law practice management

[Ed. Note: Please welcome guest blogger, Steve Nelson, Managing Principal, Law & Government Affairs, The McCormick Group. – GL]

One of the big topics discussed recently in the legal press is how the very large firms continue to separate themselves from the rest of the AmLaw 200. In an article accompanying the American Lawyer’s financial disclosure reports for the AmLaw 100, the magazine revealed some pretty shocking statistics; while the top 50 firms reporting significant increases in revenue per lawyer, profit per partner and profit per lawyer, the next 50 firms reporting decreases in all of these statistical categories.

This is not a new phenomenon. Over the past few years, many observers have been writing about how the mega-firms are pulling away from the pack. You would think that a large number of midsize firms would be responding by illustrating how they are more efficient and provide very value to clients.  But a recent study performed by The McCormick Group seems to show otherwise.

Since around 2000, and particularly since the advent of the Great Recession of 2008, firms have responded to calls for efficiency by hiring three types of professionals, those handling practice group management so that each practice area can be run more efficiently and more profitability, pricing professionals to respond to corporate calls for alternative fee arrangements, and legal project managers to work directly on engagements to provide value to the clients and efficiency to the firm.

Of those three, one—pricing professionals, have become virtually de rigueur in the AmLaw 200.

Largely because the firm needs to have someone with a financial background respond to requests for proposals and other demands for alternative pricing, more than 80 percent of the AmLaw 200 have at least one professional focused on pricing.  And that has run the gamut from the very large firms down to the bottom of the AmLaw 200.

But the acceptance of practice group management and legal project management is much more uneven.  On the one hand, 60 percent of the AmLaw 50 firms have professionals handling each role, and 76 percent have one or the other.  And when one considers that nearly half of those who have not instituted such programs are either big New York-based firms or large one-practice specialty firms, the adoption rate among large multifaceted law firms is higher.

But as the accompanying chart shows, the percentage of firms having those professionals in place drops dramatically throughout the rest of the AmLaw 200; only 19 percent of the Second Hundred have practice group management professionals, and even less (13 percent) have LPM specialists.

Firms PG Mgt. LP Mgt. Both Either
Top 50 30 30 22 38
51-100 18 26 13 31
101-150 12 10 4 18
151-200 7 3 1 9

A few notes about methodology:

  • Firms were included as having these functions if they have professional personnel (not practicing lawyers) with identifiable responsibility over these functions, whether or not they included the words “practice group” or “legal project management.”
  • Professionals with a pricing or similar title were not included as having LPM responsibilities unless their title or profile included discussion of LPM. (At many firms, pricing personnel are supported by other professionals in the finance department who play a broader role within the firm.) 
  • On the practice management side, firms in some instances have designated just one practice (often IP) as having a practice group manager or business manager.  Those were included nonetheless, so the statistics may overstate a bit the number of firms having full-scale practice management programs. 
  • Of the firms in the top 100 that had no practice group management or LPM function, about half were either New York-based firms or were one-practice specialty firms.

The conventional wisdom among law firm experts is that the firms at the top are doing well because they often do bet-the-company work which commands whatever rates they wish to charge, and that alternative fee billing often works to those law firms’ advantage in terms of success fees on major transactions.  But according to Susan Raridon Lambreth, Principal with the Law Vision Group, while the largest firms do bet-the-company work, many of them also do a lot of other work that is increasingly fee pressured by major clients.  Many of the largest firms in the US are actually facing more pressure from clients on rates and efficiency than the mid-sized firms — by the size of the matters they handle and the nature of their client base.

“It’s the clients with sophisticated law departments that are putting the heavier pressure on firms when it comes to providing client value and the vast majority of their outside counsel are in fact at large firms.  As a result, large firms have significant pressure to provide volume discounts, detailed budgets or caps even on multi-year, complex matters and more. This has resulted in write-offs or downs in the tens of millions to over $100 million in many of the AmLaw 100 firms.”  

On the other hand, many mid-sized firms have a larger percentage of their client base with smaller or more middle market companies, she says, where there is less pressure to provide fee alternatives or budgeting, so the smaller firms aren’t really feeling as much pressure to change their approaches.  Another law firm consultant Timothy Corcoran of the Corcoran Consulting Group, puts it more bluntly.  “There are still a fair number of law departments doing a poor job of managing outside counsel.”

According to some industry surveys, resistance to industry change has been greater among the smaller and mid-sized firms.  Lambreth says that law firm leaders in those firms often want to institute changes, but they don’t have the partner buy-in.  There are a large number of partners that simply don’t see any need to change and it can be harder to make the business case for change short-term, even when there are long-term warning signs.

Indeed, instituting a PGM or an LPM program will often add up to between 5-10 new professional positions, which will often have a material impact to those firms which are already under pressure just to keep up with the previous year’s financial results.  That, Corcoran believes, is exacerbated to the fact that a number of smaller firms are laboring under a false impression about their standing in the market. “They have spent the last few years convincing themselves that clients have determined they’re just as good as the big firms and so now their philosophy is something along the lines of  ‘just as good as the big firms, but cheaper.’ ”  As a result, he says “they’re not doing anything particularly creative, such as embracing LPM to prove they’re just as good (or better).” Inevitably, they run the risk that another firm will come along that looks just as good and is another level cheaper and the client buys from them instead. Or the big firms that are embracing LPM and finding ways to generate higher profits at lower prices can now claim that they are in fact less expensive.”  So, says Corcoran, midsize firms are facing pressure “from above and below.”

So we seem to be at a crossroads:  the large firms that are doing the best economically have invested heavily in creating more value to their clients, while the midsize firms that are facing a more uncertain future are unwilling or unable to make changes so that they become more efficient.  That’s certainly not the narrative we tend to hear.

Image [cc] – Tomozaurus

Jane: The billable hour is dead, Dan. It is the sad and lonely remnant of an era when clients were to stupid to realize they were being fleeced by outside counsel. I for one can no longer, in good conscience, blatantly steal my client’s money. I officially declare the billable hour six feet under, pushing up daisies, defunct, deceased, kaput. Never to be heard from a…

Dan: OK, OK. I get it. You do realize, Jane, that repeating something incessantly doesn’t make it true, it just makes you slightly more annoying than usual. Also, as a graduate of North Tuvalu Online Law School, I’m pretty sure you’re stealing your client’s money regardless of the billing arrangement.
Jane: Woo hoo! Go Land Sharks! I choose to ignore your petty insults, Dan. They are nothing more than the last dying gasp of a big dumb lizard.
Dan: What is that supposed to mean?
Jane: It means that you, my unfriend, are a post-asteroid BigLaw Dinosaur. Desperately grasping at the last lingering rays of light before the sun is forever blocked out, the plants all die, the critters that eat the plants pass away, and your BigLaw Tyrannosaurus — still billing by the hour — ignominiously starves to death.
Dan: OK, first of all, paleo-breath, the dinosaurs that survived evolved into birds not reptiles.  Secondly given your ridiculous scenario, my Tyrannosaurus would die of dehydration or disease long before it starved to death. And finally, you’ve taken this metaphor waaaaay too far. I have no idea what your original point was.
Jane: My point IS that the billable hour, by its nature, creates terribly perverse financial incentives for the attorney and provides absolutely no value whatsoever to the client.
Dan:  I have no idea how that relates, but let’s move on. Perverse financial incentives?
Jane: By rewarding the total time spent working, rather than the actual work completed, the billable hour incentivizes attorneys to either do more work than is necessary, or to work more slowly. Either way, the client is paying more for less relevant work product.
Dan: I’ll keep this really simple for you Jane; the method of billing doesn’t incentivize anything.  The structure of attorney compensation is the problem. Take for instance the guy that changes the tires on your pickup truck. He doesn’t care whether the garage charges you for parts and labor (hourly billing) or a flat rate. He only cares how HE is compensated. If he is paid based on how long it takes him to change the tires, rather than the number of tires he changes, then he’d be a fool not to double tighten your every lug nut and thoroughly polish your rims.
Jane: You pig!
Dan: What?
Jane: I… don’t know, but it sure sounded… Anyway, your argument fails to take into account that by artificially increasing revenue, the billable hour incentivizes the owner to create those bad compensation structures in the first place. Any way you look at it, the billable hour amounts to little more than institutional theft and I, for one, am shocked that you would defend, even advocate for such chicanery!
Dan: I’m not advocating for anything! I’m saying that, as usual, you have entirely missed the point! For certain engagements, certain clients will always be best served by aligning effort and outcome, not just focusing on the outcome. Your attempt to prematurely bury the billable hour is severely hampered by the fact that it is still the most prominent method of billing for legal services. I’m not saying it is the greatest thing ever, or even appropriate most of the time, just that the problem for clients is that the cost of legal services has steadily risen, while the value they have received in return has stagnated. This is not a problem of billing practices; this is a lack of management oversight. Law firms need to completely rethink the way they manage their practices, the way they compensate their attorneys and, yes, the way they bill their clients! But even if the billable hour as a concept were to completely disappear from the face of the earth tomorrow, the vast majority of the problems facing BigLaw and their clients would remain entirely unaffected!
Jane: ….
Dan: C’mon, Jane! No snappy comeback? No witty repartee?
Jane: The last dying gasp of a big dumb turkey.
Dan: I’ll take that as a no.

Please submit topic suggestions or make your own arguments at dandj3Geeks@gmail.com.

Image [cc] MetaGRRRL

[Note: Here’s a guest post from someone riding the BigLaw Cruise ship of Whitestar, Titantic, and Iceberg LLP… enjoy, and we’ll all meet over at the bar when you’re through reading it. -GL]

In the rest of the world it’s August 2012, but at my firm it’s April 1912. You see, I work for the international law firm of Whitestar, Titanic, and Iceberg LLP and we’re slowly slipping beneath the waves. We were speeding along just fine, on route to record profits (or so they told us), when the captain made an announcement offering a “generous early debarkation” to the most experienced deck hands and engine room workers. They gave each of the volunteers a few weeks provisions and set them adrift on their own personal lifeboats. To make up for the loss in manpower, we all took on more responsibility and greatly improved our productivity. We felt like we had done our part to help keep the ship moving. The Captain and the Line were proud of us. They relied upon us. Without us, they couldn’t have done it. Nothing means more to them than our loyalty. And we continued on our way, feeling good about our progress.

There was no loud noise, no jarring crash, but suddenly some of the Captain’s minions began throwing valuable crew members overboard with only a life jacket and a baloney sandwich. When asked about it, the Captain said, “No, there’s nothing to worry about. We had too much weight on board and needed to slim down a bit. Our crew members are very valuable to us. We gave them all the resources they need to get back to shore. They’ll be fine. Enjoy the rest of the voyage.” Nobody bought it. The passengers and crew alike are now frightened and panicked; running around aimlessly trying to figure out exactly what’s going on.

When I hang my head over the starboard side of the ship, in the moments when the screaming passengers stop to breathe, I can just make out the sickening sucking sound as water fills the lower decks. The captain is either in denial, or stupid, or both. I sit with my back against the railing, watching the frightened passengers run up and down the deck checking for hidden lifeboats, but there are none, they were all given to those who chose early debarkation. Of course, there are rumors of nearby ships, on their way to rescue us, but I know that those ships are only interested in saving the first class passengers. It’s happened before. The rest of us will have to hope for passing fishing vessels, or hang on to some bit of flotsam and pray the current carries us into shipping lanes where, if we’re lucky, we’ll be picked up by an Outsourcing ship. They may pay us half our previous wages, but we’ll be so happy to be alive, we won’t really care.

In the meantime, it’s all kind of surreal and beautifully bizarre. The way the stars and the lights of the ship are reflected in the cold, dark water; I can hear the band playing “Auld Lang Syne” on the other side of the ship; old friends and strangers are huddled beneath blankets telling each other lies about the likelihood of rescue; and the Captain stands proudly at the helm yelling, “full speed ahead!” I light my last cigarette, toss the lighter overboard, and walk slowly toward the bar.

In my recent series on Staying Relevant, I coined a new phrase: Precedence is a legal philosophy, not a business model. The thrust of this phrase is that lawyering skills are better aimed at practicing law instead of running a business. In recent conversations this same thought was being discussed around a different problem.
I occasionally will rib Greg about ‘running lists.’ He receives requests like this all the time at his firm. One of my golden rules is beware the request to run a list. Lawyers seem to think they need to find completely defensible high-ground before they make any decisions. This is manifest in the list request. Before they start calling clients to talk about fees, they need one more list of clients, industries, fees, fee types, realization rates, leverage, …. You get the idea. Often in these situations, these lawyers never pick up the phone and call the clients. Instead they keep requesting lists until the reason for running the lists becomes moot.
Now – this behavior on its own represents lawyers being lawyers instead of business owners. Admittedly you do need reasonable information before making business decisions, but you will never find the high-ground lawyers crave. But the subject of this post is actually about an extension of the ‘running lists’ model of business development.
Recently a colleague at another firm had run yet another list and shared it with a law firm partner. The partner, in typical fashion, found an anomaly on the list. It was one record that didn’t make sense to him. “Why is this on the list?” was his response. “If this record is on the list, then the entire list must be flawed in some way and entirely suspect.”
Spotting flaws and exploiting them is a basic lawyer skill. It is how they attack both litigation and deal terms. Lawyers who are good at this skill are usually the successful ones in court and at the deal table.
However … in the list world, firms will always have anomalies for two reasons. One – you want to be over-inclusive in creating lists many times to make sure the high-value records are not missed. And, two – law firm data sucks. The old days of an endless flow of work encouraged very poor data capture habits. Therefore all firms suffer from severe GIGO syndrome (garbage in – garbage out).
So – here comes the analogy – finding a suspect record on one of these lists and dubbing the list worthless is like spotting a broken twig on a tree branch and declaring the tree dead.
My advice to lawyers running firms and building books of business: Look past the broken twig. Find the healthiest branches of the tree and focus your energy there. Instead of trying to eliminate risk, focus your business energy on opportunities with the highest ROI. Stop focusing on the trivial outliers.
Socrates may have made a great lawyer, but I wouldn’t want him running my firm.

Mark Herrmann at ATL, wrote an excellent piece on “Is blogging a useful business development tool?” I thoroughly enjoyed the piece, but take issue with a core aspect of his thesis. He notes that “Blogging can be very rewarding in many different ways, but it will create only a very few (if any) serious rainmakers.”
My push-back on this piece is somewhat semantic – but in a crucial way. I question whether the legal industry understands the term “business development.” At many firms, you still can’t use the word “marketing”, so they call it client relations. We blend together and interchange the terms: marketing, client relations, client development, business development, rainmaking and on some rare occasions, we use the term sales. In a more traditional business environment you have the continuum of marketing – business development – and sales. Marketing is primarily about getting attention in the market. For law firms this is done via websites, brochures, seminars and ads. Business development (BD) is primarily relationship building with existing customers and with the new customer leads generated by marketing efforts. For law firms this is usually the follow-up efforts from marketing events, along with pure BD events, such as attending sporting events and social gatherings with clients. Sales is the closing of business deals. This is where one locks in an engagement with a client, and settles on the fee.
In many professional services firms, BD is sales. In reality, BD (although not always called that) is sales for law firms as well, which brings us back to Mark’s thesis. Blogging is really a marketing tool that extends itself into the BD realm via its relationship enabling aspects. But blogging doesn’t build relationships – people do. Blogging merely provides the platform to build relationships. Therefore, I wouldn’t expect a blog to turn anyone into rainmaker, any more than I would expect a kiss to turn a toad into a prince.
It has been my experience that the law attracts people who are uncomfortable with BD. Lawyers get much more excited about the facts of a case or the terms of deal than they do with relationship building. One of my golden rules of AFAs is that a lawyer will do anything to avoid talking to a client about fees. This demonstrates the non-BD personalities of most lawyers.
And again back to Mark’s article – what really caught my attention was the incredible success he experienced from his blogging efforts. Just to name a few:
  • I became a better lawyer.
  • We became unbelievably plugged in to events in our area of law.
  • We dramatically raised both our personal profiles.
  • People who sponsored conferences about drug and device issues were keen to have us participate.
  • We got our book deal.
Most BD people I know would kill for these opportunities. Becoming the “go to” person in your field is approaching BD nirvana. Clients come to you, instead of you knocking on doors hoping to get some of their time.
My evaluation of the ROI of Mark’s blogging is extremely high. But no – his blog didn’t close any deals for him. And I wouldn’t expect it to.
Meanwhile – my blogging goals remain the same: Getting to know more fascinating people and learning interesting things.

I’m sitting in my office listening to Earth Wind & Fire trying to figure out just where did it go wrong. Looking back, I guess I should have seen the signs:

  • Charging for both the User Interface and the content
  • Laying off all of the Library Relations staff on the West Coast
  • Reallocating personnel to the small firm (read: no pesky librarians) segment

All of these were symptoms. But I thought that we, at least, had developed a partnership over the years based on mutual trust and shared interests. From time to time, I would participate in their panels and write for their newsletters. I would give my opinion on new products and services. I guess I was mistaken.

This fall, I reached out to my account representatives to begin the discussions to renew our contract. Without warning, all contact was cut off. I was told that I had to sign a non-disclosure agreement (NDA) before they would talk to me. A copy of one of the most poorly worded legal documents I had ever seen was then sent for my signature. Naturally, I refused to sign this. Who would sign a contract (the NDA) before negotiating a contract?
This is in direct contravention to Section 3.2(a) of the AALL Guide to Fair Business Practices for Legal Publishers which reads: “Publishers should not bind their customers to a non-disclose clause as a non-negotiable requirement of doing business.” This language shows that similar circumstances have come up before and been determined to be unfair as a business practice.

So the big question is why would they do this? The only reason I can come up with for this behavior has to do with the proliferation of consultants that specialize in providing advice to assist firms renegotiate there agreements. The amount of information this vendor has at their disposal far outweighs any advantage that a consultant can bring. The current economic environment has made it important for firms to level the playing field when negotiating with their vendors. The bottom line is, by attempting to control the process they risk alienating their customers. That, in turn, will have an impact on revenue, though not the type of impact they are hoping for.

I’m sorry to see it end this way, Westlaw (aka TR Legal). But I guess it just wasn’t meant to be.

Sing it, Philip Bailey…
“After the love is gone/What used to be right is wrong…”