An engagement agreement is designed to be a "two way street." The lawyer promises to do certain things... address the needs (and wants?) of the client; represent the client to address the challenge being faced by the client, whether it be a lawsuit or a transactional issue. And, of course, the lawyer is representing that he/she is competent to do so.

The client, on the other hand, promises to tell the truth to the lawyer, provide information and documents relative to the matter when requested by the lawyer to do so ... and to pay the fee as billed in accordance with their arrangement.

What are the consequences of failure to honor the respective promises?  For the lawyer, it is a malpractice suit and/or a disciplinary proceeding. For the client, it's withdrawal by the lawyer (unless on the eve of trial or otherwise would prejudice the client) or a lawsuit for payment of the fee.

BUT, some insurance carriers are lining up with clients, saying that if the lawyer sues for fees, and the client cross complains or counter sues for negligence or files a disciplinary complaint with the state bar, the carrier will not provide defense costs or pay any judgment against the lawyer. The effect of this is to deny the lawyer the ability to collect the fee when the client fails to pay.  Why pay insurance premiums for something you will not receive?  The $64 question.

Fee suit exclusions are a veiled attempt by insurance companies to raise premiums without notice to the lawyer. And, the lawyer generally isn't even aware of this exclusion.

Both law schools and insurance companies conspire to keep lawyers ignorant of the business nature of their practice. In no other industry do creditors ignore their rights and fail to sue debtors for refusal to pay legitimate debts resulting from their purchases. Why should lawyers be placed in a different position? Why should clients be encouraged not to pay their lawyers' fees?

The reality is, according to people I've spoken with in the industry, that there are few lawsuits filed by lawyers. (Perhaps it's because lawyers have been scared away.) Further, the reality is that there are few counter suits for negligence. The further reality is that lawyers win most of these lawsuits; the figure I've been given is winning 9 out 10.

Seems that the lawyers face a big challenge:  Failure of the law schools to teach business practices so lawyers can more effectively represent clients and efficiently deliver legal services; insurance carriers looking out for themselves, not their customers (lawyers); and bar associations believing their sole function is to protect the public, rather than a dual function of protecting the public AND helping their members (lawyers) to become better practitioners (including business skills).

Lawyers who survive in this environment should be commended.

Sarah Martinez, a recent law school grad, broke the ice. She has sued Howard, Rice, Nemerovski, Canady, Falk & Rabkin in San Francisco Superior Court for extending her an offer of employment, deferring it and now reneging, saying it didn't have the resources to hire anyone in the near future. Among the counts alleged are racial discrimination, sex discrimination, and breach of contract.

While every case stands on its own facts and merits, it's clear that Big Law will have to alter its offering policies in the future. The impact on law schools and those coming up through the grades is yet to be determined, but I suspect it will dramatically alter the economics of the future practice.

Disclaimer: I'm responsible for two of the volume's chapters. There are many contributors and editors who have made this an outstanding reference work.

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.

But, whatever one thinks about Brill, The American Lawyer has done it again. This time, on the negative side of the practice of law, layoffs.

Listing of firms and articles concerning layoffs is the first time I've seen this all in one place. Scary to think that there is so much of this going on that it merits concentrated press coverage.

Today, lawyers in the large law firms understand that law is an honorable profession, but is also a business.

Peter Zeughauser in the ALM Law Firm Leaders conference said that the AmLaw 100 revenues are $64.5 B. That’s BILLION dollars. And 3 firms account for 10% of that number; that “profits” (why are we talking about profits if we’re not in business?) increased 8.7% in 2008, ranging from a low of $410,000 to $4.95 million.

And I agree wholeheartedly with Allison's conclusion:  "If your firm hasn't started the strategic planning process, now is as good a time as any to begin. Your strategic plan can begin by focusing on where your firm is now, what challenges it faces and what resources are available to meet those challenges and anticipate what might happen in the future and begin scripting a response so that you can act instead of panicking."

•    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.

• What are your clients’ key industry pubs reporting on today? Understand how the financial markets impact their companies.
• If your clients/referral sources are at risk, call and see how you can be of service to THEM. Not just their companies, but THEM. If their company is on the brink of collapse or bankruptcy, their first concerns will be about putting food on their table, not who is handling the filings.
• Face time. Face time. Face time. You need to be, and stay, top-of-mind with your key contacts.
• For we marketers, time to start thinking about clearing our budgets of “unnecessary” items. Now might not be the best time to kick-off a rebranding campaign or overhaul the website. I’m not going to ask for a high-capacity color laser printer right now. End-of-year charitable contributions/tables-of-ten will soon be reaching your desks. How are you going to evaluate them?

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>

Here are some of the key findings of the research report and my thoughts related thereto:

            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.