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Earlier this year, Vincent Cordo, the Global Sourcing Officer for Shell, and Casey Flaherty, a consultant to law departments, wrote an article for the ACC Docket, Shell Legal—Shadow Billing. Let me begin by disclosing that I have enormous respect for the work Vincent Cordo has done at Shell and that Casey is a friend whose work I also respect greatly.  However, respect and friendship do not translate into complete agreement on all issues, and this article presents an area where I disagree. I know Casey won’t be surprised.

Continue Reading Justifying shadow billing as promoting diversity? Much better ways exist.

Pedantic is defined as “narrowly, stodgily, and often ostentatiously learned a pedantic insistence that we follow the rules exactly” and “unimaginative, dull.” You’ll see in a minute why I began with this definition.

I read an interesting article in today’s Chicago Tribune on the signs of greatness in companies.  One of the key signs is that “no one is pedantic.”

For 26 years, [the author has] been involved in multiple organizations and volunteered at many different entities both small and large, and the one thing that seems to kill all progress and creativity is a heaping dose of pedantry. When everyone acts like know everything, when they are slavishly devoted to rules and when they are fussy, finicky, strict and overly fastidious, then nothing good will happen.

When the company is filled with open-minded people who want to learn new things, it becomes a great place.

So, what kind of firm or department do you work in? And even more specifically, what are the new things you’ve learned in the last month? Year?

This trait fits tightly with the need for a culture of continuous improvement.  If you are not improving, you are falling behind.  One easy example–good client service just a few years ago is nothing special today.  You should be able to map your changes and demonstrate why the changes are an improvement.  Can you?

 

You just can’t make this stuff up.  A recent ABA Journal article, Some law firm leaders question associate pay hikes amid tepid year, caught my eye. The Peer Monitor report stated:

Firms were squeezed by a perfect storm of slumping demand and rising headcount.

The ABA Journal article reports:

The economic forces have led some law firm leaders to question widespread associate salary hikes that raised starting pay to $180,000, according to Gretta Rusanow, head of advisory services at Citi Private Bank.

But here’s the money quote:

The associate pay hike is creating pressure for law firms that raised salaries for competitive, rather than performance, reasons, Rusanow writes in the Am Law Daily. “In our conversations with firm leaders,” she wrote “many express bafflement as to why so many firms adopted the increases when their productivity and profitability results couldn’t support them.

Firms may not have control over demand (arguable), but they have control over headcount and compensation.  It is pretty fundamental (perhaps day 1 of Econ 101) that if you raise expenses–like headcount and compensation–without a like increase in revenue, profits will decrease.  Were law firm leaders assuming growth in demand despite all the data that suggested?

I fully expect the reaction to this loss of profit will be to further increase rates to try to drive revenue.  (Now picture law firm managing partners with their heads buried in the sand over the caption “Addressing those pesky realization issues.”)

I recently read the 2016 Report On The State Of The Legal Market by Georgetown Law and Peer Monitor. I was struck by the clarity of the message being sent by clients, and equally struck by how law firms seem not to hear it.  Consider these messages.

  1. More work is going places other than law firms.

Law Firm Demand chart

 

 

 

 

 

It is not as if the amount of work inside law departments is less or even the same.  The amount of work is greater than ever and increasing every year.  Where is that work going?  Certainly not to law firms.

2.  Law Firms keep raising rates. Clients refuse to keep paying.

Law Firm Rate progression

 

 

 

 

 

Notice how the gap between standard rates, billed rates and collected rates is increasing.  That is a reflection on client pressure to reduce spend and their refusal to “go along” with regular rate increases.  This message is made crystal clear here:

Law firm realization

 

 

 

 

 

Law firms are collecting a decreasing percentage of their standard rates every year.  What message to they believe is being delivered?  The fact that the percentage of billed v. standard is declining so precipitously means law firms know that clients won’t tolerate being billed higher amounts, but the continual rate of decline means firms are not addressing the fundamental problem or are doing so ineffectually.

At the same time, client satisfaction  with law firms’ client service is declining.  From a recent post on the Mad Clientist (BTI Consulting):

56% of corporate counsel issued RFPs for law firms in 2015, up from 45% in 2014. We now face a majority of clients using RFPs to hire new law firms. The increase is due directly to the rock-like drop in client service performance clients are experiencing.

What does it all mean?

It means the greatest revenue opportunity for law firms is not raising rates.  The greatest opportunity is increasing realization rates.  Perhaps the road to doing so is by improving client service.  The combined data certainly suggest that clients are delivering a clear message.

I wonder if  law firms need to have their institutional hearing checked.

Pam Woldow and Doug Richardson penned a terrific post, Top 5 Bad Excuses for Resisting Legal Project Management.  I wanted to compliment them and share some thoughts on the 5 excuses.

1. My clients don’t want or need LPM. 

I had to laugh when I read this.  Most lawyers who talk about what their clients don’t want have never asked the client directly.  They simply infer this viewpoint from the fact the client hasn’t insisted on use of LPM.  I mean, really.  Try to imagine this conversation.

Lawyer:   Would you like us to do your work efficiently, in an order that made sense, and was within agreed-upon budgets?

Client:   Absolutely not. I won’t stand for it. If you operate efficiently and bill me less, I will fire you.

To quote one of the great philosophers of our time, Forrest Gump, “stupid is as stupid does.”

2.  If we are efficient, we won’t make as much money. (And the corollary: if we are efficient, we won’t be able to meet our annual hours requirement.)

This, of course, fits in perfectly with the “my clients don’t want this” excuse.  At least people who mouth this excuse are being honest about why they are stealing from their clients.  But this is a stark illustration of the failed business model that most law firms cling to.  Try to imagine this excuse being used in any other profession or business.

3.  I’ve practiced the way I do for decades, and I’m not going to change now.

The blather illustrates why the eight worst words in the English language are “because that’s the way I’ve done it before.”  Being so closed-minded is not an attribute, it is an indictment.  I only hope these lawyers have the courage to say this in front of their clients, who would be fired if they uttered this excuse.

4.  All my matters are unique, and LPM imposes a bunch of lockstep protocols that will standardize all legal work and devalue my legal judgment.

I’ve referred to this excuse as the “we’re special” excuse.  Want a list of highly customized work reliant on project management for successful execution.  Instead of proclaiming how special you are, perhaps you should just wear this.

Stupid

 

 

 

 

 

 

 

5.  LPM is all about monitoring and metrics, and my mamma didn’t raise me to be a math major.  Also, LPM will impose a whole new learning curve and add a ton of additional work to my already overburdened schedule.

This person is the first cousin of the person in no. 4.  It is, apparently, a shared trait that they don’t give damn about their clients need.

________________

The tragedy is not that there are people who use these excuses, providing so much fodder for Pam and Doug to write their posts. The tragedy is this thinking, expressed or not, reflects the views of a substantial majority of lawyers.

I just got an email from my friend John Kain in Australia.  John is the CEO/Managing Partner/Leader of the Pack (not sure of his title) of Kain C+C Lawyers in Adelaide.  John is as forward thinking as any lawyer I’ve met, trying to systematize the practice of  law whenever possible and treat law like a “real business.” I enjoy our discussions and always learn a lot from them.

Anyway, John’s email shared that his firm had created an annual internship position for a law student from Michigan State University Law School.  Here’s the announcement.  Dan Elliott of MSU has been chosen as the first intern and will spend August in Australia seeing the firm’s practice first-hand.

It will be interesting to hear how this experiment works, but kudos to John for his forward thinking.  It inspires me to think more about how to view critically what we do with an eye to doing it better.  I hope you find this idea inspiring as well.

Several readers offered very nice comments on my original Some Things I Think I Think post, so I’ve decided to continue thinking.  Well, at least sharing things I think I think.

  1. A recent Wall Street Journal article Lawyers, Judges Modify the View That Adverbs Are Mostly Bad, reminded me of how much I hate pronouns and adjectives. Pronouns defeat clarity. Adjectives are a lazy way to communicate. One of my favorite quotes is from Anton Chekhov (google him), who said “Don’t tell me the moon is shining; show me the glint of light on broken glass.”  Not directly about adjectives, but the point could not be better said.
  2. I don’t know how law firms can say they are client service focused when they don’t talk to their clients.
  3. If you (lawyers) are not actively working on methods to improve your efficiency (more outputs, less time), you are falling behind.  Way behind.
  4. I wonder if any managing partner can succeed if he or she is not his or her own worst critic and, more importantly, their firm’s harshest judge.  The ability to see weakness is key to being able to improve.
  5. As a leader, failure to communicate a clear vision is not good.
  6. It cracks me up when people talk or write about flaws with the billable hour as if it is news.  Dude, welcome to the party.
  7. I love the calls from headhunters asking if Valorem wants to merge with a mega-firm, or even just a vanilla large firm.  Ask someone paroled from prison how much they want to go back.
  8.   Saw a post on Adam Smith, Esq. Partners behaving Badly where a partner became upset because the Managing Partner of the firm was talking to the client CEO. I was disappointed Bruce MacEwen said “firm first and firm always.”  The real answer is client first and client always. If your clients are happy, the firm will be fine.
  9. So much is written about data-driven decisions.  Nice when you have the data in useable form, but you’d be surprised how often the data is not in usable form. Then you have to plan and execute in a lean way.
  10. Jeff Carr turned me on to the concept of Poka Yoke. Check it out.

I’m sure I’ll think I think things again.

I got a kick out of a post at Above The Law, Associate Bonus Watch: Dechert’s Bonus Is Contingent On Something That Sure Sounds Like Billable Hours.  The unstated but unmistakeable conclusion from the memo is that even firms that say hours aren’t important place disproportionate importance on billable hours.  ATL quotes one tipster saying:

To cut through the crap, bonus amounts are determined based on your hours. If you meet certain pre-determined hours thresholds substantially over the 2000 requirement (it is 2000 in New York, not 1950) you will get a larger bonus.

The full Dechert memo is attached to the post, and I encourage to read it and judge for yourself whether the firm is rewarding associates for meeting some hours target.  It seems to me an inescapable conclusion.  If that’s what those inside Dechert believe, that is what the associates will look to deliver.  Firms just don’t get (or care) that these bonus systems are perhaps the single biggest factor (well, perhaps the biggest factor is job security) driving associate behavior, just as rewarding partners on the amount of their billings (rather than profitability) is a huge factor in driving partner behaviors that are antithetical to the clients’ desire for value and efficiency.

The difference between a successful firm in the Old Normal Era and a successful firm in the New Normal era is huge.  How to get from one to the other?  Big changes.  So how to get to the New Normal?  Watch this video by Dan Heath who, with his brother Chip, authored Why Change is So Hard.  Punchline of the video?

And here’s why this matters for change: In almost all change situations, you’re substituting new, unfamiliar behaviors for old, comfortable ones, and that burns self-control. Let’s say I present a new morning routine to you that specifies how you’ll shower and brush your teeth. You’ll understand it and you might even agree with my process. But to pull it off, you’ll have to supervise yourself very carefully. Every fiber of your being will want to go back to the old way of doing things. Inevitably, you’ll slip. And if I were uncharitable, I’d see you going back to the old way and I’d say, You’re so lazy. Why can’t you just change?

This brings us back to the point I promised I’d make: That what looks like laziness is often exhaustion. Change wears people out—even well-intentioned people will simply run out of fuel.

What’s the point for law firms?  How hard is it going to be to rewire the DNA of law firms built on hourly billing?  Do firms think it is easy to start operating efficiently, cutting out the fat that has been fodder for increased billing for decades?  It is exhausting in the extreme, and people like Dan Heath might love to do case studies on law firms seeking to become Value Fee firms.  But the point for law firm leaders is that every change needs to be thought out carefully and new behaviors monitored with an eagle’s eye for prey.

 

 

 

Continue Reading The Science of Change