September 2011

Ch-ch-change?

Make sure your outside law firm has a good (and consistent) answer when ask the lawyers how the firm has changed its handling of litigation as a result of the economic upheaval of the past several years.  If they are handling things "the way it has always been done before," ask yourself how you and your company have changed the handling of litigation as a result of the economic upheaval.  Are you and your firm on the same page?

Value Tips of the Day are reprinted here from the Valorem App, available for iPad and iPhone users through the App store.

Cycle much?

Cycle time is one of the most significant drivers of cost.  Do you track it?  Do you create incentives for your outside firms to lower it?

Value Tips of the Day are reprinted here from the Valorem App, available for iPad and iPhone users through the App store.

Dan Hull blogs at What About Paris?, occasionally known at What About Clients? WAP?/WAC? is an eclectic mix of things, many offbeat and many thought-provoking.  But what separates WAP?/WAC? from many other blogs is Dan’s occasional free advice.  It is always worth its weight in gold.  For example, in a recent post, Dan discussed the importance of Federal Rule of Evidence 612 as a means of getting key documents from an adversary. Dan also relentlessly writes about good writing (actually, excellent writing).  And who else brings you insights from Hermann Hesse?

Follow him.  Read him.  Learn from him.  I do.

Legal thought leadership.  I hate the words because they are buzz words that suggest that being a legal thought follower is somehow okay.  When it comes to solving problems for clients, you either do or you don’t.  It is not exactly pass fail since some are better than others, solving problems is not a spectator event.

With this prejudice, I glanced at a LinkedIn update that advertised a seminar on Legal Thought Leadership.  The posting contained a video clip of Jim Durham, CMO of McGuire Woods/  His comment in the video clip was to the effect that if you’re not making money for your client, saving money for your client, making your client look good or helping your client sleep better at night, you’re irrelevant.

Wonderfully stated.  How do you measure up?  (And remember, some clients are internal, or in the office next door, or some are miles away.)

Citi’s mid-year report on law firm profitability is out (reported here).  The news is not good for law firms. Which means the news for clients is even worse.  Here are a couple of the highlights from the report:

  • "we have seen expenses grow so quickly that they are now increasing at a faster rate than revenue, putting a squeeze on profit margins"

  • While it’s hard to forecast what the impact of today’s conditions will be on law firms, we believe it could disrupt law firm work pipelines and deal flow, at least in the short term."

  • "Rate increases and realization stood out as positive signs during the first half. In 2009 and 2010, we saw rate increases that were less than half of those in 2001-2007. In the first six months of this year, we’ve seen that trend begin to reverse."

  • "Some firms increased their operating expenses because they commenced long-overdue infrastructure projects. Many saw a notable increase in compensation expenses, due to spring bonuses."

  • "As Citi Private Bank chief investment officer Richard Cookson has been saying for more than a year, the economy appears to be in for a protracted period of slow growth or no growth, given the systemic issues it is facing."

  • "There’s a good chance that M&A, private equity, and IPO work will slow as companies and investors seek some clarity before doing deals, and a spike in litigation seems unlikely."

For law firms, none of this is even the same area code as good news.  Firms will figure out for themselves what it means.

But what does this mean for clients?  Here’s my list of fall-out:

1.   Pressure on profits never translates into pressure to perform work more efficiently at lower costs.  It translates into pressure to bill more, at higher rates, and to collect what is billed.  Watch for scope creep, hours creep, and rate creep, all at the same time.

2.  Remember the tensions between clients and law firms during 2008 and 2009.  Welcome back.

3.  The turmoil in law firms created by merger talk, rumors of merger talks, rumors of departures, rumors of de-equitization or personnel reductions DOES affect the work on your matters.  Don’t be naive enough to think your work is immune.

4.  If your firm was one of the majority who deferred infrastructure investment and that bill in now coming due, the pressure on firm profits will be even higher.  By the way, where do firms get the money to feed the profit monster?  That would be you.

5. If your firm raised salaries for starting lawyers and then paid out spring bonuses so they could match the big time New York firms, does that suggest they’ve reformed their business model?  They are still overpaying for talent and not providing value.  When it looked like things were improving, they immediately returned to circa 2007.  How does that help you?

6.  Are you a pawn in high-stakes bargaining between your firm and your relationship partner? 

The Citi report is bad news for law firms. But it is worse news for clients.

 

Long-time readers know I believe the answer is "of course."  Seth Godin lays out both sides of the argument is a recent post and urges people to choose one approach or the other.  Actually, you choose to invite criticism or you automatically default to the option of not doing so.  While the reasons for not inviting criticism might be of interest in a high-turnover business, it is difficult to imagine a cogent argument for not keeping clients happy (including finding out what you can do to improve) in the legal business.