June 2009

Altman Weil has released the results of its 2009 Chief Legal Officer Survey.  To my mind, the most telling result is this:

The survey asked Chief Legal Officers (CLOs) to rate how much pressure corporations are putting on law firms to change the value proposition in legal service delivery, as opposed to simply cutting costs. CLOs responded across the board, with 25% rating the pressure as high – or between 8 and 10 on a zero to 10 scale; 37% rating the pressure in the mid-range at 5, 6 or 7; and 38% rating it low, between zero and 4.

However, when asked how serious law firms are about changing their delivery model, the answers were in sharp contrast. Only 5% of CLOs assessed law firms as highly serious, scoring them between 8 and 10. Twenty percent gave firms credit for some level of effort, rating them 5, 6 or 7. A full 75% rated law firms between zero and 4 on the scale, indicating little or no interest in change.

Wait, did I read that right?  "A full 75% of the CLOs rated law firms between zero and 4 on the scale, indicating little or no interest in change."  How is that possible?  CLO’s put maximum pressure on their law firms and law firms don’t respond.  NEWS FLASH to law firms not responding: IT’S TIME TO WAKE UP!

 


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Two things captured my attention today.  They fit so nicely together because I can’t understand either of them.  First, I read an Above The Law post about DLA Piper abandoning lockstep compensation for its associates.  But it was this quote from co-CEO Lee Miller that struck me so hard:

"I don’t think the model is broken, but people want to rethink what they’re doing and why they’re doing it."

So let me try to understand. DLA is abandoning lockstep, laying off lawyers, cutting associate salaries, deferring associate start dates, expanding its contract lawyer (non-partnership track) program, and so forth.  Sounds like things are just hunky-dory. If things get any more "not broken," DLA will be the legal profession’s version of the Chicago Cubs.

But that was this morning.  This afternoon, Above The Law posted that Buchanan Ingersoll had cut the compensation of its associates by 10%.  ATL includes this statement.

Buchanan Ingersoll CEO Jack Barbour furnished Above the Law with this statement. Barbour suggests that the cuts are in part to due to Buchanan’s attempts to keep its billing rates competitive in this recession economy.

So let me try to understand this one.  There is no indication that Buchanan is cutting its rates, only the compensation.  That money not paid to associates goes to ….[drum roll]… that’s right, the partners.  And while I do not know for sure, I would be terribly surprised if Buchanan did not raise its rates at the end of last year, as it and virtually all firms do every year.

In fairness to Buchanan, they are not the only firm that has cut associate salaries, and perhaps others have tried to justify it in the same way.  But it seems to me if your goal was to keep rates competitive or do something for your clients, actually lowering the billing rates would be a starting point.

It’s been 18 months since we launched Valorem. We clearly don’t speak BigLaw-ese anymore.  Can someone translate these statements so they make sense to regular stiffs?

 


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Mavericks At Work: Why The Most Original Minds in Business Win is a terrific book, written by Fast Company co-founder William Taylor.  The book has many attributes that make it a "must-read," but the one I want to focus on here is a company discussed in the book named NineSigma.  Here’s the backdrop to put this discussion in context.

The discussion of NineSigma takes place within a discussion of the open source movement.  In that context, consider this discussion of P&G:

"We have 7,500 R&D people who operate in 150 different areas of science," [Larry] Hutson explains. "But when you look around the world at these 150 areas, you see that there are one and a half million people outside of P&G with training that is equal to or better than our people.  In other words, for every one person we have in a particular area, there are 200 people on the outside of equal minds or better.  Now it’s pretty obvious that 200 can invent better than one–you don’t have to be a genius to figure that out."

It’s Hutson’s mission to figure out how Procter & Gamble can tap into that outside genius.  His initiative, called Connect + Develop (that’s C+D, as distinct from R&D), has a mandate to help the consumer giant import half of all new technologies and product ideas from beyond the walls of the company.  It’s hard for an outsider, Hutson says, to appreciate the stakes of this shift: "Here you have a nearly one-hundred-seventy-year-old company with an unbelievable sense of pride in its science and marketing.  And we’re viewing the outside world as the other half of our R&D lab.  It’s an absolute sea change."

This alone, without more, should inspire people to imagine change.  But there’s more:

Hutson is also a tireless champion of NineSigma, a fast-growing outfit in Cleveland that has built what it calls a "Managed Exchange"–an Internet-based global network through which companies can issue a call for help to researchers around the world, any of whom may be hired to deliver a solution.  Forget sending a run-of-the-mill RFP to the same old suppliers, NineSigma uses the Web to identify the best minds in a wide variety of fields and sends targeted RFPs to every corner of the world.

There is substantially more discussion of this in Mavericks,but this little hors d’ouvres should inspire lots of thought on how this same model could be modified for the practice of law.  For example, a few ago, I posted on Jeff Carr’s 4 buckets–advocacy, counseling, process and content.  The NineSigma approach to content is obvious–no highly paid associate that the firm is really training should be doing basic, blackletter law research.  That can be done by a pre-qualified researcher at a much lower price.  The firm’s value-add becomes what it does with that basic information.

I am just at the front-end of thinking about this.  But if a company like P&G can go through the sea change described in Mavericks (and you will marvel at the examples provided in the book), perhaps there is some cause for optimism that the legal profession can move forward as well.

One further thought: I have written about Legal On Ramp before, and, indeed, many who read this will be reading it on LOR’s website.  Legal On Ramp is precisely the kind of company that could be the NineSigma of the legal profession.  Be sure to think about the possibilities in that context.

 


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I was visiting with a friend of mine recently.  He regaled me with a story of a lawsuit he had brought against some entity that had screwed up a service it was providing.  He lamented how he had been unable to get the case settled.  He told me that the lawyer defending the case had

Marketing, to be effective, needs to (1) have a point and (2) not insult the listener or viewer.  These things seem to be Marketing 101.  So here I am this morning, driving along listening to NPR.  The announcer reads the piece that programming is brought to you by "[insert name of large national accounting firm] where we are dedicated to providing our clients with thoughtful answers." 

Now I am not a marketing expert, but doesn’t it seem like a client should be able to assume that it’s highly paid national accounting firm will provide thoughtful answers?  Or is there some large cadre of accounting firms that provides thoughtless answers? 

I was going to say that my conclusion is that marketing statements that are obvious insights into the obvious are a colossal waste of money, but that would make me guilty of that which I criticize (although at least this is free!).  So let me leave with this:   there needs to be a quality control element to everything a firm does to present itself to the public, if only to avoid certain ridicule for things like "thoughtful answers." 

 


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One of the points that Mike Dillon, GC of Sun Microsystems, made in his recent post, Change, is that the new generation of lawyers has a different perspective on the practice, which is helping drive change. 

The career perspective of the newest generation of attorneys is an additional factor in driving these changes. They

 

The President’s proposed solution to the economic problems created by the easy loans made during the housing bubble requires banks and other lenders to keep 5% of the loans they package and sell.  The belief is that if lenders have "skin in the game," they will refrain from making bad loans since doing so will cost them money.  All this is according to an NPR story:

Banking industry consultant Bert Ely, 67, remembers when sitting down to apply for a home loan was like going before a judge. "You sat down with a sober banker," he says. Today, "these mortgages are made with the intent of selling, not keeping."

Ely explains that over the years, banks and mortgage lenders started making loans and then selling them off to investors, and when that happened, lenders became more like salespeople. Mortgage brokers and loan officers got their commission regardless of whether a loan was good, and it was somebody else’s problem if the loans went bad.

"The lender doesn’t care as much about the riskiness of the loan or the eventual likelihood of default if he’s going to sell it and not retain any risk," Ely says.

So basically, lenders often don’t have skin in the game the way they used to because they’re not lending out their own money any more.

Listen to the full story here.

All this is interesting if you’re into following the economy, of course.  But it’s also interesting to those who follow issues relating to the billable hour.  Isn’t the problem identified in the story essentially the same issue raised in indictments of the billable hour model?  When you are economically divorced from the outcome, when your profit is guaranteed regardless of what happens, you behave differently than when you have skin in the game.

There are those who take exception to this claim, who believe they are just as efficient using the billable hour method.  There may be the exception that proves the rule, but in this case, I find the claim that "I am just as efficient as I would be if I had skin in the game" to be like Woodstock, which everyone above a certain age claims to have attended even though most didn’t. 

Skin in the game on legal fees drives efficiency.  And results.


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"Designing a nuclear powered aircraft carrier is a mindbendingly complex process."  I love that sentence–if only because of its understatement (and the use of "mindbendingly").  It is from a fascinating article at FastCompany.com, How Does The Navy Design The Nuclear Supercarrier Of The Future?  The answer, of course, is that one designs nuclear supercarriers with the help of virtual reality simulations.  It is crystal clear how this relates to the practice of law, right?

Not so clear?  Let me explain.

With every technological advancement, opportunities arise.  The article on supercarrier design discusses the change from the use of full-scale wooden models when the ships were last designed (a generation ago).  Wood models vs. virtual reality.  Change happens.  Sometimes its really big change.

When change happens in the real world, the legal world eventually catches up.  Can you imagine filing a brief that allows a judge to see in virtual reality what happened in the event at issue?  Can you imagine the ability to bring the parties together on the facts when you can see what transpired?  Maybe less lawsuits or quicker resolution.  Articles like the FastCompany supercarrier article have to be viewed as keys to unlock our imagination. 

Close your eyes.  Imagine.

 
 


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