Image [cc] Vyperx1

We very often hear from bloggers on this site regarding the struggles associated with change and innovation.  Fear of failure, lack of inertia, protecting territories—all seem to be stumbling blocks that many firms face when initiating change.  It seems, however, some organizations have found a way to successfully encourage and nurture new ideas internally. 

I had the pleasure of speaking to Karl Florida, Managing Director of Small Law Firm Business Segments and Innovation Champion, at Thomson Reuters, about a new innovation program the company has instituted.

For many years (as many of us are well aware), the Thomson Reuters model has been to acquire business units and manage their growing portfolio.  More recently, the model has shifted, with a focus on knitting the units together to drive more organic growth between them. 

One way Thomson Reuters is accomplishing this is by establishing a cross-unit Innovation Task Force (ITF) and a Catalyst Fund to support new ideas.  Thomson is looking for great ideas from within and establishing a system that rewards creative thinking to further serve their business goals.  How it works is this:  On a monthly basis, ideas can be informally submitted across the company via a home-grown tracking system (no business plan is required, but there is a template to gather certain information).  There are a small number of administrators who collect the proposals and submit them to the ITF.  The ITF prioritizes the ideas, develops Proof of Concept (POCs) and sends the top 5 to a C-level suite of decision-makers. They, in turn, determine if any will move forward into the funding stage.   The appropriate business units and a business sponsor are chosen, and a prototype is created and tested in-house and in the market.  If successful, the product goes to market based on a timeline.  The entire process is tracked through each stage of the pipeline process. 

While the program is only a few months old, it is already gaining in popularity.  Some of the areas where ideas are being generated are Big Data analytics in relation to law, scientific, tax and financial sectors, data visualization tools, regulatory compliance and (wait for it), wearable tech! 

Karl tells me Thomson Reuters is finding the most opportunity in the space between units.  He compared this to the genius of a Reese’s Peanut Butter Cup.  You have chocolate, which is awesome on its own, and you also have peanut butter, equally wonderful.  But put them together, and well, then that is where the magic happens. 

While Thomson Reuter’s program appears mostly devoted to product development, law firms could certainly take advantage of this sort of model to solicit and promote ideas from within regarding client service and delivery, along with development of administrative efficiencies.  The model, along with variations, allows and in fact, encourages a small, but safe space (with funding!) to experiment with new ideas without the associated pressure and demands to be “the right” solution out of the gate.

FYI, if you want to learn more about innovation tournaments, I highly recommend the book, Innovation Tournaments:  Creating and Selecting Exceptional Opportunities, by Christian Terwiesch and Karl Ulrich (hat tip to CCH, for giving me the opportunity to see Karl Ulrich in action).  Because don’t we all need some more peanut butter cups?

In the last several weeks, I have been called, emailed or otherwise pitched to by a variety of solutions providers. I have to tell you despite having a great memory, I can’t remember a single company name nor what any of the companies who wanted my firm’s money do.    The reason I can’t recall any of those fine details is because I was too put off by the approach, lack of planning and general disrespect for my time that within two minutes of each call, I zoned out.  I have also had a series of great sales pitches in the past while, where halfway through the call I wanted to purchase the service or product regardless of the price, because the person pitching to me understood my need, met a challenge or was generally on the ball. I get that sales can be a tough a grind and I generally applaud the tenacity and bravery of sales people.  But to the sales people who fall in the first group, I offer this:

Do your research
There is no excuse today to not research targets. Ten minutes on LinkedIn, Facebook, even the good ol’Google should provide insight into me as an individual, my role with the firm and how your product or service might be work for me.  Failing that, ask me what I do in the realm of whatever you are trying to tell me and then listen to my answer.  Use my answer to probe further or offer up a synergy of some kind.  I recently had a sales person fail at this exercise when, after hearing my answer to her question, responded with (and I am loosely paraphrasing) “oh, well this product is not for you then, we have better success with firms who want to be innovative”. I hope she wasn’t suggesting that I am the poster child for stagnant approaches to laws firms. A quick read of my LinkedIn profile suggests otherwise, I think. I shouldn’t have to say it, but don’t insult your prospective clients either. 

Study the Site
As it happens, laws firms, like any businesses today, have websites.  The websites, like the firms, vary in their sophistication but at the very least the sites will tell you something about a firm. Visit that site before you pick up the phone. Don’t, for example, try to sell a litigation boutique access to your corporate database or a Canadian firm exclusively US content without making the case for why I should listen beyond the initial pitch.  If a firm very obviously can’t benefit from your product or service don’t pick up the phone or draft the email. 

Avoid Jargon
I work in Marketing we invented catch phrases and slogans. Please use your own language when you call me to tell me about your product or service. I don’t deal well with jargon or salesy chatter that describes specifically nothing. Don’t tell me what “law firms” all over are doing or are interested in, as it assumes that I don’t know my business and that I am relying on people like you to tell me what I need. I don’t.  I do my own research, but if you were to call me and tell me how another firm in a similar geographic area or with similar practices is benefitting from your product or service, I am all ears. 

I love learning about new products and services in the market, I thrive on hearing how other firms are using products to their competitive advantage, or to increase efficiency. Don’t stop contacting me –  ever.  All I ask, is that before you do call or email me, please spend a bit of time doing your homework if you want me to listen. 

Previously I have ranted about how billing task codes are not magic pixie dust. There seems to be a broad perception that task codes will solve pricing and legal project management problems for all practices. “If we only had task codes for [insert type of work], we would know how to price this.”

My general feeling is that A) the task codes were not designed to address this need. B) The use of task codes is highly inconsistent, so the data is poorly structured. And C) Even if the data was in good shape, it won’t provide magic pricing and budgets.

Recently I was ranting on this subject with a friend who works in the e-billing space. I was especially going off on how the task codes were not intended for solving the pricing problem. The e-billing person made an offhand comment about the current state of the use of task codes for their actual intended purpose. This got me thinking. So I checked the task code web site to better understand the actual intent of the development of task codes and the need for a standard set of them.

There was not much about intent, but here’s what I found:

In the mid-1990’s major US law departments and insurers wanted to better understand the services provided by outside counsel. 

As part of this effort, it was decided that electronic invoice time entries should be task-based and aggregated by type of work performed, resulting in the possibility that multiple time entries could result from the services performed in a single day on a matter. 

 What occurred to me is that the task codes have not even met the original purpose. My e-billing friend’s comment centered on the fact that clients use their own unique task codes and that lawyers need training in order to get effective use of them. And we know how often lawyers go to training. Rarely.

I read Outside Counsel Guidelines (OCGs) on a regular basis and keep an eye out for things like task codes and their use. Just last week I read one where they do not even use ‘L” codes. They have their own letter.

What I see is very inconsistent use of task codes by clients, compounded by inconsistent application of the codes by law firms. Result: Serious questions about whether task codes have even met their intended purpose.

Yet somehow task codes are poised to solve a problem they weren’t built to address.

Good luck with that.

As the saying goes, “Everything’s bigger in Texas.” That phrase also applies to the State Bar membership benefits. The State Bar of Texas has agreed to add Fastcase as a member benefit on top of its already existing Casemaker access. This makes it the first Bar in the country to offer both services. In addition to adding Fastcase, the State Bar of Texas increased the level of subscription to Casemaker to include the premium services of Casecheck+, CiteCheck, and CasemakerDigest to the member benefit. That is a major coup for the Bar.

Fastcase’s access will depend upon the size of your firm. For those under 11 attorneys, you will have access to the premium Fastcase database (all states & fed), for those 11+ attorney firms, you will have access to the Texas plan. Everyone will have access to the mobile apps and to the HeinOnline integration for the covered material.

It is a great day for the State Bar of Texas and its members. Read the Fastcase and SBOT press releases below for more information.

To log in to this free benefit, members will visit the State Bar website at http://www.texasbar.com and log in with their bar number and password. The service is also available via the TexasBarCLE website at http://www.texasbarcle.com/.

PRESS RELEASES

State Bar of Texas adds Fastcase as free legal research benefit alongside expanded Casemaker service

AUSTIN — Texas attorneys now have unprecedented free access to two nationwide legal research services.

The State Bar of Texas has signed an agreement to provide its members free access to Fastcase, one of the nation’s most popular legal research systems. Texas attorneys will continue to receive free access to the Casemaker legal research service, along with expanded premium Casemaker services at no cost. The State Bar of Texas is the first and only bar association to offer its members free access to both Fastcase and Casemaker.

“We are thrilled to offer this free research tool as an additional benefit to Texas attorneys alongside our popular Casemaker service,” said Trey Apffel, 2014-15 State Bar of Texas president. “Part of our mission at the State Bar of Texas is to provide superior online resources and benefits to members which help them better serve their clients. We believe this agreement helps us achieve that.”

With the new Fastcase partnership, 27 state bar associations and more than 800,000 lawyers now have a subscription to Fastcase. The service usually costs $995 a year for an individual subscriber, but State Bar of Texas members will receive two great Fastcase benefits for free, effective immediately.

Firms of 11 lawyers or more will have free access to Fastcase’s extensive Texas Plan, including opinions of the Supreme Court of Texas and courts of appeal back to 1 Tex. 1 (1846), U.S. Supreme Court opinions back to 1 U.S. 1, Fifth Circuit opinions back to 1 F.2d 1, the U.S. Code annotated, the Texas Statutes annotated, the Texas Constitution, and 70 other Texas-specific legal research libraries.

Solo practitioners and firms of 10 lawyers or fewer will have access to Fastcase’s Premium Plan, including all libraries in the Texas Plan, plus nationwide coverage from state and federal courts, state statutes and administrative regulations, as well as court rules, constitutions, and other valuable libraries. To access the scope of coverage on the Web, visit www.fastcase.com/whatisfastcase/coverage.

The agreement provides State Bar of Texas members access to Fastcase’s intuitive legal research tools, training webinars and tutorials, mobile apps, and live customer support. The free member benefit has no restrictions on time or number of transactions and includes unlimited printing, unlimited reference assistance, and unlimited customer service.

Texas attorneys will also have access to annotated statutes from other states, Fastcase’s annotated U.S. Code, transactional access to newspaper articles, federal court filings, and legal forms, and transactional access through HeinOnline to the largest collection of law reviews in the world.

“We’re excited to offer Fastcase’s powerful research tools as a free benefit to Texas lawyers,” Fastcase President Phil Rosenthal said. “Providing the best legal research tools to Texas lawyers will improve the administration of justice and level the playing field for clients. We’re proud to partner with the State Bar of Texas in this effort.”

Casemaker’s expanded offerings include access to premium services (Casecheck+, CiteCheck, and CasemakerDigest) at no cost for all members. These services were previously available only to paid subscribers. Casemaker continues to provide the Administrative Code, Attorney General Opinions from 1947, Texas Case Law since 1886, State Constitution, Federal Court Rules, Texas Session Laws from 1995, State Court Rules, Texas Revised Statutes, including annual archived versions since 2001, as well as a robust federal library.

Casecheck+ is a negative citator system built into Casemaker that validates your research and identifies whether or not your case law citations are still good law. CiteCheck allows researchers to upload a brief (or other document) to Casemaker which quickly creates a table of the cases found, checks the latter case history of the cases cited, and displays any negative later case history. CasemakerDigest delivers daily summaries of state and federal appellate cases classified by practice area.

Casemaker has also added its new Subsequent History feature especially for Texas attorneys. At a glance, researchers can now determine writ and petition history. Casemaker’s new statute annotator feature is now available to Texas attorneys as well. At a click, researchers can quickly get an accurate picture of how the courts have cited, applied, interpreted, and construed each statute.

“We are proud to have provided the Texas lawyers with Casemaker’s online legal research for the past 10 years,” Casemaker CEO David Harriman said. “Our experienced legal editors are committed to providing the most up-to-date cases and statutes available anywhere.”

— — —

The State Bar of Texas is an administrative agency of the Supreme Court of Texas that provides educational programs for the legal profession and the public, administers the minimum continuing legal education program for attorneys, and manages the attorney discipline system. For more information, follow the State Bar on Twitter @statebaroftexas, like the State Bar on Facebook at www.facebook.com/statebaroftexas, or visit www.texasbar.com.

Fastcase is a leading legal publisher focused on smarter legal software that democratizes the law, making it more accessible to more people. Using patented software that combines the best of legal research with the best of Web search, Fastcase helps busy users sift through the clutter, ranking the best cases first and enabling the re-sorting of results to find answers fast. Founded in 1999, Fastcase has more than 800,000 subscribers from around the world. Fastcase is an American company based in Washington, D.C. For more information, follow Fastcase on Twitter at @Fastcase or visit www.fastcase.com.
Since 1999 Casemaker has operated with the single purpose of providing attorneys with affordable access to quality legal research. The company has invested heavily in developing the finest editorial team and state-of-the-art technology to increase speed and search functionality. Attorneys have a product that stands toe-to-toe with the traditional and expensive legal research providers. Casemaker offers a Google-like search engine, accurate citation services, and many organizational features that make research that much faster, easier, and reliable. Attorneys across the United States are using Casemaker’s simple high-definition search on a daily basis to find relevant cases, codes, statutes, and more, fast. Casemaker is based in Charlottesville, Virginia. Follow Casemaker on Twitter @casemakerlegal or Facebook at www.facebook.com/casemakerlegal.  

State Bar of Texas Launches

Free Legal Research Benefit with Fastcase

New Visualization Tools, Mobile Apps, Annotated Statutes for Members

AUSTIN, TX AND WASHINGTON, DC (June 26, 2014) – The State Bar of Texas today announced that it has signed an agreement to provide its members free access to Fastcase’s nationwide legal research system, effective immediately.

Headquartered in Washington, D.C., Fastcase is one of the nation’s most popular legal research services. Twenty-seven state bar associations have subscribed to Fastcase, as well as scores of the nation’s largest law firms. With this partnership, more than 800,000 lawyers have a subscription to Fastcase, many through their state bar association. The service ordinarily costs $995 per year for an individual subscriber, but starting today, State Bar of Texas members will get two great Fastcase benefits for free.

Firms of 11 lawyers or more will have free access to Fastcase’s extensive Texas Plan, including opinions of the Supreme Court of Texas and courts of appeal back to 1 Tex. 1 (1846), U.S. Supreme Court opinions back to 1 U.S. 1, Fifth Circuit opinions back to 1 F.2d 1, the U.S. Code annotated, the Texas Statutes annotated, the Texas Constitution, and 70 other Texas-specific legal research libraries.

Solo practitioners and firms of 10 lawyers or fewer will have access to Fastcase’s Premium Plan, including all libraries in the Texas Plan, plus nationwide coverage from state and federal courts, state statutes and administrative regulations, as well as court rules, constitutions, and other valuable libraries. You can access the scope of coverage on the Web at www.fastcase.com/whatisfastcase/coverage.

The Fastcase benefit is offered in addition to the State Bar’s Casemaker benefit, expanding members’ free legal research options.

“We’re excited to offer Fastcase’s powerful research tools as a free benefit to Texas lawyers,” said Fastcase President Phil Rosenthal. “Providing the best legal research tools to Texas lawyers will improve the administration of justice and level the playing field for clients. We’re proud to partner with the State Bar of Texas in this effort.”

SBOT members will receive access to Fastcase’s intuitive, smarter legal research tools, training webinars and tutorials, industry-leading mobile apps, and live customer support from members of the Fastcase team. The member benefit has no restrictions on time or number of transactions, unlimited printing, unlimited reference assistance, and unlimited customer service included for free.

The service also includes annotated statutes from other states, Fastcase’s annotated U.S. Code, transactional access to newspaper articles, federal court filings, and legal forms, and transactional access through HeinOnline to the largest collection of law reviews in the world.

“We are thrilled to offer this free research tool as an additional benefit to Texas attorneys,” said Trey Apffel, 2014-15 State Bar of Texas president. “Part of our mission at the State Bar of Texas is to provide superior online resources and benefits to members which help them better serve their clients. We believe this agreement helps us achieve that.”

To log in to this free benefit, members will visit the State Bar website at http://www.texasbar.com and log in with their bar number and password. The service is also available via the TexasBarCLE website at http://www.texasbarcle.com/ .

The Fastcase service will be free to members of the State Bar of Texas, but it is not a discount legal research service. Fastcase has pioneered the smartest legal research tools in the market, with integrated citation analysis tools, data visualization maps of search results, and the first legal research apps for iPhone, iPad, and Android devices. The service also includes Bad Law Bot, the first big data service to identify negative citations to judicial opinions.

Fastcase has gained strong momentum in the legal research market and continues to challenge the norm in legal publishing and legal technology. Fastcase was voted No. 1 in Law Technology News’s inaugural Customer Satisfaction Survey, finishing first in seven out of 10 categories over traditional research providers Westlaw and LexisNexis. Fastcase has introduced new opinion summaries, and has been named to the prestigious EContent 100 list of leading digital publishing and media companies alongside Google, Amazon, Apple, and Facebook for three years in a row.

In 2010, Fastcase was the first company to launch an app for legal research, and later, the first company to launch an app for iPad. The American Association of Law Libraries named Fastcase’s integration with HeinOnline its 2014 New Product of the Year, and its app for iPhone the 2010 New Product of the Year. In 2011, Rocket Matter named Fastcase’s apps for iPhone and iPad the Legal Productivity App of the Year and the company furthered its mobile market presence by debuting the Fastcase for Android app in 2012. Lawyers on the go appreciate Fastcase Mobile Sync, which allows full integration of its mobile apps with the desktop version of Fastcase.

About the State Bar of Texas

The State Bar of Texas is an administrative agency of the Supreme Court of Texas that provides educational programs for the legal profession and the public, administers the minimum continuing legal education program for attorneys, and manages the attorney disciplinary system. For more information, follow the State Bar of Texas on Twitter at @statebaroftexas or visit www.texasbar.com.

 

About Fastcase

Fastcase is a leading legal publisher focused on smarter legal software that democratizes the law, making it more accessible to more people. Using patented software that combines the best of legal research with the best of Web search, Fastcase helps busy users sift through the clutter, ranking the best cases first and enabling the re-sorting of results to find answers fast. Founded in 1999, Fastcase has more than 800,000 subscribers from around the world. Fastcase is an American company based in Washington, D.C. For more information, follow Fastcase on Twitter at @Fastcase or visit www.fastcase.com.

This morning, I had the honour of spending half a day with the famed Daniel Goleman exploring emotional intelligence, focus and leadership as a part of the CEO Global Network – Great CEO Speaker Series.  The room was filled with C-Suite executives from a broad range of backgrounds and professions.  Of course, all I could think about was how to apply the theories and methodologies discussed to the practice (or business) of law. 
Dr. Goleman introduced the concept of “mindfulness”, a meditative practice that originates in Buddhism, but has gained popularity as a distinctive method for managing emotions.  The participants in the room were each asked to close their eyes and focus on their breath for a moment or two, and if their minds wandered, to bring the focus back to breath again.  It is believed that by being able to focus for extended periods of time, over the long term, you will be able to react to stress better and recover more quickly from emotional episodes or outbursts.  Imagine if it got so heated in a courtroom that the judge made everyone stop and focus on their breath for a moment? Or if midway through a tough take-over bid all parties stopped to meditate rather than allow their emotional reaction to prevail?  It sounds a bit foolish but the idea is to train the brain and its related muscles to resist distraction, stay focused and thereby manage the stressful situation more effectively.  Only though practicing when it is not necessary can you rely on the muscle function to be there when you actually need it.  I think six minute meditation should become mandatory in firms, keeping lawyers focused can only be a good thing for the bottom line.    
As important as “mindfulness” is, the concept that resonated most with me from a law firm perspective is the notion of “flow”, and how when in  “flow” or when focused on a task at hand, people are at their peak performance. Great leaders will learn to read those they lead and encourage 
them into a state of flow.  Flow is described in four parts: 
  1. Clear goals
  2. Flexibility – ability to change and adapt
  3. Immediate feedback  – it is believed that a person focused on a task will respond better to feedback during the task, as it is happening and this will make success that much more achievable.
  4. Matching of goals with skills
As we’ve seen throughout the legal community (3 Geeks included), over the last several years and specifically, in the last six months, there has been a great deal of talk around legal project management, AFAs, increasing productivity and process improvement.  Essentially, there’s been talk of wanting to increase the flow between lawyers and clients.  Consider the four parts above in this analogy: 
  1. Define a clear mandate of work or scope for the firm, no periphery or ancillary legal work
  2. Lawyers need to be able to adapt to the changing environments of the market and their clients as the mandate unfolds
  3. Lawyers and clients both need to keep one another apprised of the progress throughout the process with an open and honest dialogue
  4. The firm needs to staff client files with the appropriate balance of expertise and experience to meet the client needs effectively and efficiently. 
If we can achieve the four steps above on every client file, then client service will be in “flow” or at peak performance.  Efforts will be focused and outcomes will be (hopefully) successful for everyone involved.  Sounds utopian, but I believe it is possible, it just make take some mindful work to get firms working and focusing on these steps consistently.

Moving from four to three, great leaders according to Goleman are composed of equal parts:

  1. self awareness,
  2. people or social awareness and;
  3. a wider public awareness. 
I would argue that great law firms are much the same.  First, they need to understand what kind of firm they are and where they exist in a market.  Secondly, firms need to be socially aware of their client interactions – from billing to social events, from blogging to in-person meetings, from CLE and training to regular filings and other client touch points.  And finally, firms need to be aware of the wider world in which they and their clients operate.  As a CI practitioner who often describes my role as bringing the outside world in, this third pillar of leadership particularly inspires me as it positions CI in a leadership context.  Put another way, the firms that will lead the race for client service and  client engagement, will know their role, know their audience, and know their context.
Goleman ended his talk with some tips on how to improve emotional intelligence. These tips can equally apply to firms wanting to increase their wallet share. The tips taken together are a blue print for success and despite their simple message are actually quite difficult to achieve.  Improve emotional intelligence by: articulating a goal, planning for that goal, change habits to meet that goal and making yourself (or your firm) accountable to someone in achieving those goals.  It sounds very basic but when you start to look at even defining a single goal or strategic objective it can become very difficult, and that’s before you tackle setting a plan, acting on that plan, or changing habits (billing by the hour??) in support of that goal.  
Despite all the technological advancement of our time and our ability to do work smarter and faster,  Goleman reminded us several times that the human brain is built for social interaction and the only way to spread enthusiasm is in person.  So while we work on our process improvement plans, firm AFAs, as well as personal and professional mindfulness, always remember to get out of your offices to exploit the best of your firm and explore the parts that may need some tweaking. 
Image [cc] Free 2 Be

Marlene Gebauer, in a guest post, takes me to task for my recent post on how the law firm model is not broken. Based on the comments I received from that post, I told her to “get in line” if she wanted to take a shot at me, but then I decided to hand her the microphone.

 Enjoy.

Every Legal Project Manager who read Toby’s last post on “The Business Model Is Not Broken” is saying a big THANK YOU right now. They are pretty much guaranteed employment for life based on his musings.

I agree that financial management of legal practice, the “cost of doing business” if you will, is extremely important-whether that be in terms of hourly billing, alternatives fees or collections.

But a law firm is not exactly an assembly line for automobiles. In order to create internal efficiencies, automotive companies did create assembly lines and automate. Which many argue we can and should do at least in certain instances of legal practice. But what automotive companies also did was measure the average time it took to complete each task and communicate that to its employees. So the internal standard was established and those who purchased cars benefit from the lower cost and faster delivery times.

Law firms may have a difficult time establishing the metrics delivered in the automotive industry because they deliver a service, not a product. Law firms, billing hourly, have to standardize time entry by time increment (easy) and task code (not so easy) to determine how long a specific task will take. Some may say that alone is impossible, but let’s play devil’s advocate and say it is doable. People who purchase cars don’t ever see (or likely care about) the internal production metrics. In contrast, legal clients review and have a say about those time entries-and they care about them a great deal. A law firms’ billing classification system may not jive with a client’s. A client may need certain sorts of coding to correspond to their own internal systems. While a firm can adjust to a client’s needs, if done significantly, the internal efficiency metrics become meaningless because you are no longer comparing apples to apples. If that happens I guess you just hire the big guy with the cat o’ nine tails.

Image [cc] schoeband

Recently I participated in a think-tank discussion about how the law firm business model is broken. I kept quiet for the first part of the discussion (for those who know me, this was not easy). People in the room attacked most aspects of how law firms are run, which is popular and fun these days. Truth be told – I partake in it as well on this blog. But at a point I couldn’t hold it in any longer and blurted out: The business model is not broken.

Everyone turned and gave me the ‘who farted’ look (HT to Lincoln Mead for that descriptive phrase).

Which brings us to the question: What is the law firm business model? As I see it, it’s a
professional services firm in a partnership (or partnership-like) model where the owners actively participate in the delivery of services. Law firms sell the time and expertise of their people at a profit. Firms utilize various pricing approaches, more heavily focused on a time and material approach (a.k.a. the billable hour).

So in the conversation, I put forth the statement: What is broken about that?

One example thrown out was how the billable hour was broken since it motivates bad behavior. As in it motivates lawyers to spend excessive time performing various tasks.

My counter: the billable hour motivates hard work. What is wrong with that? Last time I checked, most ‘business models’ reward hard work, whether it’s spending extra time working or driving more value through creativity.

I suggest the billable hour is not a bad or broken aspect of the business model. But there is something missing: Leadership and Management. By this I mean that firm management has not done a good job of setting expectations around how hours can be accumulated. At the truck assembly plant, workers can increase their comp by taking extra shifts. However they are not the ones deciding how much effort they can apply to each task. If they take twice as along to install a wheel, instead of getting twice as much work credit, they probably get a reprimand since they are slowing down the assembly line.

Law firms need to adopt such an oversight function into their processes and practices. Many firms are pursuing project management as a means to accomplish this.

The point here is that although law firms are under increasing pressure to lower the cost of delivering their services, the basic business model is fine. What is needed is adoption of more business-like practices within that model. In the 70’s and 80’s the business model of American car manufacturers was not ‘broken.’ Instead they needed to adapt the practices and process to an increasingly competitive market. They installed automated assembly equipment to cut their cost of producing cars. They did not change their basic business model. They are all still corporations, designing, building and selling automobiles.

I’m not sure exactly what type of business model law firms would adopt if the current one is broken. Maybe we should set up a dealership network and offer incentives at the end of the year to clear inventory. Or not.

The model is not broken. Firms just need to evolve into a mode where they continually adapt to a changing market.

And if you are wondering; No – I did not break wind.

In Part One of this series, we talked about how pricing is pulling towards the compensation challenge for law firms, based on how pricing is interwoven with profitability. In this next section we put forth a “Straw Man” for how compensation might change to better motivate profitable behavior by law firm partners.
Part Two
A Modest (and High-level) Compensation Proposal
What follows is a possible approach to developing a next-generation comp system for a law firm. This approach breaks down comp into a base, plus three different reward or bonus buckets, allowing a firm to reward all types of profit enhancing behavior from partners. The challenge for this system, and any system like it, will be striking the right balance between the three reward options. As previously noted, the balance will need to protect current revenue along with encouraging new revenue. And it will need to properly reward key partners, to retain them within the firm.
Baseline Worker Comp Reward
First – law firm partners need to continue to function as workers. Clients hire them because of their expertise. So any comp system will have to first account for that worker aspect. This proposed model sets a base level of billable effort (a.k.a. work), that all partners should reach. The exceptions (there are always exceptions) might be partners with leadership and administrative responsibilities.
Further refining this concept, we might divide the base level of compensation into two or three levels, where partners are rewarded as workers. This reflects the value of partners as workers and should likely reflect their experience levels. For argument’s sake, let’s set this threshold at 1000 hours. And for their 1000 hours, a firm would set base comp of at three levels (recognizing junior, mid-level and senior partner experience), so if all the partner does is bill (and collect) on the 1000 hours, they will be paid the base amount relative to their assigned level. This base level might be treated as a “labor cost” in a firm’s profitability model.
Of course, firms will set expectations that the base is not enough. Any partner functioning only at this level will likely be let go in short order since they would be only be a worker performing at a substandard level of effort.
Above the Base
Our theoretical firm has three options for a partner to increase their income (and keep their jobs).
Reward Option #1 – Be a better worker.
In this option, the partner would increase their billed and collected hours well above the 1000 hour mark. Our future firm might set a per hour ‘bonus’ for each partner level. Partners who fit solely into this category for comp might be high-level subject experts, such as first-chair trial lawyers, high-value niche regulatory experts, or others with higher effective billing rates.
There will be long-term challenges with partners who only function in this role, as they are truly serving in just a worker role. They may be highly specialized, high-demand workers, but they are not actively expanding the business. Consider a star player on a NFL Team. They will be paid very handsomely, but they don’t make decisions about the business.
Reward Option #2 – Maintain an existing, valuable client relationship
Many partners at firms inherit institutional clients of the firm. Keeping these clients happy has tremendous value. Although in a new model, keeping this client work profitable will be equally, if not more important. A client that brings in $2mm in fees might sound appealing, but if it cost the firm $3mm to serve that client, there is an obvious problem. So the compensation rewards for this option will be tied to maintaining revenue levels and improving the profitability of the revenue.
Here the comp reward can be tied to revenue and profit levels for existing clients. A partner pursuing this comp option will want a happy client and well-managed work. They will be concerned about practice management resources such as project management and practice innovation, and will be pushing for greater efficiencies and new value propositions in service offerings.
Reward Option #3 – Bring in new work
New work will come from both existing and new clients. From existing clients, this might be cross-selling new types of work or significantly expanding work in a given practice. In both circumstances, the revenue will need to be profitable or have the potential for profit. New work may initially be profit-challenged, but ultimately must fall within a firm’s acceptable level of profit. Of course, adding new, profitable revenue to a firm will have the highest value and be reflected in the comp systems as such.
Partners pursuing this option for comp will demand business development resources and differentiated service offerings. They will want to see efficiency enhancing efforts implemented to keep the services cost competitive, although they may not be the ones personally driving those innovations.
Combinations
Depending on the type of practice, a partner might enhance their comp through a combination of the three options. For instance, they may choose to bill a lot and bring in new work. In any event, partners who work hard across any of our options can be properly rewarded. But those that expand the business and enhance profit will be rewarded at the highest levels.
Note: For those partners still living in the old world (e.g. Tax lawyers), this new model will still be able to properly reward their efforts. Those in the old world can still be getting rate increases and still be getting work by being high-level subject matter experts. They would see rewards from all three options and thus be properly compensated.
This reward schema is different from many current law firm comp systems, as they tend to place first emphasis on a partner’s “worker” behavior at the highest value. “Hard work” is primarily perceived as having many billable hours. As billable hours is only one driver of law firm profit, the new models, like the one proposed here, will need to move away from that narrow thinking. Hard work comes in many other ways than just billing time. This new approach recognizes and rewards all of those efforts.
The Leap of Faith?
Regardless of the changes firms make to their comp systems, they will need to find some way to balance out how they reward various profit enhancing behaviors by their partners. They may choose to place greater emphasis on one option or another, but to have an effective comp system, they will want to include all three. Leaving one out and assuming or hoping their partners will still engage in that type of behavior is ill advised. Current comp systems reward “worker” behavior at a high level and as a consequence, partners will focus on that effort to the exclusion of most of the others.
As a former Knowledge Management (KM) professional, from personal experience I can tell you that partners (and lawyers in general) will not engage in efforts that do not impact their comp. One example is CRM. Law firms installed expensive enterprise software systems expecting lawyers to take the time to utilize them, adding valuable client data and leveraging that to bring in more work. Lawyers, for the most part, did not participate. The moral of this story is firms should not expect changes in behavior from lawyers unless they create a clear economic incentive for that change.
Where does that leave us? First – the traditional law firm compensation systems reward behavior that is outdated. They focus on rewards for hours and revenue. They tend to reward partners who bill a lot of hours, along with partners who bring in revenue, regardless of how profitable that revenue is. In today’s market, those rewards are not sufficient to drive profitable partner behavior. Innovative firms will start altering their compensation systems to reward partner behavior that drives a profitable practice in this changing, competitive market.

In this two part series, we will look at how the legal pricing role has been drawn into the profitability role and is now being pulled towards the compensation side of law firms. From there we will apply the knowledge being gained from pricing and lay out a possible future compensation approach focused on motivating profitable behavior by law firm partners. Throughout this discussion we will look at the pitfalls of making such a change, and not making any change.

Part One

As the pricing role has been pulled into the sphere of law firm profitability, many times that pull continues on over into the compensation arena. As noted in the recently published The Law Firm Pricing Report, pricing is a role that takes center stage for profitability, such that the pricing function many times becomes the voice of profitability in a firm. And once profitability is understood within a partnership’s ranks, questions quickly rise about its potential role in compensation.

Discussed at length in the Report is the broader challenge of law firm profitability. The challenge arises since law firm partners (in the general use of the term) are both owners and workers. Any profit methodology needs to tackle the issue of how you treat partner compensation in relation to profit. Is it treated as all profit, or entirely as a labor cost? Or is it split between the two in some fashion? Whichever approach a firm takes, this first pass highlights the relationship between profit and compensation, which in turn makes it clear how pricing will be drawn into the compensation dialog as it evolves.

And the dialog about profit and compensation will definitely be evolving – and as importantly, ongoing. The underlying goal of most compensation efforts, especially outside of the legal market, is driving value and profitability. Compensation should motivate profit enhancing behaviors and should always be adapting to changing market conditions. Therefore a prerequisite for firms is sending a clear and consistent profitability message to its partnership. Without a clear understanding of profitability, a firm cannot expect any compensation system to properly motivate profitable partner behaviors.

This law firm profit message centers on a shift from the old to the new. The old profit discussion was about hours and revenue, since that was effective at increasing profits. However, the market conditions have changed, as in there is no longer increasing demand and low price sensitivity. Under flat demand and growing price sensitivity, the new discussion needs to be a broader conversation about revenue and profit. Prior to 2008, hours and revenue were enough to drive profits. But since then rate increases are down, realization against those rates has dropped from 94% to 84% and the utilization of law firm lawyers has also dropped (increasing the cost per hour of lawyers to the firm), ‘hours and revenue’ is no longer effective in driving profit.

When developing a “revenue and profit” comp system, one should keep in mind the Law of Unintended Consequences. Comp motivates behavior, which means there is always the problem of unintentionally motivating counterproductive behavior. Whenever a system is created, you immediately create incentives for people to game the system to their individual benefit. Although a scary prospect when changing comp systems, firms should realize this ‘gaming’ is already happening under current comp systems. It’s just that the firms are accustomed to the current gaming efforts and have in place checks and balances for tempering those efforts. New comp systems will need to evolve to develop another set of checks and balances to keep ‘gaming’ efforts under control.

The Legal Twist

In many respects, next generation comp systems will need a component that functions along the lines of traditional sales comp systems. This aspect will need to carefully balance protecting current revenue and profit, alongside encouraging new revenue. For those who have been involved in designing sales comp systems, this is no easy task on its own. But here’s the Twist – law firms have an added a degree of difficulty, due to their owner / worker conundrum. Sales people are rarely also front line workers. They do not build the widgets they sell. In contrast, law firm partners need to be rewarded as both workers and salespeople. Both of these efforts have value for firms, but they have a different kind of value. Comp systems will have to balance how each behavior is rewarded.

Caution

Lawyers, being Type-A personalities, tend to see things in black and white. Profit lends itself to such viewpoints. Under this thinking, profit is seen as an absolute. Practices and clients are either good or bad. As an example, a partner might see all profit below average as bad (or even failing). But profit is a mental construct and can be viewed in many different ways. For instance, costs can be calculated on either a budgeted level or an actual level. Which approach used depends on the circumstances and goals. So firms also need to take into account how they communicate profit in relation to comp. Instead of being a black and white issue, profit should be communicate as having a healthy range and that the goal is increasing profits across that range. In other words, instead of using profit as a stick when it comes to comp, it is better used as a carrot.

Of course firms should fully expect some bumps in the road as they begin to transition to different compensation systems. Effective change management will be a necessity, since changes in comp impact the wallets of those involved. When wallets are involved, firms should expect strong reactions and proactively move to address those. Firms should also be ready to make thoughtful adjustments to comp systems. I say “thoughtful” and not reactionary. Be prepared to adapt to core concerns, but be very careful about reacting to individual partner complaints.

Oh yeah – and one more challenge – some practices still function just fine in the old world (e.g. tax and bankruptcy) so new systems will also need to account for that.

In Part Two of this series, we will explore a possible next-generation law firm compensation methodology. 

Inspired by recent events.

Dewey said to Cheatum, “What ever shall we do?
Our book is getting slimmer and I haven’t got a clue
How to run a proper business, you know, one that still makes money?
We can’t just raise our rates… stop your laughing. It’s not funny!”

“Silly Dewey, how you worry!” chortled Cheatum through his drink.
“There’s no problem we can’t tackle with a good and proper think.
We’re the brightest and the smartest and by far the best paid too,
We’ll just put our heads together and we’ll figure what to do.”

From across the polished table Old Man Howe rose to his feet.
Which caught them by surprise, as he never left his seat.
This they knew was bound to be one of his classic epic speeches.
Howe began with, “Don’t ya know the depths t’which ethics reaches?”

Dewey stared into his glass and Cheatum smiled broadly.
“One tool my friends will always save the righteous and the godly!”
Howe barked his words with fervor and a bit of indignation,
“There’s no problem can’t be solved with just a tiny publication.

Let me see here, what’s the trouble causin’ you boys such distressin’?
You’re belly achin’ and wallerin’! It’s downright darn depressin’!”
“You see, sir,” started Cheatum, in his smarmy weasel voice,
“There’s all these people coming by to tell us we’ve no choice

But to change the way we’ve done things since time immemorial,
And frankly, sir, some of them’s becoming dictatorial.
How dare these non-attorneys tell us how to run our firms!?
Since when do JD Yale-ies take advice from State School worms!?”

“On the other hand,” said Dewey, “There might be something to it.
The world is clearly changing and maybe we should do it…
Change… I mean,” choked Dewey as Howe’s gaze began to burn
With the fire of holy terror at his colleague’s faithless turn.

“Noooooo!” roared Howe, “Cheatum’s got the right idea!
No non-attorney’s ever gonna call the shots ’round he-yah!”
Some staff began to cower and back away from all the clamor.
This attorney wields his ethics, like a carpenter, a hammer.

“I’ll tell you what we’ll do, to keep the riff-raff in their place.
Just change a little rule, and then we’ll throw it in their face!
We’ll say WE can’t be trusted not to cheat our own clients
As long as non-attorney staff oversee our non-compliance!”

With a gasp and sickening thud Old Man Howe collapsed and died.
Cheatum quickly grabbed his wallet; Dewey shook his head and sighed.
Before the body was even cold they’d divvied up his clients.
Dewey got the big ones, but Cheatum took the giants.

That very day they wrote the rule that Howe had recommended.
Though sometimes even good ideas have pieces unintended.
Their non-attorney staffers all packed up and walked away.
Leaving Dewey alone with Cheatum to await their dying day.