It was my great fortune today to have lunch with Gerry Riskin and Rob Millard of Edge International, and my partner, Nicole Auerbach. Wow. Wow. Wow. I’m a huge fan of Edge. Gerry or Rob, alone, will inspire a great conversation, but together they ensure that the conversation will be eye-opening, mind-expanding and thought-provoking. But then watching the interaction with Nicole, one of the most creative lawyers I know, just made me want to put aside my lunch and watch and listen. For those of you who know me or even have just seen my picture, you know that it takes a lot for me to push aside a meal. But in the course of an hour, we covered legal issues spanning the globe and some Valorem-specific issues as well. And there is no one better than Gerry at listening to a person grasp at an opportunity that seems a tad elusive and then making one or two suggestions that brings unimagined clarity to the situation. And then Gerry paid, too. What a great day.
My friend Ed Reeser has written extensively, in blogs, Legal On Ramp posts and articles, on leadership issues in law school. If you know Ed, you know that he is the kind of person who leads from the front and he is the kind of leader you love to follow wherever he goes. So when he writes about leadership, I read very closely. His latest piece, The Lost Art Of Leadership, published in today’s Los Angeles Daily Journal, is worth a careful read.
Ed begins with one of my favorite Peter Drucker quotes, "Management is doing things right; leadership is doing the right things." The gist of Ed’s argument is that law firm leaders have failed this essential test of leadership; they have lost touch with the people that make up the firm, and in so doing have brought the firm to its knees. People are the real key, and they are being sacrificed in the name of expediency. According to Ed:
Partners in leadership positions are increasingly not leaders, but those with enough power to demand positions and allocate to themselves, and their friends, increasing shares of money and other rewards. The confusion of the position of leader, with the fulfillment of the role of a leader, has never been more apparent. The short-term approach of present day law firm management appears to have more in common with a smash and grab visit to a Tiffany’s counter than exercise of fiduciary concern for one’s partners or a long-term responsibility for colleagues’ careers.
Harsh, to be sure, but true? This is an area where there is no "right" answer and no data to suggest an answer. But let me share this anecdote. I just returned from lunch with two of the leading and most respected law firm consultants in the world. I assumed their business was booming because certainly in these trying times, leaders would be looking for insights and a sounding board to discuss new ideas and approaches to bring their firms back to economic rightness. Nope, not happening. I suppose its possible that firms really are seeking insights and fresh ideas, but have simply gone to other consultants. Not likely though. Instead of saving careers and being a true leader, isn’t it much easier to eliminate a few jobs and cut back on coffee?
At the end of the day, it is, perhaps, too much to expect that most people running law firms would act as true leaders. Real leadership, after all, is really one of the rarest traits. That is why we so marvel at it when we see it.
Accountability and law firm leadership (actually, management more accurately describes what goes on at most firms) are words rarely used in the same sentence, paragraph or conversation. I decried the lack of accountability last March in my post, Who Is Accountable For The Lack of Vision?. This morning’s AmLaw Daily contains a wonderful article by my friend Ed Reeser, On Law Firm Leadership and Accountability. It is a must read for every partner in a large law firm. Those who lead the firm (or at least make management decisions) should read it for the challenge it poses to them. The rest of the partners should read it for the novel idea that those who lead actually should be accountable instead of anointed.
Ed comes at this issue with a great deal of credibility, having lead the Los Angeles office of an AmLaw 50 firm. Ed does not suggest that so-called leaders who fail their partners should be booted from their positions. His suggestion is far more reasonable:
The partners, including leaders, should respectfully require ALL persons in positions of leadership at the firm, as a group, to proportionally reduce their compensation in 2009, and again in 2010, by enough to bring all other capital partners to projected partner compensation levels announced at the end of 2008/beginning of 2009, should operating performance not be sufficient to reach those income levels, up to a maximum reduction of 20 percent of compensation for Leadership Partners. A lesser percentage doesn’t have enough incentive, and more seems too great a disincentive to good leaders to step up. Build in incentives for superior performance if necessary….but survival of your firm should be enough for true leaders.
What happens if leaders (self-styled, no doubt) fail or refuse to rally behind an idea like this?
If Leadership Partners cannot, or will not, it tells all of partners something they are better off knowing now, and not later: Whether the leadership of the firm exists to promote the betterment of the firm and the partners, or whether the firm and partners exist to promote the betterment of the Leadership Partners. The process will deliver a budget that will finally confront reality, the first step in developing a business plan that works, and a budget everyone can believe in!
The partners of firms are not getting performance which as shareholders they deserve, and have been promised. Leadership Partners, it is time to lead your people, by walking behind them. This may be the last chance for leaders in many firms to make a right decision.
Real leaders lead from the front. If a firm’s leadership can’t commit to this simple concept, they reveal themselves to be anything but leaders.
Jay Shepherd hasn’t billed an hour since September 2006. In fact, no one at the Shepherd Law Group has. You read that right–the entire firm hasn’t billed an hour for 3 years. For those of you who don’t know Jay or haven’t read his blog, The Client Revolution, you’ve missed out. Shepherd Law Group is an employment law firm that will not bill by the hour. Like me, Jay is frequently asked how he sets the price he charges for a matter. Darn it if he didn’t just go and pull back the curtain on the secret. In his post "How do you set your prices?" Jay reveals the answer. The fact that he does so with such humor only makes the read more compelling.
Here is the magic formula:
"How do you set your prices?"
I’ll tell you. (Just promise not to tell anyone else.)
* I analyze the client.
* I assess the importance of the situation.
* I assess the urgency of the situation.
* I pay attention to what my competitors charge.
* I consider the relative values of the different possible outcomes.
* I figure out how hard it would be for the client to get better service elsewhere.
* I determine how important my firm’s expertise is to the likelihood of a successful outcome (in other words, is this going to be easier because of our particular skills, or could any trained monkey use the Interwebs to find the answers?)
* I consider what we’ve charged other clients in the past for similar work
* I consider whether those charges were heavy or light in retrospect
* I consider the likelihood of getting more work from this client
* I assess how much work we’ve done for this client already
* I wonder how important getting this particular job is to our firm (if it isn’t, I might raise the price)
* I decide whether to do a single price for the whole gig, or whether (and how) to break up the job into minigigs with separate prices
* and then I say, "This is our price."
Simple, right? No, it’s not. Price things too high and you don’t get the work. Price things too low and you get work you don’t want, or clients you don’t want, or you just don’t make enough money.
Ask a CEO how his or her company prices their product, and I suspect the answer would not be dissimilar. There is never magic in pricing. There are two options–you are guaranteed a profit and the risk if uncertainty is borne by the client while you have no incentive to be efficient, or you are guaranteed nothing and your ability to earn a profit (and I chose the word "earn" because it is, under this scenario) is based on your ability to structure your representation to be effective and efficient, and thus earn a profit, at that price point. I suspect that Jay has missed the mark a time or two and had matters that were losers. We have. But you learn and move on. We aren’t guaranteed a profit and the uncertainty of the world sometimes overwhelms even the best estimated price.
To those who see what Valorem does and what Shepherd Law Group does as unusual, you’re right. And speaking at least for Valorem, we believe that sellers of legal services do not have profit rights that sellers of other goods and services don’t. We also believe that aligning our economic success with our client’s economic interests will, over the long run, strengthen and deepen our client relationships and be more profitable for the firm.
Great post Jay.
Mike Roster, the head of the ACC Value Challenge and a former GC and outside lawyer, just relayed a story in a post on Legal On Ramp. Here’s the story:
I once was at a board meeting with a director who had been a CEO of several major public companies. We had just heard a presentation by lawyers from one of the nation’s most prominent law firms. At the end of the lawyers’ presentation, this director said, “Now that you’ve done all your hand-wringing – which I know makes you feel good – and have shown us how smart you are, why don’t you tell us what you actually recommend?”
I have heard similar stories many, many times. And I have to confess, I have never been able to understand the penchant of so many to count angels on the head of the pin and then refuse of offer meaningful advice. A client has an inherent, unqualified right to know what his or her lawyer thinks, what the lawyer would decide if he or she was the "decider." Sure, it can be a close call with no sure right or wrong answer. I’m sure client’s react by saying "easy decisions never make it this far north in the organization and we live with incomplete information and uncertainty every minute of every day. Welcome to my world, now get over yourself and TELL ME WHAT YOU THINK."
It is amazing that lawyers don’t have their hands cut off just so they can’t say "on the one hand …"
Well known (and highly regarded) blogger Jim Calloway notes in a post on the billable hour debate that he’s "in the camp of those who believe law firm billing is now a matter of corporate focus and it is unlikely that large law firm billing practices will return to "normal" after the economy rights itself."
"If I hire a plumber to renovate my bathroom, I want to know what his time and materials are!" [GC, major corporation] "Don’t you really just want a nice bathroom?" "But I don’t want to be taken for a ride."
THIS IS WHY YOU GET COMPETITIVE BIDS. BUT TELL ME, WHY DO YOU CARE HOW FEW HOURS IT TOOK IF THE RESULT IS A GOOD ONE?
"How do I know I’m saving money with a fixed fee? Isn’t the law firm just going to take the opportunity to pad their bill even more?" [GC, major corporation #3]
FIRST, MINE YOUR INTERNAL DATA SO YOU KNOW WHAT YOU EXPECT IT TO COST. SECOND, ASK TO SEE A DETAILED BREAKDOWN OF HOW THE NUMBER WAS ARRIVED AT. IF BASED ON HOURS AT ALL, IT SHOULD START AT EXPECTED HOURS AND WORK DOWN–CONSIDERABLY. THIRD, LOOK AT THE MODEL OF THE FIRM. SEEK FIRMS THAT ARE BASED ON EXPERIENCE AND HAVE A TRACK RECORD. FOURTH, MAKE SURE YOUR LAWYERS HAVE SIGNIFICANT SKIN IN THE GAME.
"Lawyers are risk-averse; we know that. So if they have to quote a flat fee, they’ll estimate how many hours it will take and add a safety margin. I’ll end up paying even more!" [GC #4]
THIS IS THE APPROACH MOST BIG FIRMS TAKE TO FIXED FEES. GIVES THEM A BAD NAME BECAUSE FIRMS DON’T TAKE RISK. GET COMPETITIVE BIDS FROM FIRMS WHOLLY COMMITTED TO ALTERNATIVE FEES.
The most critical point, here, is that most companies have significant data, or can access significant data through other companies based on personal and professional relationships. On most matters, you should have a good idea on what a matter has cost in the past. That should be the starting point for a downward negotiation.
Rob Millard of Edge International has authored a fantastic article the "explores some of the changes in today’s world and how they might unfold, especially in the case of law firms." Rob begins his insights with this observation:
The future is not what it used to be. In this turbulent
21st century, things change quickly and outcomes
are too uncertain for static models of strategy and
management that evolved in past decades to remain effective.
The events of 2008 were not a normal cyclical economic
downturn. The world is going through an experience more
akin to an earthquake, and assumptions upon which we base
our business models are being fundamentally challenged. This
article explores some of the changes and how they might
unfold, especially for law firms.
What follows is a discussion of a number of "vectors," including the transfer of wealth from west to east, the impact of the Legal Services Act and the resulting private investment into law firms, including the possibility of such developments in the US, and the changes in technology.
I found Rob’s discussion of the role of private capital to be intriguing, suggesting the question of how private investors would view the current BigLaw model. Likewise, the discussion of coming disruptive change from rapid technology advancements is intriguing.
Rob’s real contribution is the analysis of these and other "vectors" converge, and the importance of that eventuality to a forward-thinking firm:
It is also important to realise that such thinking and such
strategy-crafting can no longer be a periodic, once-off event.
It needs to be an ongoing process, if the firm’s direction is to
be fine tuned (and sometimes perhaps even radically altered) in
response to the constantly changing world.
Just a week ago, I penned a post "What happens if ….?" that inquired simply whether the experience occasioned by the economic downturn would cause people to better plan. Rob’s article identifies the stakes involved and makes clear that one fails to develop strategies for a rapidly changing environment at one’s own peril.
The ABA’s Legal Rebels project was launched yesterday. Here’s the description of the project:
The legal profession is not just struggling through a recession, but also undergoing a structural break with the past. There is a growing consensus that the profession that emerges from the recession will be different in fundamental ways from the one that entered it.
Dozens of lawyers nationwide aren’t waiting for change. Day by day, they’re remaking their corners of the profession. These mavericks are finding new ways to practice law, represent their clients, adjudicate cases and train the next generation of lawyers. Most are leveraging the power of the Internet to help them work better, faster and different.
The Legal Rebels project will profile these innovators and describe the changes they are making. It will tell their stories in the ABA Journal, on this website and through a variety of social media channels using text, pictures, audio and video. The first of these profiles will appear here on August 25. Several will be added weekly through the end of November.
I am honored to have been featured as a Legal Rebel in the story Patrick Lamb: a betting man. My great thanks to Rachel Zahorsky and her editors and Callie Lipkin, the photographer. All of you have made me look and sound better than I am, I am profoundly thankful.
I would be remiss not to acknowledge the others featured on the first day’s releases as well as those who will appear at later dates. I am thrilled to be included in your company.
But let’s not get to the point where we’re mocking folks who are trying to move in the "right" direction. At one point you say you can’t move from fish to fowl overnight, so don’t mock the baby steps. Maybe right now they don’t "get" that they need to squeeze out those 200 hours on every engagement, but aren’t these steps in the right direction? All the writing I’ve read on shift to fixed fee billing suggests it’s hard, and there will be missteps along the way. At some point, aren’t these stories showing a glimmer of recognition?
If the steps discussed in the WSJ article are, in fact, in the right direction, the commenter is correct that these steps should be applauded, not mocked. After all, the journey of a thousand miles begins with a single step. Point well made and taken. So the question becomes, are these fledgling steps in the right direction?
It is, of course, impossible to tell at this nascent moment. After all, how does one look into a man’s soul and know what he really believes. So I don’t know, but I suspect, and would wager some real money on this (the lottery tonight is $250 million and I know I have the winning ticket), that what we are seeing from most of the firms identified in the Wall Street Journal article is window dressing.
Why do I believe this? First, there is incredible pressure on large law firms to get revenue in the door any way possible these days. Overhead has to be covered. So when you have people sitting around twiddling their thumbs, it no longer matters if they work at a comparatively low effective hourly rate so long as they are generating revenue. So it is economically easy to perform fixed fee work when the alternative is sitting around doing nothing.
Second, I don’t see any structural changes in these law firms. Working under a fixed fee arrangement places a premium on experience, not body count. More time is worse than less time. You’ve got to put people through a re-education process: everything they have been taught to value suddenly isn’t very important. People have to learn to evaluate risk–their own risk–on operate with a level of uncertainty they have never dealt with. Not only not easily done, but it cannot be done if a person is given one fixed fee assignment while they have other hourly rate assignments. Picture the spinning heads of the fembots in Austin Powers.
Third, people like Fred Bartlit and other experienced observers of the profession, for whom I have enormous respect, don’t see real change here.
Last, I don’t think one takes baby steps into a paradigm shift. You either are fish or you are fowl. You cannot be both. Having spent 25 years in firms laboring under the billable hour model, including 18 years at an AmLaw 100 firm, and now having spent almost 2 years at a non-hourly firm, that is what I believe.
Bottom line, when I see evidence of earnest change, I’ll stop my mocking. Until then, I can’t control myself.