Amazing Firms, Amazing Practices

As Nicole Nehama Auerbach joins Valorem, she says:

“I saw Valorem as a once-in-a-lifetime opportunity to really make a difference in the way litigation is handled... I was captivated by the firm’s commitment to provide real value to business clients, and, in particular, its emphasis on alternative fees. Alternative fees are more important than ever to clients as the economy fluctuates and rates continue their upward march. Traditional law firms have been slow to recognize the need to satisfy their clients’ economic concerns."

Valorem Law Group represents a head on assault on the billable hour.  Here's an excerpt from thier new web site:

The top ten list…

1. We are all refugees of elite BigLaw firms;
2. We are skilled courtroom lawyers, in practice and at heart;
3. We are revolutionaries and risk-takers, entrepreneurs at heart;
4. We bring a single-mindedness to the notion of client service;
5. We believe you are entitled to budget certainty, to a real and realized commitment to help you deal with the cost pressures you face;
6. We believe that the practice of law is an art, not a science;
7. We believe in collaboration and hold the team rather than the individual sacrosanct;
8. We love technology and efficiency -- the more red tape we hack through, the better;
9. We take our work very seriously -- ourselves, not so much;
10. We are real people, with supportive spouses and wonderful kids (who, at least today, appear to really like us).

They even have the audacity to say this:

We provide value or you adjust the bill.

I recommend a thorough tour of their web site.

My Opinion:  Don't bet against these people - they are proven champions as individuals and together they are going to disturb the peace of the billable hour.  I say BRAVO!!  The leader is Patrick Lamb (center in photo above) - learn even more at his famous blog: In Search of Client Service

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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).

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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.

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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

Managing Partners should consider these SEVEN KEY STRATEGIC FACTORS in order to “recession-proof” the firm:

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.

The Chinese character for “crisis” consists of two symbols. One means “danger,” the other “opportunity.” While strategy may be more challenging during recessions, if you grasp the nettle, opportunities will arise to enhance your client mix and your talent base.

Thanks again to Robert Millard for his collaboration on this. 

As always I appreciate your feedback.

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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

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"The objective is to have only the most valuable people in London or New York, and the others in India, China or Columbus, Ohio,'' said Robert Profusek, co-head of the mergers and acquisitions practice at Jones Day in New York, who sends low-end work to the cheapest locations and plans to open a document center in India. ``Lawyers are service providers. We are not gods.''

This comes from a gem-packed Bloomberg article today titled: “Jones Day, Kirkland Send Work to India to Reduce Client Bills” co-authored by Cynthia Cotts and Liane Kufchock

Here are some additional outsourcing factoids from the article:

• “Outsourcing will move about 50,000 U.S. legal jobs overseas by 2015”

• “Companies like Dupont, Cisco and Morgan Stanley have legal departments in India”

• “General Electric Co. sends about $3 million a year in routine legal work to its Indian affiliate”

• “Kirkland & Ellis, the seventh-largest U.S. law firm, works with offshore attorneys at the client's request”

• “Law firms can earn more by using labor they can mark up without disclosure,'' said Stephen Gillers, professor of legal ethics at New York University School of Law (referring to offshoring)

• “Law firms contribute 45 percent to offshore revenue, while corporate law departments contribute 36 percent”, ValueNotes said.

PUNCHLINE:  If you are gathering intelligence on outsourcing, this article is a “must read”

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Ahhhh yes… seduction! 

Many great firms that I serve have a common enemy ”complacency” which Is indeed the result of decades of success.  Managing Partners complain that they are unable to get their partners to pay attention to their future.

Read Jim Hassett’s blogpost, Have lawyers been seduced by success? In his fantastic blog: Legal Business Development.

Here’s a teaser quote: 

If you like money, it's a great time to be a lawyer. In Citigroup's Law Watch survey of "153 US law firms broadly representative of the industry," law firm revenue has gone up 9.8% per year since 2001. But as Bill Gates put it: "Success is a lousy teacher. It seduces smart people into thinking they can't lose." We know lawyers are smart people. Do some think they can't lose?

Read why Jim argues that you ought to read:

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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...

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