Category: Cash Flow – Finances

Open Letter to the State Bar President

(Note: The California State Bar President asked  California lawyers to contribute to the State Bar’s efforts to provide legal services to those in need. Following is an open letter to the President; his letter is set forth below.


Dear Mr. President:

 I agree with you completely. There is a tremendous "justice gap." I’m glad the State Bar is seeking to do something about this. I wonder, however, why the State Bar doesn’t expend the same energy on helping its own members, lawyers. One study reported by the State Bar several years ago indicated that 50% of lawyers in this state earn less than $100,000. Just think, if the State Bar would actually help its members be more effective with their clients, be more efficient in the delivery of their services and, yes, be more profitable, members of the Bar would then i) be less tempted to invade client trust accounts (a public service issue) and ii) have money to contribute to narrow the "justice gap."

Instead, however,  the Bar does things that are perceived by our members to be antithetical to the interests of lawyers … The list is rather long and I won’t bore you here with issues on which I’ve spoken before. But, until you (the organized, mandatory Bar) works with its members … until you (the organized, mandatory Bar) has as at least one of its primary goals the interests of its members, you have a great deal of courage (some might say gall) to ask struggling lawyers to contribute more than they already do.

If our Bar were a voluntary Bar, I suspect less than 50% would join … Then we would not have governance issues imposed on us by the legislature. Of course, we would also be far more interested in the thoughts and concerns of our members than is currently the case.

Clearly, these are my own thoughts, not those of any Section or other body of the State Bar … but these thoughts were clearly expressed to me just this morning by another attorney. I thought you should know, considering you’re asking us for money.

And let me take this opportunity to wish you and your family the best of the holiday season.  You’ve taken on a very tough job, some would say a thankless job, and I wish you great courage and strength. 


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Compensation strikes again!

Today, a client called me to ask whether I know a compensation systems consultant who can help their firm create the right environment for non-equity partners to become equity partners. My response was i) compensation systems are a function of the firm culture and governance; ii) one first must analyze what the goals of the firm are and ought to be; iii) for any system to work, it must have the acceptance ("buy-in") of the principle stakeholders in the firm.

Most systems will work so long as the participants deem the system in place to be fair and reasonable. The system is better, in my opinion, when there are objective metrics in place. But, even subjective metrics work as long as the participants think there is fairness and justice working … with an appellate process in place that is also fair and just.

Oh, by the way, I concluded, I do that! <g>

Apropos of this conversation, I read that another law firm is being sued for unfair compensation system that works against the women in this firm. See my earlier post on this subject.

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Compensation is where the rubber meets the road

As in most law firms, compensation systems is where governance and other issues are expressed.

In a recent matter, a female partner claims that Dewey & LeBoeuf, a law firm that has received diversity awards, discriminates against women. She asserts that women partners receive less compensation than men in the firm.

The firm’s partner distribution system is apparently based on origination, not just billable work. This is the case in many firms. What do you do, however, when “the old boy network” was created years ago, when women were not major law firm players, and there is no “sunset” provision in the firm for compensation? Seemingly, this would entrench old relations as the basis for current compensation … and allow little or no access to women, to younger lawyers, and to other diverse groups in the firm.

Firms unwilling to look anew at their compensation culture will continue to face challenges from within as well as pressures from clients from without.

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How do you know if your fee is too high?

The press will fixate on this lawyer’s hourly billing rate. But, that is not why he was disbarred. Rather, he was disbarred because of his wild and bizarre conduct.

There is no prohibition to charging a high hourly rate so long as at least 3 factors co-exist: 1.) The client receives value commensurate with the charge; 2.) The client perceives he/she has received value commensurate with the fee; and 3) There is sufficient communication between the lawyer and the client to confirm that the client understands what the charges will be … and the client is sophisticated enough to accept or reject the engagement agreement and fee being proposed.

The difficulty with fee disputes is that they are always "Monday morning quarterbacking," usually being determined by people who are using outdated standards of evaluation. The only real issues are 1) Did the client understand the fee structure and 2) Did the client receive sufficient value (not time) to justify the fee.

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Merger off, lawyers fired, and lawyers hired – Rational?

A major player in the IP field announced that its merger plans with another IP firm have been called off. The assertion is that there were conflicts issues with one major client that could not be resolved and the client would not waive the conflict. While I may be dubious about the veracity of this assertion, sitting on the outside, it does happen.

But, then the firm announces that "… the downturn in patent litigation persists, with fewer cases being filed and more settling earlier…. (C)ases coming in are smaller with tighter budgets and leaner staffing expectations…."  And this results in firings/terminations/layoffs (say it anyway you want, the people are gone) of lawyers and staff.  In other words, the troubled economy is still having its impact on law firms.

So far, so good. But, then the firm also announces that it sees an increase in patent prosecution, counseling and reexamination work, particularly in the electronics and software practice and the firm will hire first-year associates. Again, from the outside, it looks like the firm is firing experienced lawyers who get paid 3X and will hire first year associates who will get paid 1X. You fill in the numbers. When industry does this, it’s called "age discrimination." It may also be called "stupid" because it negatively impacts the morale of the organization … and you don’t build a loyal, cohesive and capable workforce by seeking the least expensive team members. Why couldn’t the firm offer the presumably lower paying jobs to the experienced folks? In this economy, they might not like it, but they’d rather stay employed and working with colleagues they know and like and trust. And, the organization will look like a caring place to work, making needed economic changes but also sensitive to the needs of its current work force.

Just seems to me to be a better way to do things.  And, at the very least, the PR ineptness of these announcements coming on the heels of one another is just astounding.

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Financing contingency cases

In a conversation with a client, we discussed his current predicament. He is strapped for funding in several large contingency matters. He’s looking for funding. That struck a cord in me and I write about it today at LawBiz Forum.

There are finance companies, in addition to other resources, that lend money on such cases. That is what my client was seeking.  Tell us how you handle your cash flow and financing of large cases. Perhaps you can identify the names of lending companies. I look forward to hearing from you.

Join us at the Forum for further discussion on this and other topics that are challenging and stressing you.

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Nixon Peabody fees are cut

Litigation fees charged by Nixon Peabody in a recent case won on behalf of its client were slashed by $400,000. Though still receiving more than $1,000,000, this is a substantial reduction! See my comment today at LawBiz Forum.

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There are several meanings for this word, but now a new one enters my vocabulary.

The term for bogus charges in a phone bill is cramming! The current issue of AARP’s magazine discusses the history of the activity and suggests that there is only way to prevent unauthorized third-party charges on your phone bill:

  • Call the phone company (AT&T: 800-288-2747; Verizon: 800-837-4966; Comcast: 800-266-2278; Qwest: 800-491-0118)
  • Or send an email to the writer of the article, Ron Burley.

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Lawyers are not the only ones with realization issues

PTinMotion is the magazine for the American Physical Therapy Association, my daughter’s professional association.  While reviewing its contents, waiting for her to receive her specialization certification, I read an article entitled “Make-or-Break Strategies for Tough Economic Times.” Perhaps the author read an advance copy of my new book, Growing Your Law Practice in Tough Times.

Here are some of the salient points made by the author:
•    Bill Gates started Microsoft in a recession
•    Risk is defined as the probability of a financial loss.
•    Managing the bottom line or minimizing risk is essential in tough times
•    Care for the bottom line: It’s the difference between closing, surviving & thriving
•    Perform an internal audit and look at your billing and collection practices
•    Identify potential for cost savings
•    Risk management is about protecting a company’s assets
•    Manage risk in terms of the type of clients accepted
•    Lower one’s profit margin in order to attain larger volume
•    Review your books twice a month to review your revenue and expenses
•    Talk with your staff – they are on the front-line and can suggest improvements
•    We have great untapped intellectual and creative capacity. The sky is the limit.

I’m not sure I could have said it better!

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Lawyers get paid a lot

Today’s Los Angeles Times discusses the high cost of its corporate parent’s bankruptcy proceeding, again mentioning the specter of $1,000 per hour fees for some lawyers and the average of $500 per hour for all the lawyers. Why should lawyers be paid so much?

At the outset, it’s easy to understand the emotional reaction to lawyers getting so much money. Society, and the media, love to hate lawyers. Just read Shakespeare. Why is it that such visceral reaction is not visited on entertainers or ball players? Why is it that we don’t ring our hands at the low compensation when talking about teachers who mold our next generation of thinkers and leaders? Ah, but that is a different subject, right?

Let’s remain with the lawyers, for now. First, we’ve allowed industry to get huge. In this case, one person, Sam Zell, was able to borrow over $8 billion!!!!!  He acquired the Tribune, with all its subsidiaries including the L.A. Times, Chicago Cubs, and others. This alone would make the task one of great complexity.

Then, add to this the federal Bankruptcy Reform Act of 1978, new enough to still be uncertain in some of its applications and broad enough to enable debtors to have a larger hand in the restructuring of their own organization.  Next, add the increasing complexity and sophistication of the financial markets, and you have a cauldron that requires very sophisticated counsel and other professional skills.  All of this increases the cost of legal services. It’s the opposite end of the spectrum of work … it certainly is not commodity work. In effect, this type of work may be in the category of “bet the company” work … and this always is expensive.

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