Category: Management
I recently wrote in my LawBiz Tips Ezine about how law schools continue to churn out new graduates even as demand for them drops, and cited a New York Times article on this issue that concluded: “Today, American law schools are like factories that no force has the power to slow down – not even the timeless dictates of supply and demand.”
Now it appears that the law of supply and demand has not been repealed after all. The Wall Street Journal reports numbers from the Law School Admissions Council showing that the number of law-school applicants this year is down 11.5% from a year ago to 66,876. The figure, which is a tally of applications for the fall 2011 class, is the lowest since 2001 at this stage of the process, which is almost 90% completed.
The reasons aren’t hard to understand. Firms increasingly prefer to hire lateral attorneys who have already had on-the-job training and books of business, rather than new graduates who don’t understand “The Business of Law®” and will take years to begin returning a profit on the investment made in them. And from the student side, the realization that going six figures into debt to get a J.D. degree that offers no assurance of gainful employment is not exactly a smart idea – especially for those whose main motivation to attend law school was to make the supposed “big bucks” available rather than to pursue a legal career.
So who is hurt most if the law school bubble does burst? We can only hope it will be the law schools themselves, who continue to pour huge resources into “gaming” the law school rankings so that they can move up from number 19 to number 17 and thereby (they presume) entice more students to enroll. When the housing bubble burst, it was – and continues to be – the financial geniuses at the banks who were left holding the bag. Are law school administrators any smarter?
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After my last post about customer service, Orbea, the manufacturer of the bike frame I was riding when I was involved in an accident, a company representative contacted me. His explanation for the less than appropriate company response was that it was sent from Spain, the company headquarters, and the sender had challenges with the English language.
Whether this is true, I cannot say. But, Mr. Paul Alexander of the U.S. Orbea arm said that I should visit a local Orbea retailer and I would receive a 15% – 20% discount on a new bike. He said, "I look forward to getting you back on your bike and leave you a satisfied Orbea cyclist."
Thank you, Mr. Alexander. That should have been the first response from Orbea. My wife asked for information about the company’s "crash program." Even an expression of sympathy/concern and a statement that the company doesn’t have a crash program would have sufficed … and saved unfavorable ink in this blog. Commenting on Orbea’s warranty program was not the subject of my wife’s inquiry.
I’m glad to see that the company has recouped so gracefully. Some companies don’t do even that. Some time ago, you may remember that United Airlines committed a major gaff. By not treating their customers with due respect, a song was written about the company and it appeared in the social media. The company stock dropped 10% as a result! That is still the subject of some discussion.
I’m glad that Orbea represented the cycling industry more professionally and with greater sensitivity on the rebound.
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Last week, I had an accident. A preoccupied driver who admitted she didn’t see me failed to yield the right of way and turned left before I could see her. My bicycle hit her right front fender. You can see a picture of the damage to the car. Sometimes, it’s better to hit than be hit. Because I hit her car, rather than she hitting me, I am alive and still walking, albeit with some difficulty. The fireman and paramedics said they’d never seen such damage to a car from a bike. “… Either the car was made of plastic or you are a man of steel!…”
If I were made of steel, I would not be so sore and bruised as I am still today. My thighs and quads have turned colors I never knew existed; like burnt toast. The bike down tube is cracked and very good, beautiful and cherished Orbea Orca carbon fiber bike is history. I’m lucky, frankly, to be alive … The alternative is not appealing.
Once things settled down, several days later, and a mechanic suggested that some manufacturers offer deep discounts for bike frame replacements needed because of a crash, my wife found the e-mail address for Orbea and sent them this note: “…My husband was involved in a traffic accident with his 2008 Orbea-Orca …. He is apparently okay with major bruising but his beloved Orbea has a damaged frame on the post between the seat and the pedals. Is there an incentive Orbea offers to encourage customers to replace a damaged bike with Orbea? … Thank you.
CANNOT MAKE THIS UP
The company response follows: “Good morning, Thank you for contacting with Orbea! In case of accident, Orbea’s Warranty is null and void. Sincerely, …”
We never entered a warranty claim; that was never in my mind. My wife was merely checking out the status of their crash program. Some companies retain the loyalty of their customers by allowing them deep discounts to replace a damaged bike (product) and then studying the returned item for future research and improved manufacturing processes. My wife’s response was classic understatement: “We were not expecting to file a Warranty claim. We understand that some bike manufacturers give a discount on purchasing a new bike when a bike has been in an accident. You might consider doing the same. We are in the market now for a new bike. Thank you for your concern.”
Lessons here are legion.
First, listen to your customer’s comments and requests. This reminds me of the classic instruction from a lawyer to his client: Listen to the question. Answer only the question. Then shut up! Wait for the next question. Don’t answer what you think should have been the question.
Second lesson: Everyone in your firm represents the organization. If a receptionist is rude, if a secretary fails to give you a message; if an associate is ill-prepared for a conference or court appearance, this reflects poorly on you as the senior lawyer and the firm as a whole. Education and training is not limited to the lawyers in the firm. Everyone needs to take continuing education programs to maintain and elevate skills and service levels.
Third lesson, don’t “piss off” the economic buyer (in this case, my wife) in your organization or you will never retain the business, and accompanying revenue.
Fourth lesson, live your life for now. There may not be a tomorrow. Yes, we have to keep an eye on the future, saving, planning and preparing. But, don’t do so without having some joy and value (your subjective opinion here) each day that passes. For me, the pleasure and reward is a vigorous bike ride, especially as a reward for something I did during that day. Whatever it is for you, “just do it.”
I’m sure you can provide other valuable lessons from this experience. Contact me or write your comment below. Let’s see how many lessons we can create from this one true-life experience.
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Effective March 15, the Howrey law firm, which once employed as many as 750 lawyers, dissolved. As in past megafirm failures … Brobeck, Altheimer, Thelen, the list goes on … there never is just one, but a variety of root causes that feed the primary death blow, an exodus of lawyers.
In Howrey’s case as a litigation-focused firm, according to the firm’s CEO (quoted in the ABA Journal), up to 11% of the firm’s billable hours were devoted to contingency matters. “Some people, including some fairly high-level people, sort of bailed on us when they didn’t get exactly what they wanted,” the CEO said. “You have to ask your partners to be patient until it [contingency billing] pays off, and not everyone is patient enough.”
In pure contingency law firms, that’s exactly what every equity lawyer does, wait. Wait until the judgment or settlement is paid. Why should that be different with the Howrey firm? Lawyers working on contingency matters bring no money into the firm, yet are responsible for many dollars flowing out … in the form of lawyer and staff compensation and expenses advanced to sustain the lawsuit. And if the result of the case doesn’t benefit the firm, the loss can be substantial.
But, the lawyers of the firm knew that. Thus, the question, why is it now that there is objection? Though conjecture, apparently, Howrey partners wanted pure hourly billing, less contingency work … and were uncomfortable with advancing costs for matters in which they were at risk. They seemingly could not determine, to the satisfaction of enough, how to divide the compensation pool when revenues arrived out of sequence to the work performed connected with those revenues.
If fees to the firm based on contingency reached 11%, it’s almost like having one client exceed the 10% threshold, a level that I’ve said before is dangerous. Control of this much money was essentially out of the partners’ hands, unless the firm only took on matters that were virtually sure things … which conversely would lessen the likelihood of a big contingency payout.
Other factors to consider that would lessen the threat to my 10% rule is that it’s unlikely that any one matter reached 10%; if the intake decisions were wise, the firm benefited more than it suffered from periodic big revenue bumps; in today’s world of "value billing," the firm would be at the forefront of aligning its interests with those of its clients. The firm should have been able, with good cash flow management and a committed group of partners to the team concept, to marry both worlds of contingency and hourly billings.
The ultimate lesson in this dissolution seems to be that Howrey fostered an environment of solo silos (with some lawyers piling up cost but poised to earn a great deal of money if "their" ship came in), not an environment where everyone was pulling for the whole (irrespective of how they brought in the revenue.
Any firm that encourages lawyers to maximize their individual compensation may have fast near-term growth. But approaching compensation as an institution makes for greater firm harmony and longevity of the firm as an institution … and, in my opinion, greater long-term value for all.
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There is a song that suggests that "all things have a season …" And perhaps the time has come for the dismemberment of the mandatory bar, especially in California. My last post on the subject suggested that the current president of the Bar is doing a disservice to its members by complying with the implicit demand of the Legislature to eliminate lawyers from participating in the Board of Governors; lawyers should not elect its own governing body.
And, if you believe that the Bar has no business in addressing the needs of its members, then Mr. Hebert is right; the Legislature is right; let’s create a licensing agency and do away with the Bar as we know it. Let’s call it what it is, a tax, a fee for the privilege to practice law. A fee for the privilege to help people address their legal needs. After all, we "tax" plumbers, accountants and others for their privilege of earning a living as they do and helping their constituencies. Why should lawyers be different? Assess the fee for licensing and keeping lawyers on the path (the disciplinary process). And let lawyers form a voluntary association to provide economic advice and continuing education and lobbying efforts.
Seems simple. But, the current discussions are off onto a different path. President Hebert says that the only goal of the Bar should be to protect the public; that any benefit to or for lawyers is incidental and of little consequence.
Yet, if he (the president and other members of the Board and Legislature) truly believed in protecting the public, the first step would be to understand what the public concerns are. And that would require looking at the state Bar’s disciplinary report. If you did, you’s find that more than 50% of the complaints there against lawyers relate to issues of managing a law practice.
The number one complaint is still the failure to respond timely to clients. To address this and other such time and practice management issues, one need only to provide appropriate education programs. Help lawyers be more effective with their clients and more efficient in the delivery of their services. And, again, but only if you want to protect the public, require malpractice insurance at affordable prices. With its enormous buying power, California ought to be able to craft an affordable insurance program. The cynic in me says this won’t happen no matter how the Bar is re-configured.
Oh, the mandatory part might show up … but not the affordable part … Why, because neither President Hebert nor the Legislature cares much about the average practitioner who helps the average citizen. That may be a harsh criticism, but it is apparent from observable behavior to date of both.
Lawyers have a right to have spokesperson; lawyers have a right to have someone promote their interests in Sacramento. And lawyers have a right to organize for their own economic well-being. It’s clear the State Bar of California is not doing any of this!
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In today’s Managing Partners Roundtable, we talked about the costs of digitizing all files the firm maintains. One partner suggested that failure to do so might result in malpractice allegations. This is an interesting concept, one that I don’t believe has yet taken hold.
Cons: Expensive, time consuming, lawyers must be involved to determine which file matters can be "cleansed" and tossed, files must be taken apart to scan, decisions on what hard copy to toss now and what to save (and for how much longer)
Pros: Reduction in amount of real estate needed to store files, lower cost of occupancy resulting from a conversion, searchability by keyword rather than memory, one time investment.
Several years ago, a Chicago law firm began this process by scanning documents through a photocopy machine. Their contract provided for payment only when paper was copied and printed, not just scanned. Thus, this segment had limited cost. Disabled people were employed to do the work, thus enabling the firm to do well by doing good, and maintain its cost of labor at a lower cost than would have resulted with its own personnel. The entire process was conducted in the evening so the normal workflow of the firm was not disrupted. This firm was ahead of its time in this process.
In today’s meeting, I learned of a major firm that completed this project last year at a rather high cost. But, the investment was believed to be essential to an efficient future operation of the firm. And, of course, younger lawyers are so conversant with the electronic world that some seldom even touch paper anymore.
Technology has and will continue to have a major impact on the efficiency of the delivery of legal services and the costs to clients.
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Have you ever had problems traveling, making connections or finding that weather is a great excuse to be surly to those you serve? If you’ve ever experienced any of these, or a myriad of other issues facing us when we travel, check out my latest commentary on having been stranded in Manhattan, trying to get home from JFK. While bad weather is a legitimate catalyst for scrambling (as in Chicago), just remember that you’re in the business and know these things happen. Be prepared with a good attitude – your customers need all the help and pleasantness they can get.
Thus, as lawyers, you know that your clients will always be in stress. Make sure that you and your staff are pleasant. It will make the relationship go more smoothly … oh, and yes, they will be far more willing to pay your bills timely! Heed this advice only if you understand that you are in The Business of Law®.
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The article by David Streitfeld is a good piece. He’s the housing reporter for the NY Times and spends most of his time in California. In response to an earlier piece by him on the subject, where he failed to mention California, I contacted him. He knew nothing about the law in California (since 2009) or the State Bar’s modification of its Rules of Professional Conduct that made it a crime to take money from clients in advance of completion of the loan modification, not even for deposit into a client’s trust account.
I told him about the new law and pointed him to several of my blog posts on this topic where he could learn more.
I’m glad that he’s written about it now, in more detail and highlighted California’s experience.
As a side note, an officer of Bank of America claims that of the Bank’s loan modifications, more than 70% go back into default within 2 years … a scary statistic. Should the Bank be responsible for maintaining a family in a home which it can’t afford, even with a modified loan structure? I’m not sure … Or, should the government offer some help. They have bailed out the big banks on Wall Street, how about some help for the people on Main Street? I’m not sure what is the right answer. It’s clear, however, that if no one helps, we’ll have many more foreclosures in 2011 and 2012. Our political spectrum is so polarized today that all we seem to hear is noise, white noise, and more noise.
BTW, it was a politician seeking headlines that started the ball rolling. And, it was the absence of lawyers in the legislature (only about 23% today) that permitted it. And, a non-lawyer governor who signed it. And, it seems, non-profit organizations who lobbied for it (a little competition there, would you say?). Who gets screwed? The people.
Too bad the State Bar president failed to support sole and small firm lawyers who worked in this area. Rather, he seemed hell bent on chastising the whole because of a few bad apples. Rather, the Bar and the District Attorney could have used the many rules (moral turpitude and others) and laws (Penal Code against theft) already on the books to protect the people scammed by lawyers without removing entirely the good lawyers from this process. Provisions on the books already protect against any lawyer taking money from a client under false pretenses (theft) and the rules of professional conduct protects against moral turpitude and for not performing work that was promised. The State Bar didn’t have to follow the urging of the bar president to support this effort.
The state bar president, at the very best, gives no more than lip service to solos … See my open letter.
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(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.
(more…)
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Psychologists at the University of Toronto and Tufts University say that people with powerful looking faces will be more profitable and that one’s career success can be predicted as much as 30 to 40 years earlier simply by looking at their face.
Professor Nicholas Rule of the Department of Psychology at the University of Toronto, is the lead author of a new study published in Social Psychological and Personality Science. “This includes clothing, posture, and hairstyles, but the real window to judging people is the face. We developed a method to measure facial power and found that it is a strong predictor of law firm profitability.”
The ratings of perceived dominance from photos of managing partners were correlated with the profits of the leaders’ respective law firms; the findings were positively associated with one another, both for the judgments made from current photos and those made from college yearbook photos of the same people. Just think about the cute notes in your college yearbook. What if someone who predicted your success actually had the talent to read your face?
The psychologists studied only lawyers, but say the same principles apply to all people and industries. So, does this mean that we are trapped by our DNA, by the faces that nature provided us with at birth? Where does active will come into play? Oh, I’m sorry, this sounds just too much like my college philosophy class.
But, think about this for selecting your next law firm leader. Think about this for jury selection. The applications are endless … if true.
For more, see the findings presented in a paper titled “Judgments of Power from College Yearbook Photos and Later Career Success”, published in Social Psychological and Personality Science.
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