LawBizBlog : Law Practice Management, Lawyer Coaching, Legal Consulting, Law Firm Retreats : LawBiz Blog : Ed Poll

Lessons to be learned:

•    Expansion is always expensive and must be planned. If planned properly, one normally will still find a period of time in the beginning where expenditures are greater than revenues. Most law firms are not “cash and carry,” necessitating the extension of some credit in the form of increased accounts receivable. Though profitable, accounts receivable don’t get collected fast enough to pay expenses without borrowing. While the public accounts did not say whether the expansion offices were profitable, they did say that these offices were expensive and challenging. Their borrowing apparently reached the cap. Good planning would have suggested a slower pace for growth or larger line of credit.

•    Partner defections in today’s world are far more common. There is less loyalty to the firm. Strong firm cultures bonding lawyers together are harder to find.  “Free agency” is the rule of the day. One’ personal compensation is the top priority ... and the RPP (revenue per partner) and PPP (profits per partner) are the most important metrics being considered when thinking about the location of one’s practice. As in baseball, free agency will strip many stars away from a law firm.  In Heller’s case, once the rumors of economic challenges and partner dissatisfaction were ripe, law firms and head hunters came knocking. Once a few left, more left; then the landslide began ... just as on Wall Street recently.

•    When any one client represents more than 10% of one’s business, the firm is at risk of heavy loss if/when the client leaves. Leaving can occur when the client is acquired by another company, when the client has financial difficulties and either can’t afford your legal services further or actually disappears, or other business reason. The client can also leave because of dissatisfaction with the lawyer. Whatever the reason, innocent or not, the result for the firm is the same – economic hardship. When expansion or capital decisions are made based on sustaining the revenue from these large clients, the law firm is at serious risk.  In Heller’s case, more than 60% of its business was in the litigation practice group. And, more than 25% of its litigation went away suddenly. Of course, Heller would feel a significant impact economically, especially since they were unable to replace the revenue flow quickly ... and in this case, the firm collapsed.

•    There was a “Tipping Point” along the way. Where it came, only insiders know. But, when the Tipping Point was reached, it was too late to arrange a merger. Previous attempts failed, and a marriage while one patient is sick is very unlikely. Whether because of the rumors or intuition, every merger candidate passed.  Sometimes, even bargain sales are not attractive. Just look at Wall Street today, as I’m writing this. Later, we might be remorseful that we didn’t act, but, for now, acting is just fraught with too many uncertainties and doubts.

Many people were hurt. Coming on the heels of a collapsing national/world-wide economy, the collapse of Heller Ehrman was even sadder. Other firms should learn the lessons of The Business of Law®  from this experience.

Parameters of this approval include i) the fee for the outsourced work must be reasonable; ii) the client should be informed of such relationship and may need to consent; iii) the lawyer not assist in the unauthorized practice of law; and iv) the lawyer must supervise the outsourced work to assure that competency and quality assurance standards are met.

Delegation is a main principle to profitability and success. By delegating, you can get the best person to do the work, and you can thereby liberate some of your time to seek new, high interest, profitable work.

But, be careful! As my wife says, "... there's no free lunch."  When you get more clients, more business, you need more people to work on the matters ... And now, one day, you wake up and find that you have the increased revenue you want, and too little time to do it without more delegation, more people ... and you become more of a manager of legal services and less of a hands-on lawyer. Some can handle this role change, some can't ... Of course, that's the only way to become a larger law firm and earn more money ... and have more responsibility.

Many sole practitioners utter the refrain that they want to be "lone rangers." They want to be on their own, without the political "games" of an organization. Yet, interestingly, almost to a person, I hear them say they want more revenue. How can you have more revenue without growth? How can you have growth without having an organization? How can you have an organization without a role change, i.e., becoming a manager of legal services? It would be nice to be able to move toward a specific goal, a certain "line in the sand," and stay right there all the time. But, ours is not a static world. Oh, what a wonderful web we weave when we start having "wants."  <g>

1.         Clients are concerned about continuously increasing fees.

            The report suggests that in-house counsel believe that law firms cannot continue to increase their prices.  This may be true in the opinion of General Counsel; however, it is not how General Counsel act.  In fact, despite protestations to the contrary, General Counsel continue to engage large law firms with large billing rates, even though very competent, but smaller law firms are available.  In the meantime, for legal needs of the average American, there really is very little alternative.  Either their legal needs go unmet, or they must pay the higher fee.  As in every other aspect of American economic life, costs are increasing.  It is not clear to me that legal fees are rising any higher than the cost of living.  Merely take a look at the price you recently paid for gas.

 2.         Priorities between clients and lawyers diverge on controlling costs.

            This conclusion should not be a surprise.  In focus groups done over 10 years ago, lawyers believed that clients were very concerned about their fees and the reasonableness thereof.  However, clients in similar focus groups, conducted at the same time, ranked reasonable fees down the list of their priorities, sometimes even lower than half way down.  Thus, it is not surprising to this writer that General Counsel and their outside counsel should differ on the importance of controlling costs.

 3.         Hourly rate remains resilient.

            Again, this conclusion does not seem to be a surprise.  Was it Mark Twain who said everyone is talking about the weather, but no one is doing anything about it?  So too, here, everyone talks about the billable hour being an anathema to the legal community.  In a recent example, one prominent lawyer suggested that the billable hour would be the death knell of the legal profession.  Yet, neither he nor his firm were prepared to adopt a different billing method, though there certainly are alternative billing methods available. This method may not be the best or fairest, but it certainly is the easiest to understand.  There is something to be said for that.

 4.         Legal advice will not be commoditized.

            It seems that this conclusion is, at best, tenuous. It is also clear that the clientele of Eversheds is of such a sophisticated nature that much of their work is "one-off." Under such circumstances, using technology to be more efficient and effective is important, but it does not rise to the status of commoditizing legal work being performed.  In the more mundane world of legal services, where the vast majority of lawyers conduct their work, technology and commoditization will become significant.  Or, at least the threat is that it will become significant with significant adverse consequences (especially under the hourly billing modality) to lawyers and benefits to clients.

 5.         Top law firm partners are happy, compared to their assistants.

            I suppose that this conclusion requires a definition of "happy." It certainly appears that one would be happier than one's assistant with a vast difference in compensation levels.  Despite this difference, however, I know too many large firm partners who are close to "burn-out" or at the very least are "unhappy" in their day-to-day occupation.  In fact, there are just too many reported cases of alcohol and drug abuse; how many such cases are not reported can only be left to one's imagination.

 6.         Flexible working is not the answer to work-life balance.

            At least one half of the clients and partners in large law firms did not think that flexible working time schedules would be a viable solution to work-life balance issues, especially in transactional areas.  Yet, it is an issue that remains on top of the table and must be dealt with in order to satisfy the needs of the now sometimes four generations of lawyers working in the same office environment.  What is the answer is clearly not universally yet known.  I suspect that the real answer must be left to one-on-one negotiation between the law firm and the individual lawyer who needs the flexibility.  The law firm that fails to address any such request in a manner satisfactory to the requestor will lose that talented individual, and perhaps more.

 7.         Clients and partners disagree about work-life balance.

            To some degree, this conclusion is a continuation of the previous discussion.  It seems that the parties are split equally. One half of clients and one half of partners believe that flexibility will solve the work-life balance, while the other half of each disagrees. As noted above, it is a problem and one that must be addressed in order to keep the younger generation involved with the legal profession.  The older, in-power generation scratches its collective head for a solution. Despite the best of intentions and goodwill, this older generation seems to be unable to understand why their followers (the generations behind them) don't have the same values as they do. Nor do they seem to be able to develop generic solutions acceptable to the younger generation as a group.

 I remember the argument that we have enough lawyers in this country; that all legal needs could be met, that it is merely a matter of matching the supply with the demand. Perhaps there is a parallel here. It may be that our real problem is that we must match the clients who accept  work-life balance for themselves, as well as for those who serve their interests (demand), with the attorneys who believe that they can perform excellent legal services at the same time they have a reasonable life (supply).

The Eversheds report clearly is a great starting point for discussion. Unfortunately, there are no solutions provided. And other than suggesting a willingness to be flexible, open to discussion and new ideas … and occasionally trying out a new idea here and there --- I have not heard any “expert” in generation differences develop a “one answer fits all” solution. Legal powerhouses must listen and adapt to the needs of both their lawyers, their staff and their clients in order to assure their business continuity. This is a “disaster” of a kind we’re not accustomed to thinking about, and certainly was not contemplated by the law firms involved in reacting to the disaster of 9/11 in my book, Disaster Preparedness & Recovery Planning for Law Firms. However, the basic principles there apply here as well. Planning (for the future) is essential to business continuity, the underlying principle of business.

If you’re representing larger businesses, my experience suggests that they don’t buy legal services based solely or even primarily on hourly rates. They, like most others, buy based on perceived value, expectations that you can provide solutions to their challenges and personal rapport.

Sending the letter as you’ve framed it brings the focus of your service to price. If you focus on price, you are a commodity ..and any other lawyer can compete with you on price if they choose to do so … However, once you create rapport, show that you can provide solutions and therefore are value oriented for them, you will attain their loyalty. That is the best marketing approach, I think, you can take in the circumstance you describe.

Have you thought of calling your clients … and merely thanking them for their loyalty and continued business …. (with, if you feel so inclined, an “oh by the way, my rates will remain the same in  2008)?  When the time arrives to raise rates, I would offer that you read my article on the subject of when and how to raise your rates.