March 2011

Do you brainstorm?  Do you invite everyone to participate?  Do you welcome all ideas before you start analyzing them?

At Valorem, we have regular collab-o-storms. The brainchild of Nicole Auerbach, these are the meetings where we gather as much of the team as is available and brainstorm about a particular problem, try to figure out a better strategy or whatever.  No idea is a  bad idea.  The one thing that seems to happen with great regularity is that somebody feeds off another idea and comes up with something new and better.  Hence the colloboration part of the title.

Here’s why this has been so valuable.  Most legal times are hierarchical, and people, including senior people in hierarchies, tend to fall in love with their own arguments or ideas.  In the absence of an open forum like this, the senior person’s ideas tend to win by default.  While that might be okay most of the time, we’ve seen first hand how most ideas can be improved upon through this process.

Great concept.  Provides great value.  And everyone enjoys it.  It’s not about debating points or being right.  It’s about finding the best ideas, the best approach, the best solutions.  Very dialectic in nature.

I’ve heard more about Howrey in the last few days that ever before.  And much of what I’m hearing is the utter BS being offered to explain their demise.  The Managing Partner blames the firm’s demise on alternative fees.  The sad thing is that the reporter didn’t call him on it.  I’ve wanted to write about it, but refrained.  But I have received the insights for a former BigLaw insider who is happy to "translate" the recent pablum.  There are two installments–first, go check out Patrick McKenna’s post, A BS Detector’s Review of the Latest Howrey News.  He explains a bit more about our common friend’s experience.

Here’s the the same anonymous insider’s view of the Journal article Law Firm Howrey to Hold Dissolution Votes..  As Patrick McKenna did, I am copying key parts of the article with our anonymous ex-insider’s comments in bold:

Howrey LLP, a prominent global law firm that specializes in litigation, is nearing the end of its life following the exodus of more than 70 partners in the past year.

(Actually it is more than twice that number. Perhaps some were "de-equitized" after departure to not make it look so bad.)

The remaining partners of Howrey are set to hold "a series of votes" in coming days on winding down the firm, Chief Executive Robert Ruyak told the Wall Street Journal in an interview Tuesday. The votes could result in dissolution of the firm, he said.

("Could result"? That is the purpose of the vote and the recommended action by the Chairman of the firm. What is the other option on the ballot?)

Mr. Ruyak declined to disclose when the votes would be held. One person familiar with the matter said several partner meetings were scheduled for Wednesday.

Dissolutions are relatively rare among big law firms, which have traditionally tended to attract a steady stream of business regardless of broader market conditions. Firms that struggle often merge into other firms rather than dissolving wholesale.

The past year’s departures at Washington-based Howrey have included the former chief of the 55-year-old law firm’s litigation practice, who left in December to join another firm.

Although the departures weren’t fatal in themselves initially, they dealt a severe psychological blow to remaining Howrey lawyers, who have seen average profits per partner plummet in recent years. The firm’s spokeswoman said she couldn’t say how many partners are left at the firm.

Howrey, which once employed as many as 750 attorneys and uses the slogan "In Court Every Day," built what many corporations described as "go to" litigation and intellectual-property practices in the U.S. and Europe. Its recent clients have included Yahoo Inc., Boston Scientific Corp. and General Electric Co.

Starting in late 2008 and 2009, however, "the [litigation] market started to change dramatically," Mr. Ruyak said, bringing unsettling swings in the law firm’s profits and, subsequently, a painful exodus of the firm’s partners.

("It’s not my fault. I didn’t know. I didn’t do it. Outside forces beyond my control combined to destroy the firm.")

One of the factors affecting profitability was a move by clients to pay for litigation using new alternative billing and contingency arrangements. As clients began looking to lower their legal costs, the firm took on a growing proportion of work on a contingency or partial contingency basis—shifting a big portion of its business into what Mr. Ruyak described as "future recovery."

(So the tipping point was the response to client pressure for a small percentage of cases to be converted to AFA? Or did the firm take on an increasing number of contingent fee cases, which are not AFA, which is really what it sounds like, and could not replicate the big successes that drove profits in prior years so high?)

Last year, 10% or 11% of Howrey’s billable hours were devoted to matters that were handled on a contingency basis, up from 8.5% in 2009, and from 3% to 4% in the 1990s. The adjustment was "difficult," said Mr. Ruyak.

(So, they were borrowing money to pay draws and not collecting fees on a regular basis and they ran into a cash flow crisis. Imagine that.)

"What we found is that partners at major law firms have very little tolerance for change and very little tolerance for fluctuation in profits," he said. "You couple that with free agency, which exists where partners–without much risk to them–can change firms quickly and rapidly….it’s difficult."

(What a surprise. And such a shame that a visionary leader would have to learn this lesson so harshly. But he will be so much better prepared next time around.)

Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates, Mr. Ruyak said. Howrey, a law firm with many offices in big cities, and thus higher costs, couldn’t compete, he added.

(AHA. SO, the firm survived on overcharging clients for mundane administrative discovery service. And did not have the acumen to adjust its fundamental practice accordingly. That was certainly not anything that was foreseeable or addressable by management.)

A law-firm merger "never was an option," he said.

(Aha, so all those committees and efforts for finding a merger partner, negotiating with Winston, etc. were just a ploy to do something else. Like move expeditiously to a dissolution of the firm one year later.)

"If you have a firm our size, and with our client base, and you talk to any firm that has a large litigation practice, the conflicts of interest are extraordinarily difficult to deal with, which means that many people on either side couldn’t be part of a merger," he said.

(So that is why the litigation partner who was head of the negotiations for both the merger, and then the group lawyer move to Winston, quit this last couple of weeks. That makes sense.)

In litigation, clients often won’t hire law firms or lawyers who have competing obligations to another present or former client.

(The fundamental rules of professional conduct as they relate to absolute client loyalty and the combination of practices with conflicts is such a bummer.)

I don’t know if my friend’s analysis is correct or not.  But he is absolutely right to not believe the nonsense being spewed by the person who presided over the demise.  Here’s the one comment (link here) that got me (also from Bob Ruyak):

Outside the U.S., the litigation market is “very, very different. In Europe there isn’t a lot of discovery. So, cases are much smaller. They may duplicate cases in the U.S. But the cases are usually much more streamlined in Europe, with special courts in some jurisdictions.

“Our extension into Europe was to accommodate our clients predominantly in the patent litigation area. The procedures are very different in Europe by and large and there’s not a big requirement for discovery that we have in the U.S.—as a result, there’s less pressure for alternative fee arrangements in Europe.

“The real problem we ran into in Europe was conflicts of interest. In Europe the markets are smaller and there are fewer cases. It’s a different analysis in Europe. But we had to apply the U.S. standards across Europe. That made it difficult to grow because we had to forgo a lot of cases.

“Because cases are smaller, you need to have a lot more of them to keep things running. You can’t build large offices with lots of lawyer in Europe. For litigation, it’s not the same gain.”

With this comment, Ruyak was attempting to say that things happening in European litigation made the expansion into Europe unwise.  But I am left to wonder what changed in European litigation?  The answer is nothing.  There were no surprise changes.  But I suppose there aren’t too many people these days willing to blame "mistakes of judgment."

 

The New York Times reported over the weekend on Armies of Expensive Lawyers, Replaced by Cheaper Software.  Terrific article.  It focuses on the use of software for e-discovery rather than manpower.  It is only a matter of time until this is the norm.  The article lead to several others, which are worth reading too.  Chris Dale of the e-Disclosure Information Project summarized them in his post, King Ludd and the Lawyers – e-Discovery and the Luddite Fallacy.   I am less concerned with the employment issue discussed in the articles than I am about the speed and cost savings associated with the use of the software approach.  The real kicker, though, is the reference to quality at the very end of the New York Times article:

The computers seem to be good at their new jobs. Mr. Herr, the former chemical company lawyer, used e-discovery software to reanalyze work his company’s lawyers did in the 1980s and ’90s. His human colleagues had been only 60 percent accurate, he found.

“Think about how much money had been spent to be slightly better than a coin toss,” he said.

I know there are other studies that confirm that software outperform humans, and it doesn’t take much imagination to see why.  Profound boredom generally does not yield great results.  But software doesn’t have to be better–that’s just a added benefit–it just has to be as good as human review, and cheaper.  And once the software is written, the marginal cost incurred in the review and screening process is not huge. 

Lawyers who push for manual review, particularly within their own firms, are going to have an increasingly hard go of making that sale.

 

One of the things I learned as a college debater at Northwestern was that if you searched hard enough, you could always find somebody who had said or written something to support your argument, no matter how lame or stupid it really was.  You learn that anecdotes do not necessarily make for the truth.  They may illustrate a point, but just like you can’t determine direction from a single point of reference, a simple anecdote does not necessarily warrant a conclusion.

Why do I bring this up?  The February 21, 2011 edition of Crain’s Chicago Business includes a series of stories in a section called The Dark Side Of Alternative Fees, and the stories suffer from anecdote-itis.  Oh, and none talk about the issues from the client’s perspective.  The first article, When flat fees fall flat,  refers to a problem a firm had when it encountered problems filing a client’s trademark application.  It wanted the client to pay more money, and the client resisted.  The problem stems from the fact that lawyers believe they need to make a profit on every hour, every matter.  If you have an average price, you will have some matters that are above average and some that are lower.  But just like every hole drilled does not yield oil, not every matter will earn a profit.  Business people know this.  Lawyers have not yet learned the lesson, and the Crain’s story is a perfect illustration. 

Profit is not determined on an hour by hour or matter by matter basis.  Public companies report quarterly and annually.  Why should law firms be different?

The iPad may be a game changer.  Every where you look, people are using iPads, and  huge numbers of executives now travel with just their iPad and iPhone.  Other companies are getting into the market, but for now, the Apple products dominate.  But this “iPad audience” is really Valorem’s target audience, so it made sense to have an app.  And because Valorem is about value, there had to be value to the app.  We think there is.  But let’s hear what someone else had to say:

From real life practice:

I come across an app called Valorem Law. It’s an app from the Valorem Law Group, a Chicago litigation firm. Intrigued, I download it. The first time you launch the app while it’s loading you get the following message on your screen: “Other attorneys would be billing you for this time.” I am further intrigued . . . and smiling.

The welcome screen contains five menu buttons: Tip of the day, News, About Us, Attorneys, and Beat the Clock. As I write this post today’s “Tip of the Day” recommends using decision trees to “help you focus on the true settlement value of the case.” There’s also a history of past tips you can scroll through. “Beat the Clock” is . . . your opportunity to do exactly that.

We’ve also gotten several emails complimenting the content, which includes Value Tips for in-house lawyers.  We appreciate the compliments.

 

 

 

The App was the brainchild of Nicole Auerbach, and the content reflects Nicole’s attitude toward work and life: “we take our work very seriously: ourselves, not so much.”  It is possible to have fun and learn something at the same time.  At least that was our goal.  We’d love to hear your feedback and suggestions to make the Valorem Value App even more valuable.