In track and field events, the coach tells you to look at the tape in front of you, not who is behind you. Likewise, in running your law practice, do the best you can, focus on your skills (and improve them), on the efficiency and cost of delivering your legal services (use technology to improve your efficiency) ... and, of course, on your clients and their needs (and wants). Then, you will have given it (your profession) your best shot.

John Wooden said, “The scoreboard? Championships? A sales quota? The bottom line? As goals, predictions, hopes, or dreams to be sealed up (in an envelope) and filed away, fine. But, as a day to day preoccupation they’re a waste of time, stealing attention and effort from the present and squandering it on the future. You control the former, not the latter.

“An organization - a team - that’s always looking up at the scoreboard will find a worthy opponent stealing the ball right out from under you....” Coach seldom scouted the opposition, focusing instead on what needed to be done to improve his team and prepare them to be the best they could be.

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 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.

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?

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.

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.

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!

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.

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.

 

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.

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.

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.

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.

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.

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.

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.?