The First "Savvy Blawgers" Panel Challenge: Results

The returns from the First "Savvy Blawgers Panel" Query are in, and it's time to report on what the aggregated intelligence of this rare and unusual combination of individuals has come up with.  The "Savvy Blawgers Panel" notion, as explained before, is for me to pose a question to a selected group of the more astute, savvy, articulate, thoughtful, and just plain opinionated members of the legal blogosphere, and to post their collected wisdom here on "Adam Smith, Esq."

The members of the Savvy Blawgers Panel are:

What are the rules for the panelists?  There are none.

They're not required to respond to every query (and the queries are intended to be infrequent and thought-provoking rather than ongoing and shallow), and the timing, length, and format of their response is entirely up to them.  All I promise to do is compile their responses, perhaps contribute a little color commentary about themes, similarities, differences, outright contradictions, etc., and post them for your (and my) edification.

So without further ado, the first ever Savvy Blawgers Panel query:

"Looking out five to ten years, what will the single most significant change be in terms of how sophisticated law firms (think AmLaw 200) are managed, on the 'business side'?"

Exercising their right to abide by "no rules," other savvy blawgers commented upon the evolution of small (not AmLaw 200) firms, and upon how other firms currently "under the radar" may adopt new business models to mount attacks on the AmLaw 200 incumbents.

Finally, we had the magic and fabulously unexpected answer:  "Changes in management of big law firms over the next 10 years?  Hmmmmmm.  First, big law firms, simply by virtue of their size, are not generally trend-setters.  I'd have to say zero significant change." [Credit Ernie the Attorney for this wonderful and insightful outlier.]

For the full run-down on what this spectacularly talented group had to say, read on...

Kicking things off by mincing no words about the scope of change to come was Monica Bay of The Common Scold:

I think we are in the midst of a huge paradigm shift that is radically changing the entire legal industry. In a nutshell, the profession is changing from a private club to a corporate model, from "Eat What You Kill" to collaboration. It isn't happening overnight, but it is profound and I truly believe that any firm that doesn't pay attention will end up as roadkill.

There are several factors that are driving this move, most significant is the empowerment of clients (be they major corporations or rural individuals) who, because of the vast increase in knowledge access (largely due to the Internet's maturing), expect their lawyers to truly counsel them, rather than parent/priest them. Clients want their attorneys to help them choose among options, and truly serve as business "partners" in addressing legal issues, both proactively and reactively. They no longer have any patience for lawyers who function as the Wizard of Oz,working behind curtains, then handing out a three-word bill "For Services Rendered."

As law firms are pushed by clients to deliver services "better, cheaper and faster," and as clients stop marrying a firm for life, and instead, hold beauty contests for work, these firms are realizing they must function like businesses if they are going to survive. Also fueling this shift is the merger-mania where a large firm may have thousands of offices, multinational venues, rather than a cozy group of no more than 300 attorneys.

For the first time, firms are realizing that they must bring in true administrators, not just assign whoever best counts beans to be the CFO and the woman closest to partnership status(and better still, if she's a person of color) to be the de facto HR director. And - shock of shock - some of these new executives demand status, power, and money, and aren't content to sit quietly in their offices and be invisible. (See "Low Visibility," www.thecommonscold.com)

Finally, legal technology is the gasoline on this fire. It is not the cause of the change, but it empowers the change. Technology tools, despite resistance (mostly because nobody, including me, wants to stop working long enough to get adequate training, and expects everything to be intuitive) will truly help the firms make more money - even tho in many cases that may initially be counter-intuitive. And they will help the firms provide better service, better work, for clients; and will help staff at all levels, from the firm's receptionist to occupants of the corner offices, have a more balanced, healthy, passionate life (First tip: buy Bose headsets:)

Next we move from Monica's "to the ramparts" to Ron Friedman's more measured view:  Change, to be sure, but slowed by the cultural constraints traditional to the profession:

I started in the legal market in 1989 after three years as a Bain & Co strategy consultant. I observed glaring inefficiencies and convinced myself that the legal market would rapidly change in fundamental ways. I was wrong; change has been slow and evolutionary. Chastened, I no longer predict revolution. I think that in the next 5 to 10 years will bring increasingly sophisticated financial analysis, particularly wide adoption of more detailed profitability and financial/competitive analysis. Firms will gain deeper insight into profits by practice, office, matter type, and perhaps even lawyer. Some firms may not act on their findings, but over time, the analysis will drive decisions from mergers to compensation to how matters are staffed. If true, this will not be as visible as other developments such as the advent of marketing departments, so observers will have to read the tea leaves closely to confirm this.

Ron's reply struck a particularly responsive chord with me—not, as you might surmise, for his being "chastened" at the pace of change in the profession, but rather, for his focus on "increasingly sophisticated financial analysis," including the first genuine analytics of profitability.  Profitability is, to me, a pole star (imagine!—I admitted it), but also, given today's state of affairs, largely a black art.  I've written about the importance of this before, and since we all seek confirmation of our views, Ron's comments rang true.

Craig Williams struck a similar note, with an emphasis on how small and mid-sized firms are leading the way "because they're not bound by the hierarchy and egos of the AmLaw 200:"

I think that law firms will finally come to the realization that they are businesses. The much-publicized failure of Brobeck has created the understanding that law firms can no longer be managed by lawyers; they must be managed by business people.

Our comparatively small five-lawyer firm already fits that mold. The lawyers practice law and the "managing partner" is a 20-year veteran financial business manager who handles the business end of the firm. It works marvelously. Certainly, the managing partner lawyer participates in the firm's financial decisions, but by and large, the firm is run by a business person, not a lawyer.

The AmLaw 200 will switch to this model in the next five to ten years or they will fall prey to the long list of mismanaged law firms. Smaller firms, which by far and away make up the majority of lawyer income when compared to the big firms, are already on their way there. The small to mid-level firms can react much more quickly than the big firms because they're not bound by the hierarchy and egos of the AmLaw 200.

That's why most of us practice in small to mid-sized firms anyway. Just like the rest of the country, the entrepreneurs lead the pack, not the GM's and IBM's. In the legal industry it is the small firms like [ours] that act more nimbly than the Gibson-Dunn's, Lathams' and MoFo's of the industry.

Dennis Kennedy takes matters in a slightly different direction, suggesting firms will "diversify"—both in terms of their service offerings and their own internal and external ecosystems.  Can anyone say, "Capital Asset Pricing Model?"

The most significant change for successful firms will be the development of a diversified, portfolio approach to the various businesses of a law firm - services, products and licensing of intellectual property - in a much more diversified environment of people and outside partnerships.

Today, you get credit on The American Lawyer's "A-List" for "diversity," but Dennis is predicting it will be the future (it already is the present, at least compared to the 20-years-ago past).

Our next respondent wins "most prolix," but her passion for her topic shines through.  I've bolded what I see as key points.

I think technology will play perhaps the most significant role in the management and operation of the business side of all law firms, sophisticated or otherwise. I appreciate that I may be stating the obvious but technology, or lack thereof, factors into all other aspects of firm management. That would include the managing staff issue - having trained business professionals running the business aspects of the firm and the attorneys and law staff practicing law.

Technology (software) has helped firms obtain information quickly and in a useable format for all different aspects of firm management, from financial reporting and analysis to client information (due to the data management and SQL aspects of many programs), customer service feedback (client/customer service e-mail questionnaires and other data gathering requests), to customized reports of all kinds and types for any application.

Before technology, the gathering, analyzing and application of this information to firm management was a mammoth job - often not done because of the overwhelming size of the task.

Technology will only continue to improve and grow firms more if they are interested in using technology. Improved management of a firm results in improved client relations, profitability and positive growth.

With the accessibility of data and ability to integrate it into other programs - some even as simple as Excel, data can be accessed, gathered, exported, manipulated and compiled into reports providing business [firm] owners/managers with most anything they would need or want to know about their firm.

It gives owners and managers the ability to make most any kind of business decision from the compiled data. It allows owners and managing partners the ability to plan more effectively, change quickly, and be more flexible in the direction and growth of their firm. It may help them to avoid potentially catastrophic issues looming on their firm's financial (or otherwise) horizon (think one of the AmLaw 200?).

Technology, used effectively, gives managers power because they can track, measure and manage their growth, staff, client base, and more. The present and future possibilities are endless.

The real, and current, challenge I see is for small to medium-sized firms. For this group, "sophisticated technology" is fairly limited. The available software for this group or body of firms is average, but not exceptional. This same body of firms constitutes the highest percentage of the total number of law firms in the country, and perhaps the most economically significant percentage.

Since these small to medium-sized firms are not typically in a financial position to have carte blanche in selecting, purchasing and implementing state-of-the-art software systems like Omega, Pro-Law or Rainmaker for timekeeping, billing financial and management and reporting, or similar software for practice management (including contact and case management) and document management software, it becomes a significant challenge for them to work with what is currently available. Some of the biggest firms have their software programs "custom" written based on their firm's specific needs. This is not financially feasible for the vast majority of firms - the small to medium-sized.

Until the small or medium firm is at the "critical mass" point where their growth, management team and finances can support the cost of the "Cadillac" or "custom" programs the large firms use, they have to make do with the currently available programs.

That is not to say that the current programs for the small to medium-sized group are substandard. These software programs are quite good in many ways, and more economical for this group. The programs do, however, have their sometimes significant limitations.

Integration between programs at the small- to medium-size firm level can also be difficult if not impossible resulting in the inability for data to be gathered, manipulated and summarized into meaningful reports.

Affordable, effective software would seem the key. Small to medium-size firms could become "sophisticated" and have the ability to effectively manage and grow to larger firms, better able to make the transition and adjust to the growth during the [five to ten year] process.

This is not to say that one cannot afford NOT to buy the best for the facilitation of their firm's set-up, change and growth, but let's be realistic here. This body of firms does not typically have the need for in-house or full-time IT departments or persons. They also don't have/make the time to analyze or implement their technology, or the disposable six-figure sums this kind of hardware/software/technology requires in anticipating their firm needs and future growth.

In the planning stages of our firm, and every year to two years, we analyze our current IT systems (we use outside consultants presently with me as the internal IT interface/supervisor) and determine what we need to take our firm's sophistication and growth to the next level. Our initial planning never included a budget of six figures for our technology, hardware and software systems but we have quickly arrived there.

We did, however, seek to model our firm structure like a "big firm" or business corporation. That model included sophisticated technology that would allow us the ability to grow into bigger and better technology as our firm grew. Of course, effective management is also key...the human factor of the aspect of technology.

Ultimately they go hand in hand. Today's quality management staff (true, trained business people who may or may not be lawyers within a firm) combined with continually improved and upgraded technology will generate the AmLaw200s of the future.

It's hard to disagree that the marriage of professionally trained business people, and financial and practice-management technology, will indeed "generate the [winners] of the future:"  What made this response compelling to me, and the reason I included it complete and uncut, is the feet-on-the-ground perspective of this contributor.

Joy London, of the indispensable "excited utterances," didn't have time to respond in her own words, but she did point out a recent article in Managing Partner magazine, which contained this pregnant excerpt from an interview with the former director of strategic development at Taylor Wessing (a big UK firm, FYI).

What do you see as the major trends/challenges for law firms in the current marketplace?

There is a now a heightened awareness of the importance of business management in law firms. Over the past 15 years, legal practices have, quite rightly, invested heavily in professional managers to help them run their businesses more effectively, but, right now, many of them are asking whether they have the right calibre of people, while also reviewing the way in which these people actually work with partners to achieve their objectives. A major challenge facing law firms is the ability to make good, long-term decisions and getting the right people managing the business is crucial to that.

The problem is that, all too often, law firms recruit in haste and repent at leisure. They are arguably not as careful as they should be in their recruitment of senior managers, which means that these relationships often don't work. This is one of the reasons why major law firms are now thinking that there are times when they need to bring somebody in on an interim basis while they take the time to find the right permanent director of, say, finance, HR or business development. We are seeing these kinds of gaps occurring in law firms with ever greater frequency and this is where a safe pair of hands can prove very useful. Interim managers are immediately effective and can add a lot of value over a short period. It also makes good sense from the point of view of business continuity and risk management.

On the strategy side, I think that law firms have spent the past five to ten years finding out what strategy is all about. But there is often a big gap between deciding what the strategy is and then implementing it to its full potential, and we find there can be a significant disconnect between what law firms say that they are trying to achieve and the daily lives of the people they employ. This lack of engagement between employees and their law firms is arguably the most worrying weakness and represents another major challenge.

A "gap" between strategy and its communication to, and enthusiastic embrace by, employees?!  That never happens in the US...  On the other hand, I suppose we should consider ourselves blessed if firms have at last recognized there is such a beast as "strategy."

Matt Homann also reports from the precincts of small-firm-land, and similarly finds them more innovative, nimble, and responsive to client demands.  Matt even suggests appointing a "chief client service officer" whose mission would be to learn from other companies known for excelling at customer service.  But he saves the best for last.

Q: "Looking out five to ten years, what will the single most significant change be in terms of how sophisticated law firms (think AmLaw 200) are managed, on the 'business side'?"

A: I have spent all but two years of my legal career as a solo practitioner or as a member of a two-lawyer firm. Because I’ve never worked for a “sophisticated” AmLaw 200 (or even AmLaw 20,000) firm, I’m afraid I can’t give a meaningful answer to Bruce’s question. Instead, I’ll answer a different question: What is the single most significant change small firm lawyers hope AmLaw 200 firms don’t implement in the next ten years?

The single greatest competitive advantage small firm lawyers have over their big firm counterparts is the ability to quickly adopt and implement innovative practice methods. Though many small firm lawyers have fallen into the billing-by-the-hour business model practiced by most large firms, I would suggest that a significant amount of the alternative pricing of -- and value billing for -- legal services comes from the small firm lawyers in this country. In my firm, for example, we have completely abandoned the billable hour and have moved to a service-pricing model that gives our business and transactional clients a range of services (including “free” telephone calls) for a monthly fee or a flat per-project cost. In doing so, we’ve managed to make our clients happier, increased our margins, and decreased the time we spend in the office. My greatest fear is that AmLaw 200 firms will adopt and embrace a similar business model.

In contrast to small firms, large firms have an unbelievable amount of institutional knowledge. For any given legal project, large firms have likely completed a similar (or the exact same) task hundreds of times. Their “inventory” of documents, memos, briefs, complaints, and opinion letters dwarfs the resources available to small firm lawyers. My fear is that if a large firm decides to couple that “huge selection” with “everyday low prices,” the WalMartization of the legal business will begin.

In short, if large firms were to apply the “Big Box” retail concept to the delivery of professional services, small firm lawyers would disappear like Main Street retailers when Wal Mart comes to town. Just think, the complex, expensive legal work most big firms seek is only a very small tip of a very large iceberg. Most business and transactional work is of the garden variety. There is no reason a large firm couldn’t set aside a team of associates and partners to do that kind of work for hundreds or thousands of small businesses for a low monthly or annual fee.

Doing quality work is just a small part of the equation. The big firms would have to deliver an improved customer-service experience as well. Instead of locking young associates away in the library for years, have them be the first point of contact for small business customers (even better, hire retired lawyers as “greeters” for new clients). Train these lawyers to answer the basic legal questions on the fly, perhaps by consulting a firm-developed knowledge base, and promise an answer to more complicated questions within a day or so. Guarantee telephone calls returned within 60 minutes – or that month’s service is free. Designate a chief client-service officer, and make that executive’s compensation dependent upon customer satisfaction levels. In short, take a look at what non-legal companies that excel at customer service are doing, and improve upon it.

Finally, to make this model a sustainable one, firms must hire the best and brightest students. Instead of focusing on the top five percent, recruit and hire law students based upon their capacity for creative and innovative thinking, people skills and business acumen. If law firms concentrated on hiring the best lawyers (instead of the best law students) schools may be forced to actually prepare students to practice law, instead of giving them the esoteric theory-based education most law students get now.

Do I think that most big firms will take these suggestions to heart? Not really. And for that I am thankful.

You thought that exploring alternatives to the unholy billable hour is the act of a radical?  Here's a firm that has abandoned it entirely.

Or that writeoffs when clients protest about disappointing service is a cost of doing business?  How about offering a one-hour returned phone-call guarantee or that month is on the house?

Quality work speaks for itself?  Guess again.

Finally (and thank you for reading this far, even if you've taken it in chapters), Prof. William Henderson of Indiana University School of Law/Bloomington sees ferment afoot in the makeup of the AmLaw 200 themselves, and credits the "creative destruction" a-coming with alternatives to the "poor incentives created by the billable hour" including various fee structures that encourage a cost-effective mindset and embody splitting efficiency gains with the client. 

Next thing you know, lawyers will start behaving as though the principles of economics had not been suspended upon admission to the bar.

The last word is Bill's.  And to Savvy Blawgers one and all, and you, dear reader, the happiest of holidays; may they bring the companionship of your truest friend, warmth, good cheer, and the free time to read incredibly long blog posts.

During the next five to tens years, the best AmLaw 200 firms are going to behave more like businesses and less like stuffy bill-by-the-hour professional firms. We are going to see this trend in two ways.

First, top-notch litigation firms are going to start experimenting more with contingency cases. Two relative newcomers to the AmLaw 200, Boies, Schiller & Flexner and Kasowitz, Benson, Torres & Friedman, have posted extremely high profits per partner (PPP) due in large measure to plaintiffs work. Perhaps a decade ago, white shoe firms would have held their noses at the prospect of mingling with the plaintiffs bar. However, PPP has become the dominant variable for ranking law firm success. How those profits are generated is becoming less important.

Second, the most business-saavy law firms are going to recognize that they are often in the best position to judge the "value" of their clients' cases. Following the model originally developed by Fred Bartlet at Bartlet Beck, more law firms are going to share the risk of their clients cases through discounted fees with performance kickers. Reduction of risk commands a market premium, and large law firms--if they are willing to engage in elementary business calculus--are arguably in the best position to partially hedge the outcome of their clients' cases. Firms that play this game well will be in high demand and very profitable. Firms that refuse to play this game will have significant signaling problems, especially as discounted fees and kickers become more mainstream.

Finally, I think the above trend of risk-sharing, in exchange for premiums and kickers, offers a more attractive future for law firms than ever-higher billable hours and billable rates. In my opinion, it may be counterproductive for law firms to make strategic decisions based on cost accounting that ranks firm offices, practice groups and ultimately lawyers. This just produces a short-term view to bring in more money to the firm without achieving better or more cost-effective legal results. Why not acknowledge the poor incentives created by the billable hour and offer to split the efficiency gains with the client? To my mind, this is an idea whose time has finally come.