Ed discusses 8 steps that law practitioners can take to survive a recession.
The Problem with Bankruptcy Isn't Attorneys' Fees, It's Executive Incompetence - As Posted in Alan Weiss's Contrarian Consulting Blog.
Recently my article about Who Sets The Lawyer Fees was used as a guest blog by Alan Weiss. The blog discusses the recent Wall Street Journal article about the Justice Department's attempt to control fees that the bankruptcy lawyers seek, and the possibility that the U.S. Trustee Program may now be entering the fray.
In case you missed it, here's the link to Alan's blog: bit.ly/KoDDLx
Verizon - Redux: The power of blogging is apparent when Verizon calls me the day after my original post in this column about their service, or lack thereof, to ask how they can address the problems I raised. I glad to say that the issues I raised have been resolved. The process, however, is fascinating to me.
The day after my post, I attended a conference conducted by my own business coach, Alan Weiss. While there, coincidentally, Verizon Fios was conducting a sales training program. I talked to one of the folks running the program, who then introduced me to a district manager. He knows the store manager where my incident occurred and said he would contact him. (I have still not heard from him.) Also, during the day, another higher up attempted to reach me by phone. On my return later in the day, I returned the call ... and we finally connected.
The billing issue that arose after my purchases was resolved to my satisfaction, and I learned more about Verizon. One,I was told they outsource their collection issues rather than first seeking to resolve any questions internally. To my way of thinking, this is a mistake because most billing issues result from the actions of the creditor. And, in the case of lawyers, unresolved billing issues could result in a malpractice action. Wouldn't it be better to address the billing issue, resolve it and retain the goodwill of the client, not to mention the client's future business? Verizon, being in an oligarchic position, apparently, doesn't understand the nuance. Of course, collection is not their strength; sales and service is. But, I would think that better collection techniques could enhance rather than destroy customer goodwill.
Second, I learned that neither he store level nor the first contact person can resolve these issues. They have to be pushed "upstairs." In this case, it was another district manager who had the authority. One of the lessons learned from Ritz Carlton Hotels (now a division of Marriott) is that all front line personnel have the authority to spend up to $2,500 to satisfy customer complaints. SAS, the airline, after their bankruptcy, pushed all decision-making authority down to the lowest level. This process made sure that customer issues are resolved as quickly as possible; that the sour taste of complaints does not remain with the customer longer than need be; and that senior folks are focusing on what they are hired to do ... not to settle what usually amounts to "small" issues.
In the case of lawyers, value is in the eye of the beholder, the client. Lawyers can/should adjust bills in order to match value as seen by the client. Most billing issues, in my opinion, are set up by the lawyer in the first intake session. A full discussion not only of the matter, but also the fee to be charged for the matter, will likely avoid most billing problems ... and assure the lawyer is paid on time and in full.
Next, I learned that Verizon is experimenting in our geographic area (Southern California) with requiring appointments so that customers can better plan their time and be served without interruption. I commend the company for seeking to offer better service. I believe (this is unsolicited feedback) that a combination approach would work better .... that is, make appointments and serve "walk-ins" if / when their representatives are available. It is difficult to manage any large company. Verizon certainly is in this category. But, then, so is Apple and Apple, among others seems to be able to address appointments as well as walk-ins.
Bottom line, I'm pleased with my purchases from Verizon, which included the new iPad and Motorola Razr Maxx, and I'm pleased with finally dealing with the other issues that arose. It was unfortunate that Verizon could not have handled our issues more effectively, with less turmoil, in order to retain that sweet smell of consumer purchase euphoria.
In the Wall Street Journal, staff writer, Jacqueline Palank discusses the Justice Department’s attempt to control fees that bankruptcy lawyers seek. Creditors and employees may, at times, be a bit disgruntled by such fees. So, now, the U.S. Trustee Program appears to be entering the fray.
Before going further, it should be noted that i) any fee sought by an attorney must first be approved by the client going into bankruptcy; ii) the fee cannot be paid before a Bankruptcy Court Judge approves the fee request; iii) the legal fees most often are a pittance compared to the debts of the company and thus have little or no impact on either the creditors or the employees. In fact, the current proposal is limited to companies whose assets and debts exceed $50 million, hardly your "normal" bankruptcy.
The only reason for focusing on the legal fees is that this is a topic that makes good reading in the tabloids, including the WSJ. While the quoted hourly rate received by some attorneys seems high, it is insignificant in comparison to the compensation received by incompetent CEOs and others in the C-suite offices. Why don’t the tabloids focus on the cause of the bankruptcy? Why not focus on the compensation of the management team, which often is at astronomically higher multiples compared the lowest paid employees of the company? Why not seek redress against the management that is responsible for bringing the company to its knees? Although this focus may have more positive economic impact, it clearly is not sexy enough to sell many papers.
The U.S. Trustee is proposing, according to the writer, several new approaches to control lawyers’ fees, including:
• Though the lawyer applicant must disclose his/her hourly rate now, the Justice Department wants the lawyer to disclose the lowest, highest and average hourly rates the law firm charges in all its matters.
• The Department wants the lawyer applicant to create and disclose to the Court a budget for legal expenses. This budget would, necessarily, disclose to all involved, including the creditors who are adversaries of the bankrupt, the client’s planned legal strategy.
In the 1960s, the Supreme Court ruled that it was anti-competitive for bar associations to maintain a listing of suggested fees for different types of work. Such a listing, in particular, helped younger and newer lawyers set their fees at rates that were more in line with more senior lawyers. Not having such a list would compel lawyers to set their own fees, the theory being that lawyers would then be more competitive with one another to the consumers’ benefit. The Trustee by its first proposal ignores this. The existing disclosure already provides information that tends to be anti-competitive. Law firms can see what others are charging and price their own services accordingly, causing rates to slowly increase in lockstep over the years.
Intruding into the fees charged for practice areas, such as general business matters, estate planning, tax work, and other areas of work performed by the firms who also do bankruptcy work has no bearing on the special expertise of large company bankruptcy lawyers. No area of law other than bankruptcy requires such disclosure for court approval. Fees are left to be negotiated between attorney and client. Other than precedent, there is no reason disclosure should be made here either and the process should not be extended. “Transparency” is a bogus issue. There is no backroom conspiracy on how bankruptcy fees are charged. All the proceedings are public and must be approved by the Court before attorneys are paid anything.
Budgets are good. I recommend them to my attorney-clients with whom I consult. Budgeting is a process, however, between the client and the attorney. By requiring that bankruptcy budgets, which reveal legal strategy, be made public, the U.S. Trustee is saying that bankrupt companies have no rights. They have no right to advocacy; they have no right to develop a strategy that might affect creditors' claims; and they have no right of confidentiality. This is clearly contrary to the U.S. Constitution and our entire judicial system. While the bankrupts, and their inept management, may have proceeded down an economically unwise path, they still have rights to seek the best windup of affairs in their economic environment.
Don’t worry about the lawyers’ hourly rates once the bankruptcy petition is filed. They are regulated first, by the client, and second, by the Court. Who is watching the compensation of the management team before the company entered bankruptcy? Why are inept executives not punished with fines, or worse, for malfeasance and negligent management tactics? Why are they allowed to benefit so expansively at the expense of their workers? Why don’t the tabloids focus their sharp light there? Oh, I forgot, the tabloids need to sell papers, they are part of the industrial complex that both Presidents Washington and Eisenhower warned us about as they left office. Perhaps the fact that quite a few newspapers and newspaper chains (Tribune Co. and papers in Detroit, Denver, Minneapolis, Philadelphia and many other cities) have been mismanaged and had to file for bankruptcy has something to do with it, too.
In today’s Wall Street Journal, staff writer, Jacqueline Palank discusses the Justice Department’s attempt to control fees that bankruptcy lawyers seek. Creditors and employees may, at times, be a bit disgruntled by such fees. So, now, the U.S. Trustee Program appears to be entering the fray.
Before going further, it should be noted that i) any fee sought by an attorney must first be approved by the client going into bankruptcy; ii) the fee cannot be paid before a Bankruptcy Court Judge approves the fee request; iii) the legal fees most often are a pittance compared to the debts of the company and thus have little or no impact on either the creditors or the employees. In fact, the current proposal is limited to companies whose assets and debts exceed $50 million, hardly your "normal" bankruptcy.
The only reason for focusing on the legal fees is that this is a topic that makes good reading in the tabloids, including the WSJ. While the quoted hourly rate received by some attorneys seems high, by comparing this to the compensation received by incompetent CEOs and others in the C-suite offices, it is insignificant. Why don’t the tabloids focus on the cause of the bankruptcy? Why not focus on the compensation of the management team, oftentimes earning historically astronomically higher multiples compared the lowest paid employees of the company? Why not seek redress against the management that is responsible for bringing the company to its knees? Although this focus may be more important for us to understand how our economic system works, it clearly is not sexy enough to sell many papers.
The U.S. Trustee is proposing, according to the writer, several new approaches to control lawyers’ fees, including:
• Though the lawyer applicant must disclose his/her hourly rate now, the Department wants the lawyer to disclose the lowest, highest and average hourly rates the law firm charges in all its matters.
• The Department wants the lawyer applicant to create and disclose to the Court a budget for legal expenses. This budget would, necessarily, disclose to all involved, including the creditors who are adversaries of the bankrupt, the legal strategy to be engaged in by the client.
In the 1960s, the Supreme Court ruled that it was anti-competitive for bar associations to maintain a listing of suggested fees for different types of work. This listing, in particular, helped younger and newer lawyers set their fees at rates that were more in line with more senior lawyers. Not having such a list would compel lawyers to set their own fees, the theory being that lawyers would then be more competitive with one another to the consumers’ benefit. The Trustee by its first proposal ignores this. The existing disclosure already provides information that tends to be anti-competitive. Law firms can see what others are charging and price their services accordingly, causing rates to slowly increase over the years.
Intruding into practice areas, such as general business matters, estate planning, tax work, and other areas of work performed by the firms who also do bankruptcy work has no bearing on the special expertise of large company bankruptcy lawyers. No area of law other than bankruptcy requires such disclosure for court approval. Fees are left to be negotiated between attorney and client. Other than precedent, there is no reason disclosure should be made here either. But, the process should not be extended. “Transparency” is a bogus issue. This is not some backroom conspiracy. All the proceedings are public and must be approved by the Court before attorneys are paid anything.
Budgets are good. I recommend them to my attorney-clients with whom I consult. This is a process, however, between the client and the attorney. By requiring that these budgets, which reveal legal strategy, be made public, the U.S. Trustee is saying that bankrupt companies have no rights. They have no right to advocacy; they have no right to develop a strategy that might affect creditors' claims; and they have no right of privacy. This is clearly contrary to the U.S. Constitution and our entire judicial system. While the bankrupts, and their inept management, may have proceeded down an economically unwise path, they still have rights to seek the best of what is left to them in their economic environment.
Don’t worry about the lawyers hourly rates once the bankruptcy petition is filed. They are regulated first, by the client, and second, by the Court. Who is watching the compensation of the management team before they enter bankruptcy? Why are they not punished with fines, or worse, for malfeasance and negligent management tactics? Why are they allowed to benefit so expansively at the expense of their workers? Why don’t the tabloids focus their sharp light there?
Oh, I forgot, the tabloids need to sell papers, they are part of the industrial complex that both Presidents Washington and Eisenhower warned us about as they left office.
In the Opinion section of today's Wall Street Journal, two fellows from the Brookings Institute espouse their philosophy for deregulating the legal profession: Let anyone practice law; whether they've gone through law school or not, and allow anyone to own a law firm.
These are not new ideas, but the assertion that these ideas are the key to lowering costs of delivery of legal services is misplaced.
First, the licensing of lawyers is to protect the public; they are not there to protect the interests of lawyers. For example, an individual must be competent to represent and advocate for the interests of a client. It’s the same principle as licensing doctors. Incompetence either in court or in the operating room can cost people their lives.
Second, technology provides many avenues to reduce legal costs. Removing the licensing requirements has no impact on this issue. Yes, requiring a license does cost money and does cost time (opportunity costs for the student), but it also impacts the quality of services delivered ... just as in the case of medicine (oh yes, and plumbing), etc. Why not remove licensing requirements for everyone in everything, from medicine, to plumbing, to driving a car. Licensing assures a minimum standard of quality. Licensing requirements in specific areas of human endeavor are society's way of self-protection. Caveat emptor is acceptable, but not to the degree apparently desired by the authors of the Brookings report.
If lower legal costs are the objective, the argument should focus more on the pricing modalities as they impact the cost of legal services rather than the governance of the law firm. We've talked about this on previous occasions.
Third, the underlying premise that licensing provides an insurmountable barrier to entry and substantially raises costs by controlling supply might be true if one doesn't look at the facts of recent and current reality. There are many more lawyers than the current demand can accommodate. Many lawyers cannot find work. Thus, it is illogical to suggest that licensing is the cause for higher legal costs. Those lawyers who are working often provide legal services at lower rates than they used to charge. Even large law firms find significant resistance to raising their rates. Are legal expenses high? Yes, but compared to what? How low should these prices be before they are acceptable? And, if there is no regulation, we might likely see larger law firms pattern their pricing after one another, just as the unregulated airlines currently do, so that the benefit of lower costs would not be evident.
There is no price regulation now in the airline industry. Yet, it's remarkable how similar airline prices are. Yes, there are a few low cost airlines such as Southwest. And, yes, there are also lower cost law firms as we sit here today, even with the regulations we have in place. The only benefit of the authors' "non-licensing" proposal would be the destruction of minimum standards of quality. Caveat emptor might be acceptable if the public had a way of knowing what the quality standards should be ... but they don't and they won't.
Combining other skills such as accounting into one organization (the old "multi-discipline" argument) is not required ... many law firms already work closely with allied professionals for the benefit of clients. This is merely a non-issue.
Dewey, which went into Bankruptcy Court last night, did not fail for lack of credit. The firm had been extended bank lines of credit. It failed for lack of effective management. It's unlikely that investors or others would have given Dewey more money if they understood the true nature of the firm's economics and governance. Thus, this is also a non-issue for the authors’ arguments.
In sum, law firms function no differently from all other businesses. Good, solid business decisions must be made to attract customers/clients and operate cost-effectively. Dewey failed on both counts. The arguments put forth by the authors would not have changed this outcome. But, in the terms of business, by going into bankruptcy, the firm may be able to disgorge its unfunded pension obligations and become a viable candidate for acquisition by another large firm. That’s when the principle of caveat emptor really comes into play – as a normal risk that businesses take every day.
Among the topics discussed on this day were:
- Social media
- Financial metrics of a successful law practice
- Marketing gravity and the need to have something in each stroke of the marketing wheel
- Cash flow as the single most important financial statement for a law office.
Fee suit exclusions seem to be the latest insurance ploy to cheat unsuspecting lawyers.
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.
In a recent study of the top 100 general counsel, a woman was listed as the top earner (more than $6 million) and more women (14) appeared in the list. This is the first and most since the study began.
At a recent presentation on our Road to Revenue National Tour, a young lawyer was concerned. She said that she has a new practice and has been successful in keeping her accounts receivable to a minimum. In other words, she has been able to work, bill and get paid quickly, the three elements of my 3Dimensional Lawyer® . Her concern, though, is that her pipeline for new business seems to be empty. She is concerned that prompt payment has an impact on additional work to be lined up for her to do.
In order of priority, one needs to get the work … marketing. Then, one must do the work. Production. Next, one needs to get paid. Finance. These are the three legs of the stool. The successful lawyer/law firm must focus on collections. Less than a 90% realization/collection rate is a symbol of future trouble.
In this lawyer’s situation, she is successful in the collection phase. In fact, it’s difficult to imagine a higher success rate when you have little to no accounts receivable.
The focus, then, needs to be on marketing, getting more work to fill the pipeline. These are separate and distinct issues. Relish in your success collecting your billings and address the marketing to attract more clients.
Yes, say some.
Only a short time ago, we believed that non-lawyers would be able to participate in the ownership of American law firms. The pressure, so we believed, would come from the British Empire. Australia already allows this and it will soon be permitted in England. But, not the U.S. ... until now.
The District of Columbia permits non-lawyer ownership to the extent of 25% interest in a law firm. And, now, North Carolina has a bill before its Senate that would allow 49% non-lawyer ownership.
One argument is that law firms have expanded and are now very large organizations. In order to grow, they need additional capital ... and capital is best raised in the capital markets, not from individual partners of law firms ... and that means non-lawyer ownership. While large law firms are looking more and more like their corporate clients, it is still a stretch to suggest that law firms should raise outside capital.
Do law firms need to grow? Why can't corporate clients' interests be served well by smaller regional law firms? Why does the corporate law firm have to be as large as the client? We saw unions grow in both size and power in response to corporate and management growth and power. And we now see unions fighting to stay alive. Will that also happen to large law firms of the future? Will technology enable small groups of lawyers to be effective in large corporate representation?
Some argue that the rules of professional conduct wouldn't bind non-lawyers in matters of confidentiality and charging reasonable fees. Further, the very independence of lawyer's judgment might come into question. But, the rules have been bent, if not changed or discarded entirely, when large firms' economic interests were at stake. So, it will be fascinating to see who argues on which side and how this issue develops.
Is it possible that this issue will finally cause the break up of the mandatory (integrated) bar association into State licensing agencies on the one hand and voluntary bar associations on the other hand ... with the latter being the home of sole and small firm practitioners banding together to serve their own economic interests?
I recently wrote in my LawBiz Tips Ezine about how law schools continue to churn out new graduates even as demand for them drops, and cited a New York Times article on this issue that concluded: “Today, American law schools are like factories that no force has the power to slow down – not even the timeless dictates of supply and demand.”
Now it appears that the law of supply and demand has not been repealed after all. The Wall Street Journal reports numbers from the Law School Admissions Council showing that the number of law-school applicants this year is down 11.5% from a year ago to 66,876. The figure, which is a tally of applications for the fall 2011 class, is the lowest since 2001 at this stage of the process, which is almost 90% completed.
The reasons aren’t hard to understand. Firms increasingly prefer to hire lateral attorneys who have already had on-the-job training and books of business, rather than new graduates who don’t understand “The Business of Law®” and will take years to begin returning a profit on the investment made in them. And from the student side, the realization that going six figures into debt to get a J.D. degree that offers no assurance of gainful employment is not exactly a smart idea – especially for those whose main motivation to attend law school was to make the supposed “big bucks” available rather than to pursue a legal career.
So who is hurt most if the law school bubble does burst? We can only hope it will be the law schools themselves, who continue to pour huge resources into “gaming” the law school rankings so that they can move up from number 19 to number 17 and thereby (they presume) entice more students to enroll. When the housing bubble burst, it was – and continues to be – the financial geniuses at the banks who were left holding the bag. Are law school administrators any smarter?
Effective March 15, the Howrey law firm, which once employed as many as 750 lawyers, dissolved. As in past megafirm failures … Brobeck, Altheimer, Thelen, the list goes on … there never is just one, but a variety of root causes that feed the primary death blow, an exodus of lawyers.
In Howrey’s case as a litigation-focused firm, according to the firm’s CEO (quoted in the ABA Journal), up to 11% of the firm’s billable hours were devoted to contingency matters. “Some people, including some fairly high-level people, sort of bailed on us when they didn't get exactly what they wanted,” the CEO said. “You have to ask your partners to be patient until it [contingency billing] pays off, and not everyone is patient enough.”
In pure contingency law firms, that's exactly what every equity lawyer does, wait. Wait until the judgment or settlement is paid. Why should that be different with the Howrey firm? Lawyers working on contingency matters bring no money into the firm, yet are responsible for many dollars flowing out ... in the form of lawyer and staff compensation and expenses advanced to sustain the lawsuit. And if the result of the case doesn’t benefit the firm, the loss can be substantial.
But, the lawyers of the firm knew that. Thus, the question, why is it now that there is objection? Though conjecture, apparently, Howrey partners wanted pure hourly billing, less contingency work … and were uncomfortable with advancing costs for matters in which they were at risk. They seemingly could not determine, to the satisfaction of enough, how to divide the compensation pool when revenues arrived out of sequence to the work performed connected with those revenues.
If fees to the firm based on contingency reached 11%, it’s almost like having one client exceed the 10% threshold, a level that I’ve said before is dangerous. Control of this much money was essentially out of the partners’ hands, unless the firm only took on matters that were virtually sure things … which conversely would lessen the likelihood of a big contingency payout.
Other factors to consider that would lessen the threat to my 10% rule is that it's unlikely that any one matter reached 10%; if the intake decisions were wise, the firm benefited more than it suffered from periodic big revenue bumps; in today's world of "value billing," the firm would be at the forefront of aligning its interests with those of its clients. The firm should have been able, with good cash flow management and a committed group of partners to the team concept, to marry both worlds of contingency and hourly billings.
The ultimate lesson in this dissolution seems to be that Howrey fostered an environment of solo silos (with some lawyers piling up cost but poised to earn a great deal of money if "their" ship came in), not an environment where everyone was pulling for the whole (irrespective of how they brought in the revenue.
Any firm that encourages lawyers to maximize their individual compensation may have fast near-term growth. But approaching compensation as an institution makes for greater firm harmony and longevity of the firm as an institution ... and, in my opinion, greater long-term value for all.
In today’s Managing Partners Roundtable, we talked about the costs of digitizing all files the firm maintains. One partner suggested that failure to do so might result in malpractice allegations. This is an interesting concept, one that I don’t believe has yet taken hold.
Cons: Expensive, time consuming, lawyers must be involved to determine which file matters can be "cleansed" and tossed, files must be taken apart to scan, decisions on what hard copy to toss now and what to save (and for how much longer)
Pros: Reduction in amount of real estate needed to store files, lower cost of occupancy resulting from a conversion, searchability by keyword rather than memory, one time investment.
Several years ago, a Chicago law firm began this process by scanning documents through a photocopy machine. Their contract provided for payment only when paper was copied and printed, not just scanned. Thus, this segment had limited cost. Disabled people were employed to do the work, thus enabling the firm to do well by doing good, and maintain its cost of labor at a lower cost than would have resulted with its own personnel. The entire process was conducted in the evening so the normal workflow of the firm was not disrupted. This firm was ahead of its time in this process.
In today’s meeting, I learned of a major firm that completed this project last year at a rather high cost. But, the investment was believed to be essential to an efficient future operation of the firm. And, of course, younger lawyers are so conversant with the electronic world that some seldom even touch paper anymore.
Technology has and will continue to have a major impact on the efficiency of the delivery of legal services and the costs to clients.
My friend and colleague Carolyn Elefant, on her MyShingle.com blog, recently spoke to me about issues in selling a law practice (/). Carolyn raised an excellent point when discussing an advertisement by a 70-year old lawyer in Kansas who sought to sell his practice. The advertisement featured the fact that the firm uses practice management software tools like Amicus, HotDocs and QuickBooks, and has a database with a list of 4000 contacts. As Carolyn observed, such information is ample evidence that the firm has at least made an adequate investment in technology.
This is an important point in two respects. First, if a lawyer contemplating retirement has not kept the practice’s technology up to speed, the value is going to be diminished in negotiations once a potential purchaser realizes that a substantial IT investment will be necessary. The principle is the same as that of a house purchaser who wants $20,000 off the purchase price if the house needs a new roof that the purchaser will have to pay for.
The second important point is more positive. If you have done the right things with your practice – kept technology up to date, invested in new office space with modern infrastructure, maintained strong referral relationships with other firms – be sure to communicate those facts up front. Their value may not be easily quantifiable, but they definitely support the firm’s goodwill: its reputation, client base and client loyalty. The decision to sell a practice is no time to be modest, or to assume that the firm’s virtues are self-evident. Communicate those virtues up front, and make sure potential purchasers know how their worth supports your asking price.
In today's WSJ, a lead article talks about the courts in New York requiring the lenders in foreclosure suits to be honest in the filing of their documents. This follows the Florida cases with "robo signers." Affidavits claiming full knowledge of the facts of each matter were signed by employees of the lenders and the mortgage servicing companies as well as improperly notarized. Lawyers are being blamed for filing defective documents.
Lenders made the loans, their servicing agents prepared the information and signed the affidavits under penalty of perjury. Yet, the focus of attention seems to be falling on the attorneys. Somehow, attorneys are expected to verify that their clients are telling the truth. I thought that was the function of the trier of fact, either the jury or the judge. What am I missing here? Or, is this just one more case of seeking to toss the blame anywhere but where it belongs.
Lawyers in our system of justice are the messenger. Lawyers present the evidence in the light best suited to tell the client's story ... but it is the client's story ... and the only obligation on the part of the attorney is not to allow known perjury to be placed before the trier of fact. How and why is that now being altered?
The mortgage companies are now saying that the cost of foreclosures and loan modifications will increase, hurting consumers! Wow, it is an affront to human intelligence to suggest that the cleanup of their corruption (filing false documents with the court) will cause consumers to pay more!
Today, I had a discussion with a very bright individual who is seeking new office quarters. He was having difficulty with the math, so he thought. He was seeking to understand the interplay between basic rent, common area charges (charges for maintenance, taxes, etc. that the landlord assesses at the end of each lease year to cover the cost of operating the building, paid pro rata by each tenant), and his actual cost of occupancy (total actual rent!).
I suggested that he walk away from this bottom down thinking. Instead, I suggested he look at the situation bottom up, and get his real estate broker involved to earn his keep.
First, figure out what you want to pay for monthly and/or annual rent. You can do this in a number of different ways. You can say that historically I've earned X% profit on Y number of revenue dollars; when I move into new quarters, I will earn more revenue because (better facilities, closer to prospective clients, larger space to hire more staff, etc.) and therefore, with the same percentage for occupancy cost, I can pay more .... and that number is $X.
Or you can say my revenue is likely to stay the same even after the move (or I'm not sure and I want to be conservative) ... and don't want to pay more than the same rent I'm paying now. That number is $X.
With that number in mind, tell your broker to find you the space you require (with the specifications you want) for that amount. Don't worry what words are used, whether base rent or common area charges, etc. The lease contract must state that the maximum annual rent will be $X.
If the broker says that you can find plenty of space for that amount, great; if he says you're crazy, there is no space for that amount, then you have choices to make: Work harder, work smarter to earn more revenue/profit to pay the higher rent, reduce your profit and take-home pay, or join forces with another to share the space and cost of the space.
But, don't let others dictate how you should think. Don't let the system force you into a thinking pattern that will confuse you or prevent you from knowing what your cost of operation will be.
In the recent California Lawyer’s Annual Professional Liability Insurance Report, the writer quotes the ABA. Their study shows that 44,000 claims were lodged against insured lawyers nationally within the study’s three year period. Of this group, “...(s)olos and smaller firms were sued the most: 70 percent of all insurance claims were brought against lawyers in firms with one to five attorneys.”
I suppose this was the basis for arguing that lawyers either need malpractice insurance or should disclose to their clients that they don’t have such insurance. Yet, if 70% of the legal community works in the small firm environment, wouldn’t it make sense that 70% of the claims would be filed against this goup?
Despite these statistics, there is no study ever cited that shows how many claims, IF ANY, were filed against the approximately 30,000 (20%) attorneys in California who do not carry malpractice insurance. There is no study to conclude they have claims filed against them; there is no study to conclude they have been unable to negotiate settlements with their aggrieved clients, if any; there is no study to conclude these are “bad” or negligent attorneys from whom the public needs protection.
Despite this, the Bar (now about 23 states) has moved forward in lock-step to punish this group of attorneys by increasing their already marginal cost of operation and forcing them to become adversarial with their prospective clients by having this discussion.
Clever lawyers who may seek to avoid the negative consequences of this new rule can take a number of alternative paths to side-step the issue. They can obtain the most minimal policy, the true net effect of which will leave nothing for the client at the end of any malpractice litigation. They can bury the required disclosure language in a long written engagement agreement, seldom read by clients, thus avoiding the necessity of raising the issue with the client. Among other tactics.
As in other instances, the Bar fails to protect its members who pay their salaries and fails to protect the public by availing attorneys with affordable negligence insurance.
West Pub. Co. has announced the pre-release offering for my new book, Growing Your Law Practice in Tough Times.
I'm very excited about the new book ... and encourage you to take advantage of West's offer. You can also see the new offering at LawBiz.
NALP survey suggests that 2% of 2008 graduates opened a solo practice within 9 months of graduation! That's a lot of folks who will be representing clients without prior experience either in the management of a practice or much experience in the technical practice areas (tax, family law, bankruptcy, etc.).
I wonder what kind of representation their clients are receiving ... and how does one interpret or define "competence?'' What do you think?
There is a movement afoot to create an apprenticeship program for lawyers. Georgia and Utah both require first year associates to enter a mentor program; of course, there is no requirement that senior lawyers be mentors, so I'm not sure how their programs work in actual practice.
And Howery has recently announced an apprentice program that is getting a lot of attention. Their new hires will split their time between shadowing senior partners, taking classes and working on "low-grade" client matters, being billed out at very low rates.
The recession/depression ("The Great Reset") has provided the excuse for a recalibration of the economics of law practice by many, both clients and law firms.
Today, I talked with a solicitor from London who is studying knowledge management and its implementation in UK firms to increase profits. Since much of their work is based on fixed fees, any improvement in efficiency will go directly to the bottom line.
They even employ a group of lawyers whose primary function is to improve their knowledge base, organize it and make it more searchable, all with the view to reduce the time needed to create documents for a new transaction and increase the margins of profit. These lawyers do not engage with clients; their focus is on the infrastructure of the firm and its improvement.
Since her firm (she says most are like hers) uses only the fixed fee billing model, there is no focus on the billable hour; this, then, allows the focus to be on efficiency. Thus far, American law firms do not use this model much ... and thus their focus on cost cutting today is primarily because of the decrease in demand they've experienced from the crises of their clients. That is a far cry, however, from having a focus on efficiency ... Cost cutting and efficiency are not necessarily the same.
An interesting contrast presented today by the solicitor: Increased profit by increased efficiency under a fixed fee engagement agreement. While the American law firm model is increased profit by incresing the hourly billing rate. As clients begin to revolt at annual price increases, American law firms will need to look at alternative fee arrangements to keep clients ... then, their focus might turn to efficiencies in the delivery of those services.
My wife is fond of say, "there is no free lunch." The fixed fee approach is not necesarrily a panacea for profitability. With a fixed fee, there is the inevitable pressure to reduce that fee and squeeze the firm's profit margins. It's an easier target than is the billable hour (where the number of hours can be fudged without much challenge). But, that's another story for another day.
A recent quote from Associated Press: "The economic downturn has meant less work for law firms, fewer experienced attorneys leaving jobs and thousands of lawyers laid off. From August 2008 to August 2009, total law office employment fell by nearly 26,000 jobs, a mere 2 percent but striking for an industry accustomed to constant growth."
Of course, these figures ignore the larger impact on the profession: small law firm lawyers who are being laid off, sole practitioners and small firm lawyers who are experiencing lower demand for their services and law school graduates who are not finding work in any size law firm.
Just today, I met someone who, in frustration, said to me that he’s a college graduate, yet has to sell vacuum cleaners. Will today’s lawyers find themselves in a similar state? How can today's law graduates who don't find immediate work and lawyers who have been laid off take advantage of their legal education and still feel good about their vocation?
I do believe times will be better. But, having gone through the last great meltdown after the Vietnam war, I believe it will take more than ten years to forget the current recession/depression ... For some, there are great opportunities even today; for others, adjustments will be needed, and the passage of time.
Bullies cost you money! Addressing this topic is not a "soft skill" but one that goes right to the "bottom line." Tolerate bullying in the workplace and you will experience lost time, lost ncentive and lost resources when skilled staff take time off from work, lose motivation or suffer stress burnout and leave the job for another. The cost to business is in the billions of dollars annually.
The converse is true. Creating a culture of collegiality, cooperation and teamwork creates enhanced performance, greater successes and even higher profits.
Bullying, by definition, is unwelcome behavior including unwarranted or invalid criticism, exclusion and isolation, being singled out and treated differently, and being humiliated in front of others. One study shows that younger women suffer bullying at the hands of older women ... but this phenomenon is not limited to women ... and sexual harrassment is only one aspect ...
Male clients find often find that how they respond to the bullying tactics of their male superiors is a critical feature of whether they succeed in the law firm and whether they make partner or are asked to leave. Irrespective of how they deal with bullying tactics such as imposition of unreal time deadlines and nitpicking of their draft documents, the psychological toll on the lawyer is humongous ... including stress in their home life.
In one such experience, I helped a client negotiate his way with the supervising partner through a particularly stressful project. On its conclusion, I suggested that he stop on the way home to buy flowers for his wife. I explained that his wife had been a "passenger" through his recent difficulties ... and that since he had come out the other side successfully, he needed to share some of the good times with her ... She had supported him without knowing the details and deserved recognition for her efforts. He later reported that his consideration was a huge success!
Had the firm's culture not tolerated this bully, their productivity and profitability and bonding would have been significantly higher.
Yes, bullying is exaggerated in times of recession and credit crunch, if allowed ... But, it need not be.
In a suit, Williams & Connolly, a D.C. law firm, is seeking payment of more than $2 million in legal fees. The client and law firm apparently resolved their differences and created a payout plan, with the client pay 1/3 of the amount ... and now refusing to pay the balance or 2/3 remaining amount.
What makes this case more interesting is that a resolution of the fee dispute was achieved. And later, the client refused to honor the settlement agreement. The client ostensibly believes it can harrass the law firm and then settle again for a lesser amount.
Questions for the law firm:
1. Why did you allow fees to get so high in the first place? Collections should have been more aggressive.
2. Did you have a budget for the litigation for the client that the client accepted ... or was nothing said about the extent of the legal services to be delivered?
3. Was the size of the legal fee a surprise to the client?
4. Why didn't you fire the client before $2 mil?
5. Why didn't you get security for payment of the settlement amount, such as a stipulated judgment in the event of a default or other guarantee such as a letter of credit?
Someone was asleep at the switch...both during intake and during the representation ... and seemingly also at the negotiation for settlement of the fee dispute.
News about the health care reform package is getting more interesting. As we get closer to a vote of some kind, the identities of the players and respective positions are becoming more clear.
In today's analysis, the drug companies are joyous. If universal health care is adopted, the pharmaceutical industry benefits ... with more folks insured, more drugs will be prescribed that will be covered by insurance ... to their benefit. However, insurance companies will hurt a bit ... no one is yet sure how much. With more people insured, their costs presumably increase. With the right to maintain - retain insurance despite the loss of employment, COBRA income goes down. With prior medical history being irrelevant for coverage, insurance carriers will have to take on some risks they would have eschewed earlier. Hmmmm. Sounds a bit like mandatory auto insurance. The details are not so significant to the ideas here and certainly not to some of the stakeholders. Can you name them all?
In your law practice, even if a sole practitioner, can you name all of the stakeholders? How do you seek to reconcile the differences among all of your stakeholders? As I mentioned in an earlier article, providing value is the name of the game in today's world. And how much more value could you provide with the stakeholders on "the same page," all working together for you and the same goal? And with that, how much more profitable would your firm be -- how much more income would you receive -- if you could create harmony among your various stakeholders .... such as clients, associates, staff, assistants, et al.?
Can you imagine that Twitter, WITHOUT any revenue stream, is valued at $1Billion! Wow. Not many employees and no revenue stream ... and no prospects in sight to get revenue.
Just think what your law firm, with a decent revenue stream, might be worth? What is the difference? And why isn't your firm worth $1B?
I've just returned from a presentation by accountants on valuing a law practice. They talked about "excess earnings," "discounted cash flow," and "market value." They essentially discussed the valuation of a law practice from the perspective of the divorce court which fails to recognize market value as an appropriate standard of valuation, ostensibly because they can't find enough data points to make the information reliable.
However, with all due respect to the courts (and the accountants who parroted the courts' standards, the reality is that the courts will use any logic (or lack thereof) to "do equity" as between the two spouses before the court. That does not reflect market reality.
In my experience, every law practice has value ... what it may be is a subject of further discussion, but it has value! And to use formulae that are created to perpetuate a fiction does an injustice to the lawyers who have spent a full career building their goodwill and now want to retire and realize benefits from that goodwill ... We are not in the divorce court!
With the technology available today, many people prefer to have their accounts paid automatically from their bank account. Charges such as telephone bills are processed directly to one’s bank account and then paid by the bank, oftentimes without the knowledge of the customer unless he/she reviews the account on line.
Today I read about a real nightmare in the L.A. Times. Verizon charged one customer for his cell phone bill, a charge just under $10,000. The bank said it normally doesn’t pay bills where there would be an overdraft; but when the vendor bills the account three times, the online bill pay system honors the third attempt and the customer is charged for the overdraft.
In this case, the bill was in error. The customer did not incur the charge. It was an error. And neither Verison nor Bank of America would reverse the entries without great effort and much consternation by the customer.
That is a perfect template for disaster! And the reason that this technology is one that I choose to avoid. I choose to retain control over my banking relations and vendor payments. This part of technology still frightens me.
Have you had any experience with such technology miscues?
Richard Susskind has written a book suggesting that lawyers may become obsolete unless we make some dramatic changes.
I see nothing unusual about his conclusion … that legal work will be unbundled and that the work that is more mundane and routine will be systematized and perhaps even automated. Technology advances provide us with opportunities that didn’t exist before. We can, today, create better product for less money. Technology is only one aspect. Globalization is another. And this isn’t just for the large law firms. A client of mine, in Texas, opened an office in India for the specific purpose of document review and document production – it’s done for less money more quickly … And he can get a faster turnaround because of the time difference.
Law is slow coming to this process. My background is in manufacturing. I’ve owned and operated several companies. In order to retain prices, not to increase prices, we would do everything we could to automate. When automation, reducing the amount of labor costs, would go no further, we reduced the size of the container. For example, we would go from 32 oz to a 22 oz jar or a 10 gal. container to a 5 gal. container.
When we have time of challenge as we do now or changes in our economy and culture, we have the opportunity to innovate for improvements in products and services. We have the opportunity to create new demand. I see this beginning to happen in our parts of our economy. It will have to happen in the legal profession, nay the legal business (The Business of Law®), if we are to continue to serve our public as we know.
Our economy is in the doldrums ... or better said, we're experiencing a depression. Signs abound. From unemployment exceeding 10% and more in some areas, to now thousands of lawyers and staff terminated from the large firms. Who knows how many more there are in small firms ...
One large firm managing partner cited an even more frightening fact: Many lawyers have been given generous severance packages in order to obtain liability waivers/releases and to keep the goodwill of those departing. In other words, they won't feel the impact for 6 to 12 months after leaving. We will see a ripple effect. As bad as it is now, it will get worse .... Unless the federal government is able to pull the rabbit out of the hat.
Our country was built with credit. One of the major thrusts for the Obama administration is to get banks to start lending again. Banks didn't do this with the first half of the major funding passed in the Bush administration. They horded the money to protect their own balance sheet. Will they do it with the second half, and with other bailout handouts?
Today, I had a conversation with a banker. He said that the federal regulators are requiring a higher capital input from the buyer than ever before. "In the old days" (not that long ago), one could buy a building for very little down payment (10%, e.g.), Today, loan to value ratio has to be 30% and in many cases 40 and 50% This is not the way to growth.
With this type of stagnation of credit, one can be assured that the prices for real estate will continue to slide downward with ever greater consequences. And with continued worsening of our finances, law firms and lawyers will be further impact. If we have too many lawyers today for the work available (as discussed in an earlier post), demand will continue to shrink, and additional law firm layoffs will result.
See the ABA Journal that predicts a 20% drop in legal revenues and a 50% drop in associate billings, spurred primarily by technology and client resistance.
There are opportunities in the market. Thinking optimistically may open you to them. Thinking pessimistically certainly will cause you to miss them. How much of today's firm layoffs is because of pessimism, not because of critical analysis of the firm's position and client (and prospective clients) needs? Like much else in the law firm environment, I suspect that this is much of a knee-jerk reaction rather than serious review and strategic planning.
I'm reminded of a statement from one of the recent TED speakers who said pessimism will certainly cause you to retract while optimism will at least allow you to see the opportunities, no matter how few, that are there. Seeing the opportunities is the first step to taking advantage of them.
The California Guide to Opening and Managing a Law Office has just arrived! It's a 600 page power packed treatise that evey sole practitioner should review. It, along with the ABA's Flying Solo, is uniquely designed to raise issues that need answers for success.
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.
Has your firm asked you to pony up money? Have you faced a capital call recently? Are your partner distributions being reduced?
A recent (January 29th) Wall Street Journal article discusses the new phenomenon. Several top law firms are asking their partners to increase their capital accounts and/or are reducing the partner distributions, all in an effort to raise more cash for the law firm. Why? Because the new focus is on reducing law firm debt and increasing liquidity in an era where banks are restricting their loan portfolios, even for "favored customers." With revenues and profits constricting, law firms are wise to review their debt structure.
When the law firm cannot open the bank's loan window, or doesn't want to abide by the many restrictions and covenants that are attached to any bank loan, the firm will look to partners. And, for those partners who are themselves financially thin, they may have to be the one asking the bank for help in order to satisfy the capital call. To get the personal loan needed to fulfill the capital call, the lawyer may have to mortgage his/her home, pledge other assets as additional collateral or even get guarantors.
Solo and small firm lawyers experience the peaks and valleys of compensation as a normal course of business. To survive tough times such as we currently are experiencing, reduced debt and a reservoir of savings is essential to survival.
Perhaps it is not unreasonable to ask yourself the question, "Do I really want to be a law firm partner?" Do the benefits outweigh the risks?
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.
Value is determined by the client, not the attorney. But, it's the attorney who must educate the client about ‘value.’ It's otherwise hard to use the value or alternative billing approach with clients who are not sophisticated in their own business matters and find it difficult to appreciate how value is measured and whether the fee for value provided is reasonable.
Demonstrating value enables lawyers to make a convincing case about the reasonableness of their fees. Once benchmarks are established, they can bill in a regular and timely way, using statements that contain a full narrative of the work done and the goal accomplished by that work. This allows attorneys to provide status updates (contact me at email@example.com if you want a form status report) easily and to reinforce that every action they took on behalf of the client had a purpose. Also, because legal services are often intangible, the more information provided about how much work was done and what it accomplished, the more likely the client will be to perceive the bill as fair and to pay it promptly. And, oh, by the way, the $1,000 per hour lawyer makes great press. But, this is not the norm. The real world is on the ground, not in the air. More than 50%of all lawyers earn less than $100,000 per year ... that is not $1,000 per hour!
Make sure clients understand that they're entering a two-way relationship. The lawyer agrees to perform to the best of his or her ability in accord with professional standards, and the client agrees to communicate and cooperate fully – which includes paying the bill timely. That's a real definition of what's reasonable.
“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.
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.
Another expense item that is causing General Counsel some consternation is the high attrition rate amongst young lawyers. The turnover rate in the first five years for most large law firms can be as high as 80%! This causes substantial expense to the law firm. And clients are becoming increasingly reluctant to pay for this cost ... cost which comes in the form of the second lawyer to the matter reviewing the file and otherwise getting up to the knowledge level of the departing lawyer.
The "Value Index" being developed by ACC is intended to measure, among other things, client satisfaction with the services provided by their outside counsel. The concept is that of a scorecard, not a ranking. Defining "value" will be a difficult task. Ultimately, the definition may have to be left to the respondent. ("Beauty is in the eye of the beholder.")
Among some of the concepts being considered, however, are: i) Delivery outcome that the client wants; ii) Longevity of the attorney-client relationship; iii) The right mix of outcome and anticipated cost; iv) Clear communication before, during and after the services; v) Customized and innovative approach to the service; and vi) Top notch quality, or "peace of mind."
Criteria for value may include: i) Understands goals and expectations; ii) Legal expertise; iii) Efficiency/process management; iv) Responsiveness; v) Innovative/flexible teams; vi) Results delivered; vii) Values: Pro bono/diversity/green/professionalism.
The bottom line is that ACC members, lawyers themselves, are having difficulty identifying outside counsel who will deliver value ... some define this to mean quality service at a reasonable price. The attempt here is to create, first, a dialogue about definitions and what to look for, and, second, appropriate resources to reach the legal goals Corporate America. This is a daunting task. But, clearly, the dialogue has begun!
Lawyers need to participate. Your livelihood and the future shape of the profession may be at stake.
I had the pleasure of talking with Paul Williams of Major, Lindsey & Africa. Paul focuses his energies on placing lawyers as General Counsel of major corporations. From his perspective, he suggests that General Counsel today receive more respect. Of course, GCs today have a much larger budget for legal fees than ever before. And many GCs come from the ranks of major law firms. Coming from the elite law firms and handling such large sums of money, one would expect private lawyers to give the corporate lawyers more respect. Also, in many cases, GCs are increasing the size of their legal departments as one way to control legal costs ... they can “purchase” the legal talent at wholesale (as an employee of the legal department) rather than retail (law firm associate or partner).
Following are some of my thoughts and conclusions drawn from my conversation with Paul. Not wanting to attribute words or ideas to Paul that he may not have intended, I will accept responsibility for the following conclusions that I reached from our conversation:
1. Lawyers are risk averse, looking always at precedent. Consequently, one doesn’t see many lawyers working “outside the box” in the way they approach either their career or how they manage their practice. This may be why law firms are changing slowly; most change is forced on the law firm by their clients, Corporate America.
2. Executive search firms such as Paul’s are “agents” that help lawyers move laterally from one firm to another. This raises the image of “free agency” in the sports world. If a lawyer can get a “few thousand dollars” more from law firm “B,” the lawyer may very well move from law firm “A.”
Why would a lawyer make such a move when the change in his/her compensation would not be deemed significant and certainly would not alter the life style of the lawyer. Compensation is almost like the stock price of a large corporation. Because the lawyer has always achieved at high levels, the lawyer may feel less valued than the lawyer who earns even a small amount more than the first lawyer. And this would suffice to change law firms. Because of this movement, however, the cultural differences that used to distinguish one firm from another are flattening ... which means that one firm is looking more like other firms, with fewer differentiating characteristics than before. When one firm looks like others, there will be more difficulty in “branding” the firms ... and less reason to engage one firm over another. Then, price may become the major differentiating factor for clients. Another result may be increased alcoholism, unhappiness and depression among lawyers who see very little reason to stay involved and engaged with his/her law firm.
3. Whether law is a business or profession is an interesting question, though not so important in today’s world. In part, one’s answer depends on how you define “profession.” A professional, by at least one definition is one who collaborates. The current law practice is not so collaborative as before. We are now far more competitive and far less collaborative than ever. Does this make us less “professional”? More business-like? One of my clients recently told me how a senior partner refused to give him credit for his business origination success. If this firm were more collegial and collaborative, and less competitive internally, this would not even be discussed. Perhaps we are less professional, though not more business-like.
4. Lawyers exist in a hierarchical law firm environment but are individually power-centric. They command the associates working on their matters, and the staff surrounding them. This is contrary to the client-centric attitude that GCs must have to survive and thrive within their corporate organization. Thus, many private law firm lawyers could not survive within the corporate environment.
5. The “second season” for lawyers will be dramatic as more than 400,000 lawyers (“baby boomers”) will retire in the next 10 years. This is equivalent to the entire membership of the American Bar Association. What will these lawyers do? Will they sell their law practice? Will they close the doors and walk away? How will they engage themselves in their remaining time? Where will the replacement lawyers come from?
The legal profession has experienced many changes in the last 10 years since I obtained the trademark, The Business of Law®. There will be many more changes in the next decade, for sure, as large law firms begin to mirror their large corporate clients more closely. And sole practitioners, the vast majority of the profession, strive to survive.
In response to my last post, the following comment was forwarded to me:
Q: Isn't gaming what they teach in law school, essentially? Probing for weaknesses and exploiting them ruthlessly when found? It seems that with the adversarial legal system, gaming is built right into the DNA of the experience. I agree they are being poor ethical exemplars by gaming the rankings but I'm not sure it's entirely inconsistent with the legal system.
The issue here, however, as I saw it, is that the "system" was lop-sided. If it's adversarial, there must be a balance. And the applicant to the law school was not informed of the parameters that allowed the Dean of the school to adjust the perception of the school.
Another example of this is in economics ... again from the legal community: Law firms are not publicly traded and don't give out their financial information. Yet, there is a publication that is able to rank law firms by revenue, profits per partner, and other factors. This has become almost like a stock exchange. Lawyers may move around, either to a law firm or away from a law firm, by virtue of these numbers. Thus, the "top" law firms have become interested in presenting the best face to the lawyer public. How do they do this? One way is by adjusting the revenue and profits per partner figures.
How do they do this? Obviously, by increasing revenues and increasing profits. These are numerators. They can also adjust the figures by tinkering with the denominator. The fewer partners, the higher will be the "per partner" result. How do you get fewer partners? Ah, that's the rub ... Current trend is to slow down the process of making associates partners ... and by "de-equitizing" partners who don't "perform" to the new standard. De-equitizing is a fancy word for "firing" a partner ... or taking the partner's equity position away and keeping him/her as "Of Counsel" or an "Income Partner" only ... This is another way to "game" the system.
Isn't this what publicly traded companies do as well? Everyone, not just lawyers, are involved in gaming the system.
Many lawyers, unfortunately, never figure out that their client is unhappy. They just think that the client has no additional legal work. They don't realize that the client was so unhappy that, though they didn't complain, they just didn't return! What a shame not to have the sensibility to even know this.
Their announcement made clear that this was not a "performance-based" lay-off. Rather, the firm was seeking to match its resources with its clients' demands/needs. This is not a curious occurrence in my view. Economics does rule the roost. However, what is strange to me is that their recruitment efforts have not been abated! Wow. They fire on the one hand and hire on the other hand. That is expensive! It will cost at least $200/$500,000 per lawyer fired ... and tens of thousands of dollars to recruit and educate a new lawyer. Although a real estate lawyer may not know bankruptcy, it certainly seems a lot less expensive to train the one lawyer to work in the other practice area ... far less expensive than hiring/firing and again hiring!
But then, who am I? I've only signed the payroll checks for folks such as these ....
He says, "
Stay tuned for the official press release.
Once every four years, we receive the opportunity to make a gift to our employers. Do you think they appreciate it? <g>
He gives us 3 steps to follow if we love our practice ... and 3 steps, if your answer is "no," to fall back in love with your business.
Respondents said "yes" (15%), "no" (84%) and "don't know" (1%). It is clear that people are tired of bombastic behavior, at least in the workplace. Can this be translated into a more collegial, and team-oriented work environment?
Patrick Lamb, a leading proponent of "value billing" has certainly committed himself to the concept of team effort. He opened a new practice with two other partners in January 2008. Collegiality, outstanding client service and billing for value delivered (not time spent) gets promoted one step at a time. Patrick has taken that first step in his new firm. Congratulations and best wishes for his continued success.
As more lawyers succeed in this business model, perhaps others will follow. Then, perhaps, will civility in the profession be achieved.
As a side note, I'm currently reading (actually, listening) the recently published book about Lincoln and his leadership skills. I'm struck by the number of lawyers who were the leaders of our country and the large percentage of our representatives in government (House of Representatives, Senate, and State legislatures) who were lawyers. At one time, the balance substantially exceeded 50%. Contrast that to today when only around 25%, if that, of these bodies are lawyers. Perhaps the lack of civility in our society in general and the legal profession in particular, is the reason for the lack of faith in lawyers. I don't know the reason or the answer to this dilemma. But, I do know that many lawyers are stressed, are "burned out" and are unhappy with their chosen profession.
Given this history, I am quite surprised and pleased that 3 of the viable, now 2, Democratic candidates for President are lawyers.
But, the legal profession merely reflects society at large. I just came across a 2007 book titled The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn't written by Robert I. Sutton, a Stanford professor. Great title!
How about these statistics:
- The number of homicides in the workplace is up
- "Boss-icide" has doubled in 10 the last 10 years
- Workers murder 3 to 4 supervisors each month, double the number of 10 years ago
- "Going postal" is more than the post office violence
- "Desk rage" is a new term
- 27% of workers experienced on-the-job mistreatment, according to a 2000 study
- One in 6 report persistent psychological abuse
- 36% of employees reported persistent hostility from coworkers and supervisors, according to a 2002 US Department of Veterans Affairs study
- 91% of nurses experienced verbal abuse that left t hem feeling attacked, devalued or humiliated, according to a 2003 study.
If our society is facing these issues, how can we expect lawyers to be more "civil" than others?
However, where there is delayed payment, be sure it is not because of a legitimate complaint against you or the service provided. Given that, if the client has the ability but not the commitment to pay, you may want to consider filing suit against the former client.
You should review certain considerations before doing so:
- Review the file to make sure there are no legitimate potential claims of malpractice staring at you
- Ask a colleague for peer review to confirm your conclusion
- Realize that your malpractice insurance carrier has risk management policies in place and you will want to know how these risk management policies may affect you
- For example, your policy coverage may exclude fee disputes, your carrier may increase future deductibles or increase future annual premiums -- do your due diligence to uncover the position of your carrier before you move
- When lawyers sue for payment of fees, they are met with malpractice claims either as an offset (counter-claim) or direct attack (cross-complaint).
- Of all the suits filed by lawyers to collect their fees, 10% arise as a result of counterclaim; 30/40% of the malpractice claims come from cross-complaints.
That is not all that many -- about 1/2 of all lawyers' suits to collect unpaid billings will result in an off-setting claim of malpractice and, I suspect, only a few of these prevail against the lawyer. Thus, if you know your client has the ability to pay, but is not, evaluate the risk, know your carrier's risk management policies and evaluate the likelihood of winning your unpaid billing before filing suit. Then, pursue your claim, file suit and move on.
In the op-ed of the Los Angeles Daily Journal, January 29, 2008, R. Konrad Moore suggests that public defenders who choose to strike betray the constitutional rights and liberty of their clients.
Shame on you for thinking that public defenders owe more to society than other lawyers, public officials or average citizen. Mr. Moore seems to believe that becoming a government employee, a public defender, means that one's human and normal rights are checked at the door.
Yes, becoming a lawyer does mean that there are certain rights and responsibilities one takes on that are not required by others. However, I do not hear Mr. Moore suggesting that all lawyers owe a pro bono obligation to society, or that government officials are not entitled to seek increased compensation or that Corporate America has a social responsibility to its customers and a responsibility to its shareholders by keeping CEO compensation within reasonable boundaries or, for that matter, that the State Bar owes a duty to the public to require that all attorneys have malpractice insurance. And, I don't hear that the State Bar owes a duty of any kind to its members, let alone obtaining a program of low cost malpractice insurance so that attorneys could then better protect the public they serve. That would be spreading responsibilities too far. He's concerned only about limiting the compensation of public defenders.
Why then showed public defenders not be entitled to come together as any other group of employees in order to seek better conditions of work. Does Mr. Moore mean that the government can give any compensation, no matter how low, to public defenders and that the public defenders should be grateful to receive it? What about district attorneys? If they were to organize, as some have, does Mr. Moore likewise believe that there is a violation of the constitutional rights of citizens?
His argument is disingenuous and should be placed in its proper context. More to the point, why does Mr. Moore not argue that it is the responsibility of government and its citizens to make sure that defendants receive the best possible representation by compensating public defenders fairly and in accordance with compensation generally received in private law firms?
ACC, at its annual meeting in Seattle, WA in October 2008 intends to roll out an effort to relate law firm billings to client perceptions of value. To some degree, the panelists suggest that they seek to roll back the clock 40 years, when there was a “professionalism” about billing, a stronger and more effective bridge of communication between the client and its relationship partner at t he law firm and less emphasis on increased profits per partner. ACC is not quite sure how they intend to get there nor what the “it” will look like. But, the discussions with stakeholders has begun. And the ride promises to be interesting, to say the least.
Following are some of my thoughts in response to the comments made by Mike Roster, this movement’s titular leader and Susan Hackett, ACC’s staff representative. Both are clearly articulate and earnest in their endeavor to cause law firms to reexamine their processes and to provide more relevant and effective tools of operation for its members, counsel of Corporate America.
• From the lawyer’s perspective, “value” is another term for decreased fees from outside counsel
• While value is in the eye of the beholder, there is no definition that outside counsel can grab onto ... and one must question whether corporate counsel adequately conveys their needs to their outside counterparts
• ACC is seeking institutional change, not “one-off” bargaining for lower fees
• Corporate America is under tremendous pressure to reduce its costs to be competitive in a world market
• The problem does not exist with the $1,000 per hour (see recent WSJ article) lawyer who produces value, but rather with the $400 per hour associate who does not
• The catalysts for the current ACC project are:
• the latest associate salary increases at Big Law
• the incredibly high profits of Big Law
• the incredibly high profits per partner (average $1,400,000) of Big Law
• corruption of the billable hour methodology that was originally created merely as a tool to better understand what outside counsel were doing
• Most outside counsel are disconnected from their clients’ reality
• Outside counsel think in terms of “cya” and increased billings
• Clients think in terms of seeking business objectives and solutions
• CEOs are asking how can “average” partners, many of whom are relatively young, be earning $1,400,000 per year when the many management executives who’ve been working for 20 years are earning only $200,000
• CEOs are expecting something extraordinary from these high earners but believe t hey are receiving ordinary, or less, service and work product
• CEOs are asking how can a new associate who really is still untrained in both the specialty expertise and client relations be earning as much as an executive who has significant managerial responsibilities honed over 20 years of experience
• CEOs are compelled to drive for efficiency to be able to compete; law firms drive to increase profits per partner by terminating lower revenue-producing partners rather than increasing their efficiency and effectiveness
• When asked about high CEO “hand-shake” deals on departure from a company whose share value has substantially decreased, Mike Roster suggested that this is an aberration, not the norm, and that the managerial responsibilities shouldered by CEOs and other management have no comparability to lawyers in any event
• Mike Roster further asserted that law firms’ product, memoranda, etc., increasingly bear no relevance to clients and are expensive
• Corporate America is looking for outcomes and solutions, not memoranda or hand-wringing
• It was suggested that Corporate America may be equally responsible with Big Law, a co-conspirator by failing to look beyond Big Law
• More than 50% of lawyers earn less than $100,000 per year; many of these lawyers could competently address the challenges faced by Corporate America
• Mike Roster suggested that Corporate America will begin to look outside Big Law. From this writer’s perspective, this remains to be proven.
Irrespective of the outcome of ACC’s deliberations over the balance of 2008 and beyond, the challenge has been formulated, the discussions have become more serious and the conclusions will be nothing short of interesting, perhaps even revolutionary.
David Leffler, in GPSolo Magazine (Oct/Nov 2007) suggests that there are five stages to paying a lawyer’s bill:
1. Denial – Client says this couldn’t be my bill, the charges are too high.
2. Anger – Client says lawyers are way too expensive for what they achieve.
3. Bargaining – Client seeks to negotiate a reduced fee with the lawyer.
4. Depression – Client doesn’t contact you and is unavailble for your calls.
5. Acceptance – When Client sends you a check that clears the bank.
David talks about the importance of the beginning of the lawyer-client relationship. I agree. The intake process is what essentially sets the tone of the relationship. In my opinion, your success in the intake process at the beginning will determine your success in collecting your fee at the end.
For more about suggestions about lawyers' collections efforts, see my book.
I find this remark of particular interest because it is usually said by one who wants to justify an act that is opposed by the vast majority of his very own organization. It is also offensive because it fails to address the very issue at hand. This statement is like Mom's or Dad's "...just because ..." response to a kid's inquiry as to why he should or shouldn't do something.
In this case, the statement is used to justify an action that will prejudice an isolated group of lawyers who practice in the small firm environment. They need assistance from the Bar ... and they don’t get it. Instead, they get slapped in the face. We might just as well place yellow arm bands around these folks and say they are "bad" people. There is no empirical evidence that this group of lawyers is subject to more malpractice claims than others. There is no empirical evidence yet set forth that suggests any reason to isolate this group of lawyers and identify or punish them in this fashion.
Yet, this very same organization has not, to date, honored its earlier (2005 Board of Governors Retreat) stated commitment to its members to provide them with help in their businesses (The Business of Law®) because it might antagonize a few legislators or other special interest groups or cost a few dollars or place additional demands on the staff. Where is the Board when they're needed?
This attitude explains why members of the legal community, generally, have lost confidence in its governing body. Why the Board of Governors would anticipate that lawyers in this State would support it in any future disagreement with the State Legislature or with the Governor is beyond understanding. One can “turn one’s cheek” only so many times before the resentment rises to the point of action.
The perception amongst small firm attorneys that the State Bar is the enemy and not the friend clearly gains traction with actions such as taken now by this Board. John Dutton of the Board of Governors perhaps said it best. “Dutton argued that some county bar associations, a few State Bar committees and most of the members of the Conference of Delegates of California Bar Associations have joined critics in opposing disclosure. ‘And here we are,’ he said, ‘saying, 'We're going to jam it down your throat. We don't care what you think.’”
Of course, the very Governors voting on this issue also fail to disclose any personal financial interest they may have in this issue, and several do. They also fail to address more important issues for disclosure if we were truly interested in client protection. And, most importantly, they fail to create an affordable insurance program that would allow economically marginal (but very good) lawyers to buy the very product the Board is promoting! (Dare we remember that the State Bar obtains several million dollars each year from the insurance program it promotes?)
Q: Ed, can Outsourcing really make a firm more productive and profitable?A: Outsourcing is just another way to delegate work; appropriate delegation is another aspect of leverage; and leverage is what makes law firms more profitable. If you want to grow a practice, serve more people, or increase your personal wealth, you will need to understand and use the principles of delegation and leverage. In truth, almost every lawyer does this now—having a secretary to type, file, and do other office tasks is an elementary form of this concept.
However, managing the legal process and overseeing the quality of the work product of others is the reality of the legal profession. And this is outsourcing. In such circumstances, whether the “outsource” is someone in your office or someone in India or someone located in between, YOU, the lawyer, are still responsible for setting the strategy of the matter, the quality of the resulting work product, and the management of the entire process.
Outsourcing is a heavy burden, and one no outsourcing lawyer should take lightly. When it comes to ensuring that client work is done correctly, the buck stops with you, the lawyer -- no matter who has actually done the work.
Yet, the court just upheld the Vioxx settlement with Merck & Co., one provision of which states that a lawyer who has a client accept the settlement must withdraw from the case and cannot represent any other client in the case, even if he/she already represents other clients in the class action litigation. Effectively, this provision restricts the right of clients to select counsel of their own choosing. What makes this situation even worse is that the second client (and others also represented by the lawyer whose one client accepted the settlement) is unlikely to get another lawyer with the skill, time and money to invest in learning a new matter in the middle of the case. The choice for these plaintiffs is simple: Settle with Merck or lose your lawyer!
While it's nice to settle a large and complex class action, what happened to the famous and apparently not so inalienable right to counsel - competent (in Vioxx litigation) counsel?
However, there may be a natural limit to the number of “friends” we can have. In 1993, Robin Dunbar, an Oxford anthropologist, suggested that the magic number is 150. Dunbar concedes that technology may increase that number. But, there is still a natural limit to the number of close relationships, whatever that number may be, to whom we can turn in times of stress.
Most relationships start off-line. Technology may provide an easy, inexpensive way to maintain relationships; yet, it is essential to continue a dialogue (communication) in order to start and maintain a meaningful relationship. Saying we know someone doesn’t mean that person is one “to whom we can turn in time of stress” and legitimately expect a response.
The bottom line is that it is the patient's responsibility to ask the doctor if he/she has any financial connection to the recommended treatment. The suggestion is that if the answer is "yes," the patient should get a second opinion. Not bad advice, but still a matter of personal trust and interaction between the doctor and the patient.
If the doctor has a financial interest in a treatment modality, this may influence the doctor's prescribed treatment. Note that there is no movement here to demand that doctors disclose whether they have malpractice insurance. Perhaps because the existence of insurance is not likely to influence the treatment modality to be prescribed.
Why is it that some lawyers misguidedly believe it is important for lawyers? It's existence or absence does not affect the legal strategy advised or vigor or competence of legal representation. As a side note, however, it is interesting to note that most of the lawyers advocating that other lawyers make disclosure DO have a personal financial stake in the outcome of this discussion. Most represent insurance carriers who whose premium income might increase. Yet, there is no disclosure required by them in their discussions of this topic. Interesting, eh?
There are benchmarks in life ... and in our law practices. Benchmarks might be as significant as a marriage, a birth or a death. In law, it might be graduating from law school, opening one’s own practice, winning a significant case, or in today’s world of Baby Boomers, moving into our "second season."
The Airstream trailer (see my earlier posts on this subject) has taught me and confirmed many lessons I’ve learned over the years. Here are just a few that our current trip has triggered:
Change is part of life, and we must learn how to manage change to be successful
Change requires that we be flexible
Life involves continuous improvement
Luck is the intersection of preparation and opportunity
Our Airstream adventure has now crossed an unexpected and exciting benchmark. My wife saw our Airstream trailer a little more than a year ago ... fell in love ... and had to have this one. That was a "sharp right turn," as one might say, for the way we were to live. We took it to a reputable repair shop for our due diligence, made repairs we were told about ... and began to travel for short jaunts, finding little things here and there. After a few trips, all the "bugs" were fixed. We were ready to go!
Today, we just completed our longest trip thus far ... into Central California near the Kern River. This is a beautiful spot in nature despite the drought that California is experiencing (hence the recent major fires) and the very low Kern River. Here, with about 15 other Airstream trailers in a "rally," we met and talked all about Airstreams, looking at what other folks have done to their trailers as well as the new trailers that some prefer to purchase.The net result of all these discussions is that we’ve decided to sell our trailer. Don't panic, we're not getting out of this adventure just yet!
Our trips thus far, the refurbishing we’ve done to our trailer in the last year, and learning about all the possibilities open to us, we’ve decided that doing more to our trailer would be an unwise move. Thus, we’ll sell the trailer, buy another shell, strip the inside, and then build it out with our specifications in mind. We’ll then have our own, very personal vintage trailer! The emphasis here is on "vintage." Really exciting.
This reminds me of the rights of passage as a new lawyer. Graduating from law school, going to work for another lawyer (to learn "where the courthouse is located"), and then becoming a partner in a law firm, and finally starting my own firm. There is a learning curve in everything we do, some longer and more expensive, some shorter and cheaper, but a learning curve nevertheless.
Throughout a lawyer’s career, we learn from each matter and client we represent. That is one of the most attractive elements of law practice – continuous improvement. Clients sometimes fail to tell us the entire truth, our adversaries keep us on our toes and, of course, the law may change in the middle of our matter causing our cited precedents to take on a different cast. In each matter, we manage changes, changes that require our flexibility to represent our client well.
And living with my wife’s dream in our Airstream does the same for me now> This process requires flexibility on my part for continuous change and enjoyment of this part of our life, one some might call our "second season," as I continue to coach and consult with lawyers throughout the country about continuously help them improve their effectiveness with clients, enhance their efficiency in delivering their services and, of course, increase their profitability.
In an article written by Richard Gary (Firm, Inc., March/April 2006), he says that "... the principal message that compensation decisions affecting the managing partners should send is: ‘The qualities that will make our firm successful over the long term are superior lawyering, client service, teamwork, and fairness.’ In practice, that means that the (full time) managing partner should not be the firm’s highest paid partner ..."
Agreed that the compensation system must appear to be fair. If not, the whole infrastructure of the firm will collapse. But, one must realize the importance of the position. As Gary concurs, managing partners preside over businesses whose revenues are in the millions, even hundreds of millions, of dollars. This is not a position to be taken lightly or to be appointed to just because "you were out of the room at the time of the vote." This is a demanding position, requiring the trust of everyone (lawyers, staff, etc.) in the firm to be successful. This is the CEO of the firm and should be compensated accordingly.
In business, some salespeople earn more than the executive officers. That may be. But, in my opinion, there is no hard and fast rule on this. Everyone must perceive the element of fairness ... and the position of managing partner, the task of managing the firm, must be appropriately regarded and not thought of as a necessary evil or a position of lesser importance than lawyering. One cannot get along without the other. Without a sales force, without a production force, and, yes, without a management team to bring everything thing together, the firm will not succeed.
Each function within the firm must be paid in accord with its market value and its "importance" to the firm ... and all must perceive that they are being treated fairly.
In too many firms, the managing partner is expected to not only manage, but also contribute substantial billable hours. It seems that these firms fail to give appropriate recognition to the role and importance of the management function. Non-lawyers cannot guide the ship without substantial involvement by the managing lawyers ... And not every lawyer in the firm should be tasked with a management function (such as CLE director, recruiting chair, etc.) in order to be considered a good firm citizen.
In time, more law firms will move toward the corporate model practiced by their clients. Then, we’ll see the true nature of The Business of Law® and greater success for those law firms.
USA Today said in a recent column that Fridays are going from casual to e-mail-free. That may be the only way to cut down on the excesses of email. Use email at business only for important tasks that cannot be done otherwise, especially communications in the same office. Address important emails first. And don’t procrastinate responding ... This may help some.
Email may not be the best communication tool for lawyers. This is especially true for confidential communications between lawyer and client. Hackers may be able to enter your system and capture proprietary and confidential information. (See our earlier post about cyber liability insurance and be sure to talk to your broker about this insurance.)
In the first face-to-face meeting with your client, talk about how they want to receive communications from you, by phone, email or hard-copy. Talk about the safety and speed of each method and get consent in writing from you client before you start using technology.
While making a presentation about recovering from disasters to the Association of Legal Administrators national conference for financial issues, (see my latest book, Disaster Preparedness & Recovery Planning) I listened to another presenter talking about the insurance aspects of disaster. She noted some frightening statistics: More than 40% of all businesses never reopen after they experience a disaster; of those that do open, more than 30% fail after two more years of operation.
Her concluding remarks highlighted the importance of planning – planning to make sure you be able to continue your practice after a disaster. Disasters come in all shapes and colors, from 9/11 to Katrina to broken water pipes upstairs, to the absence of water (in drought areas particularly) where your data center cooling system needs chilled water, and everything in between.
And talking about insurance, check out cyber liability insurance that protects you against claims from clients (disclosure injuries) and third parties (reputation injuries) resulting from your acts. E-business interruption and extra expense insurance (analogous to business interruption insurance may protect you against fraudulent access or transmission. Insurance coverages that do not cost a lot to maintain but can save you millions of dollars if found liable.
Another insurance coverage that I had not heard of before is something every law firm should consider where there are 2 or mor lawyers of equal prominence ... Management liability insurance. Claims by partners for the negligent management of the firm and compensation disputes by partners against the firm. Claims usually occur where there is the loss of value in a lease, bankruptcy of the firm and/or the loss of a valuable office lease by the executive committee, or a merger-acquisition with some members left out.
While most lawyers don’t think about these issues very often, there should be a review periodically, at least annually.
Q: As a sole practitioner, I’m nervous about the possibility that new requirements that lawyers must disclose in writing if we don't have malpractice insurance. How will mandatory disclosure affect my business?
A: A little more than a year ago I strongly argued against a proposed new California Rule of Professional Conduct that would have required each California lawyer to disclose in writing at the start of an engagement and on the State Bar website if the lawyer does not have malpractice insurance coverage.
In late September the California State Bar Board of Governors defeated this proposal by a vote. An amended version of the proposal that would merely delete putting the malpractice disclosure information onto the State Bar's website was then proposed, discussed, and then tabled. The issue will be discussed in November with one-third of the current Board having been replaced by its annual election.
Dodging this bullet still does not change the basic problem. The vast majority of lawyers are ethical and do not commit malpractice. The vast majority of clients do not sue for malpractice. But mandatory disclosure of the absence of malpractice insurance waves a red flag that could spur clients to file actions against the lawyers who are helping them, but simply cannot afford the insurance. Mandatory malpractice insurance disclosure symbolizes a massive cost that most lawyers simply can’t afford. In addition, and perhaps more telling, the current proposal does not protect the public (the asserted reason behind the proposal). And that’s why I continue to oppose it.