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What's Wrong With Your Practice ... Perception or Reality?
Most of us can notice when something “isn’t right” with our bodies, and we often are quick to jump to a conclusion about the cause. Yet what we perceive to be the problem, and the reality behind it, may be much different.
A urologist recently shared an example with me, saying that many people come to him to “fix the problem” of an over-active bladder at night. They typically attribute it to a “plumbing” issue that a pill or even surgery can cure. Yet this doctor suggested that, as people age, they sleep less and they’re likely to be awakened more easily by sounds that didn’t disturb them in earlier years – a dog barking, the house creaking. Once they’re awake, they decide to honor the bladder urge so they can go back to sleep. The perception is that there is a physical medical problem. The real cause is the natural aging process and the best “cure” is to accept it.
Transfer this lesson to a law practice. Most lawyers are quick to perceive a problem when there is less money coming in the door. They immediately jump to a conclusion about “the cure” – do more marketing, or raise rates. The reality is that declining revenue typically began long before as a problem with receivables. Generating new work to cover declining revenue simply isn’t the answer. The strategy is to make sure clients know they must pay their bills within 30 days. And the way to do that is specify clear collection terms in the engagement agreement. Lawyers perceive every client as valuable and hate to cut them loose; the reality is that continuing to do work for overdue clients who don’t pay shows those clients are not worth keeping.
A new study by George Washington Law School showed that realization rates (the amount of money billed that is collected) average 83.6 percent for all law firms, a figure that is a historic low. If you perceive your revenue is down, and the reality is that you only collect 80 cents on the dollar, you’re like the urologist’s patients – you won’t get many good nights of sleep.
LawBiz® Legal Pad: Ethical Considerations in Collecting Your Fee
Ed discusses managing a client's fee expectations.
Legal fees are high - according to whom?
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.
Alternative fees - proportionate refund
An interesting question was raised recently in the discussion about alternative fees. What happens in either of two scenarios: i) When the client terminates the relationship before the legal services are concluded and ii) When the fee is challenged in a dispute between attorney and client.
In the former case, how do you apportion work already done versus work yet to be done, especially when the fee agreement is silent on the subject? This question is set against the backdrop that a lawyer refund any advance payment of fee that has not yet been earned. And, though a fixed fee, the fee must be placed into the client trust account until earned. Does one have to refer back to the time spent (hourly billing)? And if the subject is covered in the fee agreement, are we building into the relationship all kinds of negative vibes between attorney and client?
And, though fixed fees/alternative fees are designed to reduce conflict between attorney and client, should a dispute arise, how do we test the reasonableness of the fee? Again, usually by reference to the hourly billing rate and time spent.
This subject once again points to the need for good client relations and effective, frequent communication between attorney and client to make sure such disputes don't arise and/or are settled quickly.
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.
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?
Technology Will Change the Way We Communicate
Our first stop on our Road to Revenue National Road Show is Ashland, OR for the Shakespeare Festival. We'll see 4 plays in 3 days, a daunting task. But, I love this part of the country. And this oldest of Shakespeare Festivals (since 1935) is done so well amid such great surroundings, how could you not want to be here? My sadness is that we won't be here longer ... So, let me start with our experience today, seeing The Language Archive, written by Julia Cho
One of the best plays I’ve ever seen. Here is what the director says about the play in words that are hard for me to surpass:
“... In The Wayfarers, anthropologist Wade Davis talks about ethnosphere as a term best defined as the ‘sum total of all thoughts and intuitions, myths and beliefs, ideas and inspirations brought into being by the human imaginations since the dawn of consciousness.’ This is humanity’s greatest legacy, and we are losing it at an alarming rate - one language every two weeks. Of the 7,000 languages spoken today, half are not being taught to children. Every two weeks, an elder dies and with him/her goes an entire culture’s social, cultural and intellectual inheritance.”
The director than continues by talking about communication in our world of fast words, immediate responses required from our clients, and hunger to keep our inbox clean every moment, such that we’re always looking down rather than out to the horizon where new things are being created. These are my words.
His words: “...Speaking of loss, with all the technology we have at our fingertips, are we really connecting with one another? Are subtext, nuance and nonverbal commendation being pushed further from our daily consciousness? We learn from the unspoken pain in a friend’s eye. The lingering glance from an admirer across the room. The silence of a parent. How is technology retraining entire generations to communicate? Are we losing our ability to be present with one another and listen to what is not spoken? Are we losing our ability to listen with the heart?” (Emphasis added.)
The director’s hope and conclusion is that “...we sit with mindful awareness that diversity of cultures is our legacy. We must tend to it with loving care.”
A play well worth your time.
State Bar to be dismembered
William Hebert, President of the State Bar of California, is leading the charge to dismember the State Bar. Hebert's plan would eliminate six lawyers' seats on the Board of Governors, shrinking the current 23-member body to 17. The Governor and Legislature would still name six non-lawyers to the Board, but the state Supreme Court would choose the remaining 11 lawyer-members, stripping Bar members' current power to elect them.
In other words, despite paying dues, practicing lawyers would no longer have any say in the election of the people who govern their every action, their every responsibility to the public and their very right to earn a living. Does this sound a little like “taxation without representation?”
Yes, the state Legislature’s edict was to study the issue of governance and respond to Legislature. But, there is an option not being pursued by the Bar: Responding that the status quo works just fine, and “if it ain’t broke, don’t fix it.” Or, let’s identify exactly how the Bar is being unresponsive to the public and address those issues. A wholesale change being contemplated will not change the public’s perception nor will it protect the public any more so than the current body does. This reminds me of the recent insurance discussion. The public would have been protected only be demanding that lawyers have malpractice insurance. But, the Bar didn’t go that far. Instead, they merely made it a requirement to notify clients if they didn’t have such insurance. In other words, we’re looking for band-aids; we’re not looking at the real issues. The Legislature didn’t help by connecting this report to the dues bill. And eliminating the voice of lawyers in the election of its governing body likewise will not address the Legislature’s core concerns.
The issue, raised by a body whose members no longer contain a meaningful number of lawyers, is about public protection ... and the perception by some that the State Bar’s sole mission should be to protect the public. I don’t know where these folks have been hiding, but that is the mission of the current Bar. All one has to do is read the Rules of Professional Conduct. All one has to do is speak to the hundreds, if not thousands, of lawyers who feel the wrath of the Bar by its actions and in-actions (and I’m not referring to the disciplinary system that appropriately charges a small percentage of lawyers with misdeeds).
In fact, only one State Bar President in recent memory was so bold as to suggest that the State Bar has two goals: One is to protect the public; and two is to help lawyers be more effective for their clients and more efficient in the delivery of their legal services, again for the benefit of the public. Neither the staff nor any other president in recent memory has publicly uttered anything but the first goal.
And if it’s a question of being “more responsive to the general public,” there are other approaches that can be suggested. But Mr. Hebert doesn’t even look in that direction. Merely cave into the Legislature out of fear that a dues bill might be held hostage. Does this sound like a British leader we remember in dealing with a certain tyrant? Appeasement won’t work in this circumstance either.
I have been a very strong supporter of the integrated bar all these many years since law school. However, Mr. Hebert has finally caused me to flip the switch. I am now in favor of converting the State Bar to a licensing and disciplinary agency only. The result will be a savings to lawyers of at least 20% of their current dues. It takes 80% of the dues to run the disciplinary system. That’s close to$32 million. Lawyers can then join voluntary bar associations, either local or state-wide, create the education programs they need for their betterment, lobby for laws that will benefit the public without impediment, and otherwise create activities that improve their professional conditions.
Wireless network rules
<auer Brown writes about a new California Bar opinion that addresses wireless network use.
Quoting from their note, they say:
"Attorneys owe their clients a duty of confidentiality and competence. But when an attorney uses wireless Internet to communicate or access files, such as in an airport or other public location, is that communication over an unencrypted wireless network confidential? And is an attorney competent if he or she broadcasts client confidences, including employer confidences for in-house counsel, over an unencrypted network?
On January 20, 2011, the State Bar of California issued formal opinion no. 2010-179, addressing these questions. The opinion provides six factors that attorneys should consider when determining whether a particular technology is appropriate for their communication.
- The level of security afforded by that technology, including whether reasonable precautions may be taken to increase that level of security by, for example, encrypting email.
- The legal ramifications to a third party who intercepts, accesses or exceeds authorized use of the electronic information—that is, whether the form of communication is protected by law, like telephones and information stored on computers.
- The degree of sensitivity of the information—the more sensitive the information, the more security is appropriate.
- The possible impact on the client of an inadvertent disclosure of privileged or confidential information or work product—again, the more severe the consequences, the more security is appropriate.
- The urgency of the situation—if a message absolutely must be delivered immediately, security is a secondary consideration.
- The client’s instructions and circumstances, such as access by others to the client’s devices and communications—if, for example, a client has specified that email is not confidential enough, or that a particular kind of communication must be encrypted, the attorney must comply with those instructions." See their note for more.
Knowledge - Who Owns It?
I had the pleasure of keynoting a recent conference sponsored by LexisNexis. During a panel discussion among practitioners, technology consultant and myself, the topic of the cost of new technology was discussed. One of the suggestions I made was that the successful law firm of the future will use technology to create and enhance its effort at knowledge management. The firm that is able to retrieve its pre-existing knowledge and use it again will be more efficient, reduce its costs and therefore provide excellent results for clients at a lower price.
Then, the question arises: Who owns the knowledge, who owns the forms, the precedent knowledge? Does the client who paid for it own it? Does the law firm own it? Or does the lawyer who created it own it? This becomes more important in an age of greater lateral movement.
Some clients have as a condition of engagement that they (the client) own the intellectual property ... and that the law firm must share it with other law firms who handle the client's affairs (e.g., product liability litigation) in other parts of the country.
Do you have a firm policy on this? What do you do concerning your intellectual property when a lawyer leaves your firm? Is your policy different when the lawyer is a partner as contrasted to when the lawyer is an associate?
Transparency for E & O Insurance - Finally!
It didn’t take all that long ... I received in the mail today, along with more holiday greeting cards, an errors & omissions insurance policy application. Finally, the insurance industry is showing its true colors in the recent campaign to have uninsured lawyers painted with the “yellow band” brush.
The cover letter for the application says, in bold print: “The Rules in California are Changing” and continues to talk about new Rule 3-410, effective January 1, 2010, to the effect that lawyers must disclose to clients in writing that they do not have E & O insurance coverage. The obvious ploy here is to scare lawyers into buying malpractice insurance.
How much more premium money will carriers earn from this new rule? And how much client defections will 20% of the California Bar suffer as a result of the inadequate measure recently adopted by the California Board of Governors and approved by the State Supreme Court? I suspect enough to have made the insurance industry’s efforts worth their while.
As though the bad economy hasn't hurt the sole and small firm practitioners enough this year, the Bar throws more oil on the fire by either causing this group's expenses to increase (to the obvious delight of the insurance industry) or its revenue to decrease. Either way makes this generally economically marginal group's life more precarious ...
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?
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)
