Billable hours - again
Friday’s New York Times has brought light to a steamy debate in the legal community: Is billing clients by the hour the most effective and profitable way for a lawyer to collect his or her fees? In these recessionary times, this norm has become more unpopular. Clients are asking more questions and wondering if law firms are prolonging their problems instead of resolving them.
According to the American Bar Association’s Model Rule of Professional Conduct 1.5, “a lawyer shall not make an agreement for, charge, or collect an unreasonable fee.” Reasonableness is further defined by several criteria. Ultimately, though, what lawyers charge must be commensurate with the value their clients receive.
Maridee F. Edwards discusses civility with Ed.
Maridee F. Edwards is an attorney and mediator in the area of professional licensing and ethics matters in Jefferson City, Missouri. She is former Bar counsel for the Missouri Bar and speaks with Ed about civility in the profession.
There has been a recent fervor about teaching lawyers "civility" when dealing with other counsel and adverse parties. Aren't these the principles we should have learned at our mother's (and father's) knees, but somehow seem not to have learned? Are more influenced by "everything is fair in love and war," believing that the adversary system, by definition, is akin to war?
Therefore, everything the lawyer does is "fair" as long as not prohibited by some code. With the fallout in the economy and corresponding pressure on the legal community, is this becoming more acute?
Is the legal profession guilty of misconduct or rather merely reflective of what is happening in the rest of our society?
Maridee and Ed elaborate on this issue and what lawyers need to do in order to both effectively represent clients and stay away from violating rules of professional conduct.
30 minutes, 05 seconds
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What will be the cost of malpractice insurance?
Insurance rates are based on three elements:
1. Losses. Carriers normally allow 5% to 10% for claims payouts, or losses.
2. Reinsurance. The cost of reinsurance, where the primary carrier passes some of the risk of their policies to other insurance companies, called reinsurers.
3. Investment income. Carriers normally invest their cash reserves in stocks, bonds and other income producing products to increase their own net profit or return for the benefit of shareholders.
Ed's People
In the State Bar meeting referred to in a recent post, I was the one who raised the issue ... who are we talking about when we ask questions like "affordability" and "availability" of malpractice insurance? These folks were not mentioned by name ... it's the approximately 18% of the California Bar, 30,000, who have no malpractice insurance. If we don't mention them specifically, we can draw all kinds of conclusions ... they're not good lawyers, they're marginal folks, they are the ones clogging the disciplinary system, etc. Yet, there is no empirical data to this effect.
The Bar wants to survey lawyers to determine why they don't have insurance (they'll never send surveys to these people, I'll bet!). They want to find out what lawyers think is affordable malpractice insurance ... how much are you willing to pay to be covered against claims against you from clients. Response to this question should be interesting, though I'm not sure how illuminating, since the market place will govern anyway. And there seems to be no political will to create a mandatory State-wide program.
I was invited to join this group because of my original vocal opposition to the concept of forcing lawyers (these very same 30,000) to affirmatively tell their prospective clients (the word used is "disclose," as though it otherwise were a deep, hidden secret) that they have no malpractice insurance.
Someone referred to this group, after a bit of discussion, as "Ed's People." I was flattered to be their representative. But, throughout the conversation, I think it was intended as a pejorative, as though these 30,000 lawyers were not successful ... and perhaps didn't deserve the same protection and service as other lawyers in the Bar. Rather, it is the "public" that deserves the protection of the Bar. Who will preserve the rights of these 30,000, "Ed's People?"
Am I being paranoid?
Expense reduction or investment advance
One of my law firm clients has a lawyer who is what I would call a "reluctant marketer." This lawyer is a great lawyer, a "worker-bee," but not a great rainmaker. The managing partner considered engaging a coach to help the lawyer improve his skills within his comfort zone. Why is this important? Because the amount of work for this lawyer that is being internally generated is lessening. In other words, this lawyer has to begin helping himself a bit.
Parenthetically, I saw a recent survey that shows the amount of hours being worked by lawyers, generally, is coming down. But more on that later.
But, the management committee has come back and said that "costs" are frozen. No more spending. Is this a backward way to look at the situation? What about looking at expenditures from the ROI perspective? If you buy a new piece of equipment and it pays for itself in a couple of months, wouldn't you move forward? I think you should. If a coach or marketing director can help the lawyer increase his/her revenue because of improved rainmaking efforts, shouldn't you invest in the process?
And what would this mean to the other lawyers? A reduction in their take home pay? When you're already earning hundreds of thousands of dollars, a collective reduction by only a few dollars in sdthe short run for an ROI building expenditure may be worthwhile.
Malpractice insurance under study again
I'm currently involved in a meeting at the State Bar offices in San Francisco. The focus of the meeting is to understand the availability and affordability of malpractice insurance.
Interesting that there is no consensus on the definition of affordability. The professionals in the room suggest that some lawyers will say that no amount of premium is affordable. My contention is that a 1 or 1.5% of gross receipts would be affordable. But 5, 6, or 10% of gross revenues is outlandish.
The discussion is also framed in the context that the malpractice insurance market today is "soft," that there are almost 30 carriers in the market ... But, insurance rates will rise in the not too distant future. Premiums are based on loss experience, reinsurance availability and investment income. With the current financial crisis, investment income will decrease and this will dramatically impact insurance companies and their financial health ... and then increase the premiums! No such decision should be based solely on this fact. The Bar needs a longer term perspective.
The Board of Governors has adopted the Rule of Professional Conduct requiring disclosure if the lawyer has no malpractice insurance coverage; thus, the focus of this group is how to help lawyers comply ... that is, how the Bar can ferret out insurance premiums that are as small a percentage as possible of gross revenues (affordability).
The net result of the meeting is a mandate to do a survey to find out what lawyers think is "affordable." Hopefuly, the survey will produce meaningful information.
We're on Tweeter
Just did it ... Thanks to Tim Stanley and Cicely Wilson for helping me set this up. One step at a time, but look out world, I'm joining! <g>
I was reminded to provide the twitter URL ... here it is: http://twitter.com/lawbiz ... I'm looking forward to hearing from y'all.
A carriage builder in an automobile world!
“A carriage builder in an automobile world.”
That’s how one staff person described his boss, an attorney not willing to become an effective marketer, but yet believes he’s entitled to receive the same level of business that he has for years. He doesn’t understand that the world is changing, that practice areas once popular are no more and that he has to adapt or be swept out of the practice.
Corporate Counsel Want Value
Association of Corporate Counsel is workingon a "Value Challenge Index." Susan Hacktt, Senior Vice President and General Counsel for ACC, talked about the Index before the Los Angeles chapter of Legal Marketing Association today.
Susan made several significant points. One concerned the traditional allocation of revenue: 1/3 for overhead, 1/3 for associate compensation and 1/3 for partner income. The net result is that 2/3 of the revenue received by law firms is funneled toward attorney compensation.
Susan suggested that General Counsel, as lawyers, understand this formula and are therefore more resistant to outside counsel increasing billing rates. Lawyers wanting to earn more to move up in the AmLaw PPP (profit per partner) ranking isn't sufficient reason for the corporate client to pay more. And the rationale that expenses have increased is also not well received ... 1/3 of the firm's expenses may have increased somewhat, but the more sophisticated clients believe that the primary factor for increased expenses is increased associates' compensation. Since associates' contribution to the law firms' delivered value is suspect, clients are reluctant to pay increased rates. In fact, some clients refuse to pay for any first year associates' work on their matters.
Continue Reading...Misuse of technology
Here’s a story sent to me by a friend. The moral is that we need to be more careful in how we use our "toys."
A car was broken into while the family was at a football match. The car was parked on the green which was adjacent to the football stadium and specially allotted to football fans. A garage door remote control, some money and a GPS which had been prominently mounted on the dashboard were among the items stolen from the car.
When the victims got home, they found that their house had been ransacked and just about everything worth anything had been stolen.
The thieves had used the GPS to guide them to the house. They then used the garage remote control to open the garage door and gain entry to the house. The thieves knew the owners were at the football game, they knew what time the game was scheduled to finish and so they knew how much time they had to clean out the house. It would appear that they had brought a truck to empty the house of its contents.
Darryl Cross of LexisNexis discusses differences between marketing and selling.
Darryl Cross is the Vice President of Client Profitability for LexisNexis. In this position, he reviews the marketing efforts of many lawyers and law firms. After all, it's marketing... and selling... that creates the revenue from which profitability will result. Darryl discusses with Ed the differences between marketing and selling... and why lawyers either fear or hate to sell their professional services. Darryl and Ed also discuss several easy ways in which reluctant lawyers can be more effective and thus thrive in this downturned economy.
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Financial concerns
West LegalEdcenter will host a one hour teleseminar on Selected Aspects of the Economics of Law Practice in today's chaotic environment. Ed Poll will be your host. I hope to "see" you there.
Unemployment Insurance Not Applicable to Lawyers
I came from an immigrant family as many people in my generation did, and still do. Growing up, my parents were involved in the labor movement and unemployment insurance was a big deal. In today’s context, unemployment insurance s hardly significant. But, don’t tell that to the many who are seeking this benefit and can’t crash through the long lines and busy telephone lines.
NPR did a piece today on what unemployment insurance is today and what it means.
Here are some statistics that I find fascinating, and which I did not previously appreciate. There are about 10 million unemployed workers, about half of them being in only eight states including California, Florida, Michigan and New York. There are millions more who don’t even qualify because they were self-employed or have been out of work too long ... they sort of get lost in the system.
Twitter me
When technology companies need to hire a business development person, they're really off the chart in success or they are scrambling to survive. Twitter says it's doing very well and has many partnering offers to evaluate ... and they need some to do that. They've hired a "business development" wiz ... someone who has been using their service for almost a year.
Go Twitter. I have yet to follow, but hope to be there soon.
LawBiz® Tips for this week is now posted
For those who don't yet subscribe by RSS feed or direct e-mail, our current edition of LawBiz® Tips for this week is now posted.
There are seasons for lawyers
Some time ago, I wrote that lawyers have seasons in their practices. Today, I received a note from Lawyers Weekly USA in which they confirm that family law lawyers are saying that January is proving to be a boon month. While spouses didn't file for divorce in December because of the children and holidays, January is a different story ... and the stresses caused by the holidays are just too much to handle any longer. So, they file for divorce.
Bankruptcy lawyers may be facing a bonanza that goes beyond a month, or even a year, if our current crises are not resolved soon.
And on down the list. Each practice area has its own time of year. You've got to be sensitive to it and plan accordingly, both for your financial stability as well as your marketing efforts.
Continue Reading...Stephanie L. Kimbro talks with Ed about virtual law offices.
Stephanie L. Kimbro is an attorney in Wilmington, NC. She talks about the virtual law office and her role as a "virtual" attorney. This is different than a virtual assistant. Listen and learn how you can adopt some of the aspects of the virtual law office in your practice during these tough economic times.
22 minutes, 32 seconds
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The Question
The Edge Annual Question Center asks the question for 2009: What will change everything?
Profound question, indeed. And the answers are equally profound. Scroll down the pages and see the responses from the brightest minds of our time ... my head was swimming just reading the titles of the responses.
Thank you Matt Homann for bringing this to my attention.
Bankrupt lawyers
Bankruptcy will be an important practice area for the legal profession, obviously, in 2009 and 2010, as we continue to move through the major upheaval in our economy. And our law firms will benefit.
However, one aspect I did not expect was that lawyers and law firms will likewise face economic hardships … And I'm not addressing the obvious issues coming from the collapse (for other reasons of the large firms such as Heller, et al.).
I'm addressing the more mundane, the traditional, average lawyer, the lawyers that make up the bulk of our profession. When these lawyers are in trouble, the entire profession needs to wake up and pay attention.
I was just contacted by an attorney asking me to value a law firm for purposes of the lawyer’s personal bankruptcy. His law practice is an asset of his personal estate. Times are hard when the helpers need help themselves.
Lowering legal fees
Clients seek to control the costs of their legal challenges. According to a study by the Association of Corporate Counsel, as noted by Larry Bodine, corporate general counsel do so in the following ways:
"The most common methods to control outside legal spending during the past year were: case/matter budgets (52.9%), discounted/alternative fees (52.9%), re-allocation of work to firms with lower rates (43.7%), billing guidelines/ spending rules (43.7%), and electronic bill reviewing and auditing (34.6%)."0
While reallocation of work seems to be an obvious choice, I've always wondered why more law firms don't do this. If you have several choices among quality law firms, why wouldn't you go with the less expensive? Perhaps because business is often based on relationships, and if there is a good relationship between client and counsel, the legal work may not go into play to find out whether there is a less expensive option available. This is often called "loyalty," the most desired state of affairs for vendor-partners.
Is everything o.k.?
I like Seth Godin's response to this question:
"We spend so much time smoothing things out, we lose the opportunity for change, or for texture or creativity. Instead of working so hard to make everything okay, perhaps it is more helpful to work hard at living with a world that rarely is."
When things are out of sync, that is the time to seek change for improvement ... what a concept!
I don't know about you, but I've never really been taught how to live with tumult and "not o.k." Another term for this is conflict avoidance, a phenomenon that most people understand and seek to emulate. How do we live in a world with conflict and still be o.k.?
What is the normal state of affairs in your law office? Piled on top of the anxiety of your clients and the pressures of seeking the best results possible for your clients, how does your team fare? Do you have a peaceful place of work where everyone likes and respects one another, treats one another as a healthy family? Or is there something missing from this picture? And, if yes, what can you do to change the picture? That might be a good project for 2009!
Even Big Solo can fail
Failure can be experienced by small firms as well as large firms. In the case of Dreier, the real shame is not that Dreier failed - he committed fraud and there is nothing new about fraudulent conduct causing failure ... and even jail. The sad part of this tale is what happens to other lawyers working in the Dreier firm.
Litigation is not the answer - usually
Forty years after the Pueblo was captured by North Korea, the sailors received judgment for damages. This merely gives the sailors a piece of paper. Go collect! Not, that's the rub. And ask the Goldman family how much of their 33 million dollar judgment they've received from the assets of O.J. Simpson.
In the beginning of 2009, we need to hearken back to the words of Rodney King, "Can't we all just get along?" The obvious answer is "no." But, litigation may not be the best answer either; it's certainly not the only answer.
Law firms, even the major law firms (like Heller used to be), whose litigation work makes up more than 50% of their revenue, will need to focus on greater diversity in their offerings if they want to protect their future. More than 10% in any one area always puts a business at risk. Sometimes the risk pays well; sometimes it doesn't. Just ask the lawyers who were at Heller about the high times and then the implosion.
