The Demise of Heller

Bruce MacEwen of Adam Smith Esq. put together a post of lessons to be learned from the demise of Heller Ehrman (1890-2008).  He proposes that one of the reasons for the demise was the fragility of law firms.

"Our assets go down in the elevator every night." Take that bromide seriously.

You must give people a persuasive reason to come back "home" every Monday morning.
Make them believe in the ongoing vision of a vibrant institution, a living firm where they can make a contribution in their own way, where they have a voice, where they can matter, where they are part of a team, where there are new mountains to conquer and new clients to be won, new legal innovations to be created with your firm's imprimatur on them, new dimensions of professional development which you can create and with which you can inspire and energize your associates, new, heartfelt, admirable and groundbreaking commitments to pro bono, new, clear-eyed and profound commitments to client service and client relationships, new and innovative uses of technology to deliver cost-effective services clients increasingly will demand while at the same time sparing your associates scut-work. New, new, new.

Those are the things that will inspire people to come back on Monday.

Take a look a your role in your firm and see if you can inspire people to come back on Monday.

Killable Hour

This week's Economist has a brief article on whether the time is up for clockwatching lawyers: Killable Hour.

"If the billable hour does perish, it will be at the hands of the clients, rather than the private-practice lawyers themselves.
. . .
But the legal industry is not known for welcoming change. Whatever it turns out to be, the billable hour’s replacement must be easy to use—and must strike a compromise between clarity for the client and profits for the law firm."

Law Firm Economics

Continuing my live-blogging from International Legal Technology Association's Annual Conference. . . .
This session builds on last year's session by Bruce MacEwen and John Alber. They will review the basic economics of law firms - what makes them similar to other businesses and what differentiates them - and then explore particular applications of these principles with special emphasis on deciding where best to make technology investments. Included in this session will be some exposure to statistical analysis techniques that help you understand which practices can benefit from additional investments - including technology investments - and which cannot.

Speakers:

• John Alber - Bryan Cave, LLP
• Bruce MacEwen - Adam Smith, Esq.

My Notes:

The market conditions today:

• clients are unhappy with the level of service
• clients are reducing the number of firms that service them
• purchasing agents are key players in law firm selection
• clients are driving change like Legal OnRamp
• extraordinary price and budget pressure
• clients are banding together to band together on issues like associate compensation, diversity, etc.

What are law firms doing in response:

• A lot of business as usual
• Some growth in fixed fee engagements, risk sharing proposals
• Some creative technology responses
• Some increased use of business analytic tools to refine pricing, staffing models (see Redwood Dashboard)
  

Interview with Jeremy Hand
Chairman of British Private Equity and Venture Capital Association
Quoted in LegalWeek June 19, 2008 on the failings of law firm management

“Very often the managing or the senior partner does not actually control, run and manage the firm in a way that other professionally run organizations would expect to see. In fact, making quick, effective, efficient, and in some cases bold commercial decisions to take advantage of opportunities like the Legal Services Act is simply beyond the capabilities of the partnership group as a whole to make. I do not necessarily think that the best outcomes are going to be delivered by lawyers who happen to have been promoted into senior management roles.”

Someone has to propagate knowledge of business fundamentals into the decision-making process on pricing, staffing and growth decisions. A starting point on the decision-making process is to understand law firm economics.

The income statement of the "P and L" has three variables:

• Rates
• Hours
• Realization

All three of these variables have a ceiling. They are not unlimited. You can only at so high a rate, work so many hours and only reach 100% realization.

The expense side consists of:

• people (65%)
  
• rent (26%)
  
• everything else (9%), including IT which ranges from 1% to 7%
  

The percentages are rough averages.

Law firms cannot compromise on talent (people) or being in Class A downtown space in financial capitals. Law firms should be able to budget their expenses very accurately.

Profit Margins. The AmLaw 100 averaged a profit margin of 36%. The downside is that a 10% discount on rates leads to a 28% drop in profits. The expense side is very fixed.

What does an equity partner cost? They have the cost as a worker. You have to pay them what an equally talented non-equity partner would be paid. They are managers. You have to pay them what you would have to pay a professional manager to do the job. They are owners and have a residual claim on profits after everyone else gets paid. The "Profits Per Partner" figure combines all three costs into one.

Where does IT fit in? Every penny spent on IT comes out of the partners pocket. If you are going to make an investment decision, you need a compelling case that it will pay for itself in full or better this year. There is not concept of "retained earnings." Law firms strip cash out and distribute to the partners.

Every professional services firm (including law firms) has a mix of revenue creating groups and expense creating groups. The working lawyers create expense and rainmakers create cash. That is comparing hours billed to fees billed.  This is a touchy issue inside law firms. Lots of lawyers do not like to talk about profitability.

In looking at profitability, you need to analyze the relationship between revenue and expense. It is not always linear. If they are linear, the opportunities for profits to increase are limited. If they are non-linear, with revenue increases not tied to expenses, then profits can rapidly increase.

You can break the linear relationship by not being tied to hourly billing. That has a built-in cap on profitability.

There are also three time-tested ways to influence the relationship between revenue and expense:

• Brand - For example, wall street firms. Can you be the go to firm and charge a premium
  
• Lifetime client value - Not thinking matter by matter, but as a flow of revenue and experience
  
• Transactional costs
  

IT, Finance and other law firm business functions can strongly influence the relationship between revenue and expense by creating a kind of “information gravitation” that makes decision-making information transparent and accessible.

Transparency questions that can help be answered with technology:

• Am I making money now? 
• Where is the break-even point?
• How can I disassociate income from expense?
• How can I increase lifetime client value?
• Are my service levels appropriate to my price model?
• What supply/demand conditions are we operating in?
  

Make this information is the key to getting better decision-making inside the firm.

Law firm matters/transactions/cases are essentially projects with resources, tasks to be accomplished and a critical path to the desired end.

One way to show transparency is to show the margin per partner per hour. 

Download the session materials.


My ILTA Schedule

Avvo's Online Ratings For Lawyers Come To Boston

The controversial Avvo.com has come to Boston (and the rest of Massachusetts). I have heard about the reviews and the law suits filed. It looks like the early rating system had some problems with gathering information and weighting the information that Avvo was able to find. As of April 2, they have added Massachusetts.

Since I am a lawyer in Massachusetts, I figured I would check out my profile: Doug Cornelius on Avvo.
At first, I achieved the "No Concern Rating." There is a process for claiming your profile. After doing that, I got a 6.2 out of 10. That did not seem very good. So I added some publications, speaking engagements, employment, etc. That got me up to a 6.5.

According to their description of how the ratings work, if you add more information to your profile then your numerical rating should increase. I also jumped into the questions feature of the site and answered a few real estate questions. Answering questions got me a badge of Level 3 Contributor, but did not seem to help my rating.

I am all for public disclosure of information, especially public information like attorney discipline. I find Avvo to be an interesting exercise, but I am still not sure where it fits into my public profile. It certainly has a marketing twist to it. Is it any more useful than this blog on law firm knowledge management or Real Estate Space, my commercial real estate finance blog?

Personally, I find the numerical rating to be distasteful and somewhat random. (Admittedly, I might not take that position if I had a rating of 10, or at least above 9.) The information is clearly more robust than the rather sparse information in Martindale: Doug Cornelius in Martindale.

I will continue to keep an eye on it and see what happens.

Jureeka - Automated Legal Guidance

Michael Poulshock offered me a preview of his new website designed to provide automated legal guidance. According to Michael, "Jureeka.net can be used to advise and screen clients, to administer business rules, to consolidate organizational knowledge, and to diagnose customer problems. Because it's completely web-based, teams of contributors can use it in a wiki-like fashion to rapidly develop and deploy knowledge bases."

This automated approach is interesting. I have heard of some law firms providing a platform like this for routine questions, with flags to contact the lawyers when the complicating factors are indicated. This could be useful way to help clients and junior associates deal with routine legal questions. I suppose with enough work it could even be used to deal with more complex legal questions.

Jureeka brought out flashbacks of studying for the bar. I remember spending hours and hours writing down the black letter rules. Every morning I was at the Dorothy Quincy Suite in the basement of the old John Hancock Building. Every afternoon was spent making flashcards, studying and memorizing the rules.

The memories aside, I decided to try out the site. I set up a rule about cutting down trees in Massachusetts. Logon to the site and see if you can find the rule and see how it works.

I am concerned that this amounts to giving legal advice and could create an attorney-client relationship. I also wonder what's in it for me? I am all for proclaiming I am an expert and reaping the rewards of my expertise. But I am not sure how Jureeka can do that for me.

Lawyers in Social Media and Internet Advertising

Two new decisions were issued on internet advertising by lawyers: Nebraska Ethics Advisory Opinion for Lawyers No. 07-05 and Oregon State Bar Formal Opinion No. 2007-180.

These two opinions affect what lawyers can do in social media and social networking sites like Facebook, LinkedIn or LawLink.

The Nebraska opinion was based on whether a Nebraska lawyer can advertise in an in internet-based lawyer directory.

"A Nebraska lawyer may advertise in an internet-based lawyer directory as long as: (1) the Directory does nothing more than list lawyers and appropriate information for the benefit of those who access the Directory; (2) no recommendation is made as to a particular lawyer; (3) any fee paid by the Lawyer for participation in the Directory is reasonable and is fixed for a certain period of time; (4) the Directory contains a disclaimer that it is a directory of lawyers, not a lawyer referral service or prepaid legal plan; and (5) no other Rules concerning lawyer advertising in general are violated." (My emphasis)

In LinkedIn, people you know can make recommendations. It looks like a Nebraska lawyer needs to make sure that nobody makes a recommendations. Many states have similar restrictions on recommendations.

In Oregon, the opinion was focused on whether the lawyer can The interesting point to note from the opinion is the statement:

"Lawyer is responsible for content that Lawyer did not create to the extent that Lawyer knows about that content."

Combining these two trains of thought, lawyers need to monitor what is being said about them in social networking/social media sites. Effectively, you need to make sure that there are no endorsements or recommendations for your legal services.

As I have pointed out before, lawyers should be checking the internet for what is being said about them. It is very easy to set up a perpetual search through Google, Yahoo and many other search providers. Set up a search for your name and see what is being said.

If you set up an account on a social network site, you need to go back and make sure that your profile remains true and does violate the ethics rule for your jurisdiction. If you do not maintain the profile, delete it.

Thanks to Michael S. Frisch of the Legal Profession Blog for pointing out these ethics opinions.

Social Space and Social Networks inside the Law Firm

Bruce McEwen posted a story on the value of creating more interaction among the lawyers in a law firm: Social Networks and Partners' Desks. Bruce looks to the old concept of partners sharing a desk and the proliferation of shared space at technology firms.

I looked back to one of my old posts on Microsoft using workspace design to increase collaboration. One of my goals of knowledge management is to increase the sharing of knowledge and experience. I believe attorneys like talking with each other and value a colleague's view on a problem.

Too many law firms have partners holed up in corner offices, cut off from the flow of people and interactions happening outside their door. Even worse are the law firms with attorneys working behind closed doors for most of the day. Sure we attorneys need some quiet time to review documents. But rarely does that mean I should spend the whole day holed up in my office.

One drawback to electronic legal research is that the law firm's library is no longer a place you are likely to run into a colleague. If you do, they are probably seeking a quiet place to be left alone.

What can be done?

Pool Secretaries. Instead of the 1 to 2, 1 to 3 (or greater) assignment have two secretaries servicing six attorneys. You get the workload spread out with the secretaries collaborating and sharing information. You get double the number of attorneys moving into the same space to pick up work, drop off work and get their mail. To do this you would need to standardize some procedures and workflow, such as time-keeping.

Better Coffee Stations. Most attorneys live on coffee. Starbucks seems to attract people getting work done at their tables. Put a table in the kitchen and make it a better place to mingle and run into each other.

Announce Results. Most law firms gather lots of information when new matters are opened, but do little at the end of the matter or after a significant action. Law firms should encourage attorneys notifying others in their practice group that something happened. Post that information in one of those better coffee stations.

Information Kiosks. Instead of putting all the legal research books in the library, use some interior wall space to spread periodicals, lighter reading and commonly used materials along interior walls. Put it out in the open for people to run into and then to run into each other. You can make space for someone to walk by and ask "what are you reading?" I walked through the real estate section of our library and was amazed to see some of the material there. I just don't get to the library that often.

Walk around your law firm and see what could be used to get people to run into each other and communicate.

Bingham and The Colbert Report

Stephen Colbert finds this new Bingham McCutchen print ad to be disturbing. This video from Colbert Report mentions Bingham ad at the 1:30 minute left mark.

Its great that the ad attracted attention, but it does not convey what Bingham does. Colbert assumed Bingham was a consulting firm.

"Let me consult with you: Should I give my baby to a grizzly bear? Yes, but first rub him with honey and salmon.""

Law Firm Recruiting Websites: The Bad

Robert Ambrogi has an article in Law Technology News reviewing the recruiting sites of the AmLaw 100: Recruiting Sites That Draw Thumbs Down. (Free registration required.)

I posted previously on his article on the good law firm recruiting websites. My firm did not make his good list. Unfortunately, it did make his bad list:

"Its breezy creativity could easily have put it on my list of favored sites. But after much discussion with myself, I concluded it was just too over the top for a recruiting vehicle.

The site uses a series of Flash-style videos, characterized by exaggerated text and images, to portray themes such as passion, flexibility, confidence and courage. One partner seems to turn somersaults through the air. A mike-in-hand litigator adopts a rock-star pose. A real estate partner appears to bungee jump. A litigator leans back at a precarious 45-degree angle without visible support.

Everyone appears to be defying gravity and having way too much fun. Even the firm's managing partner and hiring chair are shown shoulder-to-shoulder, smiling broadly and gesturing in poses that suggest a musical comedy duet. All this is no doubt great if you are recruiting astronauts. For recruiting attorneys, however, it strikes me as just too much."

Update: I failed to mention earlier that I happen to like the firm's recruiting site. (I had no involvement in it.)

Law Firm Recruiting Websites: The Good

Robert Ambrogi has an article in Law Technology News reviewing the recruiting sites of the AmLaw 100: Web Watch: Online Recruiting. (Free registration required.)

My firm did not make this good list. I hope it does not make his upcoming bad list.

Cherish the Routine Legal Services

Rees W. Morrison has an article on Law.com: Cherish the Routine Legal Services.

He makes four points about commodity legal services

1. Recognize that commodity legal work is crucial for a company's success.


2. Build on the fact that all legal services move toward commodity.


3. Apply technology and knowledge management to commodity work.


4. Reconsider where the work is done.

I was disappointed that he did not mention the use of document assembly systems when applying technology to commodity legal work. I find the use of document assembly can remove a lot of the drudge work from the commodity work, allowing the attorneys to focus on the aspect of the matter that distinguishes it from the rest of the matters in the commodity assembly line. I have found the attorneys to be ecstatic that they do not have to fill in the borrower's name over and over again over the set of a dozen loan documents.

Ethical Issues for Law Firm Websites

As I posted earlier, I sat in a session on Legal Ethics and Law Firm Websites. Here are few takeaways:

The bar regulators are way behind in figuring out how to regulate lawyers on the internet. Most of the analysis focuses around comparing the web activity to what you would do in print advertising or the phone.

Some bad internet activities such as pop-up ads and spam from lawyers are probably unethical, not just annoying.

You need a disclaimer on the website listing an attorney's email address. I posted about this earlier in the context of the Massachusetts ethics opinion.

Lawyer matching sites are a problem. The law varies from state to state on what is permitted, especially when it comes to charging fees and holding someone out as an expert.

You may also want to look at the materials from a different session on Dennis Kennedy's blog: Handout Materials - Ethical Issues for Law Firm Websites

Data Sharing to Show Experience - Ethical Limitations

Staying on this topic for a little bit longer, but I am currently listening to a webcast from ALI-ABA "Legal Ethics and Lawyer Websites." They brought up the topic of revealing client names and I thought of my post on listing published decisions on a firm's website.

They pointed out that ABA Model Rule 1.6(a) states: "A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b)."

The published decision is a matter of public record so you are not necessarily revealing information. But there are ethical limitations, so as part of the process the law firm should get the consent of the client.

Data Sharing to Show Experience - Can You Show Too Much?

My colleague David Hobbie pointed out in my prior post that providing information on all of the published cases could make too much information available. Nobody wins them all, so there will be losers and winners in the list.

The cases are published and publicly available, so there is no issue with revealing client confidences. But both the client and the law firm would probably not want to display their devastating losses.

I would assume that the listed decision would go through a vetting process with the responsible attorney before it is posted. However, the marketing group could discover the information and initiate the process, rather than waiting on the attorney to provide the information. That removes one of the limitations in the system.

Should a law firm should post all of the decisions? the good and the bad?

There is a growing movement of transparency in the business world. In The Naked Corporation, the authors take the position that a business must make itself visible to its shareholders, employees and customers.

Wired Magazine had an article by Clive Thompson on this: The See-Through CEO. "Transparency is a judo move. Your customers are going to poke around in your business anyway, and your workers are going to blab about internal info - so why not make it work for you. . . "

As the authors of The Naked Corporation point out, "Transparency means more than making things visible; it also means taking action on what you see. " It is hard to show what action you have may taken from the problematic result in the final endgame that is a courtroom decision. You could point out that you learn as much from your losses as you do from you victories. Therefore, the law firm has experience in that venue and on that topic.

Are law firms ready for transparency?

I do not think that law firms are far enough into the internet age to be worrying about the spin of bloggers and online postings. A snippet from the Wired article sets the example of a blogger who wrote about terrible treatment by Dell's customer service, their "posts were so gleefully linked to that for a while they appeared as the number one and two search results for "Dell.""

Run a search a search against your law firm's name and see what comes up. The results against my firm were pretty boring. Nothing bad. (Nothing all that good either).

I do not see the need to worry about the spin of bloggers or other online postings about the law firm. Yet.

There are ethical limitations on using a client's name. See this update.

Data Sharing to Show Experience - Follow Up

In my prior post, I pointed out that the biggest difficulty with implementing a system to display a law firm's experience is extracting the information from the attorneys.

Over the weekend I thought of two areas that law firm can display their experience without relying on the attorneys: litigation and securities.

For a litigation practice, you can pull the published cases in which the law firm represented a party. Lexis and Westlaw can both do this. Then you can categorize them based on the jurisdiction. Sidley Austin LLP did something like this. They show their state court experience for their Products Liability and Mass Torts Experience. The map is short on the details of what they did in each jurisdiction, but it does show that they have handled some sort of case in every state. I could also see this tool providing a detailed list of the decided cases and appeals in each jurisdiction.

For a securities practice, you can pull the filings in which the law firm represented the underwriter or issuer. You will find this capability in Securities Mosaic and LiveEdgar. Then you can categorize the issuance by industry, since that will be listed in the filing. You can also categorize the issuance by whether the firm represented the issuer or underwriter.

These are two ways to provide a rich source of data for an experience system, without relying on the attorneys to provide it.

Update: Can You Share Too Much?

Data Sharing to Promote Your Experience

Law.com's Legal Technology section has an article by Nancy Manzo: Data Sharing to Promote Your Law Firm's Experience.

I put together a Google Maps mashup to highlight some of my real estate practice experience: Transaction Map. It is more about showing geographic diversity than a depth of skill. I had proposed a similar Google Maps mashup for all of the firm's real estate experience to the marketing group.

I looked at the Hubbard One Experience Management Solution mentioned in the article several months ago. I was very impressed with what it could do.

Take a look at the Jones Day experience search. It gives you a great look at some of the firm's experience. The only problem is that the results are very exact. If you run a detailed search with lots of criteria, you often get no results. It should return a longer list based on relevancy.

The key to an experience management system, as with any knowledge management system, is getting meaningful, up-to-date content. You need a flow of post-action information from the lawyers to populate the experience management system.

Lawyers are not very good at dealing with post-action reviews. Law firms typically demand a lot of information at the onset of a matter. But typically, there is no requirement across the firm for getting information at the end of the matter.

We have been slowly pushing a closed transaction notification process across the business law department. The real estate group instituted a policy of sending a closed deal email to the group. A team of KM administrators harvest that information into our matter information database. There are currently over 1700 closed matter descriptions in the system.

This would be a great feed for an experience search like Jones Day or even to combine with a Google map mashup.

Update: A follow up thought on providing information for a litigation practice or a securities practice.

Loopholes - Articles on the Business of Law

Some articles on the business of law:

• Explaining the Value of Transactional Lawyering. Steven L. Schwarcz.
  An academic look at trying to find how transactional lawyers add value in their role in the transactional process. I was surprised that academics thought that lawyers add value by "renting" their good reputation to clients. The results of the study behind this paper debunk that theory.


• Women Lawyers and Obstacles to Leadership. Mona Harrington and Helen Hsi, MIT Workplace Center.
  The report is based a study of the surveys that show that women and men enter law firms in essentially equal numbers but women leave firm practice at every pre-partner level at a far higher rate than men. The primary reason is the need for more time for family than the firms support. Nearly 80% women who leave the law firm environment move to workplaces that do allow the time they need, even if they are working fulltime.