April 2009

When we created the Valorem website, we boldly declared that "The Billable Hour Is Dead."  It was a bold statement, clearly relying on the "dead man walking" concept.  Today, a former partner and still friend of mine brought this blog post to our attention (Thanks Debra!):  Billable Hour Admitted To Hospital.  It is riotous.  Here’s a sample:

Look, it’s no secret that the billable hour suffered an intense loss when his good friend mortgage-backed securities essentially passed away in early 2008,” explained legal commentator David Lat during an interview with Fox & Friends. “Now, people are turning on old billable hour while the economy’s in the toilet and he’s got nowhere to turn. I wouldn’t be surprised to learn that the billable hour tried to take his own life.”

A small candlelight vigil for the billable hour has already started to take shape outside of the Lenox Hill hospital. “I came here out of respect for a dear, dear friend,” explained White & Case LLP partner Leslie Davenworth. “People may say things like ‘the billable hour is dead’, but as someone whose ascent to partnership was based solely on my logging of 2,500 or more hours per year, I refuse to believe it. I’ve just become too attached to my good friend to say goodbye right now.”

The post is from Litination.  (By the way, the Associate Photo captions are worth a visit.)

Another great post by Dan Hull at What About Clients?, this one on Ease Of Use Services.  Dan begins with a pet peeve I share, the way the gap between the lip service to client service and the actual service provided has rendered the notion of client service nearly meaningless.  For some organizations–Dan’s firm, elite hotel organizations such as Four Seasons, and others–client service is part of the organizational DNA. 

Dan raises the question of what if firms had to compete on our clients’ ease of use experience.  He frames the question in the context of Folgers coffee can, which won an ease of use commendation from the Arthritis Foundation.  Dan then issues this challenge:

Develop and apply ease-of-use concepts to pure services? Our clients’ services? Our services? Sure, why not? It’s probably coming anyway, even while it will be infinitely harder to do for services than for products. WAC? has noted before that even corporate clients that sell goods see themselves as selling solutions and not products.

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Law firms, of course, have always sold services. And we are a small but powerful engine in the growth of the services sector. We strategize with and guide big clients every day. While that’s all going on–day in and day out–what is it like for the client to work with you and yours? Are clients experiencing a team–or hearing and seeing isolated acts by talented but soul-less techies? Do you make reports and communications short, easy and to the point? Who gets copied openly so clients don’t have to guess about who knows what? Is it fun (yeah, we just said "fun") to work with your firm? How are your logistics for client meetings, travel and lodging? Do you make life easier? Or harder? Are you accessible 24/7? In short, aside from the technical aspects of your service (i.e., the client "is safe"), do your clients "feel safe"?

What if law firms–or any other service provider for that matter–"thought through," applied and constantly improved the delivery of our services and how clients really experience them?

And then competed on it…?

That imagining thing is hard.  Turning into reality?  Way hard.  But if client service was easy, everyone would be doing it.  Instead of just talking about doing it.  Dan’s post goes right to the core of real client service–it is not what you do,it is who you are.

 

 

Jeff Carr, the General Counsel of FMC Technologies and ACC Board Member, has spoken often about his idea that legal services fit into four buckets, two of which he is happy to pay for and two of which he thinks will someday be free.  Jeff says he happily will pay for advocacy and counseling, which require skill, expertise, knowledge of the company and which are, at their core, customized services.  The other two buckets are process and content.  Jeff sees these kinds of products as ultimately being provided for free or at very minimal cost on the web.

I know that some people have questioned this vision.  But a new post in The Adventures of Strategy by Rob Millard or the renowned Edge International consulting group suggests Jeff’s vision is here, or at least on the not-too-distant horizon.  Rob’s post, The inexorability of commoditization, describes Wilson Sonsini’s launch of a web-based Term Sheet Generator for venture financing for free.  The story also is described by Ross Hollman, in Strategize, who discusses the "why" question:

Why would Wilson Sonsini do this? It’s not really costing them anything — by their own admission, it is a web-based, generic version of a tool that they already use in-house. Maybe the end result will work for some venture money, but my guess is that there’s enough that’s generic that you may need to call Wilson Sonsini for advice and/or customization: give away the artifact (i.e., the term sheet) and make your money on the resultant service. Will some other attorneys use this and charge their clients for it? Probably. But my guess is that Wilson Sonsini is not after the clients that would go to those types of attorneys.

Rob Millard then makes the point Jeff Carr has been preaching:

Ross and others preaching a similar message including Mark Chandler (general counsel of CISCO,) and Richard Susskind (author of ‘The End of Lawyers‘) are dead right: the days of selling knowledge or standardized templates by the hour are almost gone forever. In the (near) future, information and "artifacts" (I love that term … ) will be freely available in the market. Professionals will only make money where they need to apply deep expertise and judgment to their clients’ specific businesses in ways that yield high value. For this, they will be able to charge superior rates not only because of the high value to the client, but because such deep expertise and judgment will remain rare in the market given the effort required to acquire it and remain up to date. For those relying on less sophisticated services, the price race is on …. all the way down to zero.

Given the paradigm shift now underway courtesy of a troubled economy, I wonder how many law firm leaders will think about this issue.  I wonder how many will actually frame their plans around this idea.

I was intrigued by a a post penned by my friend, Dan Hull, on What About Clients?.  In We, The Undisciplined, The Miserable, Dan raises this issue: "Do we lawyers know how to get things done, done right and done on time? Do we even value that? I wonder."  Dan then compares the results obtained in business schools and in big company training programs with the results achieved through training at law firms.  Dan ends his sobering post with this observation:

For a long time I’ve thought that American business schools and the training programs of global and often publicly-traded companies do a much, much better job than do law firms of training recruits to value and adhere to the structure of a plan on an item for action. It’s almost as if law school and firms deem us all such "professionals" and "artists" that we are beyond learning skills of project planning and execution. What a crock. Not learning the value of pushing non-urgent but important things along at a steady pace has cost us dearly. As motivated as lawyers often are, our discipline for sticking to anything and seeing it through is often poor; again, unless it’s urgent, we just don’t see its value. Do our best clients run their businesses that way?

This attitude is the norm, and we lawyers–who rarely innovate or take a leadership position on anything in commerce–are just fine, thank you, with it. After all, "all the other law firms" are mediocre on the discipline of getting things done, and have "crisis-only" mentalities–why shouldn’t we be that way? So we waste time blowing off important but longer term projects. Worst of all, we send to others in our firms, and especially to younger lawyers, the message: "No worries–just work on a barely adequate level; don’t do things until you have to; and if it’s not urgent, let it slide." As with client care and service, our standard is not only embarrassingly low, we are exporting that low standard internally whenever and wherever we can.

Great point.  Great post.

 

PS:  Of all the blogs I read, WAC? is a favorite.  Always well-written, sure to make the synapses of my brain fire, and dedicated to providing the best service to clients.

The AmLaw Daily reports today that an insurance company has sought to compel arbitration against a prominent Los Angeles based firm over the reasonableness of its fees handling a toxic tort matter.  Among the allegations are an associate who has not yet passed the bar charging $450 per hour.  Over a 4.5 year period,the firm charged the insured nearly $22 million.  The petition also refers to the size of the legal team:

 For the most part, the team of 15 attorneys and 11 staff spent their time reviewing the same things and then billing to confer among themselves about what they had reviewed.

The firm declined to comment, and it appears from the article that the firm was charging a blended rate, which led to the $450 per hour issue. 

A couple of things bear comment.  First, as I have said before, lawyers who bill by the hour and firms built on that model have a cultural ethos that seeks to maximize hours.  There is no simple way around it–if your model begins with an intent to charge for time, people will look for ways to maximize the time spent.  It doesn’t matter what the firm says to contrary in its marketing materials or even if it occasionally negotiates non-hourly fee arrangements.  Institutional culture trumps one-offs every time.

Second?  I’m thinking how much lower the total paid could have been if a results driven fixed fee had been agreed to.  But then, don’t get me going on insurance companies and the money that industry wastes.

I had the great privilege of participating in FutureFirms 1.0, organized by Professor William Henderson of the Indiana University School of Law.  The event, sponsored by Hildebrandt, feature four teams comprised of law firm partners, associates, current law students and actual clients.  There was a fact pattern that all teams operated from, essentially a typical AmLaw 200 firm that was looking to restructure itself.  The contest is wonderfully described by Aric Press, the Managing Editor of American Lawyer, who covered the event.

Those familiar with Valorem Law Group know that I have spent considerable time thinking about the right business model for law firms wishing to place a stake in the future.  What made FutureFirms 1.0 was the the chance to discuss many of my ideas with people far smarter than me and constituencies such as law students and actual clients.  I learned so much, and I am so very grateful to  my teammates, including the phenomenal Ed Reeser, Mike Short (our Hildebrandt consultant), Tonio Desorrento, Sonia Miller Van-Oort, Darrick Hooker, and two outstanding law students and three clients who shared so many insights. 

I was encouraged by the fact that all four teams had many common ideas that demonstrated true focus on meeting clients needs, and a willingness to invest in the steps needed to change firms in ways that will make meeting client needs more realistic.  One of the most interesting parts was a mini-keynote delivered by Anthony Kearns, CEO of the Legal Practitioners Liability Committee (of Australia), a co-organizer of the event.  Rarely has there been so much substance delivered with such humor.  Aric Press summarized the presentation this way:

To add urgency to this climate, the weekend began with Kearns, the Australian lawyer, offering an amusing but sharply focused description of the American big-firm landscape. Here’s what he sees:

1. The big-firm bubble is about to burst. Choose your pin: angry clients; the exodus of talented people from the practice of law; the competition for associates that firms can’t afford; the increased competition for business between and among the firms.
2. The prevalence of bigger and stronger in-house departments.
3. The presence of three generations in the law firm workplace.
4. The global financial crisis, which has broken the old relationships.
5. The utter failure of firms to differentiate themselves to clients or recruits. (And, I might add, to themselves.)

And then he compared this situation to the lot of turkeys. On average, he said, they live 1,000 days. Each day when they wake up, everything seems exactly the same, except that some friends are not around anymore. Everything else seems to be okay. Get to day 1,000, however, and things change, suddenly and with extreme prejudice. He didn’t think a lot of firms would die like a slaughtered fowl. Nor did he think that large law firms were going away. But some were in jeopardy, even though they didn’t know it. Deaths take a while, and intensive care can prolong all sorts of partnerships.

The question: Is it too late to get healthy?

Or, as the great man wrote, are you busy being born or busy dying?

Special kudos to Professor Bill Henderson and his IU colleagues for hosting such a thought-provoking event, and to Hildebrandt for sponsoring the event.  I hope there are more to follow.

Yesterday, I saw something I had never seen before.  A Lincoln pick-up truck.  I’ve never seen a BMW pick-up, or a Lexus pick-up truck.  Nor, if memory serves, an Audi, Bentley, Rolls, Porsche or Infinity pick-up.  I was surprised.  Lincoln used to represent the ultimate in American luxury cars.

Why did this resonate with me?  I had been having a conversation with a friend of mine, a partner at a very large law firm.  He kept talking about the firm’s multi-stage platform and how good the firm was at, well, everything.

When I saw the Lincoln pick-up truck, I knew two things.  One is that it is not possible to be all things to everyone, or even many.  These days, that opportunity doesn’t exist anymore.  And if you try to be all things to some, you are destined to be nothing to all.

The second thing?  I’ll never buy a Lincoln, precisely because of the first thing.

The March 30 issue of National Law Journal contains an article, reprinted on Law.com, discussing how some inhouse lawyers are responding to the economic crisis by asking their firms to slash hourly rates.  The discounts discussed in General Counsel Pressuring Firms Amid Recession  are not quantified, but include references to "we’ll match any qualified offer" and similar gimmicks.  Those inhouse lawyers seeking discounts to offset budget decreases of up to 35% of ignoring the fact that the hourly rate is only one component of the cost equation.  This point is effectively made in the article by Joel Henning of Hildrebrandt and Susan Hackett of ACC.  It’s a point I’ve made before as well.

The articles does note that some customers are moving their work from large firms to smaller firms where the value offering is much higher.  This is a smart step, but it should not be the only step.  Lawyers at any firm want to make money, and if the hours are available, the numbers on that side of the equation will pile up.  The keys are efficiency and quality, two attributes never associated with the hourly rate model.

General Counsel faced with unprecedented budget cuts need to be more creative than simply seeking discounts or moving work to lower priced providers.  There are systemic solutions there to be had.

I recently wrote about whether BigLaw would take the opportunity provided by the economic downturn to change their fundamental business model. Yesterday, I ran across an article in law.com suggesting change may be occurring.  Tough Times For Law Firms, Lawyers May Be Catalyst For Positive Change posits the theory law firms are changing because they are changing the way they hire and the starting salaries for new associates.  Written from the perspective of a legal recruiter, the article misses the mark.   The change addressed in this article is peripheral at best. BigLaw firms are about the partners, not the associates.  Clients are really secondary, necessary evils needed to bring in money.  Associates are overhead. 

Here is the benchmark by which one will be able to judge whether real change is occurring in the legal profession.  When firms abandon leverage in favor of efficiency and quality, change will have occurred.  When the focus is on providing materially greater value at materially lower costs, real change will have occurred.  When the focus is on winning (however a client defines that objective) instead of body count, real change will have occurred. 

We aren’t there.  We may never be.

Accountancy Age encourages financial advisers to "charge by the hour if you want to survive."  Essentially, the argument is this:  hourly fees are more predictable than commission-based income.  Meaning, you can more more if you charge for your time than if you charge for your results.

Pathetic.  Especially when you realize that the minute the market starts north, people will abandon the hourly rates to return to lucrative commissions.  I propose this slogan for the financial advisers who adopt this approach: "We’ll soak you silly when you win, and then soak you more when you lose."

Thanks to Trey Meyer and his LexKansas blog for the tip on this article.