Large firms, more than we care to know, have made news in the last couple of years by "going under," i.e., defunct! Firms such as Howrey and Heller Erhman became the targets of personnel raids. Very good lawyers from these, and similar, law firms departed and joined other major, national law firms. Today’s WSJ comments on the current state of affairs for some of AmLaw 100 law firms.
Some folks are asking whether your new lateral partner have any unwanted baggage? In some instances, the new firm accepted partners from the old firm with the understanding that the lawyer would bring over clients from the old firm as well as his "unfinished business." This provides for immediate billing .. and therefore an opportunity to acquire great talent at a very low or zero cost.
These firms, and others, have gone into bankruptcy to collect funds to pay the firms’ creditors. In a law firm, the major assets "walk out the door every evening. Computers, furniture and real estate are of minimum value, if any, in a law firm. Accounts receivable are a major asset, though often difficult to collect from clients when they know there will be little serious effort to collect.
But, when the partners from the old, now defunct, law firm went, they generally took "their" book of business with them … and the "unfinished business" of the clients that went with them. One argument is that clients have a right to seek their own choice of lawyer. And the other argument is that the partner and new law firm benefited, resulting in a profit to the new firm that truly belongs to the old firm.
This battle will be fought for years, I suspect. But, the reality of our world is that anyone can sue anyone else, even if wrong. In the meantime, the largest pool of cash available to the trustee in bankruptcy for the defunct firms is the new firm and, perhaps, the lawyers, individually, from the old firm. Whether legitimate or not, new firms have been economically compelled to settle many of such claims in order to go on with the new firm business.
The new firms thought they were getting a steal! Maybe. But, I’m reminded of the old say that "…if it looks too good to be true, it probably is too good to be true." There is a cost to everything, even a very attractive, new lateral partner with great talent and a great book of business.
Lawyers’ days are just as long as everyone else’s but the amount of work can be exponentially greater. Today’s clip offers some time management tips so that you can accomplish more in less time.
Fee suit exclusions seem to be the latest insurance ploy to cheat unsuspecting lawyers.
An engagement agreement is designed to be a "two way street." The lawyer promises to do certain things… address the needs (and wants?) of the client; represent the client to address the challenge being faced by the client, whether it be a lawsuit or a transactional issue. And, of course, the lawyer is representing that he/she is competent to do so.
The client, on the other hand, promises to tell the truth to the lawyer, provide information and documents relative to the matter when requested by the lawyer to do so … and to pay the fee as billed in accordance with their arrangement.
What are the consequences of failure to honor the respective promises? For the lawyer, it is a malpractice suit and/or a disciplinary proceeding. For the client, it’s withdrawal by the lawyer (unless on the eve of trial or otherwise would prejudice the client) or a lawsuit for payment of the fee.
BUT, some insurance carriers are lining up with clients, saying that if the lawyer sues for fees, and the client cross complains or counter sues for negligence or files a disciplinary complaint with the state bar, the carrier will not provide defense costs or pay any judgment against the lawyer. The effect of this is to deny the lawyer the ability to collect the fee when the client fails to pay. Why pay insurance premiums for something you will not receive? The $64 question.
Fee suit exclusions are a veiled attempt by insurance companies to raise premiums without notice to the lawyer. And, the lawyer generally isn’t even aware of this exclusion.
Both law schools and insurance companies conspire to keep lawyers ignorant of the business nature of their practice. In no other industry do creditors ignore their rights and fail to sue debtors for refusal to pay legitimate debts resulting from their purchases. Why should lawyers be placed in a different position? Why should clients be encouraged not to pay their lawyers’ fees?
The reality is, according to people I’ve spoken with in the industry, that there are few lawsuits filed by lawyers. (Perhaps it’s because lawyers have been scared away.) Further, the reality is that there are few counter suits for negligence. The further reality is that lawyers win most of these lawsuits; the figure I’ve been given is winning 9 out 10.
Seems that the lawyers face a big challenge: Failure of the law schools to teach business practices so lawyers can more effectively represent clients and efficiently deliver legal services; insurance carriers looking out for themselves, not their customers (lawyers); and bar associations believing their sole function is to protect the public, rather than a dual function of protecting the public AND helping their members (lawyers) to become better practitioners (including business skills).
Lawyers who survive in this environment should be commended.
Departures from large law firms continue. And more than one person is now asking what is the "normal" rate of departures? One estimate suggested 7%.
We are living in an environment that many people call a “new normal.” Our economy, as well as the legal community, has been turned upside down in the last couple of years. There is no ”typical” answer that has emerged yet. Departures are sometimes voluntary for better opportunities (or retirement) and sometimes involuntary where law firms are seeking to adjust their supply of lawyers with their clients’ demand.
As I mentioned in a recent interview in the New York Times, older lawyers are being asked to leave law firms when their productivity declines. That didn’t happen so frequently in the past. Generally, the age factor is only coincidental with the decrease in productivity. Though sometimes it is directly correlated because of a change in attitude by the experienced practitioner who wants to slow down and spend more time in other adventures. This tends to be a personal decision, not a trend. We have many lawyers in their 70s and 80s still active and capable contributors to their clients and the profession.
At the other end of the spectrum, newer lawyers who are not asked to become a partner in a firm believe their opportunities will be greater with another firm. They seek to make a lateral transfer from their existing firm to another one. The second law firm may accept them because they see a skilled practitioner, someone who received training at the expense of another law firm, who will fill a gap in their business model. This comes when they want to grow and enhance their capacity for clients or begin a new practice area to enhance their service offerings for existing clients. The nes lateral fits well under these circumstances.
Then, there are the new law school graduates who are finding the pipeline from education to practice being clogged up by the decrease in client demands and oversupply in some law firms. It will take several years for this phenomenon to adjust. Until then, I don’t think we can say there is a “typical” law firm departure rate.
On one evening of the year, we can be legitimately scared. But, don’t run your practice out of fear the rest of the year. Know the financial metrics for your success and how to achieve it by improving the condition of your clients.
From time to time, we will have a guest on our blog. This is something new for LawBiz Blog and we hope you find value in the expertise of those who will join us on occasion.
This week, Erik M. Pelton with Erik M. Pelton & Associates, PLLC is our guest blogger.
Creating and managing a successful solo or small firm is no easy task. But given the tools available today, it is easier than ever. And more and more clients today appreciate and even seek the personal relationships provided by boutique firms. Here are ten keys areas which every small or solo firm can master to propel it to greater success, growth and profit.
A recent announcement touted the merger of two relatively large firms to make one larger firm of almost 800 lawyers. Why? One doesn’t know the real reason, the personal agenda of the moving players. But one can look at the outside and prognosticate the likely success of the merger. What are the characteristics that will help achieve success?
First, and foremost, is the culture. Do the firms think and act in a similar fashion? This is perhaps the most difficult characteristic to address because it’s subjective. And, in truth, sometimes different cultures can be blended, resulting in "new blood" being inserted into both firms creating a new, and revitalized "third" firm. But, a clear and conscious effort must be asserted. "Integration" is an overused word, but under-utilized activity in the merger field … without which there will be a collapse of the new entity. As said, it’s imperative that the leaders of both firms come together with an integration plan that is implemented with care and diligence.
Other factors can be more objective. Factors such as the differential in compensation levels and methodology, profitability and target clients are important when analyzing two firms. Another factor to consider is whether the rationale is to expand the services offered to existing clients or to enhance and make more effective existing services. Is this a sale of one firm to another? (Lawyers never speak in this language, so one must look at the economics to answer the question.) Or, is this really an amalgamation of two equal or nearly equal groups? The answer will determine the approach to be taken in putting the two together.
Mergers of larger service organizations are never easy … Ego always is a significant factor … and great effort is required.
“With these lawsuits,” Law School Transparency says, “nearly 10 percent of all ABA-approved law schools across eight states will be accused of tortiously misrepresenting job placement statistics and violating state consumer protection laws.”
The complaint says, among other things, that law schools’ employment figures include work outside the law. And Senator Barbara Boxer of California wants the ABA to require all law schools to better determine where their graduates go after school and what kind of employment they get.
In a recent teleseminar I conducted, recent graduates were angry that they spent so much of their money (and incurred so much debt) to receive an education in a profession that does not offer them employment opportunities. They considered it fraudulent for the schools to have taken their money.
Those feelings and this law suit are different. On the one hand, the students want jobs and feel the schools have an obligation to help them get jobs. On the other hand, the current spate of law suits merely wants information — consumer information — to be accurate and available to law school entrants.
What is the obligation of the law school? How could anyone have predicted the shifts in our economy and the disruption of the profession? Not even senior partners are safe in their firm positions. Why should students be protected? We need to watch these developments as the profession continues to change … caused by the economy … and perhaps more significantly, caused by technology.
If you haven’t already, I suggest reading “Personal Best” by Atul Gawande on newyorker.com. Dr. Gawande examines the need for and nature of coaching for professionals of all walks of life.
Musicians and singers, he points out, think of their coaches as “outside eyes and ears”. They hear and see things that even the best performers can’t detect about their own performances. In endurance coaching, anyone can design hard workouts. Anyone can make you tired and push you into the darkness. In coaching lawyers, anyone can tell you what to do even if it is beyond your comfort zone.
But a good coach will help you understand where you want to go, devise a plan that is within your comfort zone and that will get you there, and then be your mentor and accountability partner to assure your success.
Who is your coach? Is it your colleague, your spouse or significant other or a professional whose career is devoted to helping others like you to succeed? Whomever it may be, we all succeed sooner and stay on top longer when we have a coach, our "outside eyes and ears."
I was asked again about percentages of expenses. The inquiry came as a result of a recent survey that was being reviewed. What is the appropriate expense percentage of revenue for health, etc. was the question in this instance.
This was my response:
I don’t worry about surveys or what percentages others manage.Every business/law firm is different … and there are too many variables to look at others’ operations and then get depressed because you didn’t meet them or elated because you bettered them … each feeling may not be justified. Do the best you can under your particular circumstances.
When I coach and consult with lawyers, that is one of the areas of my inquiry … how we can do what we do better.If your profit is 20%, for example, who’s to say that it couldn’t be 25%?And if another firm manages 30%, does that make your percentage a poor performance?Not necessarily. Remember that percentages of this nature are based off the beginning figure of revenue. How is your revenue?If you can get it higher, then your expense percentages will be lower/better.
There are too many variables to give a definitive answer. Thus, I distrust the surveys that are floating around.
