The Wall Street Journal seems to focus on fees being charged by large law firms to large clients. It seems almost every other week, there is an article on the subject. In today’s paper, Jennifer Smith writes about the "resetting of legal costs." Her basic premise is that clients who obtained the "upper hand" during the Great Recession" in negotiating fees with law firms are not going back to the old ways of the billable hour despite the more robust economy today.
Alternative fees have become a larger percentage of law firms’ revenue. To use alternative fees, usually meaning fixed fees, requires a trusting relationship between law firm and corporate client. Of course, alternative fees also depends on the practice area. For example, it’s easier for lawyers to quote a fixed fee in areas such as estate planning or a percentage fee in personal injury or debt collection than it is in litigation. But, even litigators are moving to alternative fees when they can work with the client as a trusted adviser … and both sides look out for the interests of the other side.
What Ms. Smith ignores, however, is the real impetus for alternative fees. It is technology. Because of advances in technology,some tasks such as document review that used to take hundreds of lawyers many hours can now be done in a fraction of the time with a fraction of the number of lawyers. Further, when lawyers charge by the hour and see their time reduced, and thus their revenue, there is an impetus to charge a fixed fee. The client gets certainty. The lawyer gets to keep a portion of the savings resulting from the technology. Both sides benefit.
This is classic in every industry where technological innovation occurs. The legal profession is now experiencing the same upheaval. And both clients and lawyers are benefiting.
Cash flow is the lubricant that enables all businesses to function. When you grow your revenue, or when you take too much money out of the organization, you will have a cash flow challenge. Only a supermarket or amazon-type organization can function with losses — they get great long term payment terms from their suppliers but receive cash immediately on making a sale.
A law firm is not like this. And in the case of many law firms, the lawyers get accustomed to larger-than-life styles of living, are unwilling to fund the organization out of a sense of entitlement, and are really only silos of sole practitioners under an umbrella. They are not organization people. They think, and oftentimes correctly, that they can jump ship and continue their flagrant disregard of the firm.
Lowering the lawyers’ compensation to appropriate levels in accordance with the revenue and expenses of the firm, and keeping debt only for long-term purchases (not for lawyers’ draws) is the only way to protect the cash flow and keep the law firm vibrant and afloat.
Best wishes for a very happy Passover and Easter. This is the beginning of Spring and the planting of crops … and a time to reflect and renew in our own lives as well. Best wishes for a happy holiday.
What happens to your firm when you need to retire, or during unplanned circumstances such as death? In today’s clip, Ed discusses the importance of succession planning, and gives some helpful tips to get you started.
Not bad enough that legal services are already expensive, but court closures resulting from budget cutbacks will make legal services of all kinds even more expensive. Alternative methods of dispute resolution will need to be engaged. This is like a bad heart, needing new arteries created from exercise. But, we don’t know yet what the "exercise" will be to enable the cost of legal services to go down. Will it be technology? Will it be alternative dispute resolution? Will it be "why can’t we all just get along?" attitude changes?
Marlo Van Oorschot talks about the cost of a divorce rising, as just one example. But, she puts it in terms that everyone can understand.
More budget cuts are going to cause court closures in the family law department this year. This means the time and cost to bring a family law case to conclusion is going to increase. Unless an alternative means of resolving a case is implemented, parties should plan on spending two years and their children’s college education funds waiting to have their day in court.
The tech show in Chicago is very interesting. Some of the items that I think deserve close attention are the new portable Fujitsu Scan Snap scanner. It’s light enough to go into the briefcase with no discernible problem. I love it and will get one. Another interesting item is netdocuments … it’s a case management system extraordinaire, including the ability to bring emails into your system. It will save your documents, organize them, allow you to search very quickly. And it works with Word, WP, .pdf, etc. Looks very good. It resides in the cloud for a relatively small monthly fee and makes Dropbox obsolete. Take a look at MyCase, as well, since today they announced a word processing capability right in the system …. No need to go out to your word processor and return. There is more, but these merit actual purchase.
The lawyer and bail bonds person are neighbors, and both are adjacent to the jail and the courthouse. Otherwise known as the "revolving door." One’s commute tends to be minimal here.
