July 2009

I received an email this morning that I found really shocking.  It was from Law Firm, Inc., attaching "an offer" from one of its advertising partners, LexisNexis.  The offer was contained in what was formatted as an article or blog post, with this title: "Stacking the bench with more associates wins partners more income."  Here’s the gist of the ad:

Do you think about leverage—or associate-to-partner ratio—as an important metric when assessing your firm’s profitability? Probably not. But many see it as the secret to increasing profitability in a competitive market. By putting less expensive resources on tactical tasks, your partners can focus on more strategic issues. And ultimately that means more profits where it counts. Employing too few associates and underutilizing the ones you do have can seriously impact your bottom line. In fact, top performing firms understand the importance of leverage—and typically have three fee earners for every partner.
You may be saying to yourself, “With three times more associates to partners, our billings would go down.” That is true, however, even though billings shrink—profit per partner goes up. Firms that have equal amounts of associates to partners may have less profit for partners to share. In fact, partners in firms that have an associate-to-partner ratio of three to one can see 30% more profit than firms that are evenly stacked.
 

It’s hard to imagine an ad that could be more out of touch these days.  The leverage model was a bad, albeit profitable, idea in the good old days, but even the most ardent supporter of that model has awakened to the fact that it is not sustainable and absolutely the wrong approach in today’s client environment.  I really shocked that LexisNexis has not found a way to tailor its product offerings.  But assuming that it advertises the way it does because people buy their products to achieve the pot and the end of the LexisNexis rainbow, what does the ad say to clients about how law firms are responding to the current challenges clients and firms are confronting?  Is this the way you want your firm to respond?

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Continue Reading LexisNexis Practice Management: Firmly Rooted In The Past

The ABA Weekly reported today that Jack Welch, former General Electric CEO, told an audience at Society for Human Resource Management’s annual conference that “there is no such thing as work-life balance” and women who take time off for family will have a tough time climbing the corporate ladder.

Statements like these make me bristle. I will not dispute that taking time off for family (or for any other endeavor, for that matter) has obvious consequences — regardless of the career and regardless of gender. But just when it seems that progress is being made, with more women staying in the workforce, having fulfilling family lives and progressing up the precarious rungs of the damn ladder that was undoubtedly crafted by someone with the limited vision of only “up or down”, a general pronouncement from the likes of Jack Welch comes along and moves us back decades. Not because what he is saying is not true, but because he is reporting the obvious as if he is disseminating a new revelation – and the more that revelation is repeated, the more people stretch it, exaggerate it, rely on it and accept it as a foregone conclusion.

Does Mr. Welch seriously think that women are unaware of the fact that their careers fare better when they are at work rather than not? Or that it’s news that there are consequences for every choice made, or that it is difficult to make it to the top of a company? Women know this, have accepted this and are plowing forward in spite of this. But pronouncing it during an interview with ABC’s Claire Shipman in front of an HR conference does not provide any new information to the public. It entrenches the concept as gospel. It sends a message to women that no matter how hard they try or think changes are occurring, it isn’t worth it because nothing will change – least of all, the perceptions of white-haired-white-men still occupying the vast majority of corner offices. And what message does it send to men? Don’t bother trying to foster change by being progressive within your own companies, and go right ahead and discount, from the get go, any woman who takes maternity leave or any other extended time off for family purposes. After all, she’s been warned by Jack!

Would it be appropriate if I made what also might be construed as a remarkably obvious revelation? Jack doesn’t know jack about jack.
 

I think the world of Dan Hull.  Smart, opinionated, tough-as-nails, erudite.  Great writer. Funny as hell. Plus we share an unwavering commitment to providing unsurpassed client service.  We don’t see eye to eye on everything, though.  Dan still believes in the billable hour.  I have devoted my life to proving it the bane of the legal universe.

Another issue on which we disagree is work life balance.  I read Dan’s two recent posts, Work Life Balance Is Still A Dumb-ass Issue and Breaking news: I will name my next three children after Jack Welch and three thoughts immediately came to mind.  Dan believes there is an inherent conflict between being in a service profession and having a life outside that profession.

Let me start with a point of agreement.  Ours is a service profession.  To excel and succeed, we must be devoted to our clients and their needs.  The relevant numbers for measuring devotion are 24/7/365, not 9 to 5. I am sure there is no light between my position on this and Dan’s.

But Dan’s writings on this suggest that work-life balance cannot be reconciled with 24/7/365.  Here are the thoughts that come to my mind: Hobson’s choice v. Kobayashi Maru.  A Hobson’s choice “is a free choice in which only one option is offered, and one may refuse to take that option. The choice is therefore between taking the option or not; take it or leave it.”  I do not see the choice as a take it or leave it, one or the other.

I have been at a ballgame with my kids and had to respond to urgent emails from clients or step to a quiet area for a phone call.  I happily do so and my kids seem not to notice my momentary disengagement.  On occasion, I have had to work late to get something done to meet client’s deadline.  I do so and neither my family nor I resent the need to do so.  But when client needs do not require my immediate attention, I have left work early to watch kid activities or see a school concert.  I am leaving on vacation shortly and while I will be reachable for important calls, the substantial bulk of my time will be spent with my family.  If those “balances” are good enough for me, they are good enough for all of my colleagues.  One can have both work life balance and be a true professional fully devoted to one’s clients.

The Kobayashi Maru reference?  The Kobayashi Maru is a vessel at the heart of a simulation in the Star Trek series.  It presents the young officer with a no-win scenario.

James T. Kirk takes the test three times while at Starfleet Academy. Prior to his third attempt, Kirk surreptitiously reprograms the simulator so that it is possible to rescue the freighter. This fact finally comes out, later in the movie, as Kirk, Saavik and others appear marooned, near death. Saavik’s response is, “Then you never faced that situation. Faced death.” Kirk replies, “I don’t believe in the no-win scenario.” Despite having cheated, Kirk was awarded a commendation for “original thinking.”

I may not ever receive a commendation for original thinking, and I most certainly am no James T. Kirk, but I’m not too keen on no-win scenarios either.  The client commitment v. work life balance conflict can most certainly be a win-win for all.

 

 

Continue Reading Work Life Balance and the Kobayashi Maru

Dave Bohrer of

Confluence Law Partners

recently published an article,

Trolling For Efficiency, 

which discusses the impact of using alternative fees in patent defense litigation. [I should be able to post a link to the article in a few days.  Email me for a copy in the interim.]  Dave is a former BigLaw IP partner, and he knows the cost of defending a patent case as well as the benefits that his new model creates.  Thus, I was particularly interested in this portion of his article:

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In the case of fighting trolls, hi-tech does not want to pay the $5 million-plus charged by hourly firms. The fixed-price discussion necessarily focuses on lowering the cost to levels where it is less expensive to fight than settle. One of the unanticipated advantages of this process, according to Neal Rubin [of Cisco], is that "counsel’s willingness (or unwillingness) to share the risks and rewards of litigation can help  [Cisco] assess the strengths and weaknesses of its case. While firms are not equally risk positive or averse, a firm’s willingness to accept risk provides a useful litmus test that can help instruct the client whether it has realistically assessed the strength of the case. The straight billable hour model provides no such feedback."

If lawyers won’t put their skin in the game, perhaps it is because they think the bet isn’t likely to pay off.  And if your lawyers think that, shouldn’t you take a much harder look at whether you are accurately assessing your position in the case?

 

Continue Reading Does Skin In The Game Improve Case Assessments? Clients Say Yes.

 

Someone emailed me the link to an article, in Claims (Covering the Business of Loss).  The article, Fleecing The Golden Goose: Why Insurers Need A Defense To Overbilling Lawyers, addresses the phenomenon of overbilling in the world of insurance defense.  Here’s the tally:
While the good news out of all the reports on lawyer overbilling is that the majority of lawyers do not engage in overbilling practices, the bad news is the compelling evidence that a sizable minority of lawyers throughout the profession do engage in abusive billing practices and that the insurance industry has been a particular target of billing abuse. It is clear, then, that prudent insurers need to take definitive, defensive steps to further guard against becoming the victims of lawyer overbilling.
The article refers to several studies and suggests that overbilling may add 15-30% to most bills.  That, my friends, is real money.
 
The solution, according to the article is to play better defense:
Insurers need to adopt a comprehensive, three-step defensive program that includes: clear billing guidelines based upon the ethics of the legal profession, a good e-billing program, and an effective legal bill review program. Employing all three defensive measures is critical. For just as a three-legged stool cannot stand on just one or two ends, a successful program to defend against overbilling lawyers cannot succeed without all three necessary parts of the program.
 
To be honest, I think that any solution that tries to catch overbilling at the back end is destined to fail.  When it comes to their billing practices, lawyers are really smart.  The suggested solution is like an arms race where one side acquires the new weapon of choice.  I believe a better solution is the use of fee structures other than the hourly rate, even in the insurance defense world.  But, in the insurance world, that, to quote Jim Croce, is "tugging on Superman’s cape, or spitting into the wind."

 

Continue Reading IsThe Insurance Industry Waking Up?

 

A July 14 post on Chicago Law announced that Joe Collins had resigned from Mayer Brown following his recent conviction in the Refco fraud debacle.  That was hardly newsworthy: Collins had been on leave since 2007.
 
Here’s the quote that caught my attention: "The story also says few other lawyers at Mayer Brown knew much about Collins’ practice because of the firm’s eat-what-you-kill compensation system."
 
Think about that.  A client hires a giant international law firm, and it gets the brainpower of one guy.  But the real secret is how common that outcome is when the firms employ an "eat-what-you-kill compensation system."  After all, why should any of Collins’ fellow senior partners spent their time on his matters when doing so benefited him at their own expense.  While there are exceptions to every rule, the inescapable fact is that money creates incentives for certain behaviors, and in an eat-what-you-kill system, collaboration is not a behavior that encouraged.  So it doesn’t happen.
 
If you’re a client, think about whether you are better off if the senior, experienced people in a firm work collaboratively for your benefit.  To me, it’s a no-brainer.
 
It’s enough of a no-brainer, that when we created Valorem, the partners agreed that we would be compensated equally.  We rise and we fall together.  We did that because we have our skin in the game with our clients.  This system creates financial benefits from collaboration–for each of us.  And we never have to wonder whether a partner is doing something for his or her own benefit.

 

Continue Reading BigLaw Partner Compensation Systems Hurt Clients

 

 

ACC blog post notes that Jones Day is charging Chrysler hourly rates ranging from $400 per hour for the youngest lawyer to $950 per hour for the most experienced. 

Wow.  Let’s run the numbers.  Assume that because work is slow, the $400 lawyers work only 2000 hours per year.  That’s $800,000 of revenue.  Salary, benefits and overhead are, say, $300,000.  That cool half a million dollars of net profit per baby lawyer is not bad.

 

Continue Reading How High Is Too High?

The pain just keeps getting more intense.

Morgan Lewis just announced that it is:

  1. 1.  canceling all on-campus interviewing this coming fall; 
  2. 2.  canceling the summer program for 2010; and 
  3. 3.  pushing back the start date for current summer associates to 2011.

Ouch.  

  I keep waiting for a firm to say it is dramatically changing its business model, but apparently more pain is required before something so drastic happens.

 

 

 

 

Continue Reading More BigLaw Pain

My friend Pam Woldow of Altman Weil just posted "An Open Letter to the General Counsel."  It is must-read material if you are an inside lawyer.  See if you identify with any of these comments made to Pam in an interview with a GC of a major transportation company:

1. “My legal budget has been drastically reduced, and if my legal spend exceeds budget, my management has made it clear that I’m toast.”

2. “A logical cost-cutting step would be to move my matters to smaller non-New York white shoe firms whose rates are better and whose service seems competent (and which often offer superior responsiveness, too).

3. “But if any of these smaller firms messes up an engagement — or even if they actually do a good job but the outcome is disappointing — my management will roast me for not engaging the ‘best’ firm."

4. “The ‘best’ firm may not be able to produce a better outcome, but at least their reputation offers me the defense that ’no one could have produced a better result.’ And my selection judgment remains unimpugned, even if my budget takes a beating.”

5. “So all in all, it’s safer — at least in the short term — to keep all my matters with high-credibility, high-priced firms. Furthermore, by maintaining the status quo, at least I don’t have the logistical hassle of moving my business and setting up new counsel-relations protocols. At the end of the budget year, though, I’m gonna get killed.”

 

From my vantage point, I’ve seen this "damned-if-you-do-damned-if-you-don’t-paralysis" too many times.  And as the innovators who left the big-name brands, we find ourselves on the losing side of this affliction.  Pam’s letter offers realistic, precise advise on how to address the competing budget and safety concerns. 

While there is more involved than this, the crux is to distinguish between "bet-the-company" matters and more ordinary course matters.  Show show your fealty to brand on the true "bet-the-company" matters where senior management is more likely to have a stake or awareness.  But isn’t ordinary course precisely where you should be demonstrating you interest in your budget?  Doesn’t it look better to the powers-that-be if you can show you’ve taken some smart, innovative steps to save money?  Keep in mind that 97% of all matters settle, and I suspect for many companies, that number is closer to 100% for these kinds of cases. 

The risk of the status quo is that you’re "gonna get killed" or will be "toast."  The risk of change is …..?  At some point, one needs to reflect on Albert Einstein’s definition of insanity.

 

Continue Reading I Highly Recommend “An Open Letter to the General Counsel”

Ph.D. from the University of Chicago. Then President of a think tank in Washington, D.C.  Then, motorcycle mechanic.  Not a normal career path, to be sure.  This is the path taken by Matthew Crawford, author of Shop Class As Soulcraft: An Inquiry Into The Value of Work.

The author and his book were featured on an NPR story, ‘Soulcraft’ honors an honest day’s work.

And this has everything to do with the legal profession because . . .?  Let’s start with part of the dialogue on the broadcast.  Economists have taught that "anything than can be put on a container ship will be manufactured where labor is the cheapest."  But then the critical jump: "A similar logic has emerged for the product of intellectual labor, anything that can be delivered over a wire….will be."   Crawford then focuses on a distinction between work that has to be done on site and work than can be delivered, whether via a container ship or the internet.

I was fascinated by this distinction because it captures the "off-shoring/contract lawyer" concept, and because it helps crystalize the Jeff Carr "Four Buckets" theory as well as the gospel of Richard Susskind.  Crawford’s lesson:  "Find some work where you can make yourself useful to other people in a straightforward way that engages your own judgment and thinking so that your actions feel like they are genuinely your own."  This lesson is true whether you are fixing motorcycles or providing counsel to a client.  If you don’t, your job may well be one of those sent elsewhere.

Continue Reading What Can Be Outsourced Eventually Will Be