Category: Management
Hogan & Hartson seeks to do something new. They are offering a buyout to the legal secretaries and word processing staff. Their belief is that voluntary action is better, more humane, and yet reaches the same goal of staff reduction as layoffs does. Under the terms of the buyout, the more senior staff selecting the option will receive more compensation. The more recently hired staff will receive less; but the minimum employment must be 5 years.
On the one hand, the firm may be losing significant talent. On the other hand, the more senior is the staff person departing, the higher will be the savings for the firm.
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California’s Governor is now suing the California Controller. The Gov wants to furlough government employees for 2 days per month, unpaid! He says that will help the cash-strapped state. Funny how top paid folks always look to the lowest paid folks to carry the burden. How about the auto industry flying to Washington to ask for money in corporate jets! Or bank executives getting hundreds of millions of dollars in compensation buyouts … all the while asking/blaming the ones who least afford cuts to reduce their compensation.
Oh, and the latest! …. California is withholding payment to appointed attorneys in criminal defense matters … who, among lawyers, gets paid the least, and who, among lawyers, needs the cash flow the most? Appellate lawyers who take on appointments from the State … Wow! And it’s these folks who are now being stretched in receiving payment for services delivered.
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Has your firm asked you to pony up money? Have you faced a capital call recently? Are your partner distributions being reduced?
A recent (January 29th) Wall Street Journal article discusses the new phenomenon. Several top law firms are asking their partners to increase their capital accounts and/or are reducing the partner distributions, all in an effort to raise more cash for the law firm. Why? Because the new focus is on reducing law firm debt and increasing liquidity in an era where banks are restricting their loan portfolios, even for "favored customers." With revenues and profits constricting, law firms are wise to review their debt structure.
When the law firm cannot open the bank’s loan window, or doesn’t want to abide by the many restrictions and covenants that are attached to any bank loan, the firm will look to partners. And, for those partners who are themselves financially thin, they may have to be the one asking the bank for help in order to satisfy the capital call. To get the personal loan needed to fulfill the capital call, the lawyer may have to mortgage his/her home, pledge other assets as additional collateral or even get guarantors.
Solo and small firm lawyers experience the peaks and valleys of compensation as a normal course of business. To survive tough times such as we currently are experiencing, reduced debt and a reservoir of savings is essential to survival.
Perhaps it is not unreasonable to ask yourself the question, "Do I really want to be a law firm partner?" Do the benefits outweigh the risks?
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Mimi Donaldson is a football fan (who knew?), but a major fan! She was glued to the television and, while the game was on, came up with the following life’s lessons from the game:
Immediate need:
What do we do for money right now?
Here are 3 tips we can learn from last Sunday’s Super Bowl to help us manage in these troubled times.
#1: FOCUS
Ben Roethlisberger, the winning quarterback, extended many plays with tremendous focus and presence of mind. Larry Fitzgerald, a brilliant wide receiver, turned the game around with a long touchdown run because he looked for an opening and never looked back.
Lesson – We need to focus on the value of our product and service, stay calm in the face of doubters, and look for an opening for success — and never look back!
#2: INTERCEPTION
At the end of the first half, James Harrison intercepted the ball and returned it 100 yards (the length of the field) for a touchdown with the longest run in Super Bowl history. The interception changed the context of the game and shifted the momentum.
Lesson – This is not in the traditional job description of a linebacker (he needed oxygen afterwards). In our businesses, we need to do something different now; attend a meeting you’ve never attended; look for an opportunity in a non-traditional place.
#3 – WHEN THE WHISTLE BLOWS, THE PLAY IS OVER!
Santonio Holmes caught the winning touchdown. But he had dropped a sure touchdown pass just moments before. He begged his quarterback for one more chance – telling him, “Please let me get this game for you.” Each man respected the finality of the play before. They did not allow it to affect the next play.
Lesson – We need to shake off our past mistakes and the alarming economic forecast, and recognize that each moment is a new moment of now.
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Anna T. Collins, Esq. (Portland, Maine) writes an article in The GlassHammer about the gap in compensation between men and women in the legal profession. Her issues are well-taken. See below for quotes from our author and coach, Ed Poll.
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Friday’s New York Times has brought light to a steamy debate in the legal community: Is billing clients by the hour the most effective and profitable way for a lawyer to collect his or her fees? In these recessionary times, this norm has become more unpopular. Clients are asking more questions and wondering if law firms are prolonging their problems instead of resolving them.
According to the American Bar Association’s Model Rule of Professional Conduct 1.5, “a lawyer shall not make an agreement for, charge, or collect an unreasonable fee.” Reasonableness is further defined by several criteria. Ultimately, though, what lawyers charge must be commensurate with the value their clients receive.
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Insurance rates are based on three elements:
1. Losses. Carriers normally allow 5% to 10% for claims payouts, or losses.
2. Reinsurance. The cost of reinsurance, where the primary carrier passes some of the risk of their policies to other insurance companies, called reinsurers.
3. Investment income. Carriers normally invest their cash reserves in stocks, bonds and other income producing products to increase their own net profit or return for the benefit of shareholders.
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One of my law firm clients has a lawyer who is what I would call a "reluctant marketer." This lawyer is a great lawyer, a "worker-bee," but not a great rainmaker. The managing partner considered engaging a coach to help the lawyer improve his skills within his comfort zone. Why is this important? Because the amount of work for this lawyer that is being internally generated is lessening. In other words, this lawyer has to begin helping himself a bit.
Parenthetically, I saw a recent survey that shows the amount of hours being worked by lawyers, generally, is coming down. But more on that later.
But, the management committee has come back and said that "costs" are frozen. No more spending. Is this a backward way to look at the situation? What about looking at expenditures from the ROI perspective? If you buy a new piece of equipment and it pays for itself in a couple of months, wouldn’t you move forward? I think you should. If a coach or marketing director can help the lawyer increase his/her revenue because of improved rainmaking efforts, shouldn’t you invest in the process?
And what would this mean to the other lawyers? A reduction in their take home pay? When you’re already earning hundreds of thousands of dollars, a collective reduction by only a few dollars in sdthe short run for an ROI building expenditure may be worthwhile.
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“A carriage builder in an automobile world.”
That’s how one staff person described his boss, an attorney not willing to become an effective marketer, but yet believes he’s entitled to receive the same level of business that he has for years. He doesn’t understand that the world is changing, that practice areas once popular are no more and that he has to adapt or be swept out of the practice.
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Association of Corporate Counsel is workingon a "Value Challenge Index." Susan Hacktt, Senior Vice President and General Counsel for ACC, talked about the Index before the Los Angeles chapter of Legal Marketing Association today.
Susan made several significant points. One concerned the traditional allocation of revenue: 1/3 for overhead, 1/3 for associate compensation and 1/3 for partner income. The net result is that 2/3 of the revenue received by law firms is funneled toward attorney compensation.
Susan suggested that General Counsel, as lawyers, understand this formula and are therefore more resistant to outside counsel increasing billing rates. Lawyers wanting to earn more to move up in the AmLaw PPP (profit per partner) ranking isn’t sufficient reason for the corporate client to pay more. And the rationale that expenses have increased is also not well received … 1/3 of the firm’s expenses may have increased somewhat, but the more sophisticated clients believe that the primary factor for increased expenses is increased associates’ compensation. Since associates’ contribution to the law firms’ delivered value is suspect, clients are reluctant to pay increased rates. In fact, some clients refuse to pay for any first year associates’ work on their matters.
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