After reading Jordan’s interesting post on Why do law firms exist?, I received my annual copy of the AmLaw 100 rankings. The two events lead me to analyze the factors driving profitability of law firms.
Jordan’s post, among other things, noted that firms: “manage production and process indifferently, and share knowledge haphazardly and grudgingly.” These comments suggest firms are all over the board in how they operate and manage their work. So I analyzed the AmLaw 100 listing with an eye towards spotting trends in what makes a firm profitable.
As I have previously noted, leverage can have a strong impact on profitability, since it is non-partners who generate the profits that go in partners’ pockets. Yet leverage amongst this list does not correlate well to profitability. Size didn’t matter either (sorry about that one). The only strong correlation I found was between “Revenue per Lawyer” and profits (be it PPEP or Profitability Index).
This tells us two things:
1) Jordan’s assessments are likely spot on. The haphazard way in which firms are managed and run is reflected in the AmLaw 100 profitability stats. How a firm is structured and run does not seem to impact profits.
2) Revenue per lawyer matters. However, this likely reflects the old way and not the new normal. Revenue per lawyer is based on billable hours, at least for now. So the old adage of more hours billed and collected equals more partner income was still in effect in 2010.
My Assessment: The new normal did not catch up to most law firms in 2010. However, Jordan’s question appears to be persistent and expanding in the market. Even with the economy doing better, clients continue to ask hard questions of their law firms and maintain pressure on reducing fees in a sustainable way. 2011 may well be an inflection point year in this process.

Although Toby Brown, Scott Preston and I will be the “lunch-time entertainment” at this year’s Private Law Libraries (PLL-SIS) Summit in Philadelphia, you may not feel that we are the kind of speakers that you could proudly go up to your firm leadership and say “I really need to go to this so I can hear these Geeks speak!” Luckily, Pamela Lipscomb sent me this promo on Esther Dyson conducting a Q&A session at the July 23rd Summit that may give you a second reason (or at least one good reason) to grab some leaders in your firm and spend the day discussing issues that are specific to law firms and their information/library centers.

Hope to see you (and a few of your colleagues) there!!

PLL-SIS Summit II:  Change as Action, Change as Opportunity

Need another reason to attend the AALL PLL Change as Action Summit?  Hear Esther Dyson, Internet legend and technology visionary, sponsored by Wolters Kluwer Law & Business!

Esther Dyson, named by Forbes as one of the most powerful women in American business, is the founder and chairman of EDventure. She is one of the most influential voices in the Internet industry and has been a board member and/or early investor in several companies that helped define tech startup success, among them Flickr, Meetup, del.icio.us, and Technorati.  She also recently finished six months of cosmonaut training in Russia and serves on the NASA Advisory Council.

Have your CEO, CIO, COO or managing partner register to hear Esther Dyson speak — her lively Q-&-A session will explore how to embrace and use change in business and technology.

Registration is now open for the Private Law Libraries Change as Action Summit held in conjunction with the 2011 AALL Annual Meeting on July 23, 2011, 8:30 a.m. to 5 p.m., at the Pennsylvania Convention Center in Philadelphia.  The $145 registration fee includes all programming.  Registration is open on the AALL website.  Sign up now to take part in this exciting event!

Is Justin Changing for Selena?

As I was getting everyone ready for school this morning, I looked over at the dinning room table and noticed my eleven year-old reading the latest issue of Tiger Beat magazine. I wouldn’t say that seeing my daughter read is an unusual thing, but seeing her read a magazine made me wonder if maybe there was hope for print media like this with a younger generation. After all, I remember my older sister enjoying reading Tiger Beat (I was more of a Dynamite magazine reader at that age), and thought that maybe this is one of those areas of interest where a kid prefers the feel of a glossy magazine… choke full of 8 x 11 posters of the latest teen heart throbs. So, in the interest of science, I went over and asked her a few questions.

Dad: “Do you like reading Tiger Beat as a magazine?”
Daughter: “Yeah… I guess.”
Dad: “Do you read it online?”
Daughter: “Yes.”
Dad: “Which do you prefer?”
Daughter: “Online. It’s much better online.”

The results of this highly selective, double-blind, super scientific survey of my eleven year-old daughter tells me that print magazines are a novelty to these kids.

I actually got to looking at the website for Tiger Beat, and noticed that there are a lot of interesting, interactive things that kids can do online. Add to that the slick looking browse feature of this month’s magazine (apparently Selena Gomez and Justin Bieber are changing each other – just in case you were wondering), latest news, videos, comment features on each story, interactive polls, and most of the same glossy posters you get in the magazine… makes you wonder why a kid would even want to pick up the magazine in the first place. Then it hit me… I think she bought the magazine because I won’t let her eat over by the computer and I won’t let her use my iPad when she’s eating breakfast. It seems that the only hope for pre-teen pop magazines is that parents all over the world making kids eat away from the computers in the house. I guess that’s something for print publishers to hang their hopes on.

The April 2011 ILTA White Paper publication on Financial Management includes an article from me on “Bringing IT and KM Value to AFAs.” I provide a synopsis here on our blog and encourage you to check out the full paper.
After laying foundation as to what an AFA (Alternative Fee Arrangement) is, the white paper explores the AFA process from a high level and then identifies opportunities for IT and KM folks to bring value to the AFA world. The AFA process includes: setting budgets, modeling for profitability, moving an AFA through an approval process, monitoring the work against the AFA and finally, post engagement review and evaluation.
The obvious first opportunity for KM and IT to support AFAs is with budget building tools and knowledge. The article outlines a number of budgeting tools, but also points out you probably already have some basic tools so you can get started now on this effort. Following from budget building, will be budgeting monitoring efforts. Again IT and KM can bring high value to AFAs with systems and a strong knowledge base for monitoring and assessing AFAs throughout the life of an engagement. The final opportunity is that of capturing AFA knowledge. From my experience, a lot of AFA effort right now is guesswork and gambles – which is OK. However, firms will need to learn from their experience (a.k.a. mistakes) and get better at AFAs over time. So knowledge repositories and systems that enable this effort will have great value.
The bottom line for the white paper is that IT and KM can play vital roles in the emerging AFA space. Now is the time to get involved in these efforts and help build the future.

As many of us gear up for a smaller Summer Associate program, we find that we need to tweak some of the basic skills (or completely teach them) for many of those Associates. I hear a lot of griping at conferences about the skills that law students have when they are fresh out of their 2nd or 3rd year, so we thought we’d give all of you a chance to step up and let us know what you think would better prep these future lawyers for the profession they just spend $100K+ to enter.

We had a number of different perspectives on the issue, and we thank each of you for contributing to this week’s Elephant Post. As is our routine every week, we post next week’s Elephant Post question below and give everyone a chance to share their perspective on the issue. So, read through this week’s perspectives, then take a couple of minutes to look over next week’s question to see if you have any insight you’d like to share.

Toby Brown
AFA/KM

#1 – The KM piece.  Law schools teach students how to look backwards.  I call this the great Paradigm of Precedence.  Although there is value in gaining and building critical thinking skills, doing so with such a past-focused lens is a recipe for failure in a world of constant change.

So law schools should stop teaching students how to look in just one direction, but should instead teach them how to look in all directions.

#2 – The AFA Piece.  Law schools should stop teaching law likes it’s an academic exercise not to be tainted by the evils of profits.  Instead they should give law students practical skills on how to run a profitable practice.  The reality is unprofitable practices correlate with poor client service.  If a lawyer can’t efficiently and effectively run a practice, then they really can’t practice.  Law schools would do well to better prepare future lawyers for this reality.

probatur denuo
Unemployed lawyer
Law schools should radically change, if not eliminate the third year of law school. Here are two suggestions for alternate uses of that final year:

1) Instead of silly electives that will never apply again, the third year should be a time of mandatory apprenticeship. During this time, the student can work at a law school clinic, complete a work/study cooperative with a government agency or law firm, or intern for a minimum of 20 hours a week at a company. This would help the students experience the “real” practice of law while they are under the benefit of the student practice order. The students would get genuine experience that would make them more attractive to potential employers, and they would also have a valuable chance to decide whether the practice of law is truly for them.

Schools should have an “alternative careers” department. If students decide law is not for them, an “alternative careers” department could help them identify their true interests as well as opportunities to develop other expertise outside of the straight practice of law.

2) Bar exam preparation has turned into a massive business, making a profit on the backs of desperate and frightened bar exam takers, some of whom are unable to pass the bar exam at drastic personal cost. I think a lot of this misery could be avoided if law schools implement mandatory for-credit bar review courses for the third year of law school. Ideally these courses could be structured around well established bar preparation materials (such as books published by Emanuel or Barbri), review the local law and include study skills and psychological preparation for high stakes exams. A course like this should be mandatory at all schools for the lowest-performing students, and optional for the rest. In fact, I even believe such a course can even be graded – with those students who receive a C or lower receiving further tutoring or perhaps counseling for alternative careers.

Nikki
legal marketer
Business basics

Law firms can’t just keep raising fees anymore and very few partners have any concept of how to run a business efficiently, much less grow one. This has implications not only for the health of their firm but to how they approach corporate clients.

An english major/law school graduate may not understand budgeting cycles, cashflow and other basic business practices that their clients live by  – thus they are in danger of giving wildly impractical advise or at least dangerously undersestimating its impact on clients.

Next Week’s Elephant Post

What is the future of legal directories?  Are they still valuable?  If so, in what form?

This question came to us from Dallas law librarian, Kevin Miles. Yes, that’s right, you can send us questions you’d like to see asked for our Elephant Post series!! Let us know what you think about the future of legal directories. Where are they heading? Are they going the way of the horse and buggy, or are they evolving into something that looks nothing like its current configuration??

I was talking with a partner the other day and he told the story of how he, as a young associate, was part of the first batch of lawyers to come in and open the current office. He started laughing because he remembered that the firm was pretty reluctant to open the office, but one of the biggest clients insisted that we do in order to be closer to their headquarters. “We were going back and forth about opening a new office,” he told me, “and, you know what finally made us do it? The client gave us their entire law library collection for us to put in our new office. That sealed the deal.” At that time, the law library was a show-piece of the law firm, and to land a complete collection of the National Reporters, treatises and other legal materials was quite a catch for a firm opening a brand new office.

That was back in the mid-90s. My have the times changed. Could you imagine if a client made that offer today? It could be a deal-breaker.
When I spoke on law library spaces within law firms at an Ark Conference a few months ago, I got some pretty negative comments in my review of how I conceded that library space, for books at least, was a lost battle. A Chief Operating Officer in the crowd backed me up and said that the days of the library being a showpiece of a firm are over. I asked him what is the “touchstone” of a firm these days (some central place where everyone feels connected). Is it the library? Is it the break rooms? Conference Center? Bathrooms?? I think we finally agreed that in this day and age, the touchstone of a firm isn’t something that is based on a physical space. Quite frankly, it is probably the firm’s email system that is now the touchstone of the firm.
As for those books that came over nearly twenty years ago?? Many of them are still on the shelf… like the old abandoned toys from the Toy Story movies… just hoping that someone will find them and not ship them off to the dump. I think I’ll go out and run my hand along their spines today to let them remember what it feels like to be touched.

The upcoming Elephant Post this week deals with the question of what do law schools need to stop teaching, and replace it with something that the profession sees as more valuable to those entering the legal profession. I have to be one of the first to admit that when I transitioned from a law school job to a law firm job, I was stunned by the extreme differences between the two jobs that were supposed to be of the same profession. Setting aside some of the obvious distinctions, such as Westlaw contracts going from five-figure dollar range to the seven-figure dollar range, there were core areas of distinction between my law school job duties and my law firm job duties. After working in the law firm environment now for nearly a decade, I am constantly reminded of the dichotomy between law schools and law firms.

As I was making my way through my reading list, I ran across Jason Wilson’s post on an upcoming paper from Lisa D. Kinzer, a law student from the University of Texas School of Law, where she discusses her survey on the utter reliance that law students have with WestlawNext. When I read a couple of the sentences explaining the thoughts behind the paper, it reminded me once again of the distinctions of “what’s important” in the law school setting may not have any importance what so ever in the law firm. Indicating that students have a significant preference of using WestlawNext, Kinzer states:

When one considers that very few practitioners even have access to WestlawNext, the implications for the effective preparation of law students for the workplace are considerable…. In this paper, I review the results of my survey and offer proposals as to how law schools can incorporate the seemingly addictive WestlawNext into their research curriculum while still ensuring that students will be effective when working with the limited resources available at the average law office.

Law schools have an almost bipolar approach to how they prepare students for the legal profession. I know, many of you may think that tri-polar or quad-polar may be more accurate, but I’ll just stick to the research approach at this time.  Just think of what the legal research and writing teams have to accomplish, and bring in the law librarians as well. First of all, there is the task of having to teach the basics of reading, writing, and researching based on the traditions of the profession. However, on the opposite end of this spectrum lies the advanced research tools, such as WestlawNext, that work to perform many of those basic tasks for the researcher.

In a way, you can think of it as teaching a teenager how to drive by having them read a book about a Ford Escort with a manual transmission, then taking them out on the road in a high-end SUV with an automatic transmission. I’m sure that the driving instructor would confidently answer that all of the students are capable of driving a manual transmission… although, almost none of the students will have actually driven one. Much like many of the R&W profs and law librarians will say that since students have access to the old “Westlaw.com” platform, they should be able to research on it if they are forced to. If you’re a teenager and you have the keys to an Escalade and an Escort… both with full-tanks of gas, and Daddy will replenish the gas tank when you bring it back… which one do you think they are going to drive?

Now, before my friends in academia start drafting hate letters to me, I want to point out that I don’t think that the problem rests with the R&W profs or the law librarians at the law schools. I think that the blame for letting students get out of law school without the proper amount of core legal research skills rests mainly on the shoulders of the law firms that recruit students without laying out the standards of what is expected of them when they show up on day one, and pass along that information back to the R&W profs and law librarians. Think about it… when is the last time that a law firm librarian went to the law school librarian and gave them a list of core skill that are needed to work at this law firm? I’m sure it happens, but not very often.

As long as we pretend that law schools and law firms don’t really need to work together to improve the skills that law students have when they transition from academics to professional setting, then this problem will persist. I’ve heard for years, from both academics and firms, that they are hoping that either the Bar or some other association will step up and work out the details of changing how law students are better prepared for entering the profession. Well, guess what. These Bars and associations are made up from the same batch of people wanting it to be someone else’s responsibility.

I think that this problem is worked out the same way that many environmentalist look at how everyone could save the world: “Think Globally, Act Locally”. If you’re really disappointed at the skills that your Summer and Fall Associates have when they come to your firm, draft up what skills you expect these associates to have, and give it to the law schools you generally hire from. At a minimum, it will get the conversation going. There’s a saying that I use a lot around the office that kind of fits the situation that many R&W profs and law librarians at law schools find themselves in. “I can create great tools that do wonderful things, but if it doesn’t fit your needs, then it is worthless.” I usually back that statement up with a call for input from those I work with to tell me what they need. I think it is high time that law firm and law school professionals start talking and telling each other what they really need.

We’ve asked you to pull out your crystal ball and look ten years into the future to see what the law firm of 2021 might look like. As usual, you didn’t disappoint us with your answers. We have visions of changes in basic technology; the “super-marketing” effect of law firms, including catchy brand names; changes in the way information flows across a firm and how we interact with that information, and; a better work/life balance within the way lawyers at law firms work.

We thank all of the contributors, and hope that you’ll find next week’s Elephant Post question (conveniently posted below) interesting enough that you will take a couple of minutes to jot down your perception of the issue.

Greg Lambert
Library/Records Guy

See that telephone on your desk? Gone! Everything will be funneled through whatever Personal Computing device you have in front of you, or attached to your hip (hopefully those God-Awful Bluetooth jawbone devices will die a swift death!!)

We will finally have the video conferencing we’ve been promised for 50 years at our fingertips, and no longer will conversations be simply two voices talking over the ether. In other words, Dick Tracy’s gadgets will become the norm.

I’m sure that for those that forgot to comb their hair will have an automated “avatar” set up that will mouth the words for you.

Brian Rogers
Lawyer

I long for the day when law firms have real brand names.

I’m bad with names, so the long-followed practice of naming firms after the people who work there, or, more likely, once worked there, is a real pain for me. I have lawyer friends and colleagues who work for a lot of different firms, but for the life of me I could only name a dozen in my city of St. Louis, and I shorten most of those to a single name in my own personal nomenclature. (That practice was a little uncomfortable at times when I worked at a firm where the only living name partner was listed third in the firm’s name.)

Why can’t our law firms sport easy-to-remember names with a little pizzazz, maybe Virgin Law, GoDaddy.esq, Amazon.jd, or E*Sue? Or we could even go a more descriptive route with Top Gun, Dollar Lawyer, or Law Factory. Anything’s better than Ziffren, Brittenham, Branca, Fischer, Gilbert-Lurie, Stiffelman, Cook, Johnson, Lande & Wolf. Ten names? Really? You’ll always just be Zif to me.

Kevin Miles
Thinker

The law firm of 2021 will be significantly different in terms of service personnel. For example, private law librarians will wear additional problem solving hats; they will “own” Wikis, research portals, moodles, and other information-sharing tools like Sharepoint; they will become client-focused project managers. From the human relations side, private law librarians will become embedded with practice group teams. This will affect library schools and what they teach, and law schools and how they prepare attorneys to connect to the new information paradigm.

Bob Wells
Lawyer

In larger cities, law will be provided through in house counsel, prosecutors, public defenders, large defense firms, large plaintiffs firms and . . . Walmart.  There will be private investment in law firms, which will be taken over by chain stores to serve the middle class.  Solos and small firms will hang on in smaller cities and rural areas.

Mark Gediman
Law Librarian & Records

The mists are clearing.  I see…I see…I see a Librarian toiling away in front of a flat screen.  The Librarian appears to be speaking to it (at least that hasn’t changed). Wait, the Librarian is using oral commands to search both internal and external information. Internal and external information have equal value as the firm builds on it’s internal knowledge while keeping up-to-date with external resources.  The Librarian will morph (much like a Transformer without the cool voice)into a Researcher who is charged with managing and mining the firm’s information, from internal work product and client files to external subscriptions.  Why?  Because this is a function that takes advantage of the organzation skills Librarians have had from time immemorial.  Supporting the firm’s operations is what we do.  Does this interfere with IT? Not at all, this is just the information side of the coin, not the technology side.

Scott Preston
Technologist

In order to understand the future, let’s look at the past.  Compared to twenty years ago, technology plays a bigger role but we still use word processors to get work product out.  We still struggle to share knowledge, we still cling to large expensive office space and we still charge by the hour.  Technology has grown by leaps and bounds but law firms still struggle to take advantage.

What will change over the next ten years is the lifestyles, dreams and goals of the younger lawyers who will become the leaders of law firms in ten years.  With a greater emphasis on work/life balance we are going to see less emphasis on being in the office.  Working remotely will become common place.  You will not need to have an office for every attorney (reduce overhead).  In ten years, the virtual law firm will be much more common place than it is today.  Social networking functionality will be incorporated into the attorneys practice allowing for new workflows that will support the virtual law firm concept.  We will see more boutique firms working together to compete with big law.  In ten years attorneys will return to dictation rather than typing as a means of capturing their ideas.  Just kidding!

Next Elephant Post:

Law Schools Should Stop Teaching ________ and Start Teaching ________!

As many of us gear up for a smaller Summer Associate program, we find that we need to tweak some of the basic skills (or completely teach them) for many of those Associates. I hear a lot of griping at conferences about the skills that law students have when they are fresh out of their 2nd or 3rd year, so we thought we’d give all of you a chance to step up and let us know what you think would better prep these future lawyers for the profession they just spend $100K+ to enter.

This past week there were two announcements that confirm the emergence of disruptive forces in the legal market. First, Jim Hassett announced version 2.0 of his LPM Guide, and second, Bruce MacEwen announced the new JDMatch service
LPM 2.0
Jim Hassett release the second, updated version of the Legal Project Management Quick Reference Guide this past week. Although there is general consensus in the market that lawyers need to adopt legal project management (LPM) in some fashion, there is little consensus as to the form that should take. Some argue for a full-on PMBOK approach, while others argue for a “Baby Steps” approach. Serving on his advisory group gave me the opportunity to comment and see previews of the update version.
The Guide is useful since it can accommodate a variety of approaches. It can be utilized as an A-to-Z tool, or lawyers can pick and chose the aspects of the Guide they find useful. The intent and style of it accommodates both perspectives. Jim’s general approach to LPM is one of injecting project management principles into lawyers’ existing practice methods. The Guide reflects this approach and can shy away from more formal PMI-type methods.
The updated Guide reflects the continuing evolution and expansion of LPM in the market.
JDMatch
The existing method for matching law students to law firms for potential employment is much like the rest of the industry – full of rich traditions and incredible inefficiencies. So Bruce MacEwen and Janet Stanton over at the Adam Smith, Esq blog developed a new approach. They are using technology to greatly expedite the process and provide a better informed method for helping law firms and law students connect. Students and law firms input their preferences into the system, then “matching” algorithms are run to demonstrate the best matches for both sides. This eliminates the need for both parties to spend time on unlikely opportunities.
The system is new and yet to be proven, but the idea is quite intriguing. You can read more about this on their Blog and on the WSJ Law Blog.
We wish the best of luck to Bruce and Janet in this new endeavor.
What’s Next?
We will likely see more tools and market players enter the scene with disruptive ideas and technologies. We have all been talking about the need for change for some time now. So it’s refreshing and encouraging to see changes actually come.

Last week, there were a couple of random tweets that flew between Ed Walters, Don Cruse, and me that weren’t really a big deal in and of itself, but it got me thinking about the way that Government data is compiled, accessible, online, authoritative, and free to the end-user. Ed’s tweet was what caught my eye, when he said:

“#opengov divide is between free and open, IMHO. @Google=free, @Fastcase=open (for example). Public.Resource.org=both #lawgov”. 

There were a few more tweets amongst the group, where I asked if this meant that PACER was in the “open” category the same way that “Fastcase=open” (or if you’re in Texas, “Casemaker=Open”)? Don Cruse didn’t think so and added:

“Nope. PACER tries to restrict reuse and redistribution of data, putting it in a form that’s hard to access.”

The whole Open/Free access to government information, especially the laws, regulations and court decisions that we have to abide by, made me think of the old saying of “you can have it fast, cheap or good… now pick two.” Only with the type of information we’re talking about here, there may be more than three things we need, yet we may only be able to still pick two of those things in what we end up with.

I guess the Holy Grail of pushing the type of government information that those of us in the legal industry would like to see, has the following characteristics:

  • Complete
  • Open Access
  • Online Content
  • Authoritative 
  • Free

Now… pick which two you want.