Tag Archive: Finance

Knowledge management is the difference between thriving and failing.

Today, I talked with a solicitor from London who is studying knowledge management and its implementation in UK firms to increase profits.  Since much of their work is based on fixed fees, any improvement in efficiency will go directly to the bottom line. 

They even employ a group of lawyers whose primary function is to improve their knowledge base, organize it and make it more searchable, all with the view to reduce the time needed to create documents for a new transaction and increase the margins of profit.  These lawyers do not engage with clients; their focus is on the infrastructure of the firm and its improvement.

Since her firm (she says most are like hers) uses only the fixed fee billing model, there is no focus on the billable hour; this, then, allows the focus to be on efficiency. Thus far, American law firms do not use this model much … and thus their focus on cost cutting today is primarily because of the decrease in demand they’ve experienced from the crises of their clients. That is a far cry, however, from having a focus on efficiency … Cost cutting and efficiency are not necessarily the same.

An interesting contrast presented today by the solicitor:  Increased profit by increased efficiency under a fixed fee engagement agreement.  While the American law firm model is increased profit by incresing the hourly billing rate.  As clients begin to revolt at annual price increases, American law firms will need to look at alternative fee arrangements to keep clients … then, their focus might turn to efficiencies in the delivery of those services.

My wife is fond of say, "there is no free lunch."  The fixed fee approach is not necesarrily a panacea for profitability. With a fixed fee, there is the inevitable pressure to reduce that fee and squeeze the firm’s profit margins. It’s an easier target than is the billable hour (where the number of hours can be fudged without much challenge). But, that’s another story for another day.

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Billable hour – Almost dead?

There’s much talk about the end of the billable hour. Because it’s easy to administer, it will be stay around so long as clients accept it.

This highlights the difference between the large firms and others. The large firms deal with large clients … who have purchasing power others don’t. 

The real question is not whether large firms will accept this new way of billing/pricing, but rather whether small firms will create a laundry list of unbundled services and fixed prices/fees.  If they all do, then the consumer of these services may ultimately have more power … by walking among lawyers to opt for the least expensive … Until then, there are few ways, if any, for the consumer to make price comparisons among small firm or sole practitioners.

If they all don’t, my prediction is that the billable hour will remain as the last vestige of a maturing legal community. On the other hand (said like a true lawyer), perhaps some will break with tradition and create that laundry list in order to differentiate their law practice from others … and urge clients to come to them so they can know, in advance, what their cost exposure will be and so they can budget for their legal cost. 

Where do  you think your firm is headed? … to undbundle and create fixed fees as in a laundry list … or retain the billable hour? Please comment with your prediction.

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Layoff summary

A recent quote from Associated Press:  "The economic downturn has meant less work for law firms, fewer experienced attorneys leaving jobs and thousands of lawyers laid off. From August 2008 to August 2009, total law office employment fell by nearly 26,000 jobs, a mere 2 percent but striking for an industry accustomed to constant growth."

Of course, these figures ignore the larger impact on the profession: small law firm lawyers who are being laid off, sole practitioners and small firm lawyers who are experiencing lower demand for their services and law school graduates who are not finding work in any size law firm.

Just today, I met someone who, in frustration, said to me that he’s a college graduate, yet has to sell vacuum cleaners. Will today’s lawyers find themselves in a similar state?  How can today’s law graduates who don’t find immediate work and lawyers who have been laid off take advantage of their legal education and still feel good about their vocation?

I do believe times will be better. But, having gone through the last great meltdown after the Vietnam war, I believe it will take more than ten years to forget the current recession/depression … For some, there are great opportunities even today; for others, adjustments will be needed, and the passage of time.

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Bullying or Cooperation – Which is more profitable?

Bullies cost you money! Addressing this topic is not a "soft skill" but one that goes right to the "bottom line." Tolerate bullying in the workplace and you will experience lost time, lost ncentive and lost resources when skilled staff take time off from work, lose motivation or suffer stress burnout and leave the job for another. The cost to business is in the billions of dollars annually.

The converse is true. Creating a culture of collegiality, cooperation and teamwork creates enhanced performance, greater successes and even higher profits.

Bullying, by definition, is unwelcome behavior including unwarranted or invalid criticism, exclusion and isolation, being singled out and treated differently, and being humiliated in front of others. One study shows that younger women suffer bullying at the hands of older women … but this phenomenon is not limited to women … and sexual harrassment is only one aspect …

Male clients find often find that how they respond to the bullying tactics of their male superiors is a critical feature of whether they succeed in the law firm and whether they make partner or are asked to leave.  Irrespective of how they deal with bullying tactics such as imposition of unreal time deadlines and nitpicking of their draft documents, the psychological toll on the lawyer is humongous … including stress in their home life.

In one such experience, I helped a client negotiate his way with the supervising partner through a particularly stressful project. On its conclusion, I suggested that he stop on the way home to buy flowers for his wife. I explained that his wife had been a "passenger" through his recent difficulties … and that since he had come out the other side successfully, he needed to share some of the good times with her … She had supported him without knowing the details and deserved recognition for her efforts. He later reported that his consideration was a huge success!

Had the firm’s culture not tolerated this bully, their productivity and profitability and bonding would have been significantly higher.

Yes, bullying is exaggerated in times of recession and credit crunch, if allowed … But, it need not be.

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Suing for legal fees

In a suit, Williams & Connolly, a D.C. law firm, is seeking payment of more than $2 million in legal fees. The client and law firm apparently resolved their differences and created a payout plan, with the client pay 1/3 of the amount … and now refusing to pay the balance or 2/3 remaining amount.

What makes this case more interesting is that a resolution of the fee dispute was achieved. And later, the client refused to honor the settlement agreement. The client ostensibly believes it can harrass the law firm and then settle again for a lesser amount.

Questions for the law firm:

1.  Why did you allow fees to get so high in the first place? Collections should have been more aggressive.

2.  Did you have a budget for the litigation for the client that the client accepted … or was nothing said about the extent of the legal services to be delivered?

3.  Was the size of the legal fee a surprise to the client?

4.  Why didn’t you fire the client before $2 mil?

5.  Why didn’t you get security for payment of the settlement amount, such as a stipulated judgment in the event of a default or other guarantee such as a letter of credit?

Someone was asleep at the switch…both during intake and during the representation … and seemingly also at the negotiation for settlement of the fee dispute.

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Stakeholders in your law firm

News about the health care reform package is getting more interesting. As we get closer to a vote of some kind, the identities of the players and respective positions are becoming more clear.

In today’s analysis, the drug companies are joyous. If universal health care is adopted, the pharmaceutical industry benefits … with more folks insured, more drugs will be prescribed that will be covered by insurance … to their benefit.  However, insurance companies will hurt a bit … no one is yet sure how much. With more people insured, their costs presumably increase. With the right to maintain – retain insurance despite the loss of employment, COBRA income goes down. With prior medical history being irrelevant for coverage, insurance carriers will have to take on some risks they would have eschewed earlier. Hmmmm. Sounds a bit like mandatory auto insurance. The details are not so significant to the ideas here and certainly not to some of the stakeholders.  Can you name them all?

In your law practice, even if a sole practitioner, can you name all of the stakeholders? How do you seek to reconcile the differences among all of your stakeholders? As I mentioned in an earlier article, providing value is the name of the game in today’s world. And how much more value could you provide with the stakeholders on "the same page," all working together for you and the same goal? And with that, how much more profitable would your firm be — how much more income would you receive — if you could create harmony among your various stakeholders …. such as clients, associates, staff, assistants, et al.?

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Twitter and money – an oxymoron?

Can you imagine that Twitter, WITHOUT any revenue stream, is valued at $1Billion! Wow. Not many employees and no revenue stream … and no prospects in sight to get revenue.

Just think what your law firm, with a decent revenue stream, might be worth? What is the difference? And why isn’t your firm worth $1B?

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Every law practice has a value & can be sold!

I’ve just returned from a presentation by accountants on valuing a law practice. They talked about "excess earnings," "discounted cash flow," and "market value." They essentially discussed the valuation of a law practice from the perspective of the divorce court which fails to recognize market value as an appropriate standard of valuation, ostensibly because they can’t find enough data points to make the information reliable.

However, with all due respect to the courts (and the accountants who parroted the courts’ standards, the reality is that the courts will use any logic (or lack thereof) to "do equity" as between the two spouses before the court. That does not reflect market reality.

In my experience, every law practice has value … what it may be is a subject of further discussion, but it has value! And to use formulae that are created to perpetuate a fiction does an injustice to the lawyers who have spent a full career building their goodwill and now want to retire and realize benefits from that goodwill … We are not in the divorce court!

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Online pay systems scare me

With the technology available today, many people prefer to have their accounts paid automatically from their bank account. Charges such as telephone bills are processed directly to one’s bank account and then paid by the bank, oftentimes without the knowledge of the customer unless he/she reviews the account on line.

Today I read about a real nightmare in the L.A. Times. Verizon charged one customer for his cell phone bill, a charge just under $10,000. The bank said it normally doesn’t pay bills where there would be an overdraft; but when the vendor bills the account three times, the online bill pay system honors the third attempt and the customer is charged for the overdraft.

In this case, the bill was in error. The customer did not incur the charge. It was an error. And neither Verison nor Bank of America would reverse the entries without great effort and much consternation by the customer.

That is a perfect template for disaster! And the reason that this technology is one that I choose to avoid. I choose to retain control over my banking relations and vendor payments. This part of technology still frightens me.

Have you had any experience with such technology miscues?

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The End of Lawyers?

Richard Susskind has written a book suggesting that lawyers may become obsolete unless we make some dramatic changes.


I see nothing unusual about his conclusion … that legal work will be unbundled and that the work that is more mundane and routine will be systematized and perhaps even automated. Technology advances provide us with opportunities that didn’t exist before. We can, today, create better product for less money. Technology is only one aspect. Globalization is another. And this isn’t just for the large law firms. A client of mine, in Texas, opened an office in India for the specific purpose of document review and document production – it’s done for less money more quickly … And he can get a faster turnaround because of the time difference.


Law is slow coming to this process. My background is in manufacturing. I’ve owned and operated several companies. In order to retain prices, not to increase prices, we would do everything we could to automate. When automation, reducing the amount of labor costs, would go no further, we reduced the size of the container. For example, we would go from 32 oz to a 22 oz jar or a 10 gal. container to a 5 gal. container.


When we have time of challenge as we do now or changes in our economy and culture, we have the opportunity to innovate for improvements in products and services. We have the opportunity to create new demand. I see this beginning to happen in our parts of our economy. It will have to happen in the legal profession, nay the legal business (The Business of Law®), if we are to continue to serve our public as we know.



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