June 2012

I had to do a bit of catching up on my MCLE, so I watched a program entitled Attorney Alternative Billing Options and Their Ethical Considerations.  Apart from the absence of any meaningful discussion of ethical issues, I was stunned by the speaker’s unequivocal statement that “discounted fees are a form of alternative fees.”  I am appalled that any thoughtful person would encourage this pablum, which is the nicest term I can conjure.  Alternative fees are based on the billable hour.  Not only do discounted fees not align the economic interests of firm and client, the structure has been proven not to lower total spend.  Empirically, it is no alternative at all!  Shameful shilling for large law firms who want to look like players in the AFA world but do little more than adjust their bills.

There has been a great deal of speculation about the collapse of the European common currency, the Euro, should Greece withdraw from the Euro or if Spain’s banking system collapses.  It is impossible to know how long or whether the Euro will last.  Indeed, given the relative cost to countries like Germany, bailouts are much less expensive.  But as we saw when the US Government refused to save the housing market because of the political concern about rewarding speculators, sanity does not always prevail in these matters.  As a result,  businesses need to prepare for the worst when it comes to their contracts.

Many  contracts that require payment in Euros.  But what happens if the Euro ceases to exist? One possible outcome is that one party would seek to substitute an alternative currency for the Euro, like dollars.  However, the payor is likely to seek its own country’s currency since alternatives like the dollar are likely to be very expensive for foreign businesses to obtain. It is entirely predictable that a Greek company would seek to have its obligations set in the new Greek currency and that a Greek court could make that ruling.  Given what has happened in places like Argentina, being paid in a new currency will not provide the seller the value it expected.

Here are five steps businesses can take to address the potential uncertainties regarding the Euro:

  1. For existing contracts, seek to amend the contract to add a provision that details what will be done if the Euro collapses.  The certainty will be of benefit to both parties.
  2. Add similar “what-if-the-Euro-collapses” language to future contracts.
  3. Watch your Euro receivables more carefully that ever before.  If you let a receivable grow, the problem will be greater if the Euro collapses.
  4. Consider whether new Euro contracts should be made at all.
  5. Require advance payment or COD if possible.  Once you’ve been paid, you can always convert the currency.  Your risk is in delayed payment.

I was asked the other day by the Chicago Daily Law Bulletin to comment on a survey conducted by Altman Weil.  I did so, and reviewed the resulting article today.  The article, which I have only in hard copy, includes this statement by Bryan Schwartz, the chairman of Levenfeld Pearlstein LLC:

I think the middle is going to get gutted.

To put his thought in context, here’s what the article said:

Schwartz’s theory is that the law firm model will shift to match changes he said were seen in the last 10 years in accounting firms.  That shift will mean fewer leaders at the top of law firms and more young people churning out work at the bottom, Schwartz said.  “I think the middle is going to get gutted,” he said.

Really?  Clients who are unwilling to pay for new associates because they add no value will now do so?  The lawyers whose judgment and experience bring value to the clients–those in the middle–are jettisoned and clients will go along?  I think not.  The fact is that law firms are adjusting themselves to be advocates and counselors, while companies like Novus and Practical Law Company are taking over the process and content work previously done (at enormous cost) by law firms.  This is the adjustment that is causing the economic squeeze on firms–the process and content piece of the pie has been the most lucrative and clients are realizing that they get as good or better work product from companies who specialize in those specific areas.  To the extent there is a “gutting,” it will be at the young lawyer end of the job spectrum.

To quote my friend, Ed Reeser, “that’s my opinion.  I could be wrong.”

Pam Woldow just pulled back the curtain on the 800 lb. gorilla in most lawyer-client relationships–money.  Here’s the back story from a program Pam led for a law firm and one of its main clients:

Then the conversation turned to budgeting, and the tenor turned tense.  One partner, speaking with a hint of self-righteousness in his voice, said, “our priority is to provide the finest possible legal service. We find it distasteful to talk about grubby money matters with clients. We want to do the legal work to the best of our ability and then send the bill.”

Jaws dropped. The client-side folks looked at each other in disbelief.  Silence darkened the room.  After a pregnant pause, the highest-ranking client lawyer cleared his throat.

I don’t think you guys are getting the memo.  Look, we are in the business of talking about money.  In fact, money is our business.  We want to talk about legal costs.  We do not consider negotiations about money to be…grubby.”

Amazing.  Utterly amazing.  Regrettably, however, it is all too often the case that lawyers are afraid to talk to their clients about money, whether before doing the work or after.  Most would not refer to money matters as “grubby” (talk about lack of audience awareness–wow!), but the silence regarding the conversations is still the same.

The part of the statement that really captured my attention was the disconnect between the legal work, the fee and the client.  It is as if the lawyer believes he determines what the client is paying for and how much.  There can be no mistake about this most fundamental point:  IT IS THE CLIENT’S MONEY.  THE CLIENT, NOT THE LAWYER, DETERMINES WHAT WORK IS DONE AND HOW MUCH IT WILL PAY FOR IT. If the lawyer is uncomfortable with this reality, the client should exercise its inherent power and find a different lawyer.