bingo.  The City fathers decided to reverse the flow of the Chicago River, still considered a feat of engineering.  And the skyline which has changed so much in my 26 years in the City, really made the thought concrete.

Change is inevitable.  When the business community decides something will be, it inevitably is.  Perhaps it takes time, but it becomes so.

It most certainly is coming to the legal industry.  Business has decided that the current economic relationship between it and the legal profession needs to change.  So it will be.  And if change is coming, the two choices one faces are to help shape it or be run over by it. 

The skyline will not be the same 25 years from now.  Will we appreciate the beauty of the new skyline or will we be living in the past?

Or in the words of one of my favorite movie lines (from The Shawshank Redemption), "get busy living, or get busy dying."

Mike Dillon, the General Counsel of Sun Microsystems, writes a blog called the legal thing … by Mike Dillon.  Recently, Mike participated in a focus group meeting held by the Association of Corporate Counsel. These focus groups were pulled together to discuss ACC’s return to value program that will be launched this fall.   Mike wrote of his thoughts on the meeting in his post, Finding Value, which I strong encourage you to read in its entirety.

The one part of the post I want to comment on is the part of in-house legal departments. 

"We need to stop complaining and be part of the solution.  This includes not just considering, but engaging firms that provide alternatives to the traditional legal services model."

Of course I agree with that notion.  Valorem is doing great, but we are always in search of opportunities.  But the point of this blog is not to promote Valorem, but to promote ideas.  And so I want to make a couple of suggestions for in-house legal departments.  You have tools and skilled personnel in areas that law firms (especially smaller ones) don’t, and those people could help your law firms perform better for you.  For example, training lawyers on project management skills would help lawyers provide better budgets.  If you use procurement specialists, learning how to look at pricing can’t help but yield more informed pricing.  I could go on, but you get the drift.  Outside counsel face many challenges and some will become part of the solution and some won’t.  But inside counsel should think about the training they can help provide that will improve skill sets that will, in the end, yield better service and greater value.  The need is great enough that there’s plenty for all of us to contribute and still not satiate the need.

Oh, and the name for this post?  My hope that finding real value throughout the profession won’t be like having to launch a telescope into space to see the stars.

 

Can I admit that I occasionally ready Above the Lawa blog about law firms?  It’s like The Enquirer, which I only read while standing in supermarket lines.  On alternate Tuesdays.  Okay, enough self-disclosure.

ATL has a great entry about Citibank’s recent analysis of the economic decline at large law firms.  One of the points made by Dan DiPietro is this one, certain to make associates feel warm and fuzzy:

"There is a silver lining. A bad year (and the numbers suggest 2008 will be even more trying than 2001, when partner profits were down slightly) will enable firms to take steps that partners would resist in a good year — winnowing out unproductive lawyers and applying greater discipline to expense control."

This is read by the associates as code for "FIRE A BUNCH OF ASSOCIATES" since they are the largest expense item in law firms.  But here’s what the ATL author said that brought a smile to my face:

If you need to winnow people out, fine. The pain has to be spread around in times of trouble. But don’t insult people on their way out the door. Just once, wouldn’t you like to read an honest layoff memo?

"Dear Plebeians,

We run a highly successful pyramid scheme. Unfortunately, the economy is tanking. Therefore, the following 50 associates had their names drawn out of a hat, and the results have been certified by PricewaterhouseCoopers. Sorry about this, but some of our unproductive equity partners are having difficulty making it rain.

Respectfully,
The Capstone"

 

Truth will always have something to which it can aspire.

A client walks up to a litigator and says, "I have a lawsuit I need you to defend.  I don’t expect there to be more than 5 depositions.  The contract involved has just three provisions, and there are probably only 500 pages of relevant documents.  There is a single legal issue.  If I give you $5 million, will you handle the case?"  Does anyone believe there would be a shortage of lawyers lined up to handle the case?

Okay, we’ve established that you can fix a fee on litigation.  No more of this sophistry that you can’t figure out how much a piece of litigation will cost.  The only issue is what is the margin of error and how do you deal with it?

Actually, it’s not quite that simple.  Figuring out the margin of error is not that simple.  The first impulse is to figure out how many hours it would take, multiply the hours by the applicable hourly rates and, presto, you have your benchmark.  Of course, those hourly rates have a staggering profit margin built in.  The first goal needs to be to understand cost, because a fee above cost ensures profit, with the only question being how much profit.  Then, once your fee is set, you have a strong incentive to lower cost to increase your profit margin.  That serves you and your client well, so long as your effort to lower cost does not reduce quality or effort.  To ensure against that, a performance incentive (holdback or bonus) can be implemented as part of the fee. 

There is one further point.  There are few businesses that are guaranteed a profit.  Lawyers tend to view themselves differently, although I cannot fathom why.  But even if a lawyer knows her cost structure cold, there is no rule that says a budget must be in excess of the cost.  Obviously that is sound business, but bear in mind that a budget is simply an agreement to not spend more than a specified sum.  While the client–the payor–presumably hopes its service providers make a profit, the important number is the budget–the amount it pays.  And using that definition, everyone can provide a number.

So, moral of the piece:  everyone can provide a  budget.  Everyone can live with a budget.  The real questions are whether lawyers will agree to do so and whether clients will walk with their wallets when lawyers don’t.

Duane Morris laid off 18% of its marketing and business development staff yesterday.  Ed Schecter, the head of marketing, apparently said cost-cutting was "secondary" and the real intent was to build a more experienced, leaner team.  Of course, this is reported the day after Citibank’s Dan DiPietro is quoted as saying the profits of Amlaw 100 firms (which includes Duane Morris) will be down 15% this year, even with all the cost-cutting and staff reductions being widely reported.

Here’s my question:  why do firms (and businesses in general) seem to worry about being lean only when the economy is bad?  If being lean is a good thing, why not aspire to it when times are good?

These questions are obviously rhetorical.  Here’s my point:  tell the truth.  There are many reasons to do so.  Among them are that you owe it to your colleagues.  They presumably did good work for the firm or they wouldn’t be there.  It’s bad enough to release them into a terrible job environment, but to do so with the innuendo that they weren’t good enough is just wrong.  But that type of institutional loyalty is collateral to the real reason.  All over the legal world today, people are making fun of Duane Morris simply because they didn’t have the fortitude to acknowledge that which everyone believes to be true–they let some people go in order to reduce expenses.  And I promise you that the memory of the lie is much worse than any feeling created by acknowledging that tough times bring tough decisions.

ADDENDUM:  Today brings a report that Duane Morris laid off an additional 15 staffers.  The point of this post was not to pick on Duane Morris, but the richness of this development can’t be ignored.  The spokesman who said the economy was secondary to the layoff of people in the marketing department  has had his crebility as a firm spokesman damaged even more by this development.