Amazing Firms, Amazing Practices

The Services Safari Blog posted this yesterday:

Calling all Lawyers... The Bear Stearns Collapse

The following is an excerpt:

Shareholder litigants are going to be talking about this one tonight and tomorrow. Let's recap the fall of Bear Stearns stock price and market value the last year:

Stock price last year: $159/share - market cap: $18.76 billion
Stock price last week: $69.75/share - market cap: $8.23 billion
Stock price Friday: $30/share - market cap: $4.04 billion
Acquisition price Sunday: $2/share - market cap: $236 million

The post ends with:

Are criminal indictments in the future?

Punchline:  this trumps my wildest speculation about how erratic the economy may become.  Managing Partners:  Are the appropriate practice group and industry teams watching all economic indicators (formal and informal) and reporting to you frequently (a la #4 in my January 24 post: Recession-Proof your Law Firm).

The Wall Street Journal has a post called: Big-Law Associates Facing 2008 Salary Cap by Dan Slater.

Here is a key paragraph from that post from which my title was derived:

"We called around to firms to find out whether associate salaries, called economically-irrational in some quarters, have finally (or, at least, for now) hit a ceiling. The answer seems to be yes."

The comments under the post range from:

"I think associates should just worry about keeping their jobs instead of clamoring for increases in salary"

to

"I expect salaries in NY will bump up to 190 before the end of the year. That will cause other cities to match. The following year NY will again bump to 230, and other cities will again follow. The pattern has been established, and there is no way to stop it. It’s pure economics. Plain and simple."

PUNCHLINE:  I am empathetic with recent grads who must repay large loans and face rampant inflation.  However, I believe the only thing that matters is "the client" because collectively the clients will drive demand and the parameters under which legal services are sold.  As the world flattens, clients' choices expend and as Cisco and GE and other powerful clients have clearly demonstrated, if the profession can't summon the imagination to change the equation clients will change the equation for them.  I reference two of my previous posts:

Offshoring in India Changing Legal Services in the West
OUTSOURCING: "Lawyers are service providers. We are not gods"

Image Credit:  The image in this post was copied from the original WSJ post

Footnote:  At the moment I am on assignment with a prominent South African law firm...  you should see how wide their eyes get at the mention of the scale of associate salaries referenced in this article.

The worst market crisis in 60 years: "recession or worse"?  Says who? The 80th richest man in the world, George Soros, (estimated net worth of 8.5 Billion according to Forbes).  Is Mr. Soros toying with the "D" word: "Depression" when he says "recession or worse"?

I recommend that you read the entire Financial Times (FT) article dated January 22, 2008: The worst market crisis in 60 years.

This is not a new subject for me - see my August 3, 2007 post Doom and Gloom for the legal profession - it's coming with respect to which Valorem Law founder, Patrick Lamb, kindly called me "an awfully good soothsayer" in his January 19, 2008 post Will The Perfect Storm Fundamentally Alter The Foundation Of The Profession?

Citibank’s Law Group Head and friend, Dan DiPietro, seems to be singing in harmony with Mr. Soros.  Dan believes that US law firms may soon be battling unprecedented economic pressures.

As a law firm leader,  you need to ask yourself some hard questions.  My Edge International partner, Rob Millard, and I believe you need to: Recession-Proof your Law Firm and that Law firms must immediately prepare by reassessing their strategies in order to:

• minimize the potentially firm-threatening impact and
• capitalize on competitive opportunities

1. Strong Leadership 

  In ancient times, the Cherokee Nation had one chief who would rule during times of peace; another during war. The need for hard, courageous decisions, even sacrifice, is common to both recessions and wars. In both, strong leadership is critical if hard decisions are to be taken and actually executed.
2. Ramp Up the Frequency of Financial Data Reporting   

Things can change fast in a recession. Clients, under financial pressure themselves, terminate engagements. Revenues may contract. Debtor payment periods and write offs may deteriorate, putting pressure on liquidity. The firm’s key financial metrics must be monitored far more frequently than in boom times.
3. Make the Hard Decisions Humanely and Fast  

Layoffs, if required, must be quick and humane not only to preserve capital, but also to get the firm past this trauma quickly and focused on working forward again. Continued employment of underperformers must be carefully assessed. Where the market is no longer buying specific services there are two choices: retool (quickly) or separate. (Do not misinterpret this as a suggestion to rush to lay off people though. Long-term considerations suggest this is a last resort option for all personnel except those who ought to have been asked to leave years ago.)
4. Get Practice Leaders and Client Team Leaders focused on short-term action plans  

Actions must be executed more quickly than in “good times” and therefore designed for rapid implementation. Plans must be focused, systematic and disciplined. Those that will actually drive plans must be integrally involved in crafting them and managing their execution. Feedback and accountability measures are critical to ensure that the plans are executed, especially when they relate to the hard, courageous decisions (point 1.) Non-billable time becomes a valuable asset and must be actively managed to ensure that key tasks receive priority.
5. Involve Your Clients  

In recessions, client mobility increases. Client needs evolve more quickly as new threats and opportunities emerge. Firms need to go beyond simply expressing empathy and assuring continuing loyalty. They need to actively position themselves to meet emerging key client needs. This cannot be done without actively discussing business (not just legal) issues with clients. If you don’t have client teams in place for your key clients, now would be a good time to start!
6. Manage Internal Expectations   Business as Usual Could Be Lethal

Remember the tale of the two frogs? The first is dropped into a bowl of hot water. It jumps out. The second is dropped into a bowl of cold water and slowly heated up. It doesn’t jump out and eventually dies. Similar procrastination has been the death of too many good firms. You need to explain internally what is being done to weather the recession and the likely impact on the financial positions of your people. This knowledge will motivate your people to do what is expected of them rather than default to “business as usual.”
7. This Too Shall Pass   Keep a Balance With Your Long Term Strategy

Think strategically about whether and where to cut short-term resources. Retaining some temporarily unprofitable practice areas and individuals may be advisable if they are important to your long-term goals. On the other hand, a recession is an excellent time to re-engineer or sever areas that have become less profitable but have been tolerated to avoid conflict.

Thanks again to Robert Millard for his collaboration on this. 

As always I appreciate your feedback.

Here’s the actual quote: 

Lawyers are smart, but this herd mentality seems absolutely irrational, economically speaking — and not because the compensation is too high. The top law firms have been stuck in copycat mode for years. As soon as one of them raises salaries for associates, the others fall in line almost immediately.

Later in the article NYT asks: 

But think about this for a moment: Is there any other business in which every competitor matches salaries and bonuses almost identically?

In response to:

Evan R. Chesler, Cravath’s presiding partner, told The New York Times last month that the firm had originally wanted to “thank our lawyers for the hard work this year and the good year we’ve had.”

NYT offered:

It’s a nice thought but somewhat specious. Partners at law firms are a notoriously greedy bunch — that’s why they accept so few new partners — making it hard to believe that they are willing to part with their money so easily. I suggest there is something else at play: Law firms match bonuses to secure bragging rights.

My View:  Given the economic challenges the legal profession is about to face I believe large salary increases and bonuses are risky…  a handful of firms can play the game because they have spectacular revenues to encroach upon but if the main stream gets caught in this game we are going to see casualties.  Over my many years of working with law firms globally there is a season you want to avoid like the plague – that’s “shrinking pie” season (when the cycle leaves less for partners to share).  Everything becomes more painful – rewarding stars means starving others and laying partners off (or de-equitizing) requires more courage because the world is a lot tougher for those who are being disenfranchised.  Somehow when the pie shrinks, a very negative game of dominos ensues.  Huge associate salaries and bonuses accelerate the shrinking of the partner pie which I argue has its perils.

Read the entire article: Lawyers Compete, Except in Bonuses

The New York Times Business section included an article yesterday called:  For Lawyers, Perks to Fit a Lifestyle.

The article alluded to a variety of perks including money, candied apples, milkshakes, car discounts, valet services, wine, office parties, in-office gourmet meals on silver platters, nap rooms, child care, emergency nanny services, sabbaticals and even an occasional masseuse.

Perhaps this was the most important perk mentioned:

Fried, Frank, Harris, Shriver & Jacobson, a 600-lawyer firm based in New York, offers employees a service akin to a personal issues coach and psychotherapist through a deal with Corporate Counseling Associates of Manhattan. The consulting firm has a battery of staff psychologists and social workers to provide advice on issues including stress, anxiety, depression and divorce.

While many companies have offered employee assistance programs over the years, few have Ph.D. psychologists on staff.

A spokeswoman for Fried, Frank, Paula Zirinsky, said, “We want employees to be successful in their personal as well as their work lives.”

PUNCHLINE:  Some of my law-firm clients have very serious challenges dealing with individuals for whom "psychological intervention" should be mandatory.  In these severe cases, ostensibly productive members of the firm are causing harm to client relationships and firm personnel with long term costs that are hugely underestimated by their firms.  Perhaps offering such perks is a way to make it just a little easier to address these firm-threatening challenges.

Read the entire article...  perhaps your firm can offer many of the perks mentioned - most are not that expensive and I'll bet the return on investment would be healthy indeed (pun intended).

Supplemental to my post "Sharp Pin Approaching Associate Salary Balloon", my friend and Edge colleague Robert Millard has created a post which may impacts the context for discussing associate salaries.  He explains his title: America's Two Legal Professions with the graphic above.  Read his post for a detailed explanation.  Sometimes critical change is too subtle to notice - I think Robert has illuminated it for us.  (Click on image to increase size - here or in Robert's post)

Today's front page Wall Street Journal Online article is compulsory reading for all law firm Managing Partners and H.R. professionals:

Hard Case: Job Market 
Wanes for U.S. Lawyers - Growth of Legal Sector Lags Broader Economy; Law Schools Proliferate
By AMIR EFRATI, September 24, 2007; Page A1

While the article admittedly says:

“For graduates of elite law schools, prospects have never been better.  Big law firms this year boosted their starting salaries to as high as $160,000.”

It goes on to say:

“But the majority of law-school graduates are suffering from a supply-and-demand imbalance that's suppressing pay and job growth. The result: Graduates who don't score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits. And many are blaming their law schools for failing to warn them about the dark side of the job market.”

PUNCHLINE:  My pre-law was comprised of a business degree which included a healthy dose of economics – it doesn't mean I am right but here are my views (you decide what they are worth):

1)      The balloon of increasing salaries at top firms (and "top firm wannabees") is going to SHRINK if not BURST.  Fewer firms will compete with the top tier starting salaries and therefore average starting salaries will fall (in real terms -  adjusted for inflation).

2)      Mainstream firms (including many if not most of the AMLAW 200 and other major firms around the world) will find their appetite for enormous associate salaries waning in favor of dipping slightly deeper into the pool of candidates and offering top-third students in good schools much more than they might otherwise make (but  less than recruits at the firms who continue to compete in the perceived feeding frenzy).

3)      It’s not just the money!  It’s the student loan!  Students want respect, training, good work, a chance to know the names of their children, future prospects and a way to service their enormous public and private debt.  So pay well (but not like you are trying to hire Angelina Jolie for the lead in your next movie), find a creative way to “help them with their student loan” and return your focus to where it has always belonged – making your firm a great place to practice law.  (The following illustration relating to student loans is one of nine very useful illustrations included in the article - click on image to enlarge):

Footnote:  How quickly things change:  A three-month economic history on this blog site:

(I've got a song lyrics stuck in my head "What goes up must come down" from Spinning Wheel by David Clayton Thomas of Blood Sweat and Tears (click for full original lyrics and you can get it stuck in your head too)

       Mike Dillon

Would you listen to the General Counsel of Sun Microsystems, if he said:

“I do believe that there may be times when a $1,000/hour fee is warranted”

“…just yesterday, I read of another example of how law firms continue to be primarily focused on maintaining profits through consolidation and growth of headcount. As a GC, what I'd rather see is an article about how law firms are creating new business models that reflect the reality of my organization - providing consistently high quality of service with a constant focus on efficiency.”

“As recently as four years ago, we had several hundred (that's always embarrassing for me to say) law firms that we used for general purpose legal work in the United States. Since then, we have been aggressively reducing this number to the point that this year we announced that we are moving to nine "Preferred Partner" firms.”

“…we are already seeing examples where … firms are proposing creative pricing models and investing in better understanding our business.”

“…we needed to have about 10,000 agreements reviewed and summarized for an on-line database. We send out an RFP to a large number of firms and through this process filtered the number of candidates down to a handful. These were then invited to participate in an on-line competition for the work. During the course of the event, it was fascinating to see firms from around the world compete to win the business. (If you've ever sold anything on eBay, you know the feeling.)”

“…we quietly started a small team several years ago called "GLN" (Global Legal Services). They are focused on efficiently handling the less complex, but higher volume agreements and services we provide.”

The above quotes are from a single blog post called: Context is everything by Mike Dillon
Senior Vice President, General Counsel and Corporate Secretary, Sun Legal Department of
Sun Microsystems, Inc.: .

PUNCHLINE:  Managing Partners – do you dare not read his future blog posts?

"Leading London-based international law firms are starting to feel a chill from the world market turmoil that may threaten the industry’s unprecedented profits boom."

Read the whole Financial Times story: UK law firms hit by market turmoil

“Ford & Harrison, a 190-attorney labor and employment firm, has tossed out billable-hour requirements for first-year associates. The program aims to close the practical-skills gap of law school education and increase value to clients. The firm also hopes it will enable associates to handle meatier matters more quickly.“ according to Leigh Jones of The National Law Journal.

I have the privilege of knowing C. Lash Harrison (pictured) and his remarkable stature within his firm.  When I read about this bold initiative I was in no way surprised that it was Lash who had the gravitas to pull this off.  It may be prophetic that the tag line on the Ford & Harrison firm’s website reads:  “THE RIGHT RESPONSE AT THE RIGHT TIME”

"Everyone sits around and complains about the problems," said C. Lash Harrison, managing partner of the law firm. "I figured, what the heck, maybe we can try something."

Observation:  The issue of newer lawyers recording time on files is a bit of a hornet’s nest in most firms.  If the time is billable, it detracts from the billing partner’s realization rate and perhaps even hours billed.   Carefully measured associates steer away from files where they can’t record billable time.  This creates a tension that is based on economic reality but serves neither the associate’s training objectives nor the client’s desire to optimize value.  Thank goodness for fresh thinking and bold initiatives.  That makes C. Lash Harrison a hero to me.

Thank you to LAW.COM for its post Firm Kills Billable Hour for First-Year Associates

Many of my friends and clients know me as a very optimistic person so this post may surprise them.  I feel like I am about to watch the next dot com crash only I am not talking about the internet or high tech.

I have held this belief for many months and I believe that the economic indicators that can hurt the legal profession are gaining momentum.  How much longer can the legal profession remain insulated from the market realities?  I say not long at all.

Our legal profession is in for very rough times. My message to Managing Partners is not to become pessimistic but simply to have a contingency plan in place.

Most firms will:

a) continue to be hourly billers (for the most part)
b) plan for extensions of the historic linear revenue and profit per partner growth
c) perhaps fine tune by de-equitizing or closing an unprofitable office or two

but few will create a contingency plan for:

a) dramatic drops in demand for many traditionally hot practice areas
b) over-staffing (at all levels and in most practice areas)
c) the cancer of internally competitive behavior as the pie shrinks

Those inclined to tell me I am crazy I ask to wait six months following the next US election – then I will eat this post if I was wrong.

I love our profession and want only the best for it so I hope the smart Managing Partners out there will prove that great firms can thrive through adversity – especially when your competitors are not capable of doing so.

My heart hopes I am wrong – but my mind tells me otherwise.  I decided that down the road it would be no good to say “I knew it” if I lacked the courage to post it now.

Your comments are most welcome, as always.

Addendum:

Patrick Lamb posted the following comment both here and on his own popular blog: In Search of Perfect Client Service in his post: Gerry Riskin's Forecast: Stormy Times Ahead.

I think he deserves a response:

Patrick’s comment/question:    Gerry--very powerful post.  Not one that I disagree with at all, but can you share with us the signs you see that lead you to this conclusion?  And are the elections tied to result or simply a benchmark for the time by which you think the changes will be apparent?  Ciao.

My response:  The US election is a process that sees powerful interest groups exercising their discretion in a manner which will increase the probability of their preferred candidate(s) being elected.  As a result, a temporary and indeed unsustainable economic climate may be manifested.   I think things get very real about six months after US presidential elections.  With outcomes certain, interest groups lose their motivation in a hurry – at least for a while.   As for the indicators themselves, I am afraid to start because where do I finish?  However, here are some things to examine:

    Currency fluctuations
    Price of oil
    Price of precious metals
    Increase and decrease in “real” jobs
    Geographic location of those jobs
    Political stability of job locations
    Foreign relations as they affect business
    Balance of Trade between countries and regions
    Housing markets (not just prices – but demand)
    Auto market (demand)
    Credit levels (or should I say “debt levels”)
    Interest rates (they are not falling, in fact, get ready…)
    The advent of the largely unregulated Hedge Fund industry
    The establishment pensions that invest in Hedge Funds
    The Domino effect – how one indicator impacts many others

And specific to the legal profession:
   
    The disparity between views of General Counsel and Outside Law Firms
    Associate starting salaries (and consequential impact on all salaries)
    “De-equitization of partners” trend
    “Law firms going public” (anticipated) trend
    The obsession by partners on remuneration
    The expectation of continued increasing revenues, PPP and PPL
    The surrealism of the financial expectations of new lawyers
    Comments from Citigroup’s law firm market specialists

Disclaimer:  Yes, I obtained a business degree before law and yes I studied economics and yes I subscribe to reliable publications like The Economist but I do not profess to be able to predict the stock market or future currency fluctuations.  In fact, I will admit that my post is based to a large extent on a hunch – intuition (I read Blink by Malcolm Gladwell so maybe this is OK).

Punchline:  If there were a fund that invested in the legal profession worldwide (at least in the western world) I am not a buyer – I might even summon the courage to put some money at risk by “selling short”.

In closing, perhaps not you, Patrick but there are many who will think I am completely wrong – I not only respect their right to hold that view, I hope that their view prevails.  I post this because if there I seven a significant possibility I am right, as stated in my original post:  “My message to Managing Partners is not to become pessimistic but simply to have a contingency plan in place.”

Addendum #2:  In light of the stock market tumble today, I thought I should clarify that this post was not a reaction to it but rather done before today and scheduled to auto post after midnight this AM - here is an image from my aggregator to verify:

-30-

According to London firms dominate global legal market (TimesOnLine):

"City law firms are reaping record profits that confirm London’s dominance of the global legal market, according to research published today."

HOWEVER, the article goes on to say:

"But it is not all doom and gloom on Wall Street. The revenue per lawyer (RPL) figures of US law firms far outstrip those of UK firms."

"The 15 firms that perform best in the Legal Business research all have RPL figures that top the $850,000 mark. Slaughter and May is the only UK firm that makes the cut, with revenue per lawyer topping $939,000. New York law firm Sullivan & Cromwell leads the field with each of its lawyers billing $1.45 million each year."

*If the article is correct, what conclusions do you draw from the fact that UK firms are more profitable but revenues per lawyer are higher in the USA?  It might, in part, be costs but more likely "how money is distributed generally to the lawyers in the firm".  INTERESTING!!

(*See article for details of nature of firms compared)

ABA's Law Practice is now online

I was please to have participated in the case study: "Deal or No Deal? Advice for Evaluating the Partnership Offer."

Thank you to Stephanie West Allen of Idealawg for posting: New edition of LAW PRACTICE looks at making partner

Harsh?  If killing the golden goose is stupid, then this is not harsh at all. 

Find out why 58% of (surveyed) General Counsel expressed outrage.  Find out why 84% of (surveyed) General Counsel wanted the law firms they use to contact them about associate salaries but none did.

Brilliant law firm leaders who can not empathize with the clients they serve (including General Counsel in their larger clients) are going to pay an enormous price.

If sustaining profitability is high on your agenda, read Patrick Lamb’s post called “Demand Destruction” in his famous In Search of Client Service" blog.  (In a better world, there would have been no need for this post.)

Punchline:  Within the next two years, many private practice law firms will be going through some rough times and many will blame the GC’s of their clients.  There are two sides to this story.  Some bold firms should gather the courage to communicate with their clients directly and with candor.  The best texts on negotiating describe win/win scenarios where both sides benefit.  There is a certain immaturity to the ostrich approach most law firms take to these issues – even major firms.

The Wall Street Journal posts: Slater & Gordon: The World’s First Publicly Traded Law Firm

Managing Partners and other members of law firm C suites had better look at Slater & Gordon’s prospectus – it’s a gold mine, (pun intended).

Have a look at how risks are described – the Wall Street Journal post quotes the passage balancing professional responsibility and shareholder profits.

"Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the Company’s business as an Incorporated Legal Practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of Shareholders or the short-term profitability of the Company."

I adored the "Key Risks" page (click on it to download pdf of this page):

PUNCHLINE:  If this does not fascinate you, you should resign from your leadership position.  I am not saying you should follow suit – I want you to know what your options are and what your competitors might be up to way sooner than you would like to think.

Science fiction movies adore time travel and ripples in the primordial fabric.  We are witnessing a collision - the future has just exploded into the present.  With Clemente in the UK just over the horizon, please fasten your seatbelts - this is a pivotal moment for the legal profession and for the Managing Partners within it.  Like Dennis Hopper's famous line in the movie Speed, "what are you going to do, Jack"

You may want to reference my earlier post:  The end of the legal profession as you knew it...

(Click on image to see original enlarged version)

I was fascinated by this piece at the Consumerist:   How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

If the same phenomenon occurs in the legal profession, there would be a tremendous return on investment from enhancing client satisfaction.

The story is that a portfolio comprised of “companies at the top 20% of the the American Customer Satisfaction Index (ACSI)... greatly outperformed the stock market, generating a 40% return.

“From 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.”

How would you like to out perform the average law firm by somewhere between 93% and 335%?  More importantly, how much should you invest in order to reap a return of that nature?

Don’t bother disseminating this information to your people in order to encourage them to focus on enhancing client satisfaction.  Their consequential improved knowledge on the subject will do little.  It takes results (client satisfaction) to get results (improved profitability).  SKILLS rather than knowledge with be essential to achieve the desired outcome.

PUNCHLINE:  In my opinion, there is an overabundance of information in law firms and a dearth of client-relations training.  If you are a Managing Partner, you may want to balance this disparity.

Note:  I admit that this post is an act of unbridled extrapolation.  I cannot prove that the empirical research referenced would apply to the legal profession per se but my view is that it probably would.

(Thank you to my son, Daniel, for bringing this to my attention.  Daniel (Riskin) is a PhD and a renowned expert on bats - he discovered Vampire bats run - check out his site.)

"Buyouts alone accounted for 277 transactions worth $121billion in Asia last year" according to The Financial Express China is most popular destination for new law firms

Your thoughts?

According to The Lawyer.com today in Australian law firms to make IPO history:

"Three small West Australian firms are set to make legal history with a proposed IPO and listing on the Australian Stock Exchange (ASX)."

"Australian law allows non-lawyers to control ownership of firms based in New South Wales, Victoria and Western Australia."

Punchline:  Anyone who does not think that the Clementi Review of the UK legal services regulatory framework which made floating UK law firms theoretically possible is not going to have an impact is smoking the wrong substances.  Stay tuned for the end of the legal profession as you knew it.

"...a bridge to full partnership..."

My friend and Edge International colleague, Ed Wesemann, shares survey results via an article in today's Law.Com Large Law Firm Section, called Most Tier Partners Still 'On Path' to Equity Status, Survey Finds

He surveyed 58 managing partners of firms of more than 100 lawyers and found, at the median, five reasons for making lawyers tier partners. Find those five reasons and much more in the article.

For the tier partner, the pay and prestige are good, the pressure to bring in new business is less and there's still the prospect of full partnership down the road. "If you're being parked, you ain't dead yet," says Wesemann. "Wonderful things can happen to you."

Freelance writer Sarah Doherty follows yesterday's article "Flexible work schedules save money, research shows" about which I posted: (You Can't Afford to Keep Losing Your Women Lawyers)with another offering: Room at the top - Big law firms are making an effort to promote women into more visible and prominent positions

Here's how the article begins:

"When Joan Clark applied to work at a venerable Montreal law firm, she was asked whether she was engaged to be married. Her hiring met resistance from lawyers who said clients would never accept a woman in the job. When she was eventually invited to her firm's formal partner's lunch at a tony private club, Clark, now 76, had to use a special entrance while her colleagues waltzed through the front door. "I eventually went through the front door, but I knew how black people felt when they had to sit at the back of the bus," Clark said. "We don't have that kind of discrimination now."

My Opinion: This article is a useful supplement to the previous one… it is in some ways optimistic by citing some genuine progress for women lawyers but at the same time the article ends with a quote from Stephanie Jolin regarding litigation practices in particular that seems a wee bit pessimistic:

"Because of what the job demands, there will be a certain amount of limitation on how flexible you can be, especially in litigation," she said. "The job description is tough."

Read the full text and then tell me what is your take on the issue of big firms retaining women lawyers?

Catalyst studies show an associate's departure costs a [Canadian] firm about $315,000 in recruiting, training, salaries, overhead, severance, outplacement and other costs - not including hiring a replacement.

The stress of juggling work and family usually falls more heavily on female lawyers...

So what can law firms do to be more flexible in the face of the notoriously heavy demands of a client-driven and increasingly business-like profession?

Kirby Chown hopes she can find solutions. The 59-year-old is managing partner for Ontario of McCarthy Tetrault, one of Canada's largest law firms.

Two years ago, Chown started a women's network in her firm's Toronto office to create a stronger community of women and brainstorm around issues such as mentoring and business networking, which help lawyers move up the ladder. Last year, she helped create a firm-wide women's committee.

"Very few women are taking advantage of flex-time arrangements," Chown admitted. "There are concerns about being stigmatized." No men have requested the option, according to Chown.

My Opinion: I grow weary of the stereotypical myth-riddled responses of the power people in many major law firms giving excuse after excuse as to why keeping women engaged is next to impossible. I do not believe it and neither should you. This challenge will be met by some firms who will gain enormous competitive advantage. They will lower their costs and see much higher productivity.

Tom Peters (most famous business writer of all time) three days ago refers to the Economist in his blog post called Women's World! The Economist article to which he refers has the following headline: "Forget China, India and the Internet: Economic Growth Is Driven by Women." Tie these two together and put this on the agenda of your next executive meeting. (Maybe you should consider inviting Kirby Chown for a visit.)

Note: According to the "Mission and History" entry on its web site, Catalyst is the leading research and advisory organization working with businesses and the professions to build inclusive environments and expand opportunities for women at work.

See this information and more in today's article in the Gazette (Montreal) called: Flexible work schedules save money, research shows

Can you define and differentiate among these terms:

Intellectual Capital


Human Capital


Relationship Capital


Reputational Capital


Economic Capital


Structural Capital

The immediate reaction may be “those things are too subjective to be valued” or “even if they could be valued, that value would be diminimous.” But anyone who has been involved in evaluations and appraisals knows that a value can be assigned to anything and usually with surprising accuracy. Consider the value of each area of capital independently...

WARNING: Watch out for a golf analogy or two - Ed lives with his wonderful wife Jan on a golf course in Savannah, Georgia — apparently the holes on that course are alive and can behave like camera apertures.

My post earlier today, The Wall Street Journal Blasts Law Firm Salaries Arms Race plus the comments of Larry E. Ribstein in his Ideoblog post Why are law firm associates paid so much? seem to have inspired a nice piece of analysis by Bruce MacEwen in his resulting post, Associate Salaries: The Great Debate.

Bruce refers to Cameron Stracher's analysis in his article in today's Wall Street Journal as "economically flawed" and goes on to say that "he misses the fundamental economic rationale" that Larry identifies. Bruce feels compelled to "correct" Stracher's comment about the profitability of an associate at the new starting salary.

Wait no longer - enjoy Bruce's post — let the discussion continue — this is getting interesting!!

Referencing the announcement that Sullivan & Cromwell will raise starting salaries for newly minted attorneys by $20,000, to $145,000 (plus bonus), Wall Street Journal writer Cameron Stracher writes a provocative article called Cut My Salary, Please! (on line subscription required).

Cameron Stracher, author of "Double Billing: A Young Lawyer's Tale of Greed, Sex, Lies, and the Pursuit of a Swivel Chair" (William Morrow, 1998), says “Corporate law firms are, essentially, giant pyramid schemes…”

“Corporate law firms are, essentially, giant pyramid schemes…”

He goes on to say:

But what makes economic sense to the firms makes less sense for young lawyers. For one thing, each salary increase has been accompanied with a corresponding increase in billable minimums. When I started practicing, lawyers were expected to bill around 1,800 hours a year. These days, it's about 2,200. Those 400 extra billable hours translate to about 600 more hours at work, or approximately two to three more hours in the office each day. Even at 1,800 hours I worked until nine at night, and most weekends. At 2,200 hours, a lawyer might as well move a cot into his office.

Before concluding he suggests that:

Tomorrow, law firms should cut starting salaries by 50%

You‘ll have to read the full article to analyze his reasoning.

My Opinion: During the dot com boom I recall participating in a round table in San Francisco where we discussed the then ridiculous increases in associate salaries. I understand the free market mechanisms that drive firms to compete for talent. I said then and I will say it again that salaries alone do not buy you motivation, commitment, drive and the desired peak performance. They buy you compliance with extremely high billable hour targets. I believe the long term winners have to be competitive in their salaries but also must learn how to enhance the satisfaction of both lawyers and the clients they serve.

Not that I know of but they did bill $99,807,894.10 according to the post of my friend and Edge International colleague Robert Millard.

According to a story in the Toledo Blade today, Fuller & Henry, founded in 1892, "has all but disappeared… Its sign is gone from the door". The article goes on to say: "At one time, the business occupied two floors of the city's most prominent downtown office building but lately had just part of a floor. By the late 1990s, it had closed its Port Clinton office; several years ago, it shut its Findlay office, and a year ago, it left its Columbus office."

But here's the clincher:

Observers at other law firms say the defections and downsizings resulted from partnership disagreements over compensation and management.

FastForward: Most lawyers will share a sense of sadness at the events that have befallen Fuller & Henry but few will realize just how perilously close their own firm may be to a similar fate. As times become more competitive, the forces that could cause a stampede of exiting lawyers are not so remote. In my opinion, complacency is often the worst enemy. You might want to discuss this at your next executive committee meeting.

My colleague Ed Wesemann has a very interesting piece on using retooling as an option to terminating the underproductive partner. He notes that the termination option is often used because: "they simply don't have the confidence that any other option will work".

In this post, Ed covers:

Selecting Partners for Retooling

Making Retooling Successful

Check it out.

Anthony Cerminaro

OK - I don't want to overdo this "fun and happiness theme" but there's lawyer Anthony Cerminaro blogging about Happiness Breeding Success.

Read his post — it captures the gems from the article he referred to in Live Science by the same name. The other quote I liked was:

Scientists reviewed 225 studies involving 275,000 people and found that chronically happy people are in general more successful in their personal and professional lives.

PUNCHLINE: I am not suggesting that having fun and being happy are the exclusive ingredients for a successful firm — in my view they must be accompanied by clear and strong values that are adhered to. I am, however, endorsing the idea that firms do much better if it's not a drag to work in them. Reflect on this as you formulate your personal 2006 plan as leader of your firm.

Follow me on a journey of logic — skip a decade to 2015 when air travel may dramatically increase in speed to 30,000 km per hour or 18,000 miles per hour — imagine a trip from Moscow to New York in 50 minutes or Moscow to Sydney in one hour and six minutes. (See reference to news story at end of post)

I contend that as the world continues to shrink, we will see a breed of global super lawyers who will go almost anywhere where there is a lucrative opportunity to bring unique skill and knowledge to bear on a legal problem.

What will this mean for competition — especially for the global firms. One might argue that they will be best positioned to exploit the opportunity because they can move their specialists around the globe more easily. However, it may also represent a threat to the global firms because agile competitors will be able to send top guns in without having to establish expensive local offices. A third possibility (my favorite) is that we will see even greater industry specialization such that any member of that industry will hire a known dream-team law firm the bricks and mortar location of which will be irrelevant.

I propose this as a serious planning issue, if not immediately, at least in the not too distant future. Competitive advantage comes from thinking ahead of the curve — not behind it.

Fasten your seatbelts!

(Story: Spaceflight from Moscow to New York to take less than an hour)

You will see the story gets all excited about Benjamin R. Civiletti, now chairman of the Venable law firm, for reaching the lofty threshhold of a $1,000 per hour hourly billing rate. If that $1,000 rate for Mr. Civiletti is serving a well conceived strategy to differentiate by being obnoxiously expensive, I fully respect that. If not, publishing high hourly rates clearly causes more harm than good. Don't get me wrong, Mr. Civiletti appears to be an extraordinary lawyer (reference his bio)

Wachtell, Lipton, Rosen & Katz is ignored until the the very last paragraph of a story from Bloomberg News today that appears in the Vancouver Sun in Vancouver Canada of all places, titled "U.S. lawyer charging $1,000 an hour".

$3.5 Million per partner for Wachtell, Lipton, Rosen & Katz demonstrates just how ludicrous it is to look at hourly rates as a measure of profitability.

Hourly rates do not tell the client (or the law firm) what the matter is going to cost.

When I began the practice of law in 1973, my 100 year old firm's managing partner had a terrific formula for determining an hourly rate: "tell me how much the lawyer billed and the number of hours recorded last year and I'll tell you that lawyer's hourly rate." Today we would define that as the effective rate, of course.

So what is a Wachtell partner's effective hourly rate? You guess the average number of hours worked by Wachtell partners and I will tell you the rate. Notice, I didn't even say recorded, I said worked.

If you speculate that Wachtell partners are maniacs who work an average of 3,000 hours a year they still beat the highest published hourly rate in the USA. What if they actually work a civilized 2000 hours? That would make their realized rate (not billing rate) $1,750 per hour. That includes their weakest and laziest (or distracted) performers.

Don't go arguing that Wachtell's profits are the result of leverage - their web site confirms (look in "the firm"):

We operate with a ratio of partners to associates of one to one, and matters undertaken by this firm are afforded the direct personal attention of partners having expertise and sophistication with respect to the issues.

Conclusion #1: Hourly rates are a stupid way to price work for clients in the first place and an even dumber way to compare lawyers. The really smart ones have figured this out and are profiting hugely by their discovery.

Conclusion #2: Don't be impressed by hourly rates alone - they are only part of the story — the obnoxious part (at least from the client's perspective).

Have you got 4 minutes to listen to Bruce MacEwen of Adam Smith Esq. fame — he is being interviewed by Bloomberg Radio — I recommend it both because I am a fan and because he knows what he's talking about!

Here's Bruce's Post.

A story today, Price-cutting by law firms hurting business, in the business section of the Bangkok Post reinforces yet again that law firms face the same issues almost anywhere in the world you find them. (The lawyer interviewed may use the “cake” metaphor instead of “pie”, but his message is a familiar refrain).

"The world of law, it turns out, has not been immune to price wars" says Charin Satchayan, a partner with a prominent Bangkok law firm. He goes on to say that "…it's a situation in which everyone is after the same piece of cake… The cake in this case is the high end legal work coveted by all the major firms: "particularly mergers and acquisitions and public offerings in energy and mineral resource, insurance and real estate."

Mr. Charin's wise counsel would benefit most firms in most markets: "All law firms have similar backgrounds in general legal knowledge. However, it takes experience built up over years for individuals to gather expertise in particular areas. And I believe every law firm should build its own strengths and find a niche that it can do best".

"Linklaters is the most productive of London's 20 largest law firms, generating 24 percent more in fees per employee than bigger competitor Clifford Chance LLP, a Bloomberg survey found."

"The world's second-largest law firm had revenue per employee of 168,763 pounds ($304,000) in fiscal 2005, about 32,000 pounds more than Clifford Chance and 20,000 pounds greater than the next most productive, Freshfields Bruckhaus Deringer, the figures show."

For more details, check out the Bloomberg article: "Linklaters Is Most Productive of London Law Firms, Survey Finds"