But What Do Clients Really Think?

This past Thursday morning at the offices of White & Case, I had the opportunity to participate in presenting the results of a survey of how professional service firms (primarily law  firms) set strategy.  Held under the auspices of the Managing Partners' Forum, of which I am now the New York regional director, the 8:00 am — 10:00 am meeting addressed such issues as:

• Attitudes towards strategic planning
• Responsibility for formulating strategy
• Assessment of opportunities and threats facing firms
• Frequency, duration and time horizons when formulating strategy, and
• Overall satisfaction with the outcome

Which brings us to our topic for today:  Cognitive dissonance, or, to be more specific, our profession's truly impressive talent at suppressing same even when the internally inconsistent positions are being enunciated by the same people in the course of the same survey.

But let's back up and start with some of the survey results. 

 Over 100 individuals responded to the survey, 40% of whom were the managing partner of their firm and another 47% of whom were a senior partner or the business-side Executive Director, COO, or CFO.  Nearly 60% were from firms with more than 250 fee-earning professionals, and another 31% were from firms of between 51 and 250 fee-earners.

Asked what their most pressing strategic challenge was, nearly 80% cited "increasing client demands and downward pressure on fees."  Another 70+% said essentially the same thing, with a different spin:  "Increasing levels of competition within the profession."  So I take that as the most salient description of the environment these firms are trying to address through their strategic planning process.

Next, we asked how much of strategy is actually executed:  Here, about 40% of North America-based firms happily replied "most of it."  But 20% also replied somewhat cryptically "as much as we required," and nearly another 40% candidly reported "less than we would have liked."  A follow-up asked how satisfied they were with achieving pre-determined strategic goals: roughly 2/3rd's reported "satisfied" or "very satisfied," but 1/3rd chose "dissatisfied."

Bear with me through a couple of more data-points and then we get to the good stuff.

Asked about strategy's effectiveness in "creating meaningful differentiation from competitors," well over 50% said they were "dissatisfied," and less than 10% reported they were "very satisfied."

On the seemingly positive side, however, over 75% reported they were "satisfied" or "very satisfied" with getting the firm's employees to "buy into" the plan, and essentially the same figures held true when asked about partners' buy-in (vs. employees).

 But strategy should not exist in a vacuum, right?  So we also asked about people's satisfaction levels with its impact on two key financial metrics:

• "dissatisfied" or "very dissatisfied" with its impact on top-line revenues:  Almost exactly 50%
• the same, with respect to profits:  About 40%.

Finally, the bottom line question:  How satisfied were people with their strategy's impact on "improving client satisfaction with the firm?"  Over 75% reported "satisfied" and another  10% "very satisfied."  No one chose "very dissatisfied."

Where, then, does this leave us?

With, I submit, a severe disconnect between our optimistic (delusional?) belief that our strategic process is "improving client satisfaction" and the overwhelming number of us who report that "increasing client demands" is primary among the pressures on our firms.

For another perspective on this same disconnect, I commend to you the 18th Annual General Counsel Survey from Inside Counsel magazine (July 2007), which opens with the observation that there is a "collision" at hand in form of "law firms under pressure to make more money butt[ing] up against general counsel locked into budgets that won't bend."  Here's the table that sums it up, to my mind, which is the "overall" law firm report card as viewed by the 862 in-house counsel and 135 firm attorneys responding:

	In-House Counsel	Law Firm
A	19%	62%
B	70.5%	35%
C	10%	3%
D/F	0.5%	--

Disconnects are also apparent on specific components of client service.  For example, on the question whether service levels have improved over the past five years:

• 68% of law firms say yes, but only 29% of in-house counsel
• 15% of law firms say no improvement, but 35% of in-house counsel.

"Most law firms pad their bills:"

• 39% of in-house counsel agree, 24% are unsure
• 72% of law firm respondents disagree, 18% unsure.

"Law firms are actively seeking out ways to reduce the costs of their services:"

• 70% of in-house counsel disagree, 19% unsure
• 56% of law firm respondents agree, 20% unsure.

"Law firms make too much money:"

• 38% of in-house counsel agree, 40% unsure
• 76% of law firm respondents disagree, 15% unsure.

Finally, 77% of inhouse counsel say they're under strong pressure to reduce spending on outside counsel, but only a third of them believe that law firms understand this constraint.

Is there hope for bridging this divide?

I think so, and I'm going to suggest it comes from as old-fashioned a source as there is in our profession, from a value that must, or should, date to the first days when it ever began dawning on people that this thing called lawyering might be tantamount to a profession.

To approach that conclusion, here's the last data I'll present from the Inside Counsel survey, namely hiring criteria for selecting outside counsel, ranked in order:

1. Quality of work/Responsiveness (tie)
2. Creative solutions
3. Billing rates
4. Providing preventive counseling
5. Multiple practice areas
6. Alternative fee arrangements
7. Diversity/National reach (tie)

Setting aside rates and alternative fee arrangements, which speak to pure economics and not service levels, and also setting aside practice area and national reach, which are typically irrelevant from the perspective of an inhouse lawyer hiring a firm to help with Matter X today—by hypothesis they handle the practice area in question and have the geographic reach required—the list reduces to:  Quality, Responsiveness, Creativity, and Preventive (read: holistic) counseling.

What do those boil down to?

Supreme levels of client service and consummate professionalism.  Sound familiar?  Wasn't this what you signed up for when you first became enamored of the profession?  Isn't this what you find most fulfilling today?  Don't your most admired colleagues aspire to precisely the same?

Wherein, then, lies the problem?  Why do we think we're doing so well promoting client service and clients think we're doing so poorly?

Communications, of course, is the answer; we're not communicating very well at all, which is a rather appalling failing considering how verbal and articulate we all presume ourselves to be.  It may be that we're not communicating on the frequency or wavelength clients are listening in on or want to pick up on.  If so, the answer may be that our firms need to invest more in client relationship development.  (This is different than traditional marketing.)

Does your firm have a Client Relationship Director?  Should you?

You Can Be Comfortable Or You Can Be...

What do the stories "Qualcomm Meets a Stern Judge" and "Banking Giant Pioneers Adviser League Table" have in common?

The first is about Southern District of California U.S. Magistrate Judge Barbara Major coming out swinging against lawyers involved in the by-now famous and tremendous discovery fiasco by Qualcomm, involving its failure to turn over hundreds of thousands of documents to Broadcom.  Among other things, Major had this to say:

• [This constitutes] "gross misconduct on a massive scale"
• "If there isn't some kind of sanction, there's no deterrence. How can this possibly be tolerated in the age of digital evidence?"
• [Absent an explanation,] "the inference is that Qualcomm intentionally decided not to search for these documents"
• And my own personal favorite:  "At best, the documents reveal a massive responsibility deflection and an incredible breakdown in communication of leadership between [the] client, the attorneys and among their counsel."

Henceforth whenever anything goes wrong hereabouts I intend to ascribe it to a "massive responsibility deflection."

She reserved a ruling on sanctions just as, apparently, Qualcomm has reserved deciding whether some malpractice litigation might be in order.

Now, I don't know what the real story is at the bottom of this all but unbelievable imbroglio, but one of the smartest observers I know of this scene proposed to me that it was a foreseeable breakdown "where everyone's responsibility is no one's responsibility."   He may be right; and people may be suffering severe court sanctions, at the very least, as a consequence.

The second story reports:

"Banking giant UBS has launched a radical review of its global legal advisers in an attempt to slash costs and become one of the first top financial institutions to formally grade law firm performance.

"The review, UBS’ first in five years, is set to shrink the bank’s cross-border panel. [...] The Swiss-based bank said the move is in response to increasing legal bills which now account for 1% of UBS’ total annual revenues." 

Now, 1% of UBS' revenue ~ US$400-million.  To put this in perspective, if you or I could start a firm today dedicated solely and exclusively to UBS' total legal spend, our firm would be around #65 on the AmLaw 100.

And there's more:  For several  months, at least 100 of UBS' in-house counsel have been scoring outside firms on a 1 to 5 scale across seven criteria including speed, quality, and cost.  As UBS' GC, Peter Kurer, put it in what would be pluperfectly obvious in any other relationship, "the bank's legal bills were too large not to be analysed and that it was important that both firms and clients take steps to improve efficiency."  Once the point scoring system accumulates sufficient data, it will begin to come into play in determining which firms stay on the panel and which are invited off. 

Now, what do these two pieces have in common?

The clarion call embedded within each demanding highly professionalized and full-time management of critical activitiess within your firm:

• Qualcomm's "massive responsibility deflection" calls for your firm to have a dedicated General Counsel.
• UBS's tightening up of its panel criteria and partial quantification of the basis for selection calls for your firm to have a vibrant and energetic partnership among your CFO,  your Director of Client Relations (you have such a person, of course, do you not?), and key relationship partners to the client, all in service of delivering not just legal services of impeccable quality but client service of impeccable quality.

If you are still enamored of the antique notion that talented and whip-smart lawyers can handle all these challenges in their "spare time," when they're not serving clients, be prepared to find yourself on the wrong side of an angry US Magistrate Judge, or of a calculating and determined General Counsel with a budget sizable enough to vault one of  your competitors into an altogether different league, leaving you proud, comfortable, and irrelevant.

Proskauer Offers Us Everything We Need to Know About International Litigation

On Monday of this week Proskauer Rose published something brand-new online.  

I use "brand new" advisedly.  I would be the first to confess I may have missed something like it beforehand (and if you're aware of any analogs, please let me know), but what they published is:

• remarkably ambitious,
• truly practical and useful,
• without precedent online or off, and
• the end result of an impressive investment of time and resources by the firm.

"It" is Proskauer on International Litigation and Arbitration:  Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes, an e-book, with all that implies—you can search it, download it, email links or excerpts, copy and paste, etc.  And, of course, from Proskauer's end, they can (and vow to)  update it. 

What is "new" about this?

More on that anon.  But first, I learned most of what you're about to hear about this from Louis Solomon, the Proskauer partner who had the gleam of the idea behind the e-book in his mind 21 months ago, and who I was able to spend some time with to get the background for the story.  (He reports that he was aided immeasurably by Jennifer Scullion, a senior counsel at Proskauer.)

Louis has been doing international litigation for a long time—starting about 25 years ago when Pepsico (Proskauer's client) wanted to terminate an intransigent bottler in Taiwan.  The longer he's been doing it, the more he had come to realize that there's not much written about the rules of the road for international litigation:  Certainly nothing comprehensive, nothing by way of a "practical treatise."

So he decided to get the Proskauer Litigation Department to write the treatise, and began with a one-page outline; the first meeting attracted all of six people.

As they set out, a key decision upfront was write it with a decidedly practical bent:  "We discouraged footnotes and multiple case citations; but we still wanted it to be comprehensive."  So, for example, how do you actually obtain jurisdiction over a foreign entity or in a foreign court?  How do you actually enforce a foreign judgment?  And how do you do everything that comes in between those two end-points?  The result is a  28-chapter e-volume with nearly 50 Proskauer lawyers as contributors.  (Lou contributed four of the chapters himself and edited the rest.)

What types of "practical" questions?  Well, for example, did you know (I did not) that inhouse counsel in France aren't considered counsel, so no attorney-client privilege attaches to their communications?  Or, that patent examiners working for a manufacturer in Sweden are likewise deemed outside the scope of privilege—but if a US challenger sues to invalidate a patent their internal communications are presumptively privileged?  (Can you say, "asymmetrical playing field?")

There are a litany of other areas where, as Lou charmingly puts it, "the law is quirky."   Examples?  At least in the 2nd Circuit, which of course covers our home town of New York, foreign litigants can come to the US and take discovery in aid of their overseas matters without regard to the "relevance" requirement of Federal Rule of Civil Procedure §26(b)(1).   No, the 2nd Circuit has not "interpreted away" that requirement, at least not on its face; it has instead decided that since 28 USC §1782, "Assistance to foreign and international tribunals and to litigants before such tribunals," does not contain an express relevance requirement, none obtains.  Quirky indeed.

Here's how Proskauer introduces the volume:

"Commerce in today’s world pays little heed to traditional geographic boundaries. Manufacturing, marketing, and distribution routinely criss-cross the globe. The Internet has all but obliterated historical national and state borders. These realities -- especially given overlapping, diverging, or converging regulatory regimes -- have led to a vast increase in the number and complexity of international or cross-border litigations, arbitrations, and regulatory investigations or proceedings.

"Cross-border business and regulatory disputes present unique challenges. Yet there does not exist for the client or practitioner any comprehensive treatment of the issues arising in managing, resolving, and avoiding controversies affecting multiple jurisdictions.

"Our objective here is to fill that gap by providing that essential reference guide. Proskauer has a long and extraordinary history in international practice. The specific contributing authors to this Guide, members of Proskauer’s Litigation and Dispute Resolution Department and International Practice Group, have helped shape the very law and practice in the topics treated.

"Our aim is not towards the bookish or academic. We have tried to write a resolutely practical guide, emphasizing the concrete and strategic over the theoretical, the lore as well as the law, the unique opportunities presented by international matters as well as the challenges. We intend to maintain this Guide as a timely compendium of current best practices as well as our most creative approaches to tackling new developments.

"We are publishing this Guide in e-Book format, over the Internet, for ready access and for ease of updating as the law evolves in this dynamic area. For this project to succeed and meet the needs of our clients, though, it must be interactive. Please, direct questions, comments, or reactions to any of our authors, to our Editor, Jennifer R. Scullion, or to the Editor-in-Chief, Louis M. Solomon. We look forward to hearing from you.

New York City, September 2007

To get a real flavor of how comprehensive the volume is, I'll list just a very few of its 28 chapter headings:

• Securing US Jurisdiction
• The Role of Comity
• Choice of Law
• Discovery Abroad for US Proceedings
• Discovery in the US In Aid of Proceedings Outside US
• Privilege Issues
• Cross-Border Legal Ethics
• Extraterritorial Application of US Laws (Employment and Securities Laws)

You get the idea.  But, as Lou observes, "today there's no such thing as a small litigation—not with e-discovery."  So comprehensiveness is not really negotiable.

If you're like me, right about now you're wondering how on earth Lou was able to marshal the substantial resources to make this happen—and on top of that to persuade risk-averse lawyers to publish it online as an e-book free to all comers.

First, he argued the internal benefits for the firm:

• Clients need practical, real-time advice;
• Proskauer lawyers need to write more (Lou and I both subscribe to the belief that you probably don't fully comprehend something until you have to write about it);
• International practice is an area where Proskauer has genuine depth of expertise;
• Senior and junior lawyers need more opportunities to work together; and
• The project could foster the development of mentor/protege relationships.

Second, he argued the external/reputational benefits for the firm:

• Merely by producing this Proskauer would be seen as strongly capable in this area;
• By offering valuable intellectual property for free, Proskauer predisposes prospective clients to come back for more (why does Zabar's give free samples of cheese?);
• Most importantly, Lou told me with no small degree of passion that a key goal of the project was, and is, to "contribute to the debate, to participate in the dialogue."  How so?  "International litigation presents  courts all the time with issues and decisions where the law is, to put it charitably, not fully formed.  Courts struggle with this; they sometimes don't know how to approach an issue.  We wanted to suggest ways to think about these things.  In my experience, courts will never ever penalize a lawyer for taking a view in an unsettled area of law;  you're allowed to have an intelligent opinion.  Lawyers are allowed to further the profession without running afoul of judges."

What about the objection that this stuff is our bread and butter—how can we give it away?? Lou's answer, as mine would be, is that in fact no potential case or controversy in the real world is so simple that simply referring to a treatise will suffice to guide your action.  Or that if your question really is that simple, Proskauer wouldn't charge you for answering it anyway, particularly if the answer can be as short and sweet as "See Chapter 6."

Once the project got underway, the support by the firm itself was astounding, even inspirational, reports Lou.  He estimates that an average author devoted north of 100 hours to writing his or her contribution, and while segments came from nearly every corner of the litigation department, two chapters were also  prepared by the corporate department, on—what else?—avoiding litigation.  

"Nearly 50 authors @ roughly 100 hours apiece!?," you're thinking?  That's right; I told you this was a serious undertaking by the firm.   Although they did not track time to the 0.1 of an hour (Lou didn't track his own time at all, in fact), Lou reports that his "best estimate is that the firm has made a several million dollar investment, closer to mid-seven figures than low-seven figures."

Is this a model for the practice of law in the 21st Century?  Emphatically so, I believe. 

But be  forewarned:  Before attempting this at your firm, understand that to do this is a professional exercise at the highest level of ambition.  It's crystal clear to me from talking with Lou that it's also a labor of love (or, it had better be).  He confessed that he and Jennifer made people go back and hone their language "again and again; there was scrupulous editing and constant re-working."  And I believe it shows. 

Now that it's online, you be the judge; see for yourself.

---

Update (5 Oct, 6:00 pm). When I originally spoke with Lou, I asked what clients' reactions had been like and he replied that it was so new there essentially hadn't been time for any reaction. 

Well, here's the first report.  I'm not at liberty to identify the client, but suffice to say it's one of the largest multinational corporations in the world, in a business that affects all of us every day.  This comes from a senior in-house counsel and was entirely unsolicited:

"have skimmed through your guide.  it is terrific!  i think it's well done, great for issue spotting, well written, well organized, user friendly, etc. quite a lot of work, i cannot imagine how you fit it in!

"i have circulated it to my intl division colleagues and have forwarded it to a litigation dept colleague who has been dealing w some intl investigations/litigations. i'm sure she'll forward it within the lit department (and they may very well have been sent an announcement directly)"

So, for all the managing partners and practice group leaders who might still be rolling your eyes at the multi-million dollar investment Proskauer made in this guide, I have a question for you:  "What price client loyalty on that order?"  Put differently, how likely do you think it that that multinational will start giving its international litigation to a firm other than Proskauer?

Your Most Pressing Strategic Issues--According to You

The annual "Adam Smith, Esq." Reader Survey is actively in progress, and I sincerely urge those of you who haven't taken the two to three minutes it takes to complete it to do so right now. 

The point of the survey?  Two-fold:  I want to learn more about you, so as to better tailor the content of the site to your interests, and you get to tell me both what recommendations you'd offer me and, perhaps more importantly from your perspective, what the most pressing/important strategic, business, or financial issue facing you or your firm is.  Let your voice be heard; take the survey now.

Meanwhile, an interim report on what we've heard on precisely that last question, which reads verbatim thus:  "The most pressing/frustrating strategic, financial, or business issue facing me/my firm is."  Herewith follows a distillation of what you've been telling me.

Associate retention is a tremendous challenge for many of you.  Comments include (all exact quotes):

• associate compensation:  lockstep or merit?
• the position of associates in BigLaw, of course
• insane associate salaries
• and many many others who just said "associate retention" and left it at that.

This has been an issue I've devoted extensive—but perhaps still insufficient—attention to on "Adam Smith, Esq.," and I'll vow to do even more about it.  Fair warning:  I have no snappy answers on this one.  To a large extent we are facing a collision between an irresistible force and an immovable object whose constituent components are attitudinal, generational, and financial, and which is perhaps not susceptible of an enduring resolution absent a re-examination of underlying business models.   In short, this has been long in gestation and may be long in solution.

The War for Talent  is an ongoing challenge, perhaps more pressing now than ever.  Comments included "Finding and attracting top-level talent to a small boutique firm," and "attracting talent at the salary levels our firm pays."

Knowledge Management was mentioned by a large number of you, as something that firms have to do well but that very few in fact are managing to accomplish.  Technology and upgrades of same were a close second in this area.

Business development and marketing are perennial points of pain, and "some things never change."   The only fault with the bromide that "some things never change" is that in this case it's false:  This is getting worse.   Here are some more direct quotes:

• Business Development. Almost all law firm management issues are ultimately directed toward growing the top line (associate retention, training, marketing, strategy, etc.) It would be good to hear about this at both the individual level (aside from the standard cliches of "write articles, give speeches, network, and ask for business from all your friends," what other business development strategies do partners use) and at the firm level (what steps have been taken by national firms such as Latham and Kirkland to become more prominent and self-sustaining; how do firms organize and manage their practices and partners to maximize business opportunity).
• Continual pressure on fees and use of procurement.
• The pressure from clients for ever more efficient, lower price, better quality services compounded by the impact of procurement officers who don't understand and show little inclination to want to learn.

Just last week I learned of a Fortune 100 company whose panel for evaluating outside counsel consists of three people:  An associate general counsel and—two purchasing managers.  This is indeed only getting worse, and I'll try to bring back tales from the field that may be helpful to more of you.

The Hollow Middle haunts some of you. Faithful readers of "Adam Smith, Esq." will know what the hollow middle refers to, but for those who don't a quick refresher.  An increasingly prevalent industry structure sees firms migrating both to the high end, high-value, premium quality level, and to the no-frills, low-end, commodity level, with little comfortable territory remaining inbetween.   For example:

• Cars:  Toyota, Honda, Nissan, Chevy vs. Lexus, Audi, Mercedes, BMW, Ferrari, Porsche
• All wine/beer/spirits:  Budweiser vs. micro-brews, generic vodka vs. single-malt Scotch, magnum generic "chardonnay" vs. subscriber-only "Screaming Eagle"
• Financial services:  No-fee free checking for life  from Wachovia vs. private wealth management from US Trust.

And you get the idea.  My hypothesis is that our market is going in the same direction.  Here are some verbatim comments reflecting that same point of view:

• What happens to mid-sized firms in Europe - will they disappear over the next ten to fifteen years as a result of the inflow of US and UK firms? What should our US strategy be, with many former sources of referrals now setting up shop next door? And if mid-tier firms are to stay, what will their role be?
• The polarization of the market (the shrinking middle with more and more work being classified commodity/low fee or bet-the-company/high fee
• "Mid-Market Mush" or "why bother with a platform that's mediocre?"  Our practice group is very strong and we're not sure whether we should be a boutique or stay in the firm.

Since this is already a theme I have been sounding for some time, expect to see more coverage of it here as its impact spreads.

Finally, we have what emerged as the most important concern of yours by far—head and shoulders above anything else I've mentioned until now.  And that is:

Management.   Law firms are intrinsically complex to manage, and you are painfully aware of that.  (Indeed, the truth of that observation might be said to be one of the foundational reasons why "Adam Smith, Esq." exists.)   The theme that emerges is that lawyers just plain are not predisposed to cooperating in the management imperative.  

Aside from seeming to have been inoculated with some vaccine that provides lifelong resistance to management in general, the presumed structure of rewards for partners today—divvying up all the profits at the end of the year and leaving the firm's balance sheet essentially back at zero —works strongly against investment, a long-term outlook, or a strategic perspective. 

Here are some of your comments and worries:

• Ineffective management. Rainmakers are not always the best communicators or managers
• 1. Lack of firm leadership; 2. Partner apathy in "running a business" beyond simply collecting a bonus; 3. Lack of strategic planning
• Persuading lawyers to understand that hiring a consultant is not (always) an admission of failure, but can be a way of creating / seizing an opportunity
• Transition from older partners to younger partners and division of income amongst the same.
• Continuing to find ways to motivate all of our partners and to have them recognize we're all in a state of continuous change.
• Firms competing in a global economy. Firms realizing they have to act more like corporate America
• The lack of real understanding as to how law firm organisations need to change to get the best out of people; the impact of globalisation on law firms.
  [And finally, perhaps my favorite:]
• Balancing the desire to grow as a firm versus the desire not to change. Our firm is looking to grow, and most everyone supports the notion, so long as nothing changes for the individual.

Much food for thought.  One implication is clear: I shall never lack for topics to discuss here on "Adam Smith, Esq." 

Your comments have been remarkably candid, serious-minded, insightful, and just plain human. 

As I've written before in various contexts, I believe our profession is currently undergoing a sea change in the structure and composition of the industry that will transform it in ways that will endure for essentially the remaining working careers of most of us. 

You have, if anything, confirmed the strains, pressures, and uncertainties of being in the center of this rapid transition.   The settled certainties of our parents' world are indeed long gone.

Having some inexplicable instincts alerting me to this coming vortex many years ago, I continue to find it fascinating beyond measure.   Please continue to share your thoughts with me, either through the Survey or, more directly, by email.

How Close to Your Clients Dare You Get?

Now that marketing has become an ingrained function at firms and no longer either an exotic foreign import or an isolated archipelago, it might be time to re-examine how the world's most sophisticated marketing organizations—consumer packaged goods companies—are re-inventing marketing in the 21st Century.

Booz Allen & Hamilton's strategy + business  has just such an article, The New Complete Marketer. 

Given that we're temporarily in the land of consumers, let me first provide their bullet points and then attempt to translate them into our world.  Based on Booz Allen's research, five themes emerged identifying characteristics of the best CMOs. (OK, they actually list six themes, but one of them, about partnering with a multi-media savvy ad agency, is a bit off point for us.) Quoting, they:

• Put the consumer at the heart of marketing
• Make marketing accountable
• Embrace the challenges of new media
• Recognize the new organizational imperative
• Remain adaptable

Swell.  Now let's interpret what this means for law firms.

Clients first

Focusing on clients means viewing the service your firm provides from their perspective and ensuring it's aligned with what they really anticipate, need, and expect from a premier law firm.  At Procter & Gamble, it means getting into laundry rooms at customers' homes and "really, really hitting on that [the information gleaned]," says Jim Stengel, P&G Global Marketing Officer.  At FedEx it means that a key part of marketing's job is “speaking up on the customer's behalf and ensuring that what we have to say is taken seriously,” according to Mike Glenn, executive vice president of market development and corporate communications.

This isn't necessarily easy.  Even at P&G, once again known as a nimble organization after a decade or so in the doldrums of comfortable market leadership, "it took nearly a decade to reposition to reposition the client at the heart of our business."

But we're starting.  More and more firms—particularly the ones that have a tradition of innovative approaches to their business—are launching "client relationship" programs, distinct from conventional marketing efforts. 

Accountable Marketing

The ROI of marketing has long been a thorny issue and I confidently predict it will remain so for at least the rest of the careers of most of you reading this. Booz Allen found that 90% of its marketing respondents identified it as "a major challenge, and the leading factor, by more than a two-to-one margin, that brings marketers under increased pressure from management."

So there is no magic bullet.

But that's not to say judgment cannot be exercised and inferences drawn.  I suggest you approach evaluating marketing's impact in two ways:  First, are prospective clients more predisposed towards your firm than they seem to have been in the past?  And second, how do existing clients evaluate their satisfaction with your service?

The first—prospects' predisposition—speaks to your firm's overall reputation in the marketplace, which is or ought to be influenced by your overall marketing efforts.  Recently The Wall Street Journal had a rather devastating article (devastating, at least, if you live in Detroit) detailing that fully 54% of US car buyers would not consider a domestic car.  (22% would not consider an import, and the remainder would consider both.)    Detroit finally realizes, as Rick Wagoner of GM put it, that "just building a great product and putting it out there isn't enough." 

If you're building a great product and no one is paying attention, you need marketing to change perceptions.

Second, how existing clients view your firm is less the purview of marketing than, I suggest, client relations.  That's why this emerging specialty should be on your radar if it's not already.

The Challenges of New Media

In consumer packaged goods land, new media can mean SMS'ing from your cellphone the secret code that changes the Times Square billboard display.

That's not what we're talking about.

But we are talking about finding your clients where they really are—be it on the online home page of The Wall Street Journal or in the shuttle lounges at Reagan National, LaGuardia, and Boston Logan.   And, increasingly, it could be communicating with them through the medium of a firm-sponsored blog on issues of specific interest to them.  If you try this, my advice is:

• Keep it highly focused:  Inbound project finance to China, for example, not "your corporate practice."
• Edit it with a very light touch.  It must have a tone of voice, a true character, and not be a PR or jargon-laden mouthpiece.  Hypocrisy will be detected in a heartbeat.
• Encourage feedback and even push-back; freely acknowledge corrections; respond promptly to inquiries.

Does all of this sound high-maintenance?  Well, yes, it is; but the potential connections you make can be invaluable.  Just don't go into it underestimating the demands for regular maintenance and feeding of the beast going forward.

Organizational Imperatives

Primarily, this means that marketing can no longer be an island.  To paraphrase Richard Nixon about Keynesians, "we're all marketers now."  If marketing is just viewed as "help with the RFP" or "get closer to the client" support, you're wasting their time and talents and you should face the fact that you probably in your heart of hearts don't believe in any of this and just want to be left alone to practice law. 

That's a fine and worthy choice.  Just don't expect to build, or sustain, a great firm down that path.

So what does it mean to "embed" marketing in the firm?

Booz Allen probably describes it best (emphasis supplied):

"Marketing does much better when it's incorporated into the greater business, say these thought-leading CMOs [from P&G, Yahoo, and Foster's beer]. It can drive growth more quickly if it is fully integrated with the different functions, and it can do so in a way that previous CMOs never realized was possible. For a CMO to be fully effective, all of senior management must have clarity about the marketing mission. The high degree of turnover in marketing leadership — and, indeed, among the subjects interviewed in this book — demonstrates the fragility of that shared understanding. "

Remain Adaptable

It's a truism that the market environment is ceaselessly changing and our firms must adapt to it—just ask a private equity hotshot how the world changed over this past summer in the wake of the subprime meltdown's spreading fear, uncertainty, and doubt throughout worldwide credit markets.  But that type of adaptation is fundamentally uninteresting:  It's reactive and dictated by external events.

The interesting type of adaptability is that we initiate from within our firms, sensing the beginnings of a shift in the market winds, being attuned to clients' emerging needs, or—better yet—to needs they haven't even been able to articulate.

Is it realistic, or even desirable, for your marketing or client relationship people to have a voice in charting the course of the services your firm provides?

I believe that, if you think those folks truly understand your clients' desires for service (and if they don't understand, we need to have a different conversation), then  you'd be crazy not to take advantage of that perspective.  This example, of the evolution of P&G's famous Pampers brand, may seem beside the point to law firms, but I believe there's a serious message about the discipline of drilling down from a superficial, appearances-mostly, view of what clients want to a far more fundamental understanding of what they're truly concerned about, what motivates them to action, and how you can demonstrate that you profoundly "get it":

"Several years ago, Procter & Gamble’s disposable diaper division was organized around the science of fluid absorption. “We had an entire R&D organization focused on fluid absorption, its speed, [its effect on] skin health, and so on,” explains Jim Stengel. The most important question on the table for P&G’s diaper scientists was, How can we make diapers stay drier longer? Yet under the tutelage of marketing leaders like Stengel, the company realized that the primary value it offered to parents wasn’t technological — it wasn’t limited to dryness or containment. Consumers were looking to Procter & Gamble for improvements in the overall development and health of babies. “That creates all sorts of new needs,” he says. “Babies wear a diaper 24/7 for almost three years…. But when you ask, ‘How do we know we’re better for a baby’s development than our competitors?’ — that means your competitive set changes, your market share changes, what you’re looking for in your equity changes.” The R&D lab and marketing team had been close before; now they became inseparable as they tackled innovative approaches to diaper fit and feel. And with a question on the table about baby development, the brand began a new round of market growth."

I leave the analogies to your practice and your clients to your own insight into their industries and the strategic, financial, and marketplace challenges they're facing.  

But if nothing else, you should take away this lesson:  Your firm does not provide "collateralized debt obligation" structures, or "employment litigation defense" or "executive compensation counsel."   

If you're good, you provide insight into the evolving landscape of your clients' businesses, and the legal architecture—always informed by strategy—best suited to your clients' posture tomorrow.

The Care & Feeding of Your CMO

"CEOs and board members, who have been pushing Chief Marketing Officers hard for growth and for more effective marketing efforts, are frustrated by the difficulty of finding chief marketers with the full range of necessary skills. Turnover rates for CMOs are therefore high relative to those of their C-level peers, and CMOs are in short supply. (Just ask any executive recruiter about the number of difficult CMO searches he or she has under way.)"

So observes McKinsey in The evolving role of the CMO, but I suggest if you substitute "managing partner and executive committee" for "CEO and board members"  you'd have an accurate description of the law firm landscape in this precinct at the moment.

While the half-life of CMOs at law firms had been notoriously short, a glimmer of improvement appeared to be on the horizon in the last few years as firms became more comfortable with the marketing function, and as CMOs imported from other industries got their sea legs and began to understand how to apply their own form of professional discipline to our idiosyncratic industry. 

This "meeting of the minds" between senior firm management and CMOs has so far been a two-way street, with CMOs in law firms acclimatizing themselves to the law firm environment, and executive committees realizing marketing is an indispensable component of a high-performing firm.

Now, let's up the volume.

Two trends that are playing out in the consumer sector (as McKinsey reports) are finding their analogs or mirror images in law-firm land.  The first trend is the increasing reliance of consumers on the Internet to research everything from cars to electronics to prescription drugs online before making a purchase.  And "research" online, need I remind you, includes unvarnished opinions from untraditional sources as well as consumer manufacturing and packaged goods' companies' classic push marketing efforts.  Your firm's reputation is no longer yours to control.  (Well, it never really was, but the velocity of potential commentary has increased dramatically.)

The second trend is even more germane to our industry:  One of the most powerful components of fallout from increased access to information is to accelerate the trend—seen across a myriad of industries—towards a bifurcated industrial structure, with a low end and a high end, but very little middle.   As McKinsey puts it:

"But the change in consumer buying habits is broader. The proliferation of distribution touch points and the more rapid growth of the low and high ends of the market at the expense of the middle are forcing marketers to take low-cost, time-saving, “facts-only” sales approaches and, at the same time, higher-value, more service-oriented approaches."

To paraphrase, clients' law firm selection process has changed.  You can offer them two value propositions:  The "low-cost, time-saving," direct, commodity approach, or the "higher-value, more service-oriented" track.   Beware being neither.

But to get back to marketing:  What does the increasing availability of information, from traditional and unconventional sources, mean for a law firm trying to manage its reputation? 

Traditionally, there has been a divide between marketing, focused on customers; public relations, targeting the press; and, where needed, regulatory affairs, targeting state or other regulatory bodies with jurisdiction over a firm or influence over its activities.  And, traditionally, these functions reported to different people or were independent in how they acted and didn't necessarily communicate about or coordinate their efforts.

This must change.  Increasingly, all intersect with each other and require an integrated response.

Where, you may be asking right about now, are the partners in all of this?

They're at the heart of it. 

First, by embodying and exemplifying the principles, reputation, and values of the firm, and projecting those characteristics every hour of the day with every client and prospect, every associate, staff member, and potential lateral.

Second, by being the living, breathing manifestation of the firm as you strive to win new business and to cement connections with current clients.   The firm can spend itself blue in the face on marketing efforts, but, if the partners cannot deliver the professional, intellectual, and empathetic human connections required to persuade a client to entrust an engagement to the firm, all is for naught.

And what can the firm chair or managing partner and the senior firm leadership do to advance the marketing cause?

• Make sure you truly and deeply understand how clients and prospects view your firm.  The image you're trying to project may not accord with the perception being received.  Understand what influencers, traditional and otherwise, may be saying about your firm, and bring them to the table.  It perhaps cannot be said too often that the primary task of firm leadership is to communicate—to internal and external constituencies.
  
• Ensure the CMO is connected to the people who matter within your firm.  Make sure the CMO is included whenever senior firm leadership comes together.  After all, they can't project a progressive and accurate image of your firm unless they're getting today's news.
  
• Lastly and most importantly, think through the marketing effort with the CMO.  As McKinsey puts it, be a "thought partner."  If you truly want your marketing organization to mirror the excellence of your firm, your CMO—and more importantly, the audiences your marketing department is addressing—deserve no less.

 

Managing Global Client Relationships

I've been friends with the folks at the London-based "Managing Partners' Forum" for a couple of years, and tomorrow morning I'll be speaking at their event, "Managing Clients Across Borders," here at Clifford Chance's offices on West 52nd Street.

I've put together a summary-level presentation of my thoughts on the topic—my co-presenter, Peter Chaffetz of Clifford Chance and I are limited to half an hour altogether—but if you're interested, take a look.

Needless to add, I'd be happy to discuss my thinking on this key challenge for our industry as we move forward into the 21st Century.

"New Delivery Mechanisms That Will Be Highly Disruptive"--Clayton Christensen Is Talking To You

Mark Chandler, a Senior Vice President and the Secretary and General Counsel of Cisco, gave a speech last week in San Diego at the Northwestern School of Law's 34th Annual Securities Regulation Institute, which has been getting a fair amount of play online, and deservedly so.

Called "The State of Technology in the Law," it's actually far far more than that; it's his vision of how our industry will be transformed by technology—and client demands—as the 21st Century unfolds:  Indeed, as some of us who hope to have decades left on our career will experience ourselves.

I'm quite confident I've never used the phrase "must-read" on "Adam Smith, Esq.," but this is my first nominee.  I'll attempt to highlight some of his key points and give you my take on them; but you should, to be sure, read it all.

Chandler frames his talk thus:

"I offer you three questions for our discussion today.
"First, how is technology driving change in knowledge-based industries?
"Second, what are the key areas of vulnerability in the legal services business to these technological changes?
"And third, what will it take to succeed in this changed environment?"

Chandler runs a "metrics-driven" law department, which is required to run that way "just as other corporate departments are run." 

And because he's driven by the imperative of productivity improvements, he expects the legal department's share of revenue to get smaller as Cisco grows. And he's brutally dismissive of law firms that have a different agenda:

"Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year. And not one of our suppliers comes to us to tell us how much their prices will go up next year. So from my perspective, I don't care what billing rates are. I care about productivity and outputs."

You may think this is spoken like a procurement manager in disguise, but he's barely getting started.   The transformation of our industry is a subset of the transformation of access to information, which is moving from centralized, command-and-control hierarchical dispensers of content, to zero-marginal-cost transmission and duplication.  (What did in Tower Records?i ITunes and Kazaa; and recording industry revenue is down 25% in the last 5 years.)

Michael Spence, co-winner of the 2001 Nobel Prize in Economics, has said that the worldwide networking  of computers is the most important development in economic history since the opening of the trade routes between Europe and Asia in the late Middle Ages.  Why?  Because it changes where and how people can work.  And Chandler reels off a litany of Old World entities built on the information-is-scarce paradigm, suddenly made obsolete by information-is-free upstarts:

• Encyclopedia Britannica vs. Wikipedia
• Frommers and Fodors vs. ePinions and TripAdvisor
• Corner bookstores vs. Amazon
• Newspapers vs. eBay and craigslist

And then he turns to law-firm-land, meaning to question #2, "key areas of vulnerability."

The heart of the matter is that devil with nine (or ninety) lives:  The Billable Hour.  "Put most bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour."

And while the Baby Boomers may have bought into the model of toiling ceaselessly for a decade or so in an attempt to win the tournament for a chance at toiling ceaselessly for a few more decades, today's associates aren't buying it:  Associate attrition rates are 20%/year and higher, and Chandler adds that "The chairman of one firm told me that only people in their 50s and 60s are willing to put in long hours these days, that associates regularly turn down the chance to work on major deals if it interferes with social plans or a vacation."

This, may I hasten to add, is not the associates' problem:  It's your problem.

Would you rather bemoan it?  Fine:  Be my guest.  Denial is always a superb adaptive strategy.

But as Chandler puts it: 

"Upending one's life to support inefficient means of communication, driven by a billable hour system, to maintain a relatively slim chance of making partner, just doesn't cut it. And when the next generation heads for the exits, it's a sign of a business model under stress."

"Under stress" happens to be my own nominee for best single turn of phrase in the entire piece.

Here on "Adam Smith, Esq.," and in my life in the real world, I devote a fair amount of attention to knowledge management:  It is, I believe, at the very core of a high-performance firm, living at the intersection of professional development, marketing, and client service.  A firm with a frustrating or ineffective KM system is at a serious competitive disadvantage.

But KM can be a double-edged sword, as Chandler astutely observes.

His problem is that clients cannot benefit from firms' KM systems without going through the tollgate of the hourly billing model:  "The legal industry has spent millions on IT to up speed access to information. But the only way I can get that information is through an individual billing me by the hour."  Chandler is fed up, and he's not going to take it any more.

The issue is that the gatekeeper, the one-on-one relationship of client and lawyer, is profoundly obsolete:

"My contention is that the very source of success for firms today – the ability to manage client access to information and require clients to use bespoke 1:1 systems – will be the source of failure in the future.

"So my answer to question number two is that the greatest vulnerability of the legal industry today is a failure to make information more accessible to clients, to drive models based on value and efficiency. The present system is leading to unhappy lawyers and unhappy clients. The center will not hold."

Chandler foresees a world with law firms sorting themselves into a "dumb-bell" distribution:  At one end, a group who are able to commoditize and standardize services to manage costs and ensure predictability, "where very good is good enough."  And at the other end, providers of top-notch bespoke services.  Rare will be the firm that can pull off both.

Don't count Chandler an ingrate.  He understands the integral role of outside counsel, and proudly (and rightly) cites Cisco's record of "no records with its stock options, minimal comments on our 10-Ks, and only one piece of litigation listed in the last 10-Q, and that one has subsequently been resolved."  He's proud of our profession.

But:  New technology has resulted in new business realities.  Clients are demanding greater value.  Associates are demanding greater engagement. 

As tempting as denial may be, I for one do not believe it's an equilibrium solution.  Personally, I don't even believe it's remotely tempting—not in the least.

Let me propose a vision for a law firm that Chandler would hire, and hire enthusiastically:

• A powerful and supple knowledge management system is its key competitive weapon.
• The firm is not afraid—indeed, it trumpets—sharing this system with key clients (obviously, within the bounds of confidentiality, privilege, etc., etc.).
• Lawyers are freed to work on truly higher-value work.
• For which they bill based on a measure of value-received instead of by "cost of production," a/k/a the billable hour.

What does this accomplish?

• It aligns the firm's economic interests with its clients'.
• It separates the firm from the pack, which means
• The firm can (honestly, truly, deeply) tell its clients that it understands what they've been through in terms of
  • down-sizing
  • outsourcing
  • streamlining
• And that it's doing the same things its clients have been doing.

Let's face it:  Corporate America (corporate-world, for that matter) has gone through the looking-glass of rationalizing every process they execute into as streamlined, efficient, and cost-effective a posture as they can possibly imagine; and they're still challenging costs every day.  Law firms haven't even thought about it.

But the Mark Chandlers of the world are telling us that we'd better start reading from the same playbook they've been using for a decade or more.

Is this the opportunity of a generation, or what? 

Imagine if your firm was not pushed kicking and screaming into this absolutely positively inevitable future, but if it led the way?  What competitive distinction would that be for you?  How enduring would the advantage to your reputation be?

I was discussing Chandler's piece with a good friend a few nights ago, a fellow who works for an AmLaw 50 in a senior managerial slot, and his reaction was:  "I wish we had more clients like that; imagine what we could do for them."  He's ever so right.

You read it here first.

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Update: Feb. 13:

Doug Caddell, CIO of Foley and Lardner, and a friend, writes as follows and asks me to include this as a comment. If you don't know Doug, yes, he's droll.

I generally agree with the above comments of Mark Chandler, GC of Cisco. However, I do take exception with one statement in particular.

Mark says, "Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year."

I thought about it: I don't know about my peers, but I receive a "letter" from Cisco every year informing me of my increased cost of doing business with Cisco. While these "letters" are not printed on stationary, the do arrive on Cicso invoice "letterhead". And each year the topic has been price increases. This is especially true with Cisco Smart Net, their maintenance "insurance" on routers, switches, etc. What used to be reasonable has gone the way of first year associate salaries. So much that we now only put critical gear on Smart Net, and "self-insure" the rest.

I'm waiting for this year's letter from Cisco. But, I don't need to open it to know what it says.

Doug Caddell, CIO Foley & Lardner LLP

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Update, Feb. 13:

Marco Antonio P. Goncalves writes me from Rio de Janeiro with these thoughts:

"Bruce, congratulations on the post. The subject is really interesting and has lots in common with something I wrote in a book on legal marketing that I'm co-authoring with another Brazilian legal marketing consultant. The book is not yet finished, but I try to explain the increase need by companies to look up to law firms that operate like them, like a business, as "corporate mirroring" (I believe this is the best translation from the Portuguese term I have used). In other words, companies want to see them reflected in the law firms they do business with. If they don't get this "reflection", they will simply look for another law firm who does."

Marco raises an insightful point: As the pressure relentlessly increases on Fortune 1000 GC's to operate their departments more and more the way marketing, manufacturing, finance, etc., operate—like a business—GC's and their teams will naturally look more and more for law firms that follow the same philosophy. The question is not whether your firm will get there, but when: And I invoke the bromide (in this case, truthful): "Lead, follow, or get out of the way."

Your Firm's 21st Century Chief Marketing Officer

One of the topics I'd like to devote more time to here on "Adam Smith, Esq." is marketing and business development.  It matters.  It's harder than it looks.  Some people seem preternaturally gifted at it and others seem to have no clue, and what distinguishes them is mysterious.  In short, it's intrinsically interesting.

So why don't I have more to say about it?  One reason is that so much of it—at least how it works in our profession—is one-on-one human interaction and relationships and there's simply not much, intelligent and memorable and insightful, that you can say about that.  It would almost be like offering marriage advice:  It really really depends, and without knowing all the gory details I have nothing to say. 

Another reason, more important, is that great marketing is an astuteful exercise in divining, distilling, and describing the essential distinction of your firm.  In the field of professional services, this is exceptionally hard work, and very few firms seem, based on my observation, to be able to pull it off; many seem to be essentially variations on a theme to the effect of, "we have great lawyers," "we do great work," "we're really really client-centric and responsive."

This takes us to the topic du jour.  Last week I had the opportunity to interview Dave Egan, Chief Marketing Officer at Reed Smith.  Dave has had an unusual career trajectory, in that he spent 20 years at a leading advertising agency before moving into law-firm-land with no prior experience in the industry.  But as you'll see, that makes more sense than may first appear to the eye.  I hope you find the summary of my conversation with Dave enlightening.

Dave joined Ketchum Advertising in Pittsburgh out of college and, as noted, spent 20 years there, starting as a junior account executive and ending as President of the Pittsburgh office.  Clients ranged across a broad array of industries from consumer packaged goods and manufacturing to professional sports marketing.  After 20 years, Ketchum was taken over by Omnicom and Dave started became President of a start-up broadcasting company.  

When he sought advice on how to exit his new firm from his long-time friend at Reed Smith, Greg Jordan, the conversation took an unexpected turn as Greg had just assumed the chairmanship of Reed Smith and was seeking to build a team of top C-level executives.  In a word, Greg asked Dave if he'd be interested in becoming the firm's CMO. 

Initially, Dave was highly skeptical given the, shall we say, checkered track record of CMO's at law firms at that time (that time being 2002), but a series of conversations with senior management at Reed Smith convinced him that the firm was serious about a professional, respected, integral-to-the-firm, marketing effort.

At Reed Smith, Dave reports to Greg Jordan and Michael Pollack, Director of Strategy, and in turn is responsible for branding and communications, business development across the firm (including the US, the UK, and the Mideast), and new initiative called "clients and markets" intended to understand the firm's clients better and anticipate their changing needs.  This includes team-based approaches to the firm's top 40 or so most strategic clients, as well as client interviews (in person for the most important clients, and online surveys for another 1,000/year), and finally a "Director of General Counsel Relations," Marti Candiello, who is responsible for communicating with key clients and ensuring relations are strong (and fixing them if they aren't).

I asked Dave what had been easier and what had been harder than he anticipated.   Easier:

• The bromide about "herding cats" was not as true as he'd feared; he's found that, particularly with senior-level people, they're bright, collegial, and exceptionally easy to work with.
• Fascinatingly, he believes that the characteristics of high-performing lawyers (bright, opinionated, outspoken, and generally of the view that they could do your job at least as well as you if they had any interest in it) are extremely similar to those of "creative's" in the advertising industry, and thus that his experience handling and managing creative's was an invaluable piece of his background.
• Another dimension of his advertising firm experience that bore one-to-one correspondence with his role at Reed Smith was his account management background.  (For those of you unacquainted with the lingo, "account management" is the function within agencies of managing the relationship with the client, coordinating the activities of the creative, research, and media departments, and essentially developing the core strategy of each marketing campaign.)  Dave reported that this had equipped him surprisingly well for dealing with his "clients" at Reed Smith:  The partners at the firm and their clients.
• The intellectual level of discourse at law firms is far higher than at ad agencies; you can assume that essentially everyone in sight is bright, analytic, and articulate.

Harder:

• Holding on to good people.  This surprised me, so I asked Dave to elaborate:  He reported that as marketing is increasingly perceived as a peer-group, eye-level, professional discipline and function within law firms, on a par with finance and IT, the demand for qualified and competent professionals exceeds the supply.  This puts pressure on recruitment and retention.  I took this report "from the trenches" as a leading indicator of how marketing is and will be viewed by forward-looking firms, and infinitely more credible than any breast-beating screeds by "it's all marketing, all the time" apologists, believers, and zealots.

While Dave is responsible for "integrated" marketing for Reed Smith, meaning:

• advertising
• public relations
• events
• direct mail and one-on-one meetings
• CRM, or customer relationship management,
• and business development,

he reported that the most critical communications platform by far for the firm was its website. Somewhat surprised at the fervency of his endorsement of our medium (but, between you and me, deeply pleased), I asked Dave why he felt that was so, and he replied that while he loved and was a big believer in advertising, the audience Reed Smith wants to reach is hard to find in substantial concentrations in conventional media, and, more importantly, inherently skeptical and critical.   So the "one-way" monologue of traditional advertising is less effective (because less meaningful to the audience) than the two-way interactivity of the website.  Which, of course, is precisely why you're reading "Adam Smith, Esq." on-screen instead of receiving it monthly in the mail.

Clearly, the challenges ahead for Dave and his team, and Reed Smith overall, are daunting:  The Richards Butler (London) merger was just formalized as of 1 January, and the merger with 140-lawyer Chicago-based Sachnoff & Weaver is due to be finalized in March (having been formally approved by both partnerships late last year).  In his time at Reed Smith, the firm has gone from being a well-regarded mid-Atlantic firm with strong Pittsburgh roots and some financial-services expertise to a truly international firm with a serious footprint in global cities (NYC, London).

My takeaway:

• Twenty years (15? 25?—pick your number) after law firms realized marketing was something corporate America takes for granted as an essential core competence, they're finally getting serious about walking the walk.
• A career in advertising agencies is not a bad background, at all, for a law firm CMO—and a smarter, savvier, and more astute choice by far than what your average linear-thinking headhunter would recommend:  Someone who's already CMO at a smaller law firm (yawn).
• The challenge of marketing sophisticated professional services calls for senior-level marketing pro's at the top of their game, who can go toe-to-toe with your most critical (shall I say acerbic?) partners and stand their ground.

Your resolution might be to take another look at your marketing effort; mine shall certainly be to write more about this once-neglected dimension of our industry.

The 18th Century Is Alive & Well in New York

A few months ago an online flurry of commentary erupted over proposed amendments to the rules that govern lawyer advertising in New York.   Among other things, the proposals would define the term "advertisement" extremely broadly as any public communication made "by . . . a lawyer . . . about a lawyer."    Interestingly, it explicitly includes all online communications, including websites, emails, and instant messaging.  There is no requirement that the speech be commercial or related to the lawyer's practice.

The rules also require that every time a site (such as "Adam Smith, Esq.") is modified—every time I publish a new piece, presumably—it must be printed out in hard copy, stored for one year, and an additional copy mailed to the New York attorney disciplinary committee for its records.  As if this weren't antedeluvian enough, the site would have to be branded with the words "Attorney Advertising" in a font at least as large as the largest font on the page (so, about 60 points to match the banner title).

There are also draconian restrictions on TV and print advertisements, which fortunately don't concern me, but which would be laughable if they weren't so bizarre:  No client testimonials; no images of judges, courtrooms, or courthouses; no use of "nicknames, moniker, motto, or trade name[s]"; and God forbid nothing "about results the lawyer can achieve [or] statements describing or characterizing the quality of the lawyer's or law firm's services."

After you've picked yourself up off the floor at the news that 18th-Century thinking is alive and well (and pre-Bill of Rights 18th-Century thinking, at that), you might take a look at my letter offering comments on the proposal.  Comments close November 15, and should be addressed to:

Michael Colodner, Esq.
Counsel
Office of Court Administration
25 Beaver Street
New York, New York 10004

We shall see whether sanity, or medievalism, triumphs in New York.

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Update:  Thursday November 9, 9:10 am

Charlie Green, co-author with David Maister of "The Trusted Advisor", is, I'm pleased to report, a regular reader of "Adam Smith, Esq.," and he wrote concerning this piece as follows:

Wow.

(And here I thought the 18th Century was the age of enlightenment, ha ha).

Your comments are well-taken (and well-written). But what I find even more interesting are the implicit assumptions I read into the proposal. In particular, it seems to me the legal profession has a profoundly arrogant view of its clients.

What I see as implicit in advocating such wide-reaching proposals are the ideas that
a. people are incapable of judging legal performance,
b. lawyers are inherently out for no good unless they are restrained,
c. "selling" is a dark art that is inherently manipulative, and
d. when said dark art is in the hands of said evil lawyers, clients are at huge risk.

Leaving aside the temptation to make jokes based on point b., all of them reflect a view that lawyers have huge influence and clients must be protected from information about them--for their own good, I'm sure.

What little faith in the market for services! Somehow people navigate the waters of auto and life insurance; figure out how to express preferences for physicians; manage to hire accountants, and choose spiritual advisors. But an MD is not considered a requirement to select a doctor; lack of a CPA doesn't keep us from making intelligent assumptions about accountants. In fact, it is precisely our content ignorance as clients which makes us want to hire an expert; if we knew enough to technically evaluate them, we wouldn't need them in the first place.

This is why a market in free speech, aka sales, is so helpful in selecting professionals. What makes lawyers think that open dialogue, the presentation of the equivalent of "bedside manner," or the opportunity to see and experience a lawyer as a working human being is somehow a negative? It is, to the contrary, precisely how most of us would prefer to choose a lawyer.

Good practitioners these days are a million miles away from the hustler peddler cartoonish caricatures of old. Clients are perfectly capable of making intelligent, nuanced decisions based on complex assessments of trust, the lawyer�s ability to comprehend the clients' problems, and ability to manage client expectations while navigating the legal world.

Why deny clients the ability to make up their own mind? Arrogance, no matter what the dressed-up, snooty motives of "it's for their own good," is arrogance nonetheless.

Clients just want to be free to choose.

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First of all, Charlie:  Thanks for your insights.

And I emphatically chime in:  The fundamental philosophical fault with the Neanderthal attitudes so conspicuously on display at the New York State lawyer disciplinary authority is profound distrust of both lawyers and clients, and a lowest-common-denominator assumption that, left to their own devices, these p eople will do self-destructive things. If that's  your approach—what I like to call, "managing for failure"—then disarming everyone in the room is indeed logical.

"Clients just want to be free to choose," indeed.  Informed, knowledgeable, rational choice.  Can't we all just be adults here?

A Pop Quiz for Your CMO

My friend Rich Gary has an enlightening column in the current issue of Law Firm Inc. in which he addresses "Ten Questions CMO's Must Be Ready to Answer."

If all CMO's came to the table prepared to respond to these as thoughtfully and thoroughly as Rich suggests they should, I suspect the job-tenure half-life of CMO's would immediately double or triple.

Rich seats CMO's squarely at the table.  He insists:  "Don't be afraid to speak up. You're a member of the firm's senior management team, and your opinion should be sought and valued on key issues."  Even if it means telling the managing partner that the firm offers no compelling value to clients! 

Rich also endorses a practice I see spreading, recently, among the more enlightened firms I work with: Client service teams. Client service teams form and re-form on the fly as a client's portfolio of legal needs changes. Your CMO should never miss a client service team meeting.

Most importantly, Rich approaches the CMO's job from a perspective deeply rooted in firm strategy, and the financial and economic realities of its practice areas, its approach to client relations, and even—critically—its partner compensation system.  Not that Rich recommends incorporating the CMO's evaluations of partners into the compensation calculation, but that he clarifies the essential connection between the inputs into setting compensation and the predictable outputs in terms of partner behavior.  Any CMO who does not understand the dynamics at play will be in a poor position to do their job.

Lastly, Rich reminds us that no matter  how professional, dedicated, creative, energetic, and visionary a CMO may be, all is for naught without the solid backing of the partnership:

"You must earn the confidence and respect of the partnership and be able to work with the partners in every office and practice area, whether they actively support the firm's marketing efforts or not. It's impossible to overstate the importance of this responsibility."

Ultimately, managing partners get the C-level executives they deserve.  Those who strengthen and grow their firms are astute at selecting talented people, putting them in fertile soil, and getting out of the way.

Show Me, Don't Tell Me

In Trust-Based Selling, Charles Green (who co-authored The Trusted Advisor with David Maister), titles Chapter 7 (pp. 70—74), "Sell by Doing, Not by Telling," and relates the following story:

The "Chief Counsel of a Fortune 50 company" needed to hire outside counsel for a critical project.  Starting with a dozen firms, they narrowed the selection to three finalists, each of whom they invited in for a 90-minute presentation:  "The first two were very good; they had solid expertise, industry knowledge, and had done their homework.  Then came firm three."

They said:  "Look, we only have 90 minutes with you.  We can do our standard capabilities presentation—which we're happy to do, by the way—or we can try something different.  We'd like to suggest that we get started on the project with you right here, right now.  After 85 minutes, we'll stop, and you'll have first-hand experience of what it's actually like to work with us."

Agreeing to the exercise, what do you suppose the corporate team found? 

Competence, to be sure:  That much was "quickly clear."  But here's the valuable, differentiating part:

"As we worked with them, we got to know them better; instead of giving answers to questions, we had a dialogue. [...]  They came to listen and to work, and to show their smarts in real time, on our issues, not to report on theirs.  You just felt you could trust them."

What firm three was up to (and yes, for the record, they won the assignment hands-down) was capitalizing on the fact that buying a complex service involves two steps, which are too often confused:  First is screening and only then is selection. 

Screening is fairly mechanical, and done at a distance:  It's establishing that your firm has the "table stakes" to play.  Here, reputation within the industry, a personal recommendation from a well-placed individual, or even a highly informative and intuitively navigable website may be all you need to get to the next round.

But once you're in front of the potential client, you're into selection, which operates under different psychological rules:  They already assume you can get the job done from a technical and professional perspective, now it's time for you to demonstrate ("doing not telling") how you would apply your skills to the potential client's specific issues. 

Until you reach the selection stage, your expertise is, to be sure, germane, but it's also abstract.  "German engineering" is one thing; a test drive is another.  Offer the potential client a test drive.  Demonstrate that you're willing to stick your neck out, take a risk that they might not like what you can actually do, and take a chance on collaboration.  Make the abstract tangible.

We are all tempted, in offering our services, to over-rate the importance of expertise.  After all, we've all made tremendous investments in training, professional development, mastery of our micro-practice specialties, and so on.  And we've been rewarded for our deep grasp of technical fundamentals.

Reinforcing our temptation to focus on degrees, credentials, and past triumphs is, often, the potential client themselves, who—even if they're not sure how to evaluate the answers—will often ask technical questions because they think they "should," that it's the responsible way to make a decision.

But it's really about trust, about rapport, about establishing a relationship grounded in jointly exploring solutions to the issues at hand.  And the quality of your performance in that context is not any thing you can assert; it's something you can only display.

So next time, be firm three.  What do you have to be afraid of?

Let's Assume Everyone Here's an Adult...

One of the topics most regularly (should I say, "compulsively?") bruited about, with far and away the least actual impact on anything to show for it, is "alternative billing," also known as anything but the billable hour.

I have my own theories as to why the billable hour endures despite condemnation from high and low—for example, the ABA's famous 2001-2002 "Billable Hours Report" opens with "It has become increasingly clear that many of the legal profession’s contemporary woes intersect at the billable hour," and continues more or less in that vein for 90 pages.   Primary among the life-support mechanisms for the billable hour (duly noted in the ABA Report) are that it lets law firms make a lot of money, and that it's well-suited to lawyers' inherent risk-averse nature.

But my favorite theory is actually a bit different:  We all know the political folk wisdom that "you can't beat somebody with nobody," and I believe that pretty much all of the commonly proposed alternatives to the almighty billable hour amount to "nobody."

There has not, in other words, been a logically persuasive, economically sustainable, mutually-agreeable (between client and law firm) alternative.

I'd now like to float one, which I'll call the McKinsey Billing Model because—you guessed it—it's patterned on how McKinsey bills.

First, I'll describe the essential elements, or components, and then I'll walk through how it works in practice.

Components:

• No one at McKinsey has an hourly billable rate.
• Everyone does have a "per diem" rate, but it's not disclosed outside the firm or to clients, even upon request.
• Projects are generally assessed in terms of how many months they will take, and whether they're appropriate for a "small team," a "medium team," or a "big team."
• A "small team" might typically consist of, say, 20% of a senior partner, 50% of a junior partner, 100% of an associate, and 100% of two analysts.
• Virtually without regard to the scope or substance of a project, McKinsey assumes that the team will call on colleagues who are not team members for an additional 20% of what they need (based on specific industry, substantive, or client knowledge, of course).
• Teams are assigned monthly price tags:  A "medium team," e.g., might cost $350,000 per month.

How it actually does (should) work:

When a client asks McKinsey for help on something, McKinsey assesses the challenge and responds (hypothetically):  "Great; that will take a small team four months, so expect it to cost $880,000."  The client decides whether that's a valuable economic proposition, and assuming they give the green light, McKinsey goes to work.

One of three things now happens:

• It indeed takes a small team four months, and the analysis/report/recommendation is delivered as promised.
• It turns out to be simpler than McKinsey thought, so they report after two months, "We think we're done; we'd like to show you what we have, and if you agree, we've stopped the clock."
• It turns out to be more complex than McKinsey thought, so they report after (say) two months, "There's more to this than first appeared (if we're to deal with it in a fashion commensurate with our standards), and we now think it will take the team eight months.  Would you like us to proceed, or to call it off?"

Under all these scenarios, McKinsey comes away fine (as they deserve to), assuming only that they can price their services rationally—and since they've been doing this for over 75 years, I think that's a safe assumption.

Likewise, I believe the client comes away fine.  In scenario #1, they get exactly what they bargained for; in scenario #2, they get "more" than what they bargained for (and are likely to be an even more loyal McKinsey client given McKinsey's non-self-interested candor); in scenario #3, they learn something about the complexity of their issues and, whether they stop or whether they proceed, they have the satisfaction and confidence of knowing they posed a non-trivial question.

What courageous law firm might adopt this billing model?  The obvious answer is:    No one, not any time soon.  Why not?  It is eminently sane and reasonable; it presumes only that your client has an appreciation for, and can rationally assess for themselves, what is value for money, and it treats all concerned as adults.   But no law firm of any size (that I'm aware of—please pipe up if you know something) is doing it.  And since a lawyer's response to a novel proposal is, "Who else is doing it?," it may take another generation or so.

Unless:   Unless lawyers want to change.

Why would they?  Only because, of course, it might be in their interest to do so.  And I predict that the billable hour gravy train may be running out of running room.  After all, you cannot increase forever:

• total annual billable hour expectations
• hourly rates
• leverage ratios of associates to partners, or
• hours consumed by projects, cases, and transactions your firm has done before many many times.

If, then, firms cannot forever play the game of increasing revenue through increasing all the metrics orbiting around the billable-hour model, they may have to find another way.  

You could always hire McKinsey to figure out what that other way might look like.