Since Ayelette called me out on delivering depressing news earlier in the week, I thought I would end the week on a consistent, low-note by highlighting a emerging trend in downward pressure on legal fees.
The existence of fee/pricing pressure in the legal market is common knowledge. However, based on my experience I see some trends appearing in different layers of the market. My basic thesis is that the higher up in the market you go (by size of company), the more pressure you will have on fees and rates. On the surface, this thesis may seem a bit mundane since conventional wisdom holds that the clients with larger budgets have gotten more sophisticated and are leveraging that to lower their legal fees.
However, I suggest this sophistication is more about willingness and ability.
And by “willingness” I mean the CEO told the GC to cut outside legal fees – no excuses. By “ability,” I mean the CEO said to the GC, “Purchasing will help you do this.” Too often I have heard in-house counsel apologize for their cost cutting behaviors. This suggests their willingness is mandated. In-house lawyers also appear to struggle with Purchasing’s involvement in how law firms are hired. So this ability is external to the legal department as well.
Why is this happening? As previously noted on 3 Geeks, the legal department is no longer exempt from cost-cutting. Having been exempt for so long, legal is now a prime target. As one GC put it, “Legal is the last bastion of untapped cost savings for the CEO.” Evidence of this trend is the evolving role of Purchasing. Originally very general RFPs for legal work were going out from Purchasing. These initial efforts may have resulted in fewer firms being on a client’s list. But now things have evolved to the point that clients are releasing RFPs on specific work. With a definable scope in place, price competition is becoming commonplace. The result for law firms is a more consistent, higher level of fee pressure with this class of client.
Moving down market to mid-tier companies, there seems to be less willingness and ability to push down on fees and rates. I believe these clients are just as “sophisticated” as the Fortune 500 types. However, they are not yet feeling the same pressures from leadership on cutting fees and their Purchasing departments are not as large, powerful and involved.
That being said, the same behavior will find its way down-market over time. The Perfect Economic Storm I have previously mentioned, will eventually find its way to all corners of the market.
As this evolution continues, I predict getting work from large companies will present a real challenge for law firms. Their old-school instincts will tell them that staying with this type of client is good, given the size of their legal spend and for being marquee clients. But the ability to sustain reasonable margins on this work will continue to erode.
Here comes my depressing comment: How long will it take firms to understand this trend and adjust to it? My answer: Too long.

I have the wonderful job of researching dozens (maybe hundreds?) of different legal rags everyday. There are definitely some good legal news resources out there, and we thought we’d let you share a few of your favorites with us. For example, I enjoy the Osmosys Legal Industry Monitor for generic legal news (plus it is FREE!!)

We have a number of contributions this week. If you didn’t contribute, but don’t see your favorite resource, go ahead and add it to the comments.

Since I’m having to post this from a conference, next week’s Elephant Post asks about “non-traditional” conference that you like. So, after you’ve bookmarked all these resources, go ahead and scroll to the bottom and contribute to the next post!
WSJ Professional alerts
Marilyn Bromley
Law librarian

I use it for CI by tracking our competitors, industries, markets and trends. The search interface is very unsophisticated, so I have to deal with lots of false hits, but when it finds something useful, in real-time, it makes me look good with my stakeholders!
Roadsync
Harold Goldner
Lawyer

Roadsync is one of only two Android applications that will enable users to sync Outlook tasks with their handsets.  Since we are a TimeMatters shop, and my to-do list is integrated into contacts, cases, and other case-specific records, I sync from TM to Outlook twice daily (beginning and end of day).  Roadsync enables me to keep most of that information with me on my Android phone.
Lexology
Karen Sawatzky
Law librarian

It’s organized, authoritative, well-written, and even includes a search box! What more do you need in a legal resource?! I’ve filtered it so I only receive info on areas of law my firm practises.
Google Reader
Catherine Deane
Law Librarian

With Google Reader, I can create RSS feeds of multiple news sources, and easily use either the Google Reader interface, or Google Reader Play to scan the headlines and abstracts for news articles from blogs, and other news sources. Then I can read in detail, or email to others relevant legal news.
My reader feed currently contains over 30 different sources that cover the topics of: Academic librarianship, law librarianship, law and the legal profession, legal news, news for law professors, news for law students, and general current awareness.
Some of the most useful sources are: Law Librarian Blog; beSpacific and Legal Theory Blog
But my new favourite is Library Stuff
Google Reader / Google Alerts
John Hafen
Lawyer

I subscribe to updates posted on numerous online news sources and blogs (including this one) through Google Reader.  I also follow online news related to specific keywords through Google Reader via Google Alert feeds. 
Contrary to popular belief, RSS is not dead!
Twitter
Megan Wiseman
Law Librarian

Twitter gets a bad rap some days.  At the risk of beating a dead horse, however, I’d like to defend Twitter’s immense usefulness:  Glancing up and down my Twitter feed is the first thing I do once I turn on my computer for the day; it’s the last thing I do before hitting the kill switch at night.  …and no, I do not use it to advertise what I ate for lunch, or how crowded the bus was that morning. 
It’s my up-to-the-minute news feed for out-of-the-way tidbits of information.  I’ve not gotten into “”trending”” very much, but understand its usefulness … quite often, I don’t have anything particular I’m looking to know, I just want to know it all!! And Twitter does that for me.  I recommend following these folks if you want to get a good river of information in the legal and library sectors flowing past your eyes: AmLawDaily, lawyerist, HotLawTopics, LexisNexis, lawdotcom, bobambrogi, ALA_TechSource, govloop, ALALibrary, aallnet, natlawreview.  (At the time of this posting, all the listed sources had posted sometime in the past half hour.)  I use it to spark conversation, get ideas, find resources, and general news.  So lets all Tweet like the birdies Tweet!
Law 360
Nicole Snyder
Law Librarian

I use Law 360 because it allows me to quickly focus in on my firm, other firms and companies that are of interest to me.

Next Week’s Elephant Post:

What “Non-Traditional” Conference Do You Go To (Or Would Love To Go To) And Why?

I’m sitting here at the Ark Group Conference in New York (#ARKLIB) – because apparently, I’m the only Geek that knows how to compile all the Elephant Post contributions – and got to thinking about how much I enjoyed the high-level discussion we were having. So, I thought I’d make it into the next Elephant Post and see what other conferences are out there that may sit outside the mainstream.

Go ahead and fill out the form below, or email me, or DM me on Twitter if you have something you’d like to share with the rest of us.

See you back here next week!!

In one of those about-to-fall-asleep, mind-is-wandering moments, it occurred to me that law firms are financially structured a lot like the US Social Security system. I wish I could give the genesis for this thought, but I was lucky to retain the overall analogy. However, it may have come from Ayelette’s post about my recent dark and forbidding predictions.
Social Security (SS) is structured such that workers (a.k.a. contributors) pay into a system that passes this money along to retired folk (a.k.a recipients). When you pay in to SS, you get the impression you are building an account that will pay you back, but the reality is you are merely building eligibility to receive benefits from future generations of contributors.
In law firms associates and other non-partners are the contributors who generate profits that are then passed on to the partner/recipients. Becoming a partner puts you in-line to reap the benefits from future associate/contributors. The differences between the systems are two-fold. First – unlike most retirees, partners are still contributing to the system via their own billable hours. Second – whereas workers contribute for decades into SS, associates only contribute for 7 to 10 years in to the profit pool before they become recipients.
The two systems share one weakness: The pool of contributors must be of sufficient size in order to maintain the payments to the recipients. Currently both systems appear to be facing a “contributor deficiency” situation.
I’m not sure which one will be the hardest to fix.

I’m going to play “Devil’s Advocate” for a few minutes, so bear with me. I hear a lot of talk about how law firm administration has to:

  • “do more with less” 
  • “everyone has to wear multiple hats” 
  • “times are tough” 
  • “budgets have to be cut in hard times” 
  • “clients just aren’t paying for that any longer” 

I’m sure that I’m not the only one that’s hearing this lately. In return, it gives me some good ammunition to take to my vendors and say:

  • we can’t afford to continue 10% or greater increases in subscriptions any more
  • we just don’t recover as much as we used to from clients
  • my budget is slashed because of the bad economy

Now, I know that the vendors would never come out and say this to our faces, but if anyone is following the numbers coming out of the Am Law 100 firms so far this year, vendors could counter with something like “Your budget was cut again this year? But, didn’t your firm just report that it had its best year ever? Sounds like your firm is doing just fine to me. That’ll be an extra 10% increase in your subscription, thank  you very much.”

Here are a few of the headlines that the Am Law 100 press releases have been bragging about lately:

  • Profits and Revenues Hit Record Highs
  • Very Big Year
  • Bump Up in Profits
  • It’s Back to 2008
  • Profits Surge
  • Rise in Revenue, Profits
  • Profits, Revenue Rises

We all know that administrative cuts were deep over the past two to three years. Quite frankly, it’ll be a long time before we ever see 2008 type budgets or staffing again. In fact, many of us believe that the downturn in the economy helped weed out some serious inefficiencies and helped us streamline the overall administrative side of the house. That being said, many of us also believe that we cannot continue to cut services without it eventually catching up with us, and potentially biting us in the butt. It is also pretty obvious that the excuses we’ve been using for the past two years are hard for others to accept when we’re also slapping ourselves on the back for record profits.

We’re at a cross-roads right now on developing ways to improve services provided by the administrative side of a law firm, without slipping back into the pre-2008 sloppiness that caused so many cuts in services and staffing. Vendors will probably think that it is “business as usual” in the legal industry; Partners will think that “we still need to run a lean operation”; however, it is those of us in the “non-lawyer” side of things that have to start developing ways to keep costs down while at the same time bringing services back up to an acceptable level that provides the firm with the resources it needs.

Time to put away the excuses of “we don’t have the money” and time to start developing the new business model of “we can’t afford to waste our time, effort and money on _____, any longer.”

[Note: Please Welcome Guest Blogger Rich Evans]

After graduating law school back in 2007 and practicing in a small firm, local government and solo settings, I decided to become a law librarian. So far, it has been a great fit in my life, much in part to the law librarianship program at Catholic University, which I absolutely love. I honestly have no complaints except for one, the involvement of vendors, specifically LexisNexis.

In contrast, in law school there was never a day when either LexisNexis or Westlaw was not in my life. The relationship was great. I enjoyed full access to both vendors – more than I ever needed. They would even pay me reward points for daily visits to the LexisNexis website or attending one of their “advanced” search classes. I could then exchange the points for goods that seemed a little too extravagant, even a chance to win a car, but I am not one to pass up free lavish stuff.  All of this I thought was just a way to encourage law students to use their services in the future. Although this worked out great for me, I honestly have no idea why they did this.

I seriously doubt as an attorney that I would ever have been in the position to influence a decision between Westlaw and LexisNexis. In addition, given the attrition rate in the legal field, this conclusion seems to apply to most of my classmates. Even if I were in the position to make such a decision, I doubt the gift cards that I won while in law school would affect my decision… unless they gave me a car, which then would make me a lifetime customer.

In my case, until I started the law librarianship program, I have used neither LexisNexis nor Westlaw electronic services since I graduated law school. My first two jobs did not require it and I could not afford it as a solo. The times that I did need to research anything outside a state statute, I was told “we keep it old school” by my managing attorney, which meant I had to walk to the public law library and crack open a book.

So now, I am sitting in an Advance Legal Research class preparing to learn my future craft, which includes an expert proficiency of both Westlaw and LexisNexis. On our first research assignment I logged into LexisNexis to look up my first case, but instead all I got was a screen that stated that the “document was not available” because it was not “within the subscription agreement.” I then tried another citation, which produced the same result. Eventually I just gave up and just used the tried and true old-school method.

Two weeks later, we had a LexisNexis representative visit our class to give us a basic functionality presentation. However, as she was giving us the presentation, all we could do was watch, because a lot of what she was demonstrating we did not have access to. Eventually one of my classmates figured out the problem, the search did not allow us to enter cases by code, only by name. I know how absurd that sounds, but it is true.

Now I completely understand that these services cost a lot of money even for law schools, and it is LexisNexis right to limit access due to cost – which I guess is a large part of the problem. However, I think that LexisNexis needs to take into careful consideration of our demographic when they determine licensing agreements.

I, as most of my classmates, will have a greater chance to influence vendor decisions than most law students will. Further, over the course of our careers, we are more likely to be the heaviest users of electronic legal databases. Most of all, given the size of the enrollment of all the Law Librarianship programs put together, it just seems that LexisNexis and Westlaw could make concessions without breaking the bank. I would bet that the maybe hundreds of library students in law programs across the country will have more influence over their profits than the ten of thousands of law students that they cater to every day.

In order to be a good law librarian, I realize that I will need to have expert knowledge in both LexisNexis and Westlaw’s products and services. However, at this time my class performance trumps my willingness to find workarounds to LexisNexis’ shortcomings. If Google Scholar, Westlaw or the old-school method produces a better work product, then that is what I am most likely to use. When I graduate and move on, the database that I will advocate for is the one I am most comfortable using, and frankly, LexisNexis does not seem to want to be in that race.

I’ve been reading Toby’s last two posts about the questionable financial state of law firms (The Fall of the Legal Cartels? and Warren Buffett Puts Another Nail in the Law Firm Coffin) and wondering to myself “Come on Law Firm Management, do you really not see your future? Do you really not get how current cost and compensation models are one-way tickets in the wrong direction? I know lawyers are slow to change, but we’ve been living in a new economic world for quite some time now, and we’re still billing by the hour on most matters? Still giving bonuses based on hours worked? Really?”

So why exactly is it that law firm partners and management haven’t been persuaded to change their models? I’ve been reading the same articles and statistics that you have that explain that clients aren’t pushing hard enough, and that partners are afraid of losing their current levels of profit. I get that. But isn’t making sure your business doesn’t go out of business next year right up there in priority with making sure your income this year remains high? And yet partners and management on the whole are not acting in ways consistent with a recognition that models need to change for business to survive. There are little inroads here and there, but those are still considered the exceptions to the rule, not a new and revised rule.
What is the sticking point? I believe it is not just a desire for profit, but a desire for profit combined with an inability to face our own mortality. Individuals never quite believe that they will be harmed by their own bad behavior, even if research and social wisdom tell them otherwise; so they behave in a slew of self-destructive ways because of the “It will never happen to me” syndrome. Similarly, law firm partners who are enjoying past profits never really believe that the vice of hourly billing and compensating is going to threaten their existence. Even in the face of others’ deaths, human beings still assume that they are somehow special or better or different and are immune to whatever befell the others. So too no law firm, deep in its heart, believes it is going to dissolve and therefore the incentive to take a risk and threaten a significant-profit model just doesn’t exist.
I suspect that nothing short of the likes of a BodyWorlds exhibit — putting the inner workings of a dissolved law firm on display next to that of a successful one, like the smoker’s lung next to the non-smoker’s — will shake the way law firm owners and managers think. But when those owners and managers do realize the very real possibilities of losing clients, losing business, and losing existence, they will also appreciate that they have the power to change their future.

Warren Buffett, the quintessential capitalist, was recently quoted:

“[t]he single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

These statements exposes Buffett’s core strategy in picking winning companies. His point is that most any other deficiency in a business can be overcome by the simple ability to raise prices without losing business. Law firms, to their great misfortune, currently lack the ability to raise prices and in many circumstances the market is actually lowering them.
I’ve previously contemplated the Perfect Economic Storm law firms are in, citing 1) the transition to a competitive market, 2) the Great Recession, and 3) the accelerating impact of technology. I think Mr. Buffett is spot-on with his statement and as such will now add this fourth factor to the Perfect Storm. Given Mr. Buffett’s deep understanding of markets, the pricing factor may well be the most influential.
Not wanting to leave our readers on a completely negative note, Mr. Buffett did add the following statement to his assessment, which may give law firms some level of optimism:

“The extraordinary business does not require good management.”

In chatting with my boss / colleague / mentor about the economic state of the legal industry, we stumbled on an interesting analogy. We were discussing the recent CT TyMetrix Real Rate report and the fact that the number one driver of differences in billing rates is a lawyer’s location. We concluded that law firms still live like its 2005 and base their billing rates on a lawyer’s comp instead of their value. So lawyers in NY and LA will have higher rates than those in Denver or Dallas. And this all hinges on the very standard market level of pay for new associates in each jurisdiction.
This lead us to the thought that law firms have been acting in an informal cartel. Previously I have written about the “Monopoly” of the legal profession, but in many respects “Cartel” is a better moniker.
The purpose of a cartel is controlling pricing such that commoditized products and services can be priced at non-commodity levels, enabling the realization of higher levels of profit. You see this behavior on the in-bound side of firms in how associates salaries have been set in the market. And you see it on the out-bound side in how billing rates were increased in a similar lock-step fashion over the past 20 years.
The legal industry has been able to support this informal cartel subject to demand increasing at a faster rate than supply. About 5 years ago this balance began to shift. The shift is a result of a greater supply of lawyers entering the market and the impact of new technologies. The Great Recession accelerated these forces, putting us in our current situation.
The crazy thing is that so many firms continue to treat the market as if the cartel is still in place. Once the economy started to turn-around, firms went right back to their former associate hiring and pay model. And they continue with their old-school compensation models. They only thing that hasn’t gone back to “normal” is the way they raise billing rates and bill hours in a relatively unchecked fashion.
Bottom-line this means firms are using the cartel model in how they managed the price of inputs, but they no longer control the price of the outputs. The results of this type of behavior are obvious yet remain elusive to many law firm leaders.
Ultimately all cartels breakdown under the strain of market pressures. Only under normal circumstances, the market players are aware when this has happened.

[Note: There has been an update on the status of the Archives Library that says that they will not be abolishing it. Please see the ALA Update.]

The Archivist of the United States (AOTUS), David Ferriero, wrote that the National Archives and Records Administration (NARA) is facing a funding situation where they are “Doing More With Less.” An 8.2% decrease in funding for FY2012 means some hard decisions have to be made, one of which is the abolishment of the National Archives Library.

Bernadine Abbot Hoduski, well-respected Government Documents Librarian, and founder of the Government Documents Roundtable (GODORT) in 1972, send out this email to the GOVDOC-L listserv, and I asked her if I could reprint it here to help get her message out about what happens to the actual material held in the National Archives Library. Bernadine points out something that we all know happens during economic downturns that cause governments to begin cutting services:

As we all know as librarians, libraries are often the first to be cut in an economic crisis. We also know that once the resources in these libraries are lost they are almost impossible to replace.

I’ve taken the liberty of including some links when possible, and placing some of her key questions in bold-face type, and hope that AOTUS would address these issues as soon as possible.


[Note: There is an update from ALA that seems to contradict the initial NARA memo. I’ve placed it at the end of this post. I’ll keep you updated if any new information comes out of NARA clarifying the closure and layoffs that were initially announce.]

Hello All,

The Archivist of the United States has issued Memo 2011-113, which announces the abolishment of the National Archives Library by the end of this fiscal year.

I went to the NARA site and found the Archives Library Information Center (ALIC) to find the number and jobs of the staff and the services provided. This center is heavily used by historians, genealogists and others. Check it out yourself.
The library is part of the by-law program run by GPO and is entitled to all the government publications issued through the GPO. The library collects publications such as phone directories and other publications that concern personnel. These types of publications usually do not go to depository libraries or if they are, they are discarded when the new edition is issued. NARA keeps those older editions and these are invaluable to researchers and genealogists as well as agency historians. Since some of the planning for the future of the depository library program has depended upon back up collections at NARA and LC and the national
libraries, it is important to know what will happen to the collections held by ALIC. 
  • Will [the collections held by ALIC] be kept by NARA and sent to other units or will they be discarded? 
  • Will librarians throughout the world be able to borrow those publications and will they be able to send researchers to NARA in DC to do research? 

The staff at ALIC have provided excellent service and have created on line tools to help researchers more easily find both government documents and other resources.

  • Who will provide this service once these librarians are gone?

It is important to know what will happen to RG 287 (This is the collection of several million government documents collected and cataloged by GPO. The collection was transferred from the Department of Interior in 1895 to GPO and was organized by Adelaide Hasse. It was transferred to NARA by GPO in 1972 so it would be permanently protected as government records). RG287 is under the control of NARA Legislative Archives. It is not clear where RG287 is housed and whether it is kept as one unit or scattered among various units of NARA. It is not clear as to who is providing service to this collection. It would make sense to transfer library staff most familiar with government documents to legislative archives so that the nation can continue to benefit from the expertise and knowledge of librarians at NARA. As we all know as librarians, libraries are often the first to be cut in an economic crisis. We also know that once the resources in these libraries are lost they are almost impossible to replace.

I have listed the names and positions of the library staff below along with the memo from the Archivist. Please send this message on to your state association listservs and other organizations.

Bernadine Abbott Hoduski

National Archives Library (ALIC) abolished – Archivist Memo 2011-113
7 positions to be eliminated:
Current Library employees:
  1. Jeff Hartley [Chief Librarian]
  2. Carolyn Gilliam [Reference]
  3. Randall Fortson [Reference A2]
  4.  Torin Pollock [Technician]
  5. Melissa Copp [Cataloger]
  6. Nancy Wing [Reference head A1] (Military)
  7. Tim Syzek [Reference (Military)]
  8. Marquetta Troy [Technician]
  9. Maryellen Trautman [Documents Cataloger-By Law] 
Bernadine Abbott Hoduski

AOTUS listed these links for more information on the budget for NARA and the plans that are in place right now:

[Update: From ALA Governmental Information Subcommittee]

New Post: “Update on the National Archives Library Information Center”
By Jessica McGilvray
—— Update on the National Archives Library Information Center
In the last couple of days there has been much concern about the status of the National Archives Library Information Center (ALIC).  The National Archives will be putting out an official statement on the issue, but in the meantime I was able to speak with David McMillen the External Affairs Liaison at the National Archives.  He assured me that the library is not closing and the collection would remain accessible by the public.  There are going to be changes to the library.  Due to budget constraints the National Archives and Records Administration (NARA) will be merging library services with other services.  This means that:

  • The library will remain open and staffed and public access will remain
  • The library collection will remain intact (with the exception of the bound serial set being moved because the library has purchased an online version).
  • Like most libraries facing budget cuts, acquisitions will be substantially reduced.
  • Seven positions will be reassigned, not laid off.  Some of those people may be providing library reference within a different unit, but it is too soon to say where people will be assigned.
  • The records management process with the Government Printing Office will not be affected by this merge.

Jessica McGilvray
To view this Post in Connect, go to http://connect.ala.org/node/131094.

It seems reality continues to encroach on the practice of law. Announced this week in the UK is “a bid to create the first solicitors franchise.” The idea is to create a standard platform of back-office systems and services and then franchise that out as a law firm platform to different locations and markets. The initial focus will be on “small private client law firms” which I read as more of a retail-law play.
IT people take note, “that key to the project’s success will be a software package ….” This suggests that technology has to be a key driver of efficient, standardized (read quality) legal services.
I am guessing the Legal Services Act is a driver or enabler of some sort for this idea, as it involves fee sharing on some level.
Good idea? Absolutely. This will drive competitively priced legal services in the market.
Will it fly in the US? Not yet, due to the fee sharing angle. But in my humble opinion, the US should be figuring the whole Legal Services Act idea out and replicating here. It’s either that or let the some other type of provider take over in the market.
I’m just sayin …