April 30, 2005
April 27, 2005
And That Inspiration You Had Jogging in Central Park Is What Fraction of a Billable Hour?
In "Face Time," Business Week probes the irrationality of all of our insecurities about failing to show sufficient of same—that is to say, our fears of what will happen if we're not in the office at all hours. (This is a two-way street, by the way: Just as junior employees worry if they don't demonstrate "enough" face time, managers worry about employees, no matter how impeccable their performance, who seem to go missing more than others.) The syndrome goes like this:
"It's as though managers say to themselves: "Now that Fran is in charge of the product launch, the plan should be in great shape. Fran has a terrific track record and excellent relationships in the industry. Our weekly one-on-one will keep me up to date on her progress. She's also great about cc:ing me on correspondence with our partners. But hey -- if I can see her in the office every day from 6 a.m. to 8:30 p.m., I'll feel even better about how her project is going."
And this is for those lucky schmoes who aren't even prisoners of the billable hour. (By the way, the anecdote of the untouched Chinese food container is a keeper.)
But I have another candidate for what can make us all feel in a pressure cooker of someone else's devising at times, and for better or worse it links directly to the concept of being a professional: Client expectations.
Living up to, or even exceeding (!), client expectations is something I hope we all aspire to. Today that can mean responding by Blackberry within hours, if not minutes.
At the Fordham Law School conference where I spoke 10 days ago (on challenges to "professionalism" posed by large firm practice), an off-agenda, spontaneous and heartfelt dialogue broke out about the nefarious impact of Blackberry's—albeit on the premise that there's no going back. A Cravath partner said rather wistfully that when he began practicing and a client posed a question, "one had time to reflect, to turn it over and around in one's mind, to probe it." Can you say, "that's so yesterday!"
This saddens me. And maybe it doesn't have to be this way. We are, after all, collaborators in submitting to the tyranny of the clock. Although it's too soon to know for sure, initial reports are that the train derailment in Japan that killed over 90 people yesterday was caused by the motorman speeding because he was 90 seconds behind schedule. An extreme case of "clock tyranny," to be sure, but isn't our reaction to that story to hold the simultaneous and incompatible views both that the motorman was crazily irresponsible, and that we can understand his wanting to be on schedule?
There's no simple solution to this, of course, but we can begin, as did Business Week, by pointing out how irrational it all is.
April 26, 2005
Credentials, Experience, or Passion?: Pick One
Thought experiment: Your firm needs a new CFO, and you've winnowed the search down to three candidates:
- one who aced the CPA exam and has a degree in accounting from a blue-chip school but has never worked in a law firm;
- one who is reasonably smart and an OK communicator but who for the past ten years has been the CFO at a law firm nearly identical in size to yours ; and
- one who has the least financial/accounting experience of the three but who is energetic and passionate about connecting financial measures to business realities.
Time's up. I would take #3 every time, and so, evidently, would CFO Magazine. Peter Mondani, General Electric Co.’s manager of finance leadership development and human resources, says it nicely:
"While talent spotters may be divided in the book-smarts-vs.-street-smarts debate, one thing they do agree on is that future finance stars have desire. 'They have the passion and energy to want success,' says Mondani."
In other words, there's simply "no need for deep technical skills" going in, so long as the individual is highly motivated to learn and to succeed. As one recruiter put it bluntly: people who were accounting majors are the ones who have the hardest time reaching the executive suite.
So here's your checklist: Perfectly adequate financial/accounting skills, superior communications skills, genuine business acumen, and passion, passion, passion.
Don't be nervous about making a "non-linear" choice; when was the last time double-entry bookkeeping nailed a strategic decision for your firm? And besides, people with passion are just more fun to work with.
April 24, 2005
The CEO/CIO Partnership: Present and Accounted For?
A recurrent (and painful, at least to judge from readers' emails) issue in complex law firms, as in other far-flung businesses, is a chronic disconnect between what management thinks IT should provide and IT's ability or willingness to do so. From management's perspective, the CIO and his organization are being obtuse and speaking some indecipherable language. From the CIO's perspective, senior management is playing a passive-aggressive game: To quote one I spoke to recently, "Lawyers don't like what you give them but they won't tell you what they want."
If you read CIO Magazine as I do, this goes by the name of "business process alignment," or simply "alignment." Are the systems, capabilities, hardware platforms and software tools IT is providing to the organization "aligned" (or not) with the organization's "business processes"—what the firm actually needs to get done to perform its function and stay in business? For us, that means things like keeping track of court calendars and creating and filing motion papers and briefs on time, dealing with discovery ("litigation support"), putting together deal documents efficiently and effectively using templates from past transactions, tracking time and converting it ultimately into bills and collections, etc.
The phenomenon of the CEO and the CIO talking past each other is so common it virtually has its own literature in management-land, but trust McKinsey to help you think through it by providing a clarifying terminology and framework. Specifically, they distinguish between what the CIO must "supply" and how he can in turn shape the organization's "demand" for IT services.
"Supply" is the basic stuff: Keeping the trains running on time, the email- and web-servers up and updated, the wordprocessing flowing, the time recorded, etc. Not sexy but clearly indispensable. The biggest mistake a CIO can make here is thinking once he's done this he's done his job.
"Demand" is where it gets interesting. McKinsey uses the term to encompass the CIO's efforts and ability to help the organization innovate through technology. Unfortunately, problems immediately arise when business unit leaders (think practice group managers in a law firm) doubt the CIO really understands what they do or that he can think strategically about it. Then there's the always-hot-button of cost. If an IT initiative comes with a meaningful price tag, the inherently skeptical will doubt its payoff. And let's not forget turf: Just how far is the CIO going to be permitted to "intrude" into the business leader's domain?
Nevertheless, one can identify three conditions obtaining where firms are able to capture greater value from IT investments:
- Key business executives as well as the CIO have a clear financial understanding if IT costs and investments, and discuss it in a common, business-focused language.
- Business-side executives are accountable for IT and take responsibility for generating value from IT investments.
- Both business and IT managers consciously study how new IT investments can improve productivity and competitiveness--in other words, they seek innovations that will change the business.
Can CIO's make the transition from just "keeping everything up and running" to forming true strategic and thought-leadership partnerships with the firm's leadership? Hard as it can be, the payoff can be tremendous. IT can move from being perceived as a perilous sinkhole of costs to assuming a role as a key enabler of innovation. Not all CIO's can maneuver the transition, to be sure, and not all management-side lawyers will embrace the mind-shift either. But your firm deserves no less.
April 23, 2005
Unsustainable Trends Tend to Come to an End
You would think the lead of this Legal Times article, which follows, would be irresistible info for me to comment upon. But sometimes, no news is no news:
"Law firms are back -- sort of.
"Revenues and profits were up by nearly 10 percent in 2004, a clear sign that firms have shaken off the tech bust slump. But even as the biggest legal shops are reaping the harvest of a buoyant economy, they face some difficult choices ahead to maintain revenues -- and to grow profits.
"Those are the findings of a confidential Citigroup Private Bank study of firm finances obtained by Legal Times. Though it doesn't name specific firms, the annual Citigroup study is based on the financial performance of 143 law firms across the country and is considered by law firm managers as one of the most important barometers of the state of the legal business."
The problem is, I've just given you the ball-game. For example, did you know that "there are only so many hours an attorney can bill"? I kid you not. Is it news that "firms face mounting pressures from clients to rein in costs"? Then we have this: "If firms are unable to continue the pace of rate increases, they will have to find a way to perform more efficiently." This is beginning to remind me of the classic "explanation" from a corporation of why revenues were down: "Sales were weak." In other words, we have recapitulated the symptom and hoped to classify it as a diagnosis.
To be fair, I'm a dyed-in-the-wool critic of hourly billing, and I'm also a dyed-in-the-wool apostle of firms' collaborating with their clients to create new joint business models that deliver the package of legal services the client needs at what both sides can agree is a fair overall price. I continue to believe that's the future.
The difference here is that after forecasting the-sky-is-falling, it turns out there's no immediate problem with the existing model. Indeed, rest assured: This is not yet a crisis (perhaps it's not even an "analysis"): After all, "as the Citigroup analysis puts it: '2005 is shaping up as a busy and successful year for most law firms, although there are some clouds on the horizon.'"
"Unsustainable trends tend to come to end" I owe to Herb Stein, a seminal academic/public sector economist and, it should be clear, a witty fellow as well. Credit where due. But the hourly billing/6% annual rate rise is not, so far as Citigroup would have us believe, threatened.
April 22, 2005
Taking off the Firm's Wraps: Time to Launch a Blog
This post will be in the nature of "piling on," usually an indefensible tactic but, dear reader, as I hope you will agree in this case, justified as an exercise in overcoming what is for many practicing lawyers a nearly insurmountable allergic reaction to the notion that a personal or firm blog could benefit their practice. My aim? To invite, and then to welcome, more legal commentators to the blogosphere. After all, blogs live or die by the acuity of their analysis, the felicity of their writing, and the focus of their viewpoint. To all the practicing lawyers in the audience: Which of those capabilities do you lack?
Let us call the roll of members of the MSM ("mainstream media") who are now staunchly converted to this apostasy. I hope you recognize a few of the names.
The Wall Street Journal: “The blog as business tool has arrived.” (March 1, 2005)
The Financial Times: From a story published today about Jonathan Schwarz, president of Sun Microsystems, and why he has a blog:
"Any CEO who says a blog would take too much time is deluding himself because the number one imperative of any senior executive is communication. How much of our time will you spend on analysis? A very small amount. Decision-making is difficult but it tends not to be time-consuming."And just what audience does he think he's reaching? Actually, he knows:
"I am much more interested in quality than quantity. When I go to a Wall Street analysts' event and ask, 'Which of you reads my blog?' half the room raises its hand."
Fortune: In December 2004 they offiically declared the blog the technology story of the year, and in a January story, "Why There's No Escaping the Blog," they not-so-subtly underlined the core fundamental reality that blogs must speak in a genuine, unfiltered, sincere voice:
"If you fudge or lie on a blog, you are biting the karmic weenie," says Steve Hayden, vice chairman of advertising giant Ogilvy & Mather, which creates blogs for clients. "The negative reaction will be so great that, whatever your intention was, it will be overwhelmed and crushed like a bug. You're fighting with very powerful forces because it's real people's opinions."
Or, as Mazda learned when it launched a "cloaked" blog allegedly by a Gen. Y hipster to promote the Mazda 3, which was exposed as a fraud after all of 72 hours, trying to game the blogosphere doesn't work; it was a "learning experience," according to a Mazda flack.
Business Week: This week's cover story, "Blogs Will Change Your Business," starts with this simple piece of advice: "Catch up...or catch you later."
- "How big are blogs? Try Johannes Gutenberg out for size."
- They provide a primer about blogging for the corporate types (including the meaning of "dooced," which is not nearly as salacious as it sounds).
- A profile of a business that has jumped into blogging whole-hog (or perhaps we should say "whole-cow," since they sell yogurt—which you would think is far less reliant on critical analysis and commentary than, say, the law).
- "Six Tips for Corporate Bloggers" says "you can't afford to miss this wave," and tip #6 is the scary, but ever-so-true, "be transparent."
Still not convinced? Pretty sure none of the AmLaw 100 are toying with what still sounds to you like Kryptonite? Guess again: At least one AmLaw 50 firm has written an extensive article, "Blogging for Law Firms: Not Why, But When and How." If that doesn't convince you, welcome to the 19th Century.
April 20, 2005
"Reed Smith University" Six Months On
When it was first announced several months ago, I noted Reed-Smith's creation of an ambitious initiative into executive education called "Reed Smith University," created in partnership with the Wharton School of Business. At the time, I asked rhetorically whether it might be the start of a trend, calling that "devoutly to be wished." While signs of such a trend remain firmly invisible, I thought it timely to revisit "RSU" since it is such a shockingly obvious and powerful venture; that more firms are not emulating it is too dispiriting to discuss.
First up is simply an updated and enhanced description of what RSU is all about, here. Going behind the curtains a little further is Denise Howell, an esteemed member of the "Savvy Blawgers" panel here at Adam Smith, Esq., and perhaps not coincidentally herself counsel at Reed-Smith. In this interview, Mike Buckley, "dean" of the technology school at RSU, notes
"Lawyers and the firms they manage are usually traditional, rather conservative, slow to change and resistant to technology. RS is breaking that mold and has already made great strides in reshaping its management and culture to be able to take advantage of 21st century business methods."Read that second sentence again; I warned you that it was both shockingly obvious, and powerful. Developments like this are inspiring enough to more than compensate for the litany of managerial malpractice that we occasionally delve into hereabouts. Attention must be paid.
April 19, 2005
Would You Advise Your Clients to Operate This Way?
Run a multi-hundred-million dollar a year enterprise without appointing a general counsel? Sounds like the kind of thing you'd advise your clients against in, say, a heartbeat? News flash: 26 of the AmLaw 50 firms are doing just that.
Well, but, ahem, you protest, law firms are different—I mean, everybody is, like, their own general counsel. OK, so now we have hundreds of different opinions on such things as what constitutes a client conflict, whether outside income from publishing articles, speaking engagements, writing books, being approached to be an expert witness, joint-venturing in a business with a client, etc., is acceptable, and how the book of business of a potential lateral recruit should be analyzed from a risk management perspective.
Face it: Law firms are faced with a "business risk portfolio" just as any other enterprise of comparable scale, and it's scarcely more than common sense to designate an individual primarily responsible for analyzing and mitigating that risk, and developing and applying consistent policies across the board to ensure theory meets up with practice.
To be sure, you are pursuing a profession; but you are also in business on a large scale. Appoint a GC; give him/her real authority (reporting to the managing partner or executive committee, for starters); have them do formalized training sessions with partners, associates, and staff, and oh, by the way, introduce them to your malpractice carrier as your head of risk management. They may just pay for themselves.
April 17, 2005
Editorial to U.S. News & World Report Re Your Law School Rankings: Cut it Out!
Last Friday I participated in a day-long conference at Fordham Law School on "Professional Challenges in Large Firm Practices" and was invited by Professor Bruce Green, creator of the conference, to be a speaker on one of four panels, on "The Billable Hour."
The quality of erudition across the panels and throughout the audience was impressive, and I once again am grateful that I live in the city I do for the overwhelming wealth of resources and events it provides and makes available.. But, chauvinism aside (because many of the panelists came from out of town), a fascinating discussion arose—not one remotely on the formal agenda—about the nefarious impact of US News & World Report's law school ranking survey.
Coincidentally, now we have The National Law Journal reporting on the lengths law schools will go to in order to juice their rankings. Law schools have (reportedly) gone so far as to create computer models mimic-ing the US News ranking protocol in order to see how they could best improve their rankings, and the consequences of the name-brand competition, whether intended by US News or unintended, border on the vicious. For example, because of nearly-exclusive emphasis of LSAT scores and undergraduate GPA's:
"There goes the Peace Corps, there goes a Ph.D., there goes work experience,"
says Jeffrey Stake, a law professor at Indiana University School of Law-Bloomington.
To me, the real question boils down to whether the US News scorecard doesn't drive law schools away from their fundamental mission of educating professionally impeccable and ethically rigorous future members of a noble profession. The problem is that schools are distracted into gaming the system (can you say, "the AmLaw 100 and profits per partner?"):
"There are a lot of schools that spend huge amounts of time on this. We don't have any interest in gaming the system, but we certainly want to put ourselves in the best light that we can," said [Susanah Mead, the interim dean at Indiana University School of Law-Indianapolis].
And the defense for US News? "U.S. News & World Report is aware that "some of the schools have a numbers game," said Robert Morse, director of data research for the publication."
I'm sorry, but that's not good enough. The sad, but utterly predictable, unintended consequence of the US News ranking is law schools' toeing the line on metrics they did not invent, should not subscribe to, and which debase and trivialize the educational experience of law students nationwide.
US News knows better than to pretend it could not have foreseen this, and the sensationalism it enjoys from it (knowing it's the only game in town) magnifies rather than excuses their ethical lapse. They should suspend the rankings forthwith.
April 14, 2005
April 13, 2005
In Good Company...
"Adam Smith, Esq." won a spot as one of three "personal favorites" over at BlawgReview #1, for the recent "Savvy Blawgers" post on the billable hour. Gosh, thanks, but I owe it all to them.
Practice Group Management Forum 2005
Thanks to Susan Raridon Lambreth of Hildebrandt International, guru of Practice Group Management, I was able to serve as blogger-in-residence at this conference held here in New York over the last two days. I'm happy to be able to report that the attendees were a lively and diverse group and that the panels were of uniformly high quality, revealing genuine insights and candid struggles with what is by any account an important emerging topic in law firm management and one whose precise contours are still being molded.
Indeed, simply reviewing the titles of the various panels will reveal that practice group management is, in 2005, very much a moving target. Many firms don't do it at all yet, and virtually no firm that does do it has done it for long. We are, in short, all learning about this together.
If nothing else, that made for a highly energizing and exciting conference, with a palpable air of open exploration. Thanks, Susan!
2005 Forum on Practice Group Management:
Glasser LegalWorks/The Hildebrandt Institute
The Grand Hyatt, New York, April 11-12, 2005
"The Latest Trends in Practice Management", Susan Raridon Lambreth
What's driving practice group management? Isn't it just the latest management fad? Some firms do indeed see it that way, and think that if they just duck long enough it will go away. But look at your clients; running business units efficiently is scarcely a passing fad. And as law firms grow and change, they need more sophisticated approaches to management. These challenges also need to be effectively addressed:
- commoditization of legal services at one end vs. high-end work at the other;
- increasing focus on retention in the past year or two (after the 2000-2003 period of relative indifference to the issue); and
- using practice group management as a competitive differentiator, and as a tool to handle risk management.
Segmentation of legal work is increasingly a fact of life:
- Commodity-level work includes commercial real estate, employment, environmental, etc.
- Operational/bread & butter work includes most litigation, some M&A, most intellectual property
- Bet-the-company where price is no object: The Microsoft antitrust case, high-level corporate investigations, transformational mergers and acquisitions, etc.
Note that in almost every area of practice, they often begin life "high end" and migrate to commodity work over the course of a decade or so. For example, the ADA was cutting edge when first passed, but today it's a routine compliance issue. Implication for law firms is that they must structure their ability to handle work so that it's in line with the clients' expectations.
Importantly, don't assume that the "high end" work is the most profitable: Typically there's very little leverage available, whereas some of the commodity work can be highly leveraged and immensely profitable. The risk, however, is that the better known you are for commodity work, the less credibility you have at the high end. One tactical approach to this is to segment it off as a separate practice group. The clear implication is that firms are expected to bill not based on how many years out of law school one is, but based on the value (or lack thereof...) to the client.
What has practice group management ("PGM") to do with this?
- It can minimize balkanization within the firm;
- Enhance integration of laterals and acquisitions
- Enhance morale;
- Institutionalize client relationships.
- Encourages mind-shift from regional/geographic/office-centric focus to practice group substance and building national or even international reputations as opposed to strictly local.
- Shift from automatically selecting rainmakers as practice group leaders to choosing those who actually have the best leadership skills.
- Introduction of full-time PGM professionals, with input into: Compensation, including rewards for partners' contribution to group performance, not just production and business generation.
What does a practice group leader need to do? The evolution in the past few years has been towards increasing authority, including controlling over intake of matters and workload assignment, input into compensation decisions ("if you can't change incentives, you can't manage people"), and in general increasing clarification about PGM roles and expectations.
Elements of a job description for a practice group leader: strategic business planning including "R&D" (where is the marketplace going?), professional development (including of partners), client/matter intake, quality control/risk management, workload assignment and utilization, and knowledge management.
Performance feedback and coaching skills are paramount, partly because they're so hard to do. Believe it or not, most lawyer personality analyses show that lawyers are in fact nonconfrontational, and hate to candidly evaluate their peers. Practice groups should also handle their own recruitment to ensure that new hires are actually a good fit with the practice area and not just in the firm at large.
There's a difference between truly strategic plans and marketing plans or "business improvement" plans: The former include key differentiators such as recruiting, R&D into the marketplace, and are based on the realization that just letting prospects know you exist is not exactly a strategy. What does "R&D" mean in the context of a law firm? Looking at the marketplace and attempting to discern where it's going. For example, in a corporate department, are internal investigations resulting from Sarbanes-Oxley sec. 404 issues going to be a real and substantive area, or a passing fancy, or a complete non-issue? In products liability, it means determining what area might explode next and preparing to defend against it.
So how do you organize PGM? There are four conceptual alternatives:
- by substantive department or practice expertise;
- geographically
- reflecting client-side industries (healthcare, high-tech, etc.) and
- by core clients
The first is not only the most common by far, but the most effective and the most conducive to the way lawyers conceive of themselves (as a litigator, a tax lawyer, etc.). The second can reinforce PGM by providing local resources, and the third can be a further evolutionary overlay once PGM is firmly established. The fourth frankly doesn't work for most law firms unless they happen to have one or two enormous clients. (It does work, e.g., for McKinsey.)
The old (and still often current) paradigm was that of the rainmaker; the new paradigm is that of PGM with the "entire boat rising."
"Success Stories in Practice Management"
Tim Pakenham, chairman of the partners' committee at Alston & Bird, opened by noting that when he was in business school he thought that the key ingredients to success were (a) having a good product/service to sell; and (b) financial management, and that all the touchy-feely issues about organizational leadership, change, and motivation were strictly academic. Now, after nearly 20 years of practicing law, his attitude has completely reversed. People come first.
Ten years ago Alston & Bird had a very traditional corporate/litigation organization, with about 100 lawyers: Small enough that everybody knew what everyone else was doing. But they also realized that would not work going forward. Although it's been an evolutionary process without a grand strategy going forward, today the firm has 32 separate practice groups in four "pod" groups: transactional, IP, litigation, and taxation. A useful way to view the 32/4 matrix is as a quadrant on a circle with 32 compass points, each with its own business plans. Each plan is revised annually and each partner within each group does a personal annual plan which must demonstrate tie-in to the group's plan.
The smallest group has three partners, but Tim believes larger groups are typically better.
Alston & Bird is "highly committed" to PGM; spends a great deal of resources and time empowering practice group leaders, and they have meaningful input into compensation of partners within their group.
Bryan Schwartz, chairman of Levenfeld Pearlstein, a 60-lawyer firm, described the evolution of PGM at his firm starting in 1999. The firm at that time had 7 name partners and, surprise, 7 practice groups. The "strategy," such as it was, was "Hey, I see an opportunity over there."
PGM was then implemented with a vengeance in order to bring order to chaos: The Executive Committee was reorganized and focuses solely on strategy. An operations board consisting of the Executive Director and the practice group leaders handles precisely that. Practice group leaders are compensated very competitively, which is necessary not just to obtain and retain talent but to confer credibility within the firm. Benefits: Firm operations are aligned with its actual strategy; profits are sharply up; professional development is now a serious priority; and PGM has credibility.
Two "I wish I had known that's:" (1) I wish I'd known it would take as long as it has. (2) I wish I'd started with the right people.
Lois Van Deusen, Managing Partner of McCarter & English (regional firm with 360 lawyers, based in Newark)
"No one likes change, and lawyers least of all, but McCarter & English has changed more in the past five years than in the previous 150."
Ten years ago the firm began to explore PGM, and as a result of doing their first strategic analysis, started a commitment to it. The transactional practice took to it first, but the litigators resisted. Today, there are 16 separate practice groups, each with its own business plan and with each individual therein having his/her own business plan.
"What are the benefits of PGM? To me it's so obvious that I can't imagine a firm functioning without it."
"What do I wish I had known? #1, how long it would take; and #2, that we'd picked better practice group leaders to begin with--we tended to pick people who weren't great leaders or coaches."
Donald Ridge, Managing Partner, Morris Polich & Purdy (LA), started in 1969 as an insurance defense firm. Eight years ago they implemented PGM after realizing that every partner was running in his/her own direction with no teamwork. Today they have 77 lawyers in 8 practice groups. Immediately they picked the wrong people--rainmakers. After two years they realized their mistake and committed to training practice group leaders, which all partners actually attended; this became a pivotal moment and effectively enabled PGM to move beyond marketing into real authority and decision making.
Currently they allow people to belong to up to three practice groups, but there's a consensus that should change; belonging to just one works best. Benefits? Far more coordination, more systematic business development, higher profitability, more collaboration internally. What he wishes he had known: #1 what it takes to be a real leader, which is not a big book of business. #2 the need to properly compensate people for managing, which permits them to take it seriously, and #3 bringing Susan Lambreth in earlier to teach them how to really do it.
David Tennant, practice group leader of the corporate/finance/M&A group of McCarthy Tetrault (Canada's largest firm with approx. 800 lawyers). The firm resulted from a merger of several firms which initially created "chaos" with incompatible accounting systems, "no management that could go by that term," etc. So starting approx. four years ago, they initiated PGM, and it was received with resounding success: Associates saw it as giving them a structure and a career path, and partners found it made them feel more part of a firm and less isolated.
Organizationally, a ten-member Executive Committee is responsible for hiring a CEO who in turn hires four divisional head direct-reports. Practice group leaders have tremendous input into year-end "allocations" (compensation). Groups are organized into client teams, which also exposes any gaps in client coverage. What do I wish I'd known? I'm glad I didn't know any of the problems we'd face! But overwhelmingly positive by strong consensus of the partnership. (Profitability has gone up about 50% in the past three years.)
Q&A:
How does practice group strategy tie into firm-wide strategy?
Well, for example, if you want to cultivate an M&A practice, you need antitrust expertise. So recruit in that area; then go out to ABA conferences, get name recognition, and keep groups focused on what they need to concentrate on. (E.g., don't put an antitrust guy in Calgary; keep them in Toronto.)
"There's a lot of art" to aligning firm strategy to group and individual plans; communication is indispensable. [BJM note: A&B is "mature" in the Southeast, so investing over the next 3+ years in NYC and DC.] Alston & Bird is, to be sure, pleased to have been on the Fortune "100 best places to work for" for the last six years, but "it's not coincidental" that year-over-year profitability has also increased throughout that period. Communicate, communicate, communicate, and build trust through transparency--"there's no data that's not available [within reason]." Regular town-hall meetings with associates, e.g., is a simple technique, so why not do it? (A&B does.)
Does profitability analysis track practice groups?
It depends. At one firm, "there is no transparency on this," it's limited to the management committee only. Why? We don't want partners criticizing each other on the profitability matrix, and we don't want them gaming the system. "Profitability by practice group is a very profitable tool and a very dangerous one." It's also complex because some groups are natural exporters of work and others natural importers. Analyzing profitability in a holistic sense is therefore a complex and sophisticated analysis to undertake. It's important to distinguish between profits by group as a management tool and as a compensation tool. Also, it's dangerous to share information about other groups--one's own group is fine, but sharing other groups' info leads to divisiveness.
What are keys to success with PGM?
#1: Getting the right people into PGM. "People who are great
at bringing clients in and working on files are not great at this."
#2: There has to be a connection to compensation. If you're asking partners
to use a different associate than they want, e.g., they need to know that
the practice group leader can actually have an impact on their compensation.
#3: Establishing clear roles for each partner.
#4: Walking around and asking people what's new and what's going on; not just
in your home office, either, but across the firm's entire territory.
Do practice group leaders have fixed terms?
Most firms do not; the thought being that there's a learning curve so why remove someone (assuming they're performing up to snuff). And, particularly in small firms, the talent pool is limited. On the other hand, at A&B there's an unwritten rule that practice group leaders should rotate out after five years. They spend a great deal of time and resources on leadership development and succession planning, which should begin almost as soon as one takes the job.
What are the selection criteria for practice group leaders?
"Hidden leadership potential," a high degree of energy, and some ability to tolerate conflict.
Alternatively, just let the practice group itself pick; that essentially guarantees the person will have credibility. A potential downside to this is succumbing to the temptation to choose someone who will be nonconfrontational and impose no demands--who will not, in other words, be a leader.
"You have to break traditional notions of who can be a leader." Younger partners are often the best, whereas older ones may want to keep doing what they've been doing, which is not necessarily strategically optimal.
How are practice group leaders held accountable? Typically informally, although organizationally they usually report to the executive or managing committee with a dotted-line "matrix" relationship to the executive director, finance, IT, marketing, etc. It's also important to understand that practice group leaders need to redefine success, away from day-to-day practice of law and into far more intangible and inchoate issues, the longer-term vision issues. The results of "success" will not show up in the quarterly numbers. There's an element of "selflessness" to it, as well.
Is there tension between big rainmakers and practice group leaders? Can a young partner without a big book of business really have a difficult conversation with the department's 800-pound gorilla? Certainly if there's no respect to begin with, there will be no meaningful conversation, but rainmaking ability per se is not a requirement. More tellingly, without PGM rainmakers tend to max out at a certain level, whereas with PGM the department as a whole can grow through that ceiling.
"Measuring Success of Practice Management"
Panelists:
Marion Baker, Department Operating Officer, Foley & Lardner
Peggy Giunta, Director Practice Management, Wilmer Cutler Pickering Hale and
Dorr
John Sperger, Secretary to Firm and Special Projects Manager, Blank Rome
Reid Horovitz, Chief of Staff, Orrick
Orrick is organized into two divisions, transactional and dispute resolution, which in turn have practice groups below them; Reid's new title is over the entire group.
WCPH&D has 17 practice departments, 15 of which have leaders who report in a matrix relationship both to lawyers leading those groups and to Peggy--"the link between the legal side of the firm and the business side."
Blank Rome initiated PGM two years ago: 3 departments and 17 groups.
Foley & Lardner has 6 departments: the role of the PG leader is to draw up strategic plans, annual business plans, and to provide all financial information as needed, analysis of profitability sliced any way people wish including by group, by partner, by client, etc., and also has managerial responsibility for all non-lawyers.
What are elements of "success?" Client satisfaction, attorney morale, growing profitability, growth itself, as well as more inchoate measures including "practice excellence" and each group's alignment with the overall firm's strategy. Other soft measures of success include partner satisfaction levels, taking the temperature of everyone at monthly meetings, a sense that the firm's moving in the right direction, longitudinal results of client surveys, meetings with key clients, where there's room for improvement.
"Practice group excellence" includes things like associate retention, utilization of the KM system, growth in "interesting" new matters, and other impressionistic tools. At Orrick, e.g., there's a committee that meets with all partners to solicit not-for-attribution feedback which is then combined into a report delivered to the entire partnership; gives a temperature reading.
Key debate is over how much information is shared and what's actually done with it after it's collected. If your associates report, e.g., that morale is low, what do you do with that? Also, don't underestimate the power of just telling people that XYZ is a problem; they may be motivated to actually do something about it. Build on small successes.
Even at firms where there is near- or total transparency, that can be a mixed blessing. Data overload is a real phenomenon, and one responsibility of a PG leader may be to distill and condense the data into something meaningful. And firm's policies on disclosure of, e.g., partner compensation vary widely. At Foley & Lardner, every partner knows what every other partner makes, whereas at Blank-Rome it's boiled into the partnership agreement that one's compensation can't even be discussed.
Interestingly, when Wilmer-Cutler and Hale & Dorr merged, H&D had PGM in place and WCP did not. So how come the merged firm has it? Essentially, the advantages of it became self-evident to the WCP side and they adopted it without cavil.
OK, so what hard metrics are used? "Quintile analysis" looks at best- to worst-performing groups in, for example, client profitability. Key reports clearly include billing realization, A/R, work-in-progress, productivity vs. FTE count, and also permits for variation among departments and among what's disclosed where.
Utilization is one of the first things they look at at many firms, hopefully with an explanatory gloss by the PG leader. Also look at billings, collections, realization, business development costs, FTE headcount and leverage.
The $64 question: Profitability. Based on a show of hands, a distinct minority of firms do profitability analysis by practice group, and further, only one firm present distributes it at all widely. When it is distributed, it's in a spirit of "best practices:" These are things you might look at, these are high-performing teams, etc., with nuanced awareness of economic factors (cyclical and otherwise) that may favor or disfavor specific practices. When profitability analysis is drilled down to partner level, the goal is to identify pockets of underperformance that can be improved, not to beat people over the head with.
What is actually done with the information? At some firms, disengaging from clients, for example, beneath a de minimis level of profitability. At other firms, "nothing--we do the analysis but we don't use it."
How sophisticated is the cost side of the analysis? Most firms allocate firmwide overhead, and some make it office-specific. Others pro-rate costs by the hour, so that a highly productive lawyer (3,000 hrs/year) will cost less per hour than a low-productivity lawyer (1,800 hours/year).
The numbers can be put to a myriad of uses, including cutting out or fixing or solving the bottom quintile and growing and expanding the top-most quintile. All these things take time, however: 3-5 years at a minimum to get the information digested and figure out what to do with it. At the end of the day, people can get a sense of how things are going.
Hiring Professionals to Help Manage Your Practices--The Role of Practice Management Experts
The panel members consisted of:
Reid Horovitz
Peggy Giunta
Marion Baker
David Burlingame, Litigation Dep't Business Manager, Nixon Peabody
Debra Lawrence, Director, Business Management Analysis, Morgan Lewis
Morgan-Lewis uses an Elite product they've customized, called "WebView,"which enables partners to see information on their desktop. What information? Almost all financial performance metrics including profitability.
What is the actual role or job description of a PG Leader?:
- oversee all internal staff issues of the practice group
- do standard and custom financial analysis
- coordinate and help integrate lateral recruitment and hiring
- work with underperforming attorneys to help them get back on track
- help develop annual strategic and business plans
- report in matrix fashion to leaders of practice group and also to finance, IT, marketing, etc.
- play a role in partnership compensation
- apply a profitability analysis model to prospective lateral recruits
- create annual budget, by practice group
- produce monthly P&L by group, including firmwide allocations of expenses like insurance, and leases, and a provision for net import/export of revenues
- play a role in associate workload distribution and professional development
[Note to BJM: Cost of PGM @ Foley is $1-million/$150-million in revenue, and Marion's paid at level of 5th-7th-year partner.]
Orrick adopted PGM in 2000 based on a recommendation by McKinsey; previously they were on a geographic structure. Currently they have two divisions, dispute resolution and transactions. Reid thinks it's not a "must-have" for PG leaders to be former lawyers, but it probably helps a little with initial credibility.
A key role for a PG leader is staffing matters: The goal is to help young associates gain exposure to many sub-specialties within the group, find their "home," and rotate not just among specialties but among partners and clients. Very important but very time-consuming. WCPH&D uses a fairly large number of contract lawyers used to handle bulges of work such as the discovery ramp-up of a large litigation and intensive email and document reviews. The benefit to the client is a whole different price structure and the benefit to the firm's associates is being saved from being buried in a warehouse for months. Under almost no circumstances are they counted in any firmwide ratios; viewed as a separate business unit.
What do PG leaders do aside from being merely the assistant to the lawyer(s) who runs the practice group? First, provide all the hard metrics on billing, collections, etc., and also provide subjective comments about professional development, involvement in management, all while providing ears and eyes on the ground for the PG lawyer/leader. Simply being able to free the lawyer/leader from a management issue frees them up to bill those same hours--which in itself usually more than justifies the cost of the PG leader.
PG leaders work with marketing and business development to create annual marketing budgets for the practice group, including sponsorships, events to be attended, associations to join, etc. There may be individuals within marketing assigned as dedicated resources to certain practice groups. Then obviously as issues arise during the year (RFP's, etc.), they work together very closely.
Do PG leaders report, dotted-line or otherwise, to Executive Director? Typically not; although PG leaders should make it easier for ED's to do their job by maximizing the effectiveness of marketing, finance, IT, and so on.
Day 2
Creating High Performance Practice Groups
Panelists:
Marion Baker
Lois Van Deusen
Tim Oyer, Practice Group Leader for Chemical Group, Wolf Greenfield
& Sacks
Frederick Leech, Practice Group Leader, Investment Management Group, Reed
Smith
Keys to success of a practice group:
- serious buy-in from the partnership
- real training for the PG leaders
- selection of the right leaders
- significant authority for the PG leader, including a major role in compensation and communication
- development of meaningful PG business plans
- succession planning.
In the 25 years Fred Leech has been with Reed-Smith, the firm has grown dramatically from essentially a Pittsburgh base to over 1,000 lawyers across the US and in Europe. Firm is run by a senior managing team including a managing partner, the head of both key practice groups (litigation and business/regulatory), a director of strategic planning and a director of professional development. Additionally, equity partners firmwide elect representatives of specific geographic areas such as London and Northern California.
Tim Oyer noted that WGS moved to PGM a few years ago and despite the fact that "change is painful," it has been without reservation a success; he would recommend it to all. Since WGS is an IP boutique, there are inter-related practice groups which are not primary for anyone but are such things as startup firms, pharmaceuticals, biotech, whereas primary practice groups are things such as chemical, mechanical, etc.
What is the job description of a PG leader?
- responsible for overall leadership, direction, and planning for the group including strategic business planning; participation in business development, client services/satisfaction, and determining compensation for PG members
- lead lawyer motivation and morale
- head of professional development for the group, as well as participant in recruiting and performance evaluations
- manage workloads and lawyer utilization
- participate in client intake and acceptance of work including alternative fee arrangements
- quality control including communication with clients and addressing any client concerns
- financial management including setting and meeting budgets and meeting productivity goals
- knowledge management and technology
- #1 communicator for and to the group
What are the goals of having PGM? Why do it?
- delegate managerial responsibilities from executive committee
- create team mentality: motivational within a smaller environment, and easier to monitor and manage
- create some autonomy: give people ownership and they'll respond accordingly ("In the history of the world, no one has ever washed a rental car."--Larry Summers, Pres. of Harvard)
- develop leadership skills
- manage performance reviews and merit bonusses
- interestingly, serve as a decisional aid to partner selection process: PGM lets individuals take a "test drive" in a managerial role, revealing some to be more and others to be less successful. Improves the quality of partnership-promotion decision making.
- PG's serve as de facto business units, so they have responsibility for determining both avenues of growth and areas of retrenchment
Reed Smith recently established "Reed Smith University" in conjunction with the Wharton B-School which is a formalized executive education environment. It's anticipated that PG leaders will spend at least one week/year at RSU and the PG leaders are in charge of setting the curriculum (not Wharton).
[Editorial insert from Bruce: How blindingly obvious, and yet how inexplicably rare, is this in law-land? The notion that once one graduates from law school one has learned all one ever will need to know is patently absurd, and certainly corporate America makes no similar presumption. Bravo for Reed-Smith.]
What allowance if any is made for reduced billable's by PG leaders?
- at small firms (e.g., WGS), there's no room to afford any allowance for a reduction;
- at larger firms, there's typically not a formal allowance but certainly there's an understanding that a substantial commitment to PG leadership will have an effect on billable's;
- based on temperament, many "overachievers" manage to maintain their billable's at 2,000/year or more and still do their PG role effectively. If, however, one's client-services oriented work declines significantly during a term as PG leader, it's "a difficult question" how to re-establish the client-side momentum.
"There's a sense that there's a 'right size' for a PG." Once one gets very large, options are to split it up, to appoint co-chairs,* or to appoint geographic heads.
How do you evaluate PG leaders? Self-evaluations, for starters. PG members also evaluate the leader, but ultimately decision re compensation goes to the executive committee, just as for any other lawyer. Overall performance of the PG itself also counts, obviously, with recognition that there are elements beyond the group's control including cyclical economic trends.
Interesting question: How far do you go in being democratic and seeking buy-in before you just impose a decision? Hard to say, is the short answer, but it obviously depends on what's being "sold," the degree of hostility or resistance, the justification (or lack thereof) for the resistance, etc. Overall, the consensus seemed to be that if you can reach some indefinite level of support (40%? 50%?), you can proceed.
Is PG leader involved in demoting/de-equitising underperforming partners? Only as to diagnosis of the situation and coaching to try to get the partner back on track; but if the performance doesn't improve, the PG leader steps aside and the managing committee addresses it.
Staffing and intake decisions are typically made simultaneously; and it's even possible that the originating partner will not end up working on a given matter if the PG leader determines it's ideally handled elsewhere.
__________________________
*Susan Lambreth noted at the end of the panel that co-chairs as a rule don't work. Typically they're set up between the person who should have the job and the person (a rainmaker??) who wants the job; generally people tend to undermine each other.
Compensation Approaches to Motivate Practice Management
Blane Prescott, Director, Hildebrandt
Objectives of compensation for a PG leader:
- moving from traditional individually approach to group-oriented system
- reward group contributions not lone wolves
- prevent balkanization among the groups
- reward PGM success
Ultimately, the goal of any compensation system is to motivate the behavior the firm is seeking to encourage. The problem is that it's incredibly complex to motivate highly intelligent, very skeptical people who don't take personal criticism well.
With compensation, "relativity" is one of the nastiest issues; if people are focused on what the other guy is paid, it's bad for morale, bad for leadership, and leaves almost everyone feeling dissatisfied no matter how much $$ is actually available to distribute. Also important to understand is that compensation in and of itself is almost never an effective motivator, but if it's done wrong it can be a genuine barrier. Money is not the world's greatest motivator. (Thought experiment: Could you, yes you reading this right now, get a different job paying more somewhere else? You probably could, right? Then why don't you? See, money isn't everything.)
Trends in compensation:
- seniority is rapidly disappearing or has disappeared; it survives perhaps only in the sense that a senior person has more latitude for a "bad year" insomuch as the have a solid track record indicating that's a genuine anomaly and not necessarily the beginning of a trend.
- concomitant shift to merit/performance-based system; but can we now define "merit?" If it's billable hours, or collections, or client originations, each and every one leads to problems and unintended negative consequences.
- alternatively, there's a shift to profitability analyses--by office, by client, by practice group, by individual, etc. Sounds very businesslike but it's a very short-term measure: cf. being an IPO lawyer in Silicon Valley in 1999 vs. 2002.
But a little knowledge is a dangerous thing, and profitability statements can be very divisive if their import is not communicated well and if they're not used as a management tool generating insight going forward rather than simply a retrospective record that it's too late to change. Data overload is more of a threat than data drought.
Evolution of Partner Compensation
#1: Parity
- all partners paid equally
- no individual merit incentive
- but can foster strong team spirit
- typically only exist in very small firms with very high profits, a high degree of trust, and common working values
#2: Lockstep
- in true lockstep, each level is pre-set
- typically there's a plateau, and often a sloping reduction nearing retirement
- very rare in the US, with the exception of some of the true creme de la creme in New York; more common in UK, but modifications are being introduced, including
- freezes, de-equitisations, bonuses
- BUT obviously there are no incentives for individual merit, and symptoms of failure or breakdown include
- declining or stagnant hours, a lack of leadership among younger generations, many partners working "minimums"
- work only in firms with incredibly demanding standards of quality and extremely high profitability
#3: Formulas
- a true formula system is simply a mathematical formula
- exceedingly rare: there is exactly one left in the AmLaw 200
- why? to run a law firm, there are a myriad of factors you want to reward, so the formula becomes remarkably complex
- there are also year over year exogenous events which will be seen as "unfair" in the short term, inducing pressure to deviate from the formula
- worse, formulas tend to engender a "piecework" mentality--people only do what the formula encourages
- and at the management level, there's no reason to talk with anyone because the formula determines everything
- so as a result out of a few backwater pockets like insurance defense, they have virtually disappeared.
#4: Subjective
- the largest, broadest category encompassing dozens and dozens of varieties
- and among the most popular and successful in the US today
- nevertheless, they don't work if there's little predictability or consistency from year to year OR when leadership can't be trusted OR when they generate surprises at year-end OR if they fundamentally ignore the data
- conversely, they succeed where there's an abundance of common sense--"we know good performance when we see it" AND there are true two-way dialogues about compensation with each partner, ideally in a two-on-one format; the goal of the entire exercise is to manage expectations.
The general content of the "comp interview" is: Tell me about last year, tell me about your plans for next year, tell me what I should know that's not in the numbers, let's talk about your weaknesses and how the firm can help you overcome them, and talk about the handful of things you could do next year to increase your value to the firm and, hopefully (no quid pro quo) your compensation.
So, is there one best system? NO. But firms do better if they:
- manage expectations
- don't rely on data or numbers to send a message; it won't be received
- talk to partners regularly about what they need and what the firm will reward
- involve leadership of the firm in setting compensation (and if you can't trust your leaders, change leaders)
With respect to PG leaders, the same principles apply (including that there's no magic unitary answer), and if a PG leader is failing, whacking their compensation will not make them into a better leader, so they should be replaced as PG leader.
With respect to PG members, you don't reward people for participating--that comes with the partnership territory--but you should penalize them for not participating, and at a serious level like $50,000 year 1 and twice that year 2. The penalties have to be meaningful if you're serious about PGM.
Dealing with Origination Credit
Counterintuitively, perhaps, firms that do not track origination are the strongest financial performers. Why? Because, realistically, everybody knows who the big rainmakers, the moderate rainmakers, and the non-rainmakers are. Keeping strict, objective track only encourages divisiveness, arguments over sharing, etc.
Building a Client-Focused Firm--The Evolution of Client Teams
Panelists:
Jim Pagliaro, Leader, Global Litigation Practice Group, Morgan Lewis
Gordon Thompson, Co-Chair of the Business Law Group, McCarthy Tetrault (Toronto)
Tim Pakenham, Chairman, Partners' Committee, Alston & Bird
Jim admits he was skeptical to begin with, but is now a believer. Before client-centric teams existed, information about clients was "silo'ed" in the hands of the billing/collections partner, but now information is shared widely so that, e.g., a corporate partner got wind of an impending major litigation, had the litigation partner with the pertinent expertise contact the client at a critical juncture, and the firm subsequently landed hundreds of related cases billing $1-million/month.
From a standing start three years ago, there are now 47 client-specific teams with all info available on the internal website including history of the relationship, partner-leader on the team, other team members, active issues, opportunities, limitations, competition, etc. Each team meets religiously monthly, with follow-up and to-do issues specified.
McCarthy-Tetrault instituted a "key client" and "significant client" program about four years ago simultaneous with introducing PGM. "Key" clients are about 40 that are significant in terms of revenue and/or one or more practice groups and/or regions. "Significant" clients are about 125, generate less revenue, work with fewer lawyers, but may be up and coming. The firm also uses this platform to advance internal goals such as grooming associates through specific client exposure, identifying "best practices," or attempting to break into new practice areas.
Is there pushback from some lawyers? Sure, but it's largely overcome by success stories.
At Alston & Bird, client teams are just now being introduced, with about 10 formal teams up and running. Initial resistance was to what was perceived as a another layer of bureaucracy, more memos to write and more calls to make, but once lawyers are thrown together and see the power of coordinating and collaborating on their approach to a major client, they get excited and it's never perceived as a burden. Don't limit the team to lawyers; involve everyone critical to delivering service to the client.
Client interviews are essentially indispensable, but you need to choose carefully who does the interview: Independent third-parties are best by far, the managing partner probably the worst, although the managing partner should meet with key clients for other reasons such as communicating the firm's commitment to them. When you need an objective assessment of what (say) the firm could do better, go to an outside consultant or perhaps an ex-partner of the firm. If the "client audit" or "client assessment" can become routine and nonthreatening (to the law firm), then it can migrate to the managing partner or the practice group leader; the last person they'll tell is typically the actual lawyer who may be the source of the problem.
Associate involvement in client teams drew a divergence of opinion. Mostly, firms appear not to involve them, but are sensitive to the notion (widely promulgated among associates, BTW), that just as associates can learn by watching partners take a deposition, draft a brief, etc., they can learn client-development skills by participating on client teams. Still, most firms believe that until associates are at the senior-most level they should concentrate primarily if not exclusively on developing first-class legal skills.
Always useful to ask what keeps client's execs awake at night--can lead to some interesting business development opportunities, and is an astute form of "R&D" to explore possible future growth paths for the practice.
Framework for analyzing how firms actually get hired:
| Primary: Selects | User: Impact is on his/her job |
| Gatekeeper: Can screen out | Coach(es): Guides |
This actually exposes something of a myth in law firm marketing: Firms normally assume they should go as high as they can possibly get within the client organization to be selected. But in fact if a big-deal "primary" (say, the GC) essentially instructs a user whom to hire, the user will be deeply resentful. Similarly, if a Board member tells the GC to have lunch or dinner with lawyer X, the GC goes into that meal negatively inclined. The power of a client team in this context is to map the firm's personnel against the corporation's personnel at the same level.
Corollary benefit: If the law firm and the client are joined together at multiple "relationship points," this tends to institutionalize the client and simultaneously makes it less likely that an opportunistic partner could jump ship and take the client along.
Developing & Implementing Effective Practice Group Business Plans
Panelists:
David Burlingame, Litigation Department Business Manager, Nixon Peabody
Frederick Leech, Reed Smith
Tim Oyer, Wolf Greenfield & Sacks
Keys to PG plans that actually get implemented:
- plans are viewed as critical to resource allocation
- participation by most if not all members of the PG
- a few, clear, measurable objectives
- action items: who will do what by when
- an assessment of the firm's market position
- incorporate feedback from senior firm management to the PG
- use the plan within the group: discuss progress towards its objectives at monthly PG meetings
- use the plan with senior management: discuss progress towards its objectives semi-annually with senior management
Goals and objectives should be as finite and discrete as possible, but action items are really where the rubber meets the road. So, e.g., a "goal" could be as broad and inchoate as "win more high value work," but it would be better to say "expand our product liability practice in the chemical industry," and the associated action items might be focused targeting of two specific companies in that industry segment.
How encourage actual progress towards goals? Monthly meetings should generate rolling to-do lists; consider setting up an internal website where action items can be checked off (available to senior management, obviously).
At Reed-Smith, the use templates for plans across different PG's to encourage consistency. E.g., "horizon 1" is what are our core competencies; "horizon 2" is logical extensions thereof; and "horizon 3" is what new core competencies should we attempt to develop? Spend 10% of your time on 3!
Began PGM in 1998. In development of a plan, the first blueprint comes from partners; only then is it "rolled out" to the rest of the PG. The basic template covers half a dozen or so topics with the intent of defining tradeoffs: Managing is deciding not to do some things. Critically, determine where to target expansion and where to frankly count on retrenching. Explicitly looks at "barriers to entry" to new areas, and also looks at "barriers to exit"--an interesting concept. Next up are questions surrounding competitors; is it a commodity or a specialty? Next, clients: their buying power, their number, the "share of wallet" Reed Smith might already have. Next, legal talent; are talented lawyers scarce or abundant? Finally, regulatory factors, which can cut both ways; tort reform could be a bad thing, but new SEC reg's could make investment management clients call for more advice.
At Nixon-Peabody, key ingredients of the plan include:
- an assessment of trends in the "practice space";
- the contribution of knowledge management to achievement of the PG's goals
- action items, including responsible personnel;
- automatic "population" of individual attorney's plans with those action items for which he/she is responsible
- an online search feature that, e.g., could highlight everywhere "Kodak" appears for a holistic view of that client
- a review/approval module that limits changes once approval has been signed off
- all now reflected in the evaluation process as well, which is to say the least an incentive to get the plans right
Because all PG plans are (or should be!) oriented towards long-term performance, how do you evaluate people's performance in an annual review cycle? The short answer is, by focusing on execution rather than macro results. In other words, assume that if the analysis going in was fundamentally sound, then meeting the executional goals should ultimately drive achievement of the macro result.
A useful way to think about the purpose of PG business plans vis-a-vis the firm's strategic plan is that managing the firm as a whole is usually too amorphous. Essentially, it's only at the PG level (in a firm of any size) that concrete opportunities can be identified. Developing a firmwide strategic plan is then something of a two-way iterative process with the firm attempting to exploit specific PG goals to move in the firm's desired overall direction and the PG's using the firm's overall vision to help focus on particular opportunities, since one can never pursue everything that's possible.
Examples of actual firm goals:
- rankings on scorecards or award lists (The American Lawyer, Corporate Counsel, Chambers, etc.)
- core client types: focus! (strategic management is deciding, again, what not to do)
- marketplace image (be one of the top three in our region, e.g.)
Goals need, again, to be finite and limited in number, but if you're only going to have one, do not make it financial-performance. As we know from public companies' suffering at the hands of Wall Street's expectations for quarterly performance, excessive focus on the bottom line per se can be very deleterious long-term.
April 9, 2005
It May Be More Than a Pond, After All
Sometimes it's not the worst thing to confess bafflement—OK, perhaps "bafflement," which implies total cluelessness, is too strong, but I will at least cop a plea to not being confident how to truly explain something. That something is, as Legal Week reports, "the growing financial chasm between US and UK firms."
Occasion for this attention-getting generalization is their annual compilation of results for the top 50 firms in each market. Here's the story:
US Top 50 |
UK Top 50 |
|
Total Revenue 2004 |
$32.9-billion |
$15-billion (approx.) |
Revenue Growth 2003-2004 |
+14.1% |
+4.6% |
Profits Per Partner 2004 |
$1.2-million |
$738,000 |
| PPP Growth 2003-2004 | +10.2% | +6.0% |
One explanatory hypothesis for this is simply that the domestic US legal market is so much larger than the domestic UK market. But that explanation would be, as they say, "obvious, simple, and wrong." Baseline market size explains nothing about the remarkably different growth rates in revenue and PPP. Moreover, a substantial portion of the revenue of both "top 50" groups comes from outside their domestic market. As the chairman of Hogan & Hartson put it ("burying the lead," as it were, which is that US firms are outpacing UK firms where both are on foreign soil):
"US firms also are continuing to grow stronger in the European and Asian markets, which I expect will bode well for us in the future as we compete for the best work and the best people."
The annual 2005 Chambers Awards, at least impressionistically, confirm this. For example, 5 of the top 9 Chambers firms in France are American but 0 are UK, and 4 of the top 9 in Germany are US but only 1 UK. More tellingly, among "Top Western European Firms" by practice area, there is a fair degree of representation of US-based firms across the board, whereas among "Top USA Firms" by practice area, there are zero foreign-based firms.
Another possible hypothesis is that Americans are just plain more entrepreneurial, more competitive, more venturesome and superior risk-takers. Aside from the (to me) obnoxious, self-congratulatory hokum at the core of this theory is that it's tautological and has, again, no explanatory power. It amounts to: "The better businesspeople are better businesspeople." I wish I'd thought of that.
How about this instead: When a firm with the clear American tilt towards eat-what-you-kill compensation goes up against a firm with the UK's tilt towards lockstep, it turns out that incentives do matter and the US partners battle longer and harder to win the business. Now we might actually be getting somewhere. Unfortunately, as I've written elsewhere, lockstep can have tremendous virtues and be "just what the doctor ordered" for firms powered by collaborative and collegial cultures.
Still, numbers don't lie. Something real is going on here, it has been for awhile, and if anything it's only accelerating. It's reader participation time: Any ideas out there?
Email me; we'll wrestle this to the ground together—because I'm not happy where we are.
April 8, 2005
Blogging ALM Media's "CIO/CTO Summit"
Thanks to Monica Bay and Kimberly Fine of ALM Media, I was able to participate as "blogger in residence" at ALM's "CIO/CTO Summit 2005," held here at the Hilton Times Square this Wednesday and Thursday. I am pleased to report that the presentations, panels, and roundtables were of exceptionally high-quality (perhaps blessed by a vendor-presentation count at a grand total of 1), and equally if not more important, I was able to connect up with old friends and meet new ones including several luminaries in the CIO/CTO firmament that I have long admired from afar. Hey, Monica & Kim!—Let's do it again next year!
My report follows:
The theme of the conference: "It's not just legal" or, empowering the CIO. But "empowering a CIO" has it backwards; the CIO empowers the organization:
- control costs
- keep attorneys productive wherever they are (office, home, client, hotel)
- keep attorneys informed (Knowledge Management--documents, contacts, etc.)
- and ultimately, driving towards a more profitable mix of clients and matters within the firm, which comes from a transparent analysis of financial data.
Dr. Peter Weill, Director of MIT's Information Systems Research Lab: IT Governance
What is IT Governance in a law firm? Dysfunctional governance is slow, bureaucratic, creates islands of technology; high-performance IT Governance creates and supports collaboration.
Most popular program at MIT Sloan is "IT for the non-IT executive," which is a two-day affair that is given three times annually and attracts many law firm partners.
Result of studying 256 organizations worldwide over three years: Effective IT governance means:
- Not silo'ed; linked to corporate governance and the governance of other key assets
- Supports demand for IT from all areas of the enterprise
- Recognizes leadership has limited bandwidth (implies that senior management cannot and should not be involved in every IT decision)
- A synonym for "hub" is "bottleneck," so some IT governance must be distributed.
- Borrow analogies from governance elsewhere in the firm; e.g., the CFO does not sign every check, so the CIO should not be down in the weeds either.
- Firms in the top third of IT governance were 20% more profitable; does not mean causation, but does mean focused strategies can pay off.
- Conversely, beware situations where"ownership" of IT governance is unclear.
- What percentage of your senior partners can actually describe your IT governance model? Across all enterprises, the average is 38%. In the top third in terms of financial performance, the number is never less than 50% and more typically 70-80%. In the bottom third, it's 12%, 15%, 18%, etc. In professional services, the number is always less by 5-10% across the board.
- Firms in high-growth mode have decentralized IT decision making, close to the client.
- Firms that are highly profitable have highly centralized IT governance.
- Firms maximizing asset utilization have a blend.
"IT Governance" essentially boils down to: "Who has decision rights and input to key IT decisions?"
"IT Management" is one level below: What actual decisions are made. As usual, one must first ask, what behavior in the enterprise are we trying to encourage? Growth? Cost savings? Innovation? Sharing?
Key assets of the firm include:
- human
- financial
- physical
- intellectual property (knowledge)
- information and IT; and
- relationships.
"Management" is simply the policies, procedures, and means for handling each of these asset classes. Interesting questions to ask about these six asset classes:
- which has the most "mature" governance structure? (finance, most likely)
- which is ultimately most important to the firm? (human, most likely)
- which has the least structured/effective governance? (relationships?)
The five major IT decisions are:
- principles
- architecture
- infrastructure strategies
- business application needs; and
- investment and prioritization
For example (real world truth), one law firm came up with this as the #1 IT principle: All knowledge held by each partner is theirs alone and not to be shared. Insane, perhaps, but succinct and clear.
Alternative models of decision-making are:
- business monarchy (this is highly efficient but can lead to suboptimal IT architecture)
- IT monarchy (leads to superb IT architecture and procedures but may not align with business processes)
- federal system (IT, practice groups, office heads, etc., all have input--far and away the least efficient and most likely to generate the worst overall decisions)
- IT duopoly (business leaders suggest what they need, IT responds with what they can provide, and a genuine dialogue occurs: typically a smart choice)
- feudal (every partner gets what he/she wants)
- anarchy
In general, the federal model is the least effective, because the most time-consuming and bureaucratic. On the other hand, it's the most "open" in terms of input (democratic) and difficult to avoid in a law firm culture. Common experience in determining "business application needs" is passive-aggressive behavior by lawyers: "I don't like what you've given me, but I'm not telling you what I need." Even worse, "almost no partners puts the firm first; they put their practice area first." So with 300 partners, only 10 of whom are senior enough to truly have the interests of the firm at heart, it's extremely difficult to get partners to specify their business requirements.
"In the end, it all comes down to incentives." So if the success or failure of one's own practice area is determinative of compensation, don't expect different behavior. One technique to overcome this: Get partners to visit other law firms and in particular other firms' clients; can be eye-opening. For example, if clients appreciate an "all documents" extranet, that implies a unified IT infrastructure on the law firm side.
Also, IT needs to try to speak the language of business: Get out of your office and speak plain English; orient yourselves towards service and business reality.
Recognize that tension is inevitable: Practice groups want to be "special" and unique; the executive committee wants firm-wide strategies and tactics; and IT wants a unified infrastructure, security, etc. The goal of a governance platform is to "institutionalize this tension," and make it transparent and exposed to the open air. Do NOT cut under-the-table deals, since they'll come to light the next day and lead to anarchy.
Empowering the CIO/CTO: Roundtable Discussion
Is there a difference between being a CIO vs. a CTO? Should the CIO/CTO be a lawyer? Essentially, he/she needs to be perceived as a peer by, e.g., reporting to the managing partner/CEO of the firm.
Regardless of the title, there are three philosophical approaches: From a business perspective, from a technology perspective, or from an operational perspective:
- business-side: IT is a tool
- technology: adoption is key
- operational: asset utilization, maintenance of existing processes ("the trains run on time")
Clarity of expectations is tremendously helpful towards success: the CIO/CTO needs accountability and responsibility, and a mandate. The mandate can be as simple as "a stable platform," or as aspirational as "having the firm be perceived as a technology leader," but a mandate of some sort is essential.
Elements of strategic technology planning:
- Defining technology strategy;
- Clarifying the process for strategic planning: Who are the players?
- Developing a budget
- Communicating the value of tech to management
This is all well and good, but when the audience was asked how many of their firms actually had a firm-wide technology strategic plan, probably only 5% of hands went up. Why? "Attorneys are reactive." Nevertheless, having an actual written plan is key, not just for the clarity of thinking it requires, but for consistency six months later when someone asks why you are or are not doing X.
Particularly in law firms, there's the phenomenon of "something for everyone"--can you just say no? Sometimes reason will prevail and a partner who wants gadget X will realize that if all the partners get exceptions made for them, it will cost real money, but conversely some people will still insist they need it, at which point "you're into the politics of the firm," and the managing partner may have to make the ultimate call. It's mostly a matter of choosing your battles. For example, if someone wants a full copy of Adobe Acrobat and not just the reader, for $700, you might want to surrender without a whimper rather than get into a long debate which would absorb multiples of that amount of money in unbilled time, not to mention harsh feelings.
"Outsourcing From the Backyard to Bangalore"
Why outsource?
- reduce operating costs: 35%
- focus on core competencies: 36%
- improve processes: 13%
Opportunities to outsource:
- merger/acquisition
- major technology upgrade
- decision to reallocate managerial time to essential functions
Does outsourcing work? Yes:
- reduces costs typically in a range of 30-40%
- permits introduction of new technology/software
- increases user satisfaction
- focuses resources on strategic initiatives
- gains access to best practices
- reduces exposure to technology/process obsolescence
- initiates change
But aren't there risks? Yes, although there are risks in domestic sourcing as well. The key to dealing with the risks is strong leadership; given that, you can address the issues and get past them; without strong leadership, manageable risks become dealbreakers.
But risks specific to offshore outsourcing include:
- suppliers are having trouble recruiting enough skilled people
- there is high turnover among existing staff in some specialty areas
- risks of salary arbitrage benefits going away: including, has the supplier been overly zealous in pricing to win the work? could changes in taxation make it uneconomic?
- inadequate customer satisfaction (internal and external); be very careful with client-facing functions
- legal enforcement rights: speed, reliability of local courts? If you use American courts, typically American subsidiaries are not asset-rich
- data privacy, particularly vis-a-vis client confidentiality
- IP issues; and can they be enforced?
- political risks: "Benedict Arnold" legislation at the federal and state levels; approximately 30 states now have pending legislation.
Service level agreements are critical:
- first understand what the existing service levels actually are
- then tune your expectations to what's truly suitable: neither too high or too low
- put explicit SLA requirements into RFP
- and don't compromise
Day 2
"Views of the Future from Different Pasts: An Interactive Panel Focusing on Cutting-Edge Technology and Related Business Issues"
Monica Bay, ALM
Steven Levy, Microsoft
Laura Owen, Cisco
Jonathan Wong, CIO, Gibson-Dunn
Ian Miller, CIO, Weil-Gotshal
Monica Bay: "I believe very strongly that the profession is in the midst of a sea change." In twenty years at AmLaw, she's seen tremendous change. "This sea change is moving the profession from a private club model where lawyers functioned as the Wizard of Oz and ultimately delivered a bill 'For Services Rendered.'"
The transition is to a corporate/business model. Laura recently wrote an article entitled "Change or Die," published in LTN and on law.com, which got more traffic in the blogosphere than anything Monica's ever published. Laura: "This is all common sense; why tie yourself to a 24-hour clock; that's so limiting compared to being able to use technology to deliver legal services through, e.g., licensing agreements." "Sit on the beach and make money."
Jonathan: "When I was at Brobeck, we certainly got the notion of having to operate more like a business, but sometimes when I talk internally, even to our IT department, in business terms, sometimes they still don't get it."
Ian: "At the highest level, with firms in excess of $1-billion in revenue, they're enormous as law firms but as corporations they'd only be middle market. Now they're st struggling with 'too many mechanics under the hood.' But law firms could learn a lot from manufacturing and supply chain functionality. Law firms deliver documents; being differentiated is not inconsistent with being efficient."
Steven: "I'm struggling to teach our inhouse attorneys how to think
like businesspeople. It's like the old Russian screw company where the
incentives were based on how much raw material was input, not what was output--so
at the beginning of each month they'd make one humongous screw and drink vodka
for the next 29 days.
"We want to pay for output, not input; it is a sea change for law firms."
Monica: "I've seen law firms fail to do things my mother taught me at
age 8. Like: Asking clients how they did and how they could do
better."
"Consider this: ALM Media just completed its latest round of financing (successfully), after which
the investment bankers and venture capitalists took everyone out to dinner
and asked how they did, what they could do better, and made it clear they wanted
a long-term relationship with ALM Media. And the lawyers? They sent a
bill."
Steven: "We're a black hole to our outside counsel and they're a black
hole to us. We don't share information in the rich way that technology
enables today. What worries me is that we are driving towards a commodity
business; and if we don't control that, we'll end up with Wal-Mart. You
need to sell it to me for 5% less than last year.
"I fear the default direction is to a commodity business, which is not healthy."
Ian: "At Weil-Gotshal we have an annual review with each key client
which is a fabulous and revelatory practice. We can use technology to
understand each other's needs better.
"For example, document management is at the heart of what a law firm
does; why wouldn't it be possible to integrate our DMS with our clients so
that a document doesn't have to orbit around our system, then break out of
orbit and be emailed to the client where it goes i into orbit there and then
gets emailed back."
Jonathan: "We've had extranets around for a long time, but the law firm culture doesn't get it yet. "
Laura: "I think if law firms don't change, they're going to die; everything
from basic customer service--ONE law firm out of the 58 she's worked with has
ever asked how they're
doing. But law firms won't change on their own;
clients will have to force it.
"Extranets are great but they're essentially a great big file room; they're
useful but don't charge me for it! That's bulls***!
"You can go beyond commodity work; Cisco has partnered with Eversheds to deploy
an e-learning tool which is in a cartoon-like format very appealing to the
user. Cisco got the content for free, developed the tool, and gave it
back to Eversheds, which now has a new piece of IP to sell to their clients."
Jonathan: "I often ask partners and associates what I can do to succeed as Gibson-Dunn's CIO and one London partner was very blunt with me recently: He said, 'You can come into my office more than once every 5 years, and just listen.'"
Ian: "A trend I see is the CIO becoming more involved with firm management
and therefore more involved with clients.
"E-discovery in litigation has changed the ballgame; it used to be limited
by physics, but now it's not."
Monica: "I did an article called 'Fear Factor' based on an ABA survey
reporting that only 11.7% of respondents used litigation support technology. Many
may have been using it (e.g., PowerPoint) but not thinking of it that
way.
"But overwhelmingly, lawyers reported they were scared to death about trying
things, spending money, being able to understand it and actually use it; they
didn't want to be trained or to learn.
"Let's all stipulate that we have to use these tools: But how do
we get there from here?"
Jonathan: "We can start by just showing up and listening, and find a lingua franca in the language of business--not the language of law and not the language of tech or IT."
Ian: "We acquired a law firm in Paris, which became our Paris office;
we started by standardizing them on our PBX technology, which they were violently
opposed to.
"The issue turned out to be that the speakerphones were half-duplex meaning
only one person can talk at once, which is a complete non-starter in that culture.
"There are corporate lawyers and there are litigators, and they're like surgeons
and interns; they are two totally different animals.
"One of the first things I did was watch one of our attorneys try a case, and
he was spell-binding in closing argument. Over 45 minutes there were 200
slide transitions and he never looked at the screen once; he had memorized every
transition. When you see a performance like that, you realize how you
can support these people."
Monica: "I predict EDD is going to be the driver that will kick all firms into technology, and there will also be lots of road-kill. KM didn't do it because it was never properly defined and is so broad and encompasses everything, but EDD is real and it's here."
Ian: "Microsoft calls Office its "productivity suite," and I'd call it the anti-productivity suite. Excel is great, Word is so-so (you used to do three revisions and it was fine; now you do 27 and it was still fine after three), but PowerPoint is definitely anti-productivity. The world would be better off without it [applause]."
Steven: "There is no such thing as corporate privacy any more thanks to EDD; you think the Patriot Act was bad? IM, Blackberry's, metadata, voicemail, data repositories; it will make it impossible to do business with any degree of privilege."
Laura: "The people in this room hold the keys to the kingdom; you can create the tools to overcome the limits of the billable hour. Let clients into your KM system; let me use your document assembly system and charge me a flat fee for access to it. I'm smart enough to know if I need to show it to a lawyer or not."
Ian: "You don't get a seat at the table by whining that you don't
have a seat at the table. Just show up; in my entire career I've never
been thrown out of a meeting I wasn't invited to; I did it just yesterday
when the litigators were meeting and I had something to say to them.
"How do I get into a lawyer's office to talk about KM? First, I fix his
Blackberry and then we can talk about KM."
Jonathan: "You get a seat at the table, first, by doing your job right, and getting respect that way." [One audience member violently disagreed and said the culture wouldn't permit it at their firm.]
Monica: "Lawyers never want to admit they don't know something, so
speak plain English and build bridges.
"You really have to be on your firm's websites. All firms who do not put
their C-level execs on the website have lost business. What if I'm
a client and I need to reach an IT director.
"There's a similar thread in the blogosphere about cloaking associates, which
is also germane."
Laura: "Clients are demanding change: Cisco, DuPont, Microsoft, GM, Johnson + Johnson, other clients, have formed a consortium to create change; it's not about squeezing more out of the billable hour or chopping your rates 20%. Firms simply have to be more efficient, and only productivity through technology will enable it. Stop being tied to the 24/7 clock, and stop throwing associates out the door after 5/6/7 years of incredibly valuable training; that's such a waste."
Doug Caddell, CIO, Foley & Lardner
Can IT provide a competitive advantage?
Yes! But how do you get there? How can a CIO in a law firm even think about making it a competitive advantage? In so many law firms, IT is still viewed as a cost, not an investment. If your firm still feels that way, "look for employment elsewhere."
If you're just reading Law Technology News and CIO Magazine, break out of your box: Read The American Lawyer and Corporate Counsel, to be sure, but also Fortune, Business Week, The Wall Street Journal, etc. Know what your firm's clients are reading, as well.
One way to help corporate clients is to recognize that most inhouse law departments are at the bottom of the technology food chain. If it's a retailing or manufacturing company, their IT staff is focused on either retailing or manufacturing, and not the law department. So Foley, e.g., can offer some best-of-breed lawyer-related applications that would not be developed or serviced in-house. "We have good lawyering, everybody has good lawyering, but IT can distinguish us: Give your attorneys a story to tell."
Foley offers its significant clients "FOLEY:ClientSuite," which among other things lets a corporation view all its matters being handled by Foley, provides some access to Foley's KM system, permits authorized users to update matters with notes, etc. Q: How do you get lawyers to update matters with notes? A: We built it and they came; both clients and Foley attorneys (albeit not all). Once clients started using it and expecting their Foley counterparts to use it, it built from there: "Small successes," not conquering the world.
About six years ago Foley decided to take on a more corporate managerial model: "Lawyer led, but professionally managed." Shaky for the first couple of years, but now well-established; Doug said he could go into a senior partner's office and say, 'no.' The goal of the decision was "to be a player rather than be sucked up."
Moreover, lawyers are being grouped and organized in many case into client-industry teams rather than practice groups reflecting internal law firm organization (tax, real estate, etc.).
Are the documents tied back into InterAction or the DMS system (iManage)? No--and no for a reason. InterAction: "Just didn't want to go there." iManage? No that either; we wanted to build one extranet template and re-deploy it multiple times. But when we looked at other extranets we'd built, we realized almost no documents were initially resident in our DMS: They were almost all externally generated.
Since competitive advantage is a moving target and a fleeting thing, the big question in Doug's mind is, "Where do we go tomorrow?" Law firms have historically been behind the curve technologically, but now they have more or less caught up with corporate America. Unfortunately, Doug would posit that law firms stopped moving forward about three years ago and have again fallen behind corporate in "enhancing the customer experience." Model cases: Continental Airlines, Land's End, BMW, US Bank, FedEx.
Key ingredients:
- build an exceptional technology team; it's all about people
- you only have A and B lawyers, not C and D lawyers, so you must only have A and B IT people
- if you just want to be average, go be average somewhere else
- emphasize training and rewards; you will get the behavior you reward people for
The Holy Grail is earning credibility, both personally and on behalf of your department.
Post-Merger Integration:
Ed Macnamara and Matt Peters, co-CTO's of Wilmer Cutler Pickering Hale & Dorr
A merger of equals; revenue was $370-million apiece, both about 500 lawyers with 150 partners. Discussions began in June or July 2003; entire partnership informed in October; zero leaks until one week before formally announced in May 2004. Senior administrative managers were also involved early, reflecting firms' vision that C-level execs needed to be involved to make the merger successful. Ed and Matt started meeting 6-7 months before the merger.
Day One: Get the outward-facing basics looking compatible: email, voicemail, letterhead, website.
One of the more difficult integration issues has proven to be the intranets, as both are quite different from each other and each reflects the firms' basic cultures. Lawyers and staff are used to the way each works, and full integration of these is still not achieved.
There is also ongoing fear among IT staff about then post-merger fallout; whereas before each spent maybe 10% of their time on staff issues, they now spend 50-60% of their time on it. Another interesting lesson is that not everything can or should be decided right away; sometimes waiting longer to make a decision results in a superior decision--particularly if it means it's jointly arrived at and not jammed down one side's throat.
Interestingly, the co-CTO's are the only joint CxO's in the merged firm. On the other hand, senior management of the firm has explicitly declared the firm will continue to have two headquarters, Boston and Washington, DC. In terms of change management, saying something once doesn't do it: Communicate, communicate, communicate. Interoffice travel is also indispensable; sticking to emails doesn't cut it. People need to get together.
Advantages of the merger:
- far more bargaining power with vendors
- wider range of experience across the staff
- increased staff size (no cutting)
Bottom line:
- more mergers are likely
- embrace change
- take advantage of the opportunities
Industry Surveys: Leading or Misleading?
Charles Lowry, Director of Client Relations, ALM
Sally Gonzalez, Baker-Robbins
Eugene Stein, CTO, White & Case
While 67% of respondents think surveys provide valuable information, only 27% are satisfied with the current survey landscape.
NLJ 250, which ranks firms by FTE lawyer headcount, captured 8.5% of all lawyers domestically five years ago, >12% today, and all of that growth has been in firms at the very top.
At White & Case, IT is the third largest expenditure after leaseholds and salaries, and partners largely don't understand where the money goes. Being able to benchmark the firm's spending on IT is therefore something attorneys are very interested in.
Problems with surveys include:
- inconsistent authorship
- unclear directions
- too time-consuming
- too many surveys, period
- inconsistent standards
- most importantly, viewed as third-party marketing tools and not objective
Recommendations to improve surveys:
- collect high-level data only
- standardize on your chart of accounts
- "limit and improve" surveys
One suggestion is to do an annual high-level survey and then monthly slices (about servers, staffing, lit support, desktop configurations, etc.). The Citibank survey came in for some pointed criticism as not in touch with law firm reality and highly targeted towards the financial side of the firm and not the tech side.
There are some functional difficulties that could be improved, such as:
- sending reminders to those who haven't responded, because people can have the best of intentions and forget about it;
- allow people to "pause" in the middle and return;
- provide a multitude of flexible response possibilities so, e.g., instead of yes/no, "often, sometimes, rarely..."
TechnoLawyer: Newsletters + A Blog
Neal Squillante, publisher of the "can't find this stuff anywhere else" TechnoLawyer newsletters, has launched a companion blog called, duh, "TechnoLawyer Blog." Among other things, you can subscribe to the aforementioned newsletters there. About time, Neal! Seriously, thanks. TechnoLawyer at its best reminds me of the antedeluvian days of the Web when the long-since-deceased site, "Truly Useful Sites," would reward the daily visitor with exactly that. But I date myself as a cyber-citizen.
April 7, 2005
Rudy Giuliani: Back to the Future
Bracewell & Patterson—make that Bracewell & Giuliani—announced that Rudy Giuliani, who really needs no introduction, is joining the firm to start a New York office for the 60-year-old Houston-based firm (400 lawyers, #121 on the most recent AmLaw 200 with $156-million in 2003 revenue). Newsworthy, to be sure, and most of the coverage has centered on what this does or doesn't mean for Giuliani's political ambitions (can you run for Senator and run a serious New York City law practice at the same time?). "Adam Smith, Esq." is of course devoutly apolitical, so the question here is: Can he pull it off? That is, can Bracewell & Giuliani go from zero in New York to "well north of 100 lawyers and arguably the most important office in the firm," according to the vision of managing partner Patrick Oxford.
First, let's give B&G credit for facing reality about how the legal landscape is shaping up:
At the moment, the firm has offices in several Texas cities, as well as Washington, D.C., and London. "We don't think there is going to be such a thing as a Texas firm," Oxford said. "You have to be able to represent your clients in the financial centers in New York and London."
Arguing against their ability to pull it off is simply that this is New York, probably the most competitive market for legal talent in the world, with the possible exception of London. As one recruiter assessing B&G's move—who's a big fan of Giuliani—says, New York "has been pretty well picked over."
On the other hand, their ambitions appear focused and astute: Not to become the equivalent of a "bulge bracket" corporate-deal player, but to specialize in "white-collar litigation, business ethics and corporate investigations." In those areas, as an alum of both the Southern District of New York and the Justice Department, Rudy has a gold-plated Rolodex, and if anyone can pull it off he's probably the guy. This story falls squarely in the "stay tuned" basket. Give B&G credit for:
- facing reality; and
- taking a nicely calculated gamble on dealing with it.
And if all else fails, B&G is deeply connected to the Republican Party, featuring both President Bush and Tom DeLay as clients, and with a former Republican National Committee chairman as a partner. Maybe Rudy can have his law practice and his politics after all.
April 6, 2005
KM & Marketing: The Great Synthesis
Marketing and Knowledge Management Are Joined at the Hip, is the theme today. How so? Isn't marketing fundamentally outward-directed and KM fundamentally inner-directed? Not in my view. Let's start with the basics:
- Law firms' product is knowledge and intelligence;
- Your firm gains a competitive advantage in the marketplace when your knowledge and intelligence are superior;
- So your marketing message has to demonstrate same (that is to say, show don't tell); in other words, put your broader/deeper legal knowledge on display with greater alacrity and flexibility than your competitors.
As loyal readers know, a core conviction of mine is that—cultural considerations aside, admittedly a large "aside"—the business of law firms is not fundamentally different from the business of corporations. So when CMO Magazine has a piece elucidating how firms like Jaguar, Delta Faucet, and FedEx, use KM to drive marketing initiatives, it's worth reading. Start here:
- Jaguar used KM to coordinate, integrate, and synchronize the efforts of its worldwide marketing managers and regional dealers, capitalizing upon such locale-specific intelligence as favoring print ads in New York City's mass-transit commuting environment and radio ads in LA's car culture (duh?!, you say, but are you actually doing it?);
- Delta Faucet used KM to integrate its marketing efforts with its financial forecasting models and its factory floor so that, for example, they didn't do a massive print run of brochures on a model about to be discontinued;
- FedEx used KM to deliver real-time information to its deliverymen and sales people from the customer profile database; as a trivial (or not) example, when the local folks-on-the-ground were empowered to deliver birthday greetings to individual customers, shipment volumes on those accounts increased 22% in the following quarter; and
- QAD (never heard of them?—neither had I), which sells ERP software worldwide (only 40% of their sales come from North America) introduced an enterprise-wide platform to coordinate all marketing presentations in a two-way fashion, incorporating "best practices" from the field as well as suggesting them from headquarters, and saw $3-million in incremental revenue year 1.
Back to law firms: A cliche of KM guru's is that the world is divided into what we know we know (expertise), what we know we don't know (opportunities for professional development), and what we don't know we don't know (profound ignorance). Are there areas of expertise in your firm that exist but you don't know about them? Could they be germane in your next bake-off or beauty contest or RFP response?
KM, meet Marketing.
April 4, 2005
The Deal Market is Back! But Hey, What About the Rest of Us?
The American Lawyer's cover story this month is about how the corporate/transactional deal market "is back," five years after it went away. Equity offerings nearly tripled in value in 2004 (to $43-billion, famously including Google) and an estimated $100-billion of uninvested capital is also sloshing around, mostly in private equity funds.
But for my money the story behind the story is more interesting—after all, law firms, even members of the AmLaw 10, can hardly take credit for the health of the transactional marketplace—and on this score Aric Press, editor-in-chief of "TAL," hits it out of the park. Aric notes that we're in the midst of conference and roundtable season, where license is distributed far and wide to opine that enormous changes are afoot in the profession and that things are essentially unchanged, and it is safe to say that "both sentiments are exactly correct."
Huh? Yes indeed, because two different worlds are being discussed just as clients divide their legal work in binary fashion:
- First there are the deals, cases, and issues where price is no object;
- And then there's everything else.
While it is devoutly to be wished to live in the exclusive precincts of Column A, as Aric slyly observes, unless you're located on the corner of Sixth Avenue and 52nd Street, you'd be lucky to get 40-60% of your revenue from there.* Law firm management essentially doesn't have much of a challenge living in the land of Column A, since revenue and gross margins are whatever the market will bear. But things get interesting—at least if you believe firm managers should earn their salaries—when we come to Column B.
What, indeed, is to be done? If partners believe that their exquisitely honed skills of issue-parsing and Jesuitical dissection can't go slumming in the land of "just producing the work," you may need to rethink things. As Aric puts it:
"You could just offer discounts. But really, that's so 2003. What the clients seem to be saying is that instead of knocking 20 percent off the rate card, they want you to make a business calculation and set a price. And then they want you to manage the cases to it."
I can't speak for you, but my reaction to this was, "Bring it on!" What could be a stronger test of one's genuine business acumen as a lawyer (or practice group manager, or Executive Director, etc.) than to engage in an economically-driven discussion with an important client about what it really might cost to deal with subset X of their legal portfolio? Isn't that more intellectually engaging (not to mention more fun) than multiplying [rate] x [hours]?
*For the non-cognoscenti (or just the forgetful), that hallowed corner is HQ of Wachtel.
April 1, 2005
Could There Be an AmLaw 100 Enron?
A new blog, Legal Ethics + Legal Technology, put together by Ben Cowgill, has invited guest authors, including me, to post their thoughts this week, on issues related to professional ethics. While I have often said that "Adam Smith, Esq." is all about economics and pointedly not about ethics, I realized there could be convergence of the two in a drastically unhappy situation (yes, think worse than Brobeck or Finley-Kumble). This was my post:
Just when you thought it was safe again (Enron, Tyco, and WorldCom are so yesterday, and Sarbanes-Oxley is, for better or worse, firmly part of the gestalt), AIG, one of the Dow 30, blows up. At age 79, Hank Greenberg's 37-year reign has come to an end. Surprise? Actually, as I was reading The Wall Street Journal's coverage, my only surprise was that the directors had not given him the boot years earlier. Consider this description of the imperial CEO gone nearly loony (Monty Python should do something on this):
"In his executive suite filled with Chinese artifacts, Mr. Greenberg had his own elevator guarded by his own security detail, his own living room adjoining his office and private chandeliered dining room. At some monthly management meetings, executives sat around a conference table in coats and ties without refreshments. Mr. Greenberg, occasionally in shirt sleeves, was served hot tea in a china cup by his butler, a former colleague says. At certain times, when AIG executives traveled with him on business, they were required to use the small pilots' bathroom in the front of a corporate plane. A large, fancy bathroom in the back of the plane could be used only by Mr. Greenberg, his wife and their Maltese dog, Snowball, according to a former AIG executive."
Just yesterday I was rolling my eyes at an eerily similar description of an another imperial CEO, Phil Purcell of Morgan Stanley, who, for an interview, chose a conference room next to his office decorated with pictures of him together with the likes of Bill Clinton and Tiger Woods. "L'etat, c'est moi," anyone?
So what has this to do with legal ethics? Simple: In the intensely competitive world of the AmLaw 100, with the bar being set annually ever-higher for such metrics as profits per partner, will we see the law-land equivalent of massive accounting fraud? "Can't happen here?" And since when, precisely, were lawyers better businesspeople than, say, McKinsey alums (Purcell) or CEO's of Dow 30 firms?
Savvy Blawgers' Query #2: The Future of The Billable Hour
This Just In: Results of "Savvy Blawgers" Query #2
The second query to this august group concerned the future of the billable hour. My original email to the Savvy Blawgers reads in pertinent part:
"Commentators
have targeted the billable hour as both a symbol and a root
cause of myriad perceived problems in large firm practices,
ranging from lawyers’ professional dissatisfaction and
poor mental and physical health, to inflated billings, high
associate turnover, inadequate training and supervision, incivility,
and lawyers’ decreasing ability to meet their responsibilities
to family and community. Are the problems identified
with the billable hour as extensive as critics suggest? Is
the billable hour truly the cause or merely a symptom of the
problems? Are there additional explanations for the perceived
problems and can they be solved by changes in billing practices,
work assignments, attorney monitoring, employment arrangements,
or law firm culture or structure?
- As much criticism as is directed at the billable hour, it seems indestructible. Why does it persist as the "default" billing model?
- Is the billable hour model a better deal for the lawyer or for the client?
- If a lawyer told a client they were open to other types of fee arrangements, how often do you think clients would suggest an alternative? And what would that alternative be?
- Do you have anything nice to say about the billable hour? Somebody, please rally to its beleaguered defense!
- Tell me something I haven't thought of.
As should be expected given the combined intellectual horsepower assembled to tackle this notoriously difficult issue, responses varied wildly.
Prof. William Henderson of Indiana University School of Law/Bloomington, had this to say:
"Bruce, this is a terrific topic. The billable hour is a terrible thing. Everyone in large law firms is better off by scuttling it, with the exception of the dishonest and inefficient, who will fare poorly. The savings garnered by the client can be split with the honest and efficient lawyers.
Here is an amazing ABA report on the topic. One of my students found it and cited it in his paper."
[The 2002 ABA report is indeed a wondrous creature, and I encourage one and all to download it. As Associate Justice Stephen Breyer puts it in his Forward to the report:
"The villain of the piece is what some call the “treadmill”— the continuous push to increase billable hours. As one lawyer has put it, the profession’s obsession with billable hours is like “drinking water from a fire hose,” and the result is that many lawyers are starting to drown."
And the Preface by Robert Hirshon, then-President of the ABA, contains this:
"It has become increasingly clear that many of the legal profession’s contemporary woes intersect at the billable hour. The 1960s marked the coming of age of the billable hour – an economic model that was created to address antitrust concerns with bar association fee schedules, to provide lawyers with a better handle on their own productivity and, more urgently, to address clients’ demands for more information about the legal fees charged. "Today, unintended consequences of the billable hours model have permeated the profession. [...]
"The billable hour is fundamentally about quantity over quality, repetition over creativity. With no gauge for intangibles such as productivity, creativity, knowledge or technological advancements, the billable hours model is a counter-intuitive measure of value."
There are many more gems in this report.—Bruce.]
J. Craig Williams, to be converse in the extreme, responded in the entirety as follows:
"Bruce,I think it's fairly simple, and there's no need for significant analysis. The billable hour is alive and well and it's prognosis is good for a long and healthy life. Certainly it will evolve into new and different variations, but most of those we've already seen: the flat fee, value billing, and the well-known contingency fee. I don't think the English system of "loser pays" will ever make it across the pond. That's my 0.1 of an hour thought on it."
Thanks, Craig; your check is in the mail.
Ron Friedmann essentially makes a similar prediction about the robust durability of the billable hour, but in sorrow if not anger:
""What is the future of the billable hour?
"For the high-end, non-commodity work that large law
firms do, the billable hour will prevail, at least
for next decade or two and likely beyond. When I started
in the legal market in 1989, I was sure alternative
billing was just around the corner. It appears very
little high-end work has moved away from the billable
hour so I am now reluctant to predict radical change.
I've spoken with lawyers eager to offer alternatives
but clients decline. The billable hour will stay for
the same reasons it has not yet gone away: risk aversion,
lack of disciplined and business thinking by attorneys
in firms and law departments, and a failure of imagination.
"As a proponent of best practices and the application
of technology to law practice, I wish it were otherwise.
A move to fixed fees would create strong pressure for
efficiency, which would favor adoption of demonstrated
best practices and more technology to automate wherever
possible. If e-billing spreads and if general counsels
actually analyze the data rigorously (the latter being
a BIG IF), then there might be a move toward tighter
project management and budgets. This would at least vitiate
some of the pernicious impact of the billable hour."
We warned you this group has opinions—"lack of disciplined thinking," "risk aversion," and "a failure of imagination"!—if you can't stand the heat,...
Dennis Kennedy puts the ball back in the clients' court:
"Answer: The future of the billable hours is in the hands of clients. Without client pressure, there is little reason to expect many lawyers or firms to change the current system on their own. Ultimately, however, there will be practical limits for how high rates can go and the number of hours lawyers can work. Until then, I expect alternative billing to remain in the realm of experiment, primarily used by innovative lawyers who will be criticized by some of their peers and praised by their clients. Here's a great experiment: ask lawyers whether they like to have repair, construction or any other services done on an hourly billing basis, without an estimate or cap. If lawyers don't like that approach for their services (and, believe me, they do not), what makes them think that their clients like it any better? Forces for change are building, but the pressure has to come from clients and, even then, change will be slow."
In other words, Dennis, the storied life of the billable hour will come to an end only when it bumps up against "practical limits" on how much revenue it can generate for law firms? I guess that answers our earlier question of whether it's a better deal for clients or for firms—and as soon as it's not an optimal deal for firms, they'll turn to something else. Now I understand.
The never-reticent Monica Bay is more confident in predicting change:
"For about the last seven years, I have been preaching that the billable hour will be dead in five years. What's a little hyperbole among friends?
"In all seriousness, I truly, truly believe that the profession is undergoing a sea change, or, to use Andy Grove-ism, a paradigm shift. Fees are one of the touchstones.
"And while, at first blush, many lawyers bristle at the idea, there are so many benefits for clients and lawyers and firms alike that I am frankly stunned there hasn't been MORE movement.
"After all, in an average 24-hour day, you can only legitimately bill about 36 hours via the traditional hourly rate. But if you restructure fees so they vary depending on the assignment, opportunity, etc. -- AND you look for opportunities to leverage your "intellectual capital" so that you can "earn money while you sleep" -- and if you adopt technology to assist you along the way -- you can open up not only more "revenue streams" but happier clients and lawyers (and support staff.)
"From a simple will (why would you want to work hourly, when the bulk of the intellectual processes are done for the first client?) to "bet the farm" litigation -- where savvy firms get a "stake" in the outcome by using a graduated fee structure to reward wins -- to automating "commodity" legal functions, exploring non-billable hours is just plain prudent.
"Obviously, this is just the proverbial tip of the iceberg."
Monica indeed makes it seem so obvious that the billable hour divorces cost from value received, and perverts incentives by pitting the client's interest in (a) efficiency and (b) a financially happy outcome, against the firm's interest in (a) maximizing revenue and (b) avoiding any direct or indirect financial participation in the outcome.
Econ. 101 is screaming between my ears at the irrationality of this model. But wait! There are more unintended consequences to be explored, according to Denise Howell:
"Is the billable hour model a better deal for the lawyer or for the client?
"Let's put it this way: it's a way to help ensure your lawyer will bestow upon your case the time it requires and deserves. I have heard tell of reprehensible situations where clients in flat fee arrangements were provided with a bare minimum of attention from their "counsel." I realize the better solution is to drum such scum out of the profession, but ask yourself whether that can happen in a sufficiently timely and comprehensive manner to eliminate the problem.
"Another thought on unintended consequences. Where my first example involved a lawyer putting too little time into a case, this one arises from the danger of being forced to work too much.
"The existence of a flat fee arrangement could, if the opposing side gets wind of it, motivate the use of harassing litigation or negotiating tactics. In other words, a lawyer or party who knows the other side's counsel will be compensated a set amount no matter how much time is put into the representation could decide it's a useful tactic to launch a blitzkrieg of discovery and law and motion, or otherwise "overwork" the matter. The endgame would be to inflict enough pain on opposing counsel -- whose time is now tied up to an extent not likely anticipated when the fee arrangement was negotiated -- that the lawyer ceases to be the client's zealous advocate and instead becomes the other side's ally in pushing a less than optimal resolution. The litigators reading this might already recognize this scenario from contingent fee situations. Again, this may be more a problem rooted in professional ethics than in the flat fee arrangement itself, but, as with the issue of putting too little time into flat fee cases, a flat fee arrangement could invite abuses from the unscrupulous that might otherwise be avoided."
If you're not confused enough by now, I would only add to Denise's insightful remarks that "flat" and "contingent" fee agreements alike can be crafted to defend the interests of both sides (law firm and client, that is) against "outliers" and abusive tactics visited upon them in hopes of exploiting a rigid fee structure. Indeed, I would go so far as to say that, with:
- experience over time, and
- a sufficiently large cross-sectional sampling of cases by subject matter, by geography, or both
that firms and clients can arrive at statistically reliable predictions about what it will cost to defend/prosecute the "median" case. For example, if a firm like Baker & McKenzie wanted to bid on defending Wal-Mart against all employee discrimination cases nationwide for the next five years (at a fixed rate for the five years—think insurance premium here), I bet a three-member team of (a) Wal-Mart inhouse counsel prepared to share the data on such cases for the past five years; (b) smart outside counsel firm's management team; and (c) econometrician/statistician, could come up with a reasonable range of price tags, after which "mere" negotiation would reduce the risk to a single number (contingencies, again, happily included).
But enough of my editorial insertions: On to Ernest Svenson's inimitable tour of the landscape:
"• As much criticism as is directed at the billable hour, it seems indestructible. Why does it persist as the "default" billing model?
"For the same reason that people climb Everest: because it's there. Or, because 'it's familiar' and change brings uncertainty, which lawyers eschew. But also, (to answer the second question) it's a good deal for many lawyers, mostly those that practice in big firms. Was it Abraham Lincoln who said "it's easier to steal a little bit from a lot of people than to steal a lot from a few"? Well, something like that principle (without the 'theft' part) is in play with hourly billing schemes in that they allow more time to be billed by itemizing than would be possible if the client just got one large bill at the end of a case. By focusing attention on the carefully described little chunks of time entries, you draw attention away from the constant larger question that many large institutional type clients used to have trouble gauging: "Is what I'm paying for my defense worth the overall expense risk/reward of litigation?" I say 'USED to have trouble gauging' because those salad days are coming to an end. Clients became picky about legal bills starting about 15 years ago. Then they started getting mad, and then they started instituting systems and billing codes and other things that annoy the hell out of lawyers. More recently, they have started getting rid of lawyers and law firms that they don't trust to bill properly. And now they are starting to insist on alternative billing arrangements in many situations that obviously call for it.
"• Is the billable hour model a better deal for the lawyer or for the client?
"Generally, and historically, it was a better deal for the lawyer. Although, in the very beginning (see below) it was probably a semi-good deal for many clients.
"•If a lawyer told a client they were open to other types of fee arrangements, how often do you think clients would suggest an alternative? And what would that alternative be?
"I think the savvy clients, especially those with a discreet and definable class of recurring legal problems (i.e. Cisco with patent applications and basic intellectual property questions), are highly motivated and skilled at negotiating alternative fee arrangements. But many other corporate clients are still stuck with a dilemma: they WANT an alternative arrangement, but the front-line decision makers responsible for hiring outside counsel don't know how to properly quantify the risk (which is understandable since quantifying litigation risk is not even classifiable as 'an inexact science'), and they are afraid, given the lack of objective data to support their decision, to state in a formal document that they recognize that a trade off of an alternative arrangement is that their outside lawyers will have to severely curtail discovery and prepared for trial in a 'discount lawyer' fashion. How'd you like to be an in-house counsel telling your top corporate brass "well what we did in this important litigation was to hire a discount law firm to keep the legal fees down, and they are going save money by not preparing as zealously as they normally would"? Somehow it doesn't sound right, does it? Especially when you have no objective way of proving that you are making a sound decision by adopting that approach.
"And yet, really, that's what has to happen in many alternative fee arrangements if the lawyers are going to get interested. In other words, there has to be a way for the lawyer to have a chance to make more money with the alternative fee arrangement or your not going to get him/her interested. Steve Sussman (God bless his self-promoting little heart) has said that a lot of discovery is useless (see article in American Lawyer at http://www.susmangodfrey.com/Articles/TopLitigationBoutiques.pdf). But that statement is heresy to the vast majority of litigators who have learned to prepare cases for trial (knowing that they will likely settle) as opposed to preparing them for trial and then actually showing up in court. In short, a lot of lawyer are afraid to try cases. Not too many are afraid to do discovery. And many in-house counsel are afraid to publicly acknowledge that they are going to let their outside lawyers prepare for trial without a typical discovery carpet bombing approach.
"• Do you have anything nice to say about the billable hour? Somebody, please rally to its beleaguered defense!
"Yes, sort of. I think that the billable hour is a case of 'beware of what you ask for 'cause you might get it.' I think it was instituted when corporate america started telling lawyers who had formerly sent out bills at the end of a representation with a large number and a short description (i.e. 'for services rendered') that this was not something that the corporate accountants could stomach. Corporate lawyers quickly learned that breaking their time into discreet chunks was actually a secret passageway to more profits. More young lawyers could be hired to do things like summarizing depositions and launching MIRV discovery missiles and by responding to the 'multiple independently targeted re-entry vehicle' missiles that were launched at them. As long as your associates could be trained to keep track of their time and break every task down into, say, a minimum time increment of 1/4 hour, things could be good. Especially for lawyers who received a lot of mail.
"So what's good about it now? Well, I guess not much. How many lawyers have heard corporate in-house counsel say to them "hey look I need you to charge me a lower than typical rate, but you can make it up in the hours you bill and we won't mind?" Answer: more than one. And why is that? Because we still have clients (who created this mess in the first place) who need a way to save face within their corporate structures. It's like the tax system in the U.S. We all know that it'd be better if we just had a value-added tax. There'd be no cheating and it would be easier to administer. But the system we have now is so complicated that it's too hard for all the important king-makers to figure out a new system that they could all make as much, or more, money in that's also simple. The solution, in the case of lawyers and alternative billing, is that the system has to purge a few king-makers and make the remaining ones scared enough to believe that failure to innovate might be detrimental to their financial health."
Ernie wins the blue ribbon for breadth and depth—not to mention true blue feet-on-the-ground, this is how it really works, insight.
For my money (and I say this as someone who toiled in-house as a securities lawyer at Morgan Stanley/Dean Witter trying to reduce our umpty-ump million $$/year in outside counsel fees—and "succeeded," if success is defined as reducing the growth rate), Ernie puts his finger on the devil's bargain reached between the AmLaw 200 and the F1000: "[T]he system we have now is so complicated that it's too hard for all the important king-makers to figure out a new system... [until we] purge a few king-makers and make the remaining ones scared enough to believe that failure to innovate might be detrimental to their financial health." Sounds like a realistic economic prescription to me. And next up, the value-added tax (just kidding).
Last up, we have a "ringer" I surreptitiously invited to the Savvy Blawgers party on condition of anonymity. I will identify him only insofar as to confess that I know him through the notorious Princeton alumni mafia, and that he's spent the last 20 years being a Deep Thinker on issues of business strategy and alignment of incentives with objectives. He is not, I hasten to add, a lawyer. Try this on for a different take on our conversation so far:
"I can't help but think that the simplest view of the billable hour is the view most likely to make some sense of it.
"Selling time as the "container" of expertise is simply logical when the purpose is to achieve a balance between competing demand for expertise and a limited "supply" of expertise.
"The problem is that the notion of "supply" has changed quite a bit, as numerous new and viable delivery vehicles (especially technological ones) have augmented the solo person as the channel for delivering expertise.
"Since the solo person is no longer the only channel, the end-user and the providers begin to explore what *can* go through the diverse channels as opposed to what *should* go through them.
"This means that, hypothetically, the billable hour should be rated "strictly" in accordance with the kind of "value-add" that is offered by the distinctive channel (e.g., a person), but of course as affected by the current or expected availability of that kind of value-add.
"Expertise in the form of legal knowledge was never the only value being delivered. Representation and Advocacy were also being delivered, but there is the question of how much was provided versus how much was ordered. In other lines of business, this balance is achieved through contracts, and the terms of agreement set forth definitions of the provisions. Theoretically, there is no reason why a billable hour should not be an ongoing version of the contract; the issue is rather whether the contract is a good one or a bad one.
"That suggests the model of "professional services" continuing as the perspective in which value is determined. What does it mean to be "professional", and what is the form (not the content) of the service?
"In that way, pricing issues such as quality, quantity and assurance can be objectively detailed against histories, certifications and reputations. If the prospective buyer wants to negotiate, there should be an outside reference of standards that the buyer can consult.
"But as long as Representation and Advocacy are prosecuted in the form of "Best Effort", there is always only an invented relationship between the cost of an hour and the value of an hour. This is absolutely no different from the considerations that take place when determining how much to pay pro athlete X versus pro athlete Y, to get on the field and play the same kind of game for 60 minutes for "your team". In this scenario, the law firm is "staffing" the customer's "team".
"The other side of the issue is within the firm -- namely, the engagement revenue accounting and service capacity management involved. This is really not the buyer's issue at all; instead, it is the "shareholder's" issue.
"So as for the future of the billable hour, isn't the problem first of all about how firms manage their internal costs against shareholder value? Then secondly, isn't it about how Best Effort is cost-justified to the customer?
"By the way, feel free to correct me, and/or cite me (on Adam Smith), of course..."
:[X]
Yes, that's worth reading again (and possibly again) for its elliptical but genuinely deep insights.
But I can't leave you on such an empyrean plane. The final word does come from one of the Savvy Blawgers, whose anonymity I will choose to safeguard for purposes of this public posting (but you know who you are), and who wins the blue ribbon for the fastest turnaround/response to my initial query—as I recall, 10 minutes or less:
I have to admit that my initial response to this question was to recall the ending moments of a memorable song from Johnny Rotten. Allow me to quote:
"We’re
the flowers in the dustbin
We’re the poison in your
human machine
We’re the future your future
There is no future in england’s dreaming
"No future for
you no future for me
No future no future for you"
Further your humble editor sayeth not.
"Adam Smith, Esq. is, and will remain, the definitive
voice on law firm strategy."
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Jabbari, Global Head of Know-How, Allen & Overy
"I just don't know what the profession would do without you."
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“Constantly stunning.’—Managing Partner
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and Adam Smith, Esq.—and I tell my partners to do the same."
—Managing Partner, AmLaw 50 firm
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—Walter Olson of Overlawyered
“Required reading: Amazing.”—Venture Capitalist
"You're the brand name in law firm economics. There is no one out
there—repeat, no one—who covers this business better, or thinks about
it more creatively, than you. I tell people this guy is really, really good."
—Chair/Managing Partner, AmLaw 50 firm
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