Alternative law firm business model
From Lawyers USA, we learn that the American Bar's Ethics Commission has recommended that states rules be changed to allow non-lawyers to own up to 25% of law firms.
Rules against lawyers sharing fees with non-lawyers might need to be loosened to allow U.S. firms to compete globally. The proposal says that any firm with non-lawyer owners must have “as its sole purpose providing legal services to clients.”
This is the foot in the door.The next thing you'll see is Latham & Watkins, or other billion dollar law firm opening offices in Wal-Mart or Target stores for curbside service. This is not necessarily a bad thing. It will certainly bring the law to the people ... And it will certainly change the perception of the law.
I've always maintained that the rules of professional conduct are controlled by the large firms, AmLaw 100 and 250. When their economic needs change, the rules get changed and the sole and small firm practitioners have to adapt accordingly. In other words, the rules are not made in a vacuum, not made because of their inherent righteousness or goodness. They change and are made to serve the economic interests of the few ... oh, if the public is served, so much the better.
But if you're a solo, watch out ... your interests may not matter. Such has been the case in recent times when solos' interests were not protected, in fact hurt, by changes in the rules .. But, here, to allow the larger firms to complete on a global scale, we see the rules begin to change and allow allied professions to join in the ownership of law firms, not merely as allied professionals independently serving the same client.
Economics control .. as always ... even here in the rules of professional conduct.
More law firm departures announced - What's typical?
Departures from large law firms continue. And more than one person is now asking what is the "normal" rate of departures? One estimate suggested 7%.
We are living in an environment that many people call a “new normal.” Our economy, as well as the legal community, has been turned upside down in the last couple of years. There is no ”typical” answer that has emerged yet. Departures are sometimes voluntary for better opportunities (or retirement) and sometimes involuntary where law firms are seeking to adjust their supply of lawyers with their clients’ demand.
As I mentioned in a recent interview in the New York Times, older lawyers are being asked to leave law firms when their productivity declines. That didn't happen so frequently in the past. Generally, the age factor is only coincidental with the decrease in productivity. Though sometimes it is directly correlated because of a change in attitude by the experienced practitioner who wants to slow down and spend more time in other adventures. This tends to be a personal decision, not a trend. We have many lawyers in their 70s and 80s still active and capable contributors to their clients and the profession.
At the other end of the spectrum, newer lawyers who are not asked to become a partner in a firm believe their opportunities will be greater with another firm. They seek to make a lateral transfer from their existing firm to another one. The second law firm may accept them because they see a skilled practitioner, someone who received training at the expense of another law firm, who will fill a gap in their business model. This comes when they want to grow and enhance their capacity for clients or begin a new practice area to enhance their service offerings for existing clients. The nes lateral fits well under these circumstances.
Then, there are the new law school graduates who are finding the pipeline from education to practice being clogged up by the decrease in client demands and oversupply in some law firms. It will take several years for this phenomenon to adjust. Until then, I don’t think we can say there is a “typical” law firm departure rate.
Managing Partners are few and far between
Bob Denney says "... “70% of the managing partners [or CEOs] do not have a job description and most partners do not know what their MP does. In addition, in firms of more than 100 lawyers, only 10% have full-time managing partners.”
No wonder that in 1995, the USPO concurred with me that "The Business of Law" was a unique phrase and granted my request for a registered mark. Major law firms still, as Denny confirms, require that "managing partners" maintain a full client load of billable time. There may be some concessions, but by and large, they are evaluated on their client production rather than their effectiveness in keeping the firm together and moving forward.
I think of the analogy with Lee Iococca. Though he was given credit for designing and producing the Mustang, he could no longer perform the design or product management functions in his position as CEO and later Chairman of Chrysler. How is it that law firms believe the managing partner (CEO) of a multi-million dollar professional service organization can do more than an industry giant?
Succession is uppermost in the minds of majority of lawyers
More than 23% of the Washington State Bar Association, a mandatory bar, are 60 years or older. Several years ago, the American Bar Association, a voluntary bar, estimated that 400,000 lawyers would retire in the next 10 years. For the ABA, that’s equal to its entire membership. And that's equal to about 40% of all lawyers and a majority of private practitioners.
How will the ABA, in effect, replace itself? Will the WSBA replace these 23% as they leave the practice? Law school admissions are down by more than 10%. Will our recent economic turmoil be played out in the supply and demand of legal services? This is the 50,000 foot, or macro, perspective.
At the ground level, lawyers in the Baby Boomer generation will need to look at their “second season.” What plans do they have for their future? Or, as I ask myself each day, “What do I want to be when I grow up?” What is it that “turns me on?” What do I enjoy doing? How is it that I want to make a contribution?
One-third of the 23% in Washington have said, their “exit strategy” from the practice of law is to “die at their desk.” In cowboy literature, it’s the equivalent of “dying in one’s boots.” In other words, doing what they're doing is what they love doing and that is how they want to be remembered, not as a faded shadow of themselves in retirement. Some might say that it is a shame that that is all they have, their law practice. On the other hand, think of the valuable contribution they're making to the lives of all their clients. Better that than nothing. Better that than feeling useless. Better that than aging overnight because your hobby and profession, one and the same, were removed from you.
A friend, and former trial court judge in California, Ellen Peck developed the idea of an “Estate Plan for the law practice.” She says it’s equivalent to malpractice not to plan for how one’s clients will be served in the event of death or disability of the lawyer.
Recently, I was engaged by the family of a deceased lawyer to value the practice and assist in its sale. On inspection, we found that there were inadequate time records; a trust account that was in shambles and needed an audit to reconstruct and reconciled; and inadequate client records to know precisely what had been done and yet needed to be done. This is a perfect example of where an “estate plan” for the law practice would have served everyone’s interests, the family, the clients and the judicial system.
Those lawyers who fail to address this issue put their families and loved ones at risk. Not only will the family have to deal with the emotional trauma of a sudden death, they will also have to deal with the economic turmoil left by the lawyer. If negligence is found after the lawyer’s death, or if the lawyer failed to balance the clients’ trust account (to the penny!), the family could be responsible.
In the case of a famous actor, who was educated as a lawyer, he failed to have an estate plan ... and his family paid the consequences (estate taxes). This left quite a hole in the wealth of the family. Fortunately in this case, there were no other repercussions. But, this result is not necessary.
Do all lawyers need to have a succession plan was one question raised in my recent WSBA presentation. Yes, and no. No, in the sense that some lawyers … those lawyers in firms … will have other lawyers in their immediate environment to take on his/her practice and files. Thus, the lawyers will be protected. The interests of the lawyers will be protected and the heirs will receive their appropriate due. This assumes, of course, that the firm has addressed the issue of how to compensate the lawyer for the value of his practice. That, unfortunately, is not always the case. But at least, the files will be parsed out and the clients protected.
One-third of the lawyers in WSBA … and more in the ABA … are sole practitioners. They must have a plan or force their heirs and loved ones to close their office and transition their clients to other lawyers who can serve their interests.
And Yes in the sense that all lawyers need to decide when to retire … to leave the practice … how they will do that, whether by merely closing the doors (a tragedy in my opinion) or selling the practice … and what they will do in their “second season.”
One WSBA member said we’ve always gone TO somewhere. We went to grade school, went to high school, went to college, went to law school … became a lawyer … and now, what will we do … where will we be going TO? That is a question that all lawyers must address … or “die at their desk.”
Law Firm Strategist Ed Poll Launches Nationwide Roadshow
Venice, CA – June 6, 2011. Award-winning law business management coach and consultant Ed Poll is bringing his nationally recognized practices, tips and advice to bar associations, law schools and other top venues across America this summer.
The tour will include 15-20 stops throughout the US from June through September 2011, starting on the West Coast and heading East. Tentative tour stops include Portland, Seattle, the San Francisco Bay Area, San Jose, Dallas, Oklahoma City, Kansas City, Chicago, Nashville, Memphis, Columbus, Cleveland, Washington, DC, Atlanta, Philadelphia, New York City and Boston. For more information about the tour, please go to www.lawbiz.com/roadshow
The tour, which is sponsored by Fujitsu ScanSnap and others, will include presentations for CLE credit on law practice management issues, on topics such as Managing Client Expectations, Collecting Fees and Getting Paid, Metrics of Financial Performance, Tips for Increased Revenue, and The Exit Strategy: Succession & Retirement.
Presentations will include time for Q&A and will be followed by a special Coach’s Corner coaching session. In this unique format, Ed will offer coaching help to one or two attendees about their specific law business management issues, within the group context. This allows the entire audience to watch the interaction and consider how they may apply the discussion to their own specific situation.
“For the first time in American history, thousands of lawyers have been laid-off,” said Ed Poll. “Lawyers need to know more about The Business of Law® in order to survive, let alone thrive, by effectively meeting the needs and expectations of clients. This tour will help address many of the challenges facing the sole practitioners and small firms today.”
About Ed Poll
Recently quoted in the New York Times and the ABA Journal, Ed Poll, founder of LawBiz Management, is a nationally recognized expert in law practice management. He helps attorneys and law firms increase their profitability by consulting with them on issues of internal operations, business development, and financial matters. Poll brings his clients a solid background in both law and business. He has 25 years experience as a practicing attorney and has also served as CEO and COO for several manufacturing businesses. In 2010, he received the first ever Lifetime Achievement Award from the California Bar Association’s Law Practice Management and Technology Section.
Poll is the author of numerous publications that have become the definitive works in the field, including 18 books, CDs and DVD collections. His newest offerings are Growing Your Law Practice in Tough Times (West Publishing, 2010) and 8 Steps to Greater Profitability: The Lawyer’s Guide to Prosperity (LawBiz Management, 2011). He has also authored books on business planning for attorneys, improving collections, buying and selling law practices, disaster preparedness and recovery, and exit strategies for legal practitioners. His offerings are available at LawBizStore.com.
Poll hosts the LawBiz Forum, an interactive community for the legal profession, as well as the LegalPadTM video series. He is a columnist for several publications geared to the legal community, including the Massachusetts Lawyers Weekly and Legal Management, and hosts regular webinars for West Legal Management. Poll earned BS and JD degrees from the University of California, Los Angeles, and an MBA from the University of Southern California.
About LawBiz Management
LawBiz Management is the nation’s leading firm dedicated to managing the Business of Law® . The company focuses on helping lawyers reach their goals and law firms improve their practices by increasing revenues, improving profits, and reducing the stress of the practice experienced by lawyers. Among the services offered are coaching, consulting, speaking and managing firm retreats. LawBiz Management also consults on the buying and selling of law practices.
For more information on tour sponsorship or booking a presentation on the tour, please go to www.lawbiz.com/roadshow or www.facebook.com/lawbiztour, or contact Ed Poll, edpoll@lawbiz.com.
Can non-lawyers own a law firm?
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?
The law of supply and demand is still alive & well
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?
Customer Service - A True Story
Last week, I had an accident. A preoccupied driver who admitted she didn’t see me failed to yield the right of way and turned left before I could see her. My bicycle hit her right front fender. You can see a picture of the damage to the car. Sometimes, it's better to hit than be hit. Because I hit her car, rather than she hitting me, I am alive and still walking, albeit with some difficulty. The fireman and paramedics said they'd never seen such damage to a car from a bike. “... Either the car was made of plastic or you are a man of steel!...”
If I were made of steel, I would not be so sore and bruised as I am still today. My thighs and quads have turned colors I never knew existed; like burnt toast. The bike down tube is cracked and very good, beautiful and cherished Orbea Orca carbon fiber bike is history. I'm lucky, frankly, to be alive ... The alternative is not appealing.
Once things settled down, several days later, and a mechanic suggested that some manufacturers offer deep discounts for bike frame replacements needed because of a crash, my wife found the e-mail address for Orbea and sent them this note: “...My husband was involved in a traffic accident with his 2008 Orbea-Orca .... He is apparently okay with major bruising but his beloved Orbea has a damaged frame on the post between the seat and the pedals. Is there an incentive Orbea offers to encourage customers to replace a damaged bike with Orbea? ... Thank you.
CANNOT MAKE THIS UP
The company response follows: “Good morning, Thank you for contacting with Orbea! In case of accident, Orbea’s Warranty is null and void. Sincerely, ...”
We never entered a warranty claim; that was never in my mind. My wife was merely checking out the status of their crash program. Some companies retain the loyalty of their customers by allowing them deep discounts to replace a damaged bike (product) and then studying the returned item for future research and improved manufacturing processes. My wife’s response was classic understatement: “We were not expecting to file a Warranty claim. We understand that some bike manufacturers give a discount on purchasing a new bike when a bike has been in an accident. You might consider doing the same. We are in the market now for a new bike. Thank you for your concern.”
Lessons here are legion.
First, listen to your customer’s comments and requests. This reminds me of the classic instruction from a lawyer to his client: Listen to the question. Answer only the question. Then shut up! Wait for the next question. Don’t answer what you think should have been the question.
Second lesson: Everyone in your firm represents the organization. If a receptionist is rude, if a secretary fails to give you a message; if an associate is ill-prepared for a conference or court appearance, this reflects poorly on you as the senior lawyer and the firm as a whole. Education and training is not limited to the lawyers in the firm. Everyone needs to take continuing education programs to maintain and elevate skills and service levels.
Third lesson, don’t “piss off” the economic buyer (in this case, my wife) in your organization or you will never retain the business, and accompanying revenue.
Fourth lesson, live your life for now. There may not be a tomorrow. Yes, we have to keep an eye on the future, saving, planning and preparing. But, don’t do so without having some joy and value (your subjective opinion here) each day that passes. For me, the pleasure and reward is a vigorous bike ride, especially as a reward for something I did during that day. Whatever it is for you, “just do it.”
I’m sure you can provide other valuable lessons from this experience. Contact me or write your comment below. Let’s see how many lessons we can create from this one true-life experience.
Merger off, lawyers fired, and lawyers hired - Rational?
A major player in the IP field announced that its merger plans with another IP firm have been called off. The assertion is that there were conflicts issues with one major client that could not be resolved and the client would not waive the conflict. While I may be dubious about the veracity of this assertion, sitting on the outside, it does happen.
But, then the firm announces that "... the downturn in patent litigation persists, with fewer cases being filed and more settling earlier.... (C)ases coming in are smaller with tighter budgets and leaner staffing expectations...." And this results in firings/terminations/layoffs (say it anyway you want, the people are gone) of lawyers and staff. In other words, the troubled economy is still having its impact on law firms.
So far, so good. But, then the firm also announces that it sees an increase in patent prosecution, counseling and reexamination work, particularly in the electronics and software practice and the firm will hire first-year associates. Again, from the outside, it looks like the firm is firing experienced lawyers who get paid 3X and will hire first year associates who will get paid 1X. You fill in the numbers. When industry does this, it's called "age discrimination." It may also be called "stupid" because it negatively impacts the morale of the organization ... and you don't build a loyal, cohesive and capable workforce by seeking the least expensive team members. Why couldn't the firm offer the presumably lower paying jobs to the experienced folks? In this economy, they might not like it, but they'd rather stay employed and working with colleagues they know and like and trust. And, the organization will look like a caring place to work, making needed economic changes but also sensitive to the needs of its current work force.
Just seems to me to be a better way to do things. And, at the very least, the PR ineptness of these announcements coming on the heels of one another is just astounding.
What will be the value of your practice?
I met with an attorney today ... he's 61 ... who is terrified that he now is solo and has never had to do anything in his career to attract clients. He was always part of a firm that delivered litigation clients to his doorstep. Now, he doesn't have that ... What can/should he do?
No matter what he does, the ultimate challenge for him will be on retirement, not that far away. Will he have developed any goodwill to be able to add more wealth to his capital for his heirs? The answer is: Maybe, but more likely not. That will be a crime after having been a very good lawyer for his entire career.
What are you doing to enhance the value of your practice? Do you have a succession plan? Does your law practice have an "estate plan?"
Doctors do it, why don't lawyers?
Doctors, like lawyers, have little or no business education in medical/law school. Today's Wall Street Journal (Education for Executives) discusses doctors journey back to school (business) in order to learn skills that were omitted from their medical education. They need these skills in order to run their medical practices, medical groups and hospitals.
Doctors outreach for management training demonstrates a recent shift in thinking: "...we are much more similar to other businesses that we are different." Taking the business side of medicine more seriously can benefit not only doctors, but also patients, a fact slowly being understood in the medical profession.
Why is it that doctors are ahead of lawyers in this understanding? Why is it that medical schools are incorporating management principles into their teaching and few, if any, law schools do? Why is it that lawyers continue to be reactive, rather than be proactive? Worse still, why is it that lawyers fail to react to their clients wishes? Bar disciplinary proceedings continue to show that more than 50% of clients' complaints relate to poor management practices. Why?
Twitter and money - an oxymoron?
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?
Photo contest for LawBiz®
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Welcome to the first ever LawBiz® photo caption contest! All week you’ll have the opportunity to post captions for the picture above of the newest edition to my family, Bandit, a 2-3 year old boxer. Be creative, be serious, be funny – post whatever you think the caption for this photo should be.
At the end of the contest period, we’ll choose a winner who will receive a FREE copy of my book The Business of Law2nd ed., (valued at $120) and a FREE ½ hour consultation with me.
There are a few rules to this contest, so please take note:
· No more than five (5) entries may be submitted per person. Limit of one (1) per day.
· Entries should be submitted as comments and must include email addresses.
· Entries must be received by 5pm PST on Friday, September 25, 2009 to be considered.
· No lewd language or vulgarities. Such language will disqualify entry and will be removed by the administrator.
· Have fun!
A winner will be picked by Wednesday, September 30, 2009 and announced here on the blog. Good luck!
Recruiting is taking a big hit
What are you doing about recruiting? Most of the larger firms have either delayed entry of those to whom they extended offers ... by a few months, at least. And some have outplaced these folks to public interest activities for a year with only a stipend.
More law schools are experiencing reduced recruiting efforts ... And the real hurt will be felt by 1L students because of the blockage in 3L and 2L's.
What do you see for the future recruiting efforts for your firm and for the industry?
And how does this phenomenon impact the recruiting of lateral associates/partners to smaller law firms?
LawBiz® Forum
NEW ONLINE FORUM LAUNCHES FOR LEGAL PROFESSIONALS
Ed Poll Unveils LawBiz® Forum as New Online Community
VENICE, CA MAY 5, 2009 - Nationally recognized law firm management expert Ed Poll, JD, MBA, CMC, announced today the launch of www.LawBizForum.com, an online destination for lawyers, sole practitioners, partners, managing partners, of-counsel and in-house counsel, and others who are members of the legal community providing services to the American people.
LawBiz® Forum will promote discussion about issues that enable lawyers to more effectively and efficiently deliver their services to their clients, such as management, marketing, technology and finance, and others. LawBiz® Forum is a place where the legal community can exchange ideas and techniques in order to improve the personal and professional lives of its members.
“Law is an honorable profession. Only lawyers are given the unique responsibility in the United States Constitution to help those accused of a crime, a fundamental right guaranteed to all citizens,” remarks Poll. “This helping, caring nature of the legal community sometimes is forgotten by the psychological, social, and economic pressures facing lawyers, and I created this forum so that we can care for each other.”
LawBiz® Forum will have several levels of membership. All visitors to the site can review the discussions at no cost. However, members will be able to contribute to the discussions, participate in exclusive webinars, and have online access to Poll’s books and audio products.
In addition to LawBiz® Forum, Ed has a popular YouTube Channel and has also started to use Twitter as a way to reach out to the cyber sphere.
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About Ed Poll
Ed Poll, J.D., M.B.A., CMC, is a nationally recognized expert in law practice management. He helps attorneys and law firms increase their profitability consulting with them on issues of internal operations, business development, and financial matters. Poll brings his clients a solid background in both law and business. He has 25 years experience as a practicing attorney and has also served as CEO and COO for several manufacturing businesses. In 1990, he founded LawBiz® Management Company and is now focused on coaching lawyers, speaking, and writing.
Poll is the author of numerous publications that have become the definitive works in the legal field, including: Law Firm Fees & Compensation: Value and Growth Dynamics (LawBiz© Management Co. 2008), Attorney & Law Firm Guide to The Business of Law: Planning and Operating for Survival and Growth, 2nd ed. (American Bar Assoc. 2003); The Profitable Law Office Handbook: Attorney’s Guide to Successful Business Planning (LawBiz® Management Co. 1996); Secrets of the Business of Law®: Successful Practices for Increasing Your Profits! (LawBiz® Management Co. 1998)
