In case you missed it, here's the link to Alan's blog: bit.ly/KoDDLx

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.

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.

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.

• 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.

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.