Legal Ease Blog

Does Attracting Top Legal Talent Depend on Profit Per Partner and Leverage Ratios?

In a recent discussion about the future of the practice, some 'biglaw' legal marketing professionals related that the only way to attract and retain top tier legal talent is by increasing profit per partner. This seems to be the conventional wisdom at large firms. But is it true that the top legal talent is looking at profit per partner as the yardstick by which they measure potential law firm employers?

The trend among young lawyers seems to be moving away from joining one firm and staying there for their entire career. Therefore, for young legal talent, it would seem that profit per partner would be low on the list of criteria for future employers. What good is high profit per partner if the attorney thinks they won't be staying at the firm for long? What if the possibilities for advancement are slim? What about culture, atmosphere, flexible work schedules, contact with clients, challenging work, intellectual stimulation, enjoyable clients and co-workers, mentoring, training, etc.?

Perhaps this discussion about profit per partner really meant lateral legal talent, rather than new legal talent. But are laterals primarily motivated by profit per partner, or are other factors coming into play? Are we really saying that money is the only thing that attracts top legal talent?

The same biglaw professionals opine that biglaw firms will move to leverage ratios of up to 9 associates per partner in order to continue to drive up profit per partner without continuing to drive up billable hours. While leverage is important for many reasons, there is no reason why profit must be tied to leverage which must be tied to billable hours.

Assuming that the answer to increasing profit per partner is hiring more lawyers ignores the fact that hiring more lawyers means hiring more staff. And more employees often means more problems. Growth isn’t always the answer. Further, the reality is that many of those additional lawyers won't stay with the firm - for reasons other than money.

Firms continue to complain about the high cost of associate attrition, and yet they seem to forget that the attrition continues despite increased salaries for associates. A compensation system that rewards only hours and doesn't take into account the intellectual capital that exists in the firm is not likely to increase profitability without also increasing the negative aspects of practicing law, including poor client service.

Increasing the number of associates may increase profit per partner, but it may make it less likely that those associates will eventually become partners – that reduces the likelihood that some of the ‘top talent’ will stay. (After all, what good is profit per partner if you never make partner?)

Firms continue to get stuck in this rut because they can’t imagine any other way to run the business than by billable hours, which are, by definition, limited. ‘Top talent’ isn’t likely to want to continue to work more and more billable hours, no matter what the profit per partner is.

Most law firms also continue to make the incorrect assumption that all ‘top talent’ actually wants to become partners in a law firm. But that isn’t necessarily true. Not every lawyer wants to become a partner. And that means that profit per partner may not be nearly as important to 'top legal talent' as some might think.

Whether billable hours increase or not, whether leverage increases or not, law firms that want to attract and retain top talent must face the reaility that not all talented lawyers can (or want to) become equity partners. And that means that firms are going to have to reconsider compensation based only upon billable hours. It’s just not a workable solution.

The problem with all of this discussion is that much of the profession continues to revisit the same issues and make the same old assumptions, which lead to the same old 'solutions.' Instead, firms should take the time to sit down and talk to clients about what they really want, and what is valuable to them (and the answer isn't tied to the number of hours worked) so that they can change the reliance on the billable hour.

The same can be said for top legal talent - do law firms really know what the 'top legal talent' is looking for in a firm? Law firms need to re-think the idea that high salaries or profit per partner are the only criteria by which top legal talent judges a firm - or that the number of hours worked is the only basis upon which to compensate them.

There are other ways to increase profit per partner, other ways to entice top talent, than by breaking the backs of the firm’s most valuable assets – the lawyers that work there.

Bottom line: it isn't just financial packages that make the difference. But who is willing to explore alternative solutions, including restructuring the way law firms typically bill their clients and compensate their attorneys?

Does Your Malpractice Carrier Know About Your Blog?

Last week, the New Jersey Law Journal carried an article about a New Jersey law firm that put its plans for a blog on hold after speaking with their malpractice carrier, who said that having a blog would make the firm 'uninsurable.'

Based upon the article, details are not yet available about the specific reasons behind the insurer's position, although there is some speculation that perhaps the insurer was afraid that the blog posts would be considered legal advice. The firm is exploring whether a strong disclaimer would make a difference.

Blogging is booming, and more and more lawyers are joining the blogging ranks on a daily basis. Blogs are different than traditional websites in that they contain 'posts' which are usually displayed chronologically and can be identified by categories. But much of the same content can be generated by lawyers in more 'traditional' ways: for years, lawyers have been giving seminars, writing articles and posting information on their websites. They've been sending client newsletters containing 'case updates' or 'decisions of interest.'

To my knowledge, none of the above activities have been considered inherently risky by malpractice carriers. Why single out blogging? Is it the sheer volume of content? Blogging is no more risky than sending a newsletter, providing seminars or writing articles.

In today's marketplace, failing to keep clients and referral sources informed and failing to build expertise and credibility can be deadly to a law practice. Not only that, but bloggers provide a lot of legal information at no cost, and have greatly contributed to the education of both the legal community and the general public. First, the lawmakers make the rules for 'advertising' a law practice more restrictive, ostensibly to prevent the public from being misled. Now, the malpractice carriers are preventing lawyers from providing timely information to the public about legal topics.

Hopefully, this won't become a trend among legal malpractice carriers. But in the interim, for all those who blog, if you haven't already got a good disclaimer on your blog that makes it clear that your blog doesn't consitute legal advice, now is the time to put one up. And maybe you should check with your malpractice carrier...

What Are Your Clients Thinking About Your Billing (And Your Services)?

Ever wonder what your clients are thinking? Here's one lawyer's experience as a client questioning a bill from a law firm:

The client and a colleague hired a law firm for some guidance on a business issue. A request was made by email to cap the fee at no more than X dollars (about 6 hours of time at the lawyer's hourly rate). The cap request was put in a written email, but no response was ever received to the request. There was no written retainer because there was already an existing relationship with the law firm.

The client received the bill, which was double the amount specified in the cap. In addition, the bill included a 2 hour phone call which appeared to be an error. The bill also reflected a 4 hour charge for some follow up which the lawyer suggested to the client. The client had responded,  "Sure, go ahead and let us know what you think." However, when the lawyer went ahead with the work, he never said that the extra time would exceed the cap that the client requested. Moreover, from the client's perspective, the extra 4 hour task did not accomplish what was requested. In fact, when the client received the follow up, the client assumed that she hadn't been charged for it because it didn't look as if any work had been done on it.

The client went on to relate that the organization didn't have much money, and the extra money that was billed by the lawyer could have been used to hire one or two summer interns. Finally, in reviewing the bill, the client realized that an initial payment to the attorney had not been credited to the bill.

The client asks, "What is the best way to approach this attorney so as to elicit a positive response?" She goes on to say that if the attorney had told her at the time that the extra work would exceed the cap, she would have told the attorney not to go forward with the extra work. But then she second-guessed herself, saying that with the application of the original payment and the reduction for the 2 hour call that didn't occur, the work would fall within the cap, so perhaps she shouldn't discuss the bill with the attorney other than to ensure those two corrections - even though she still couldn't tell what work was performed to justify some of the charges.

As far as advice to the client goes, the client is entitled to know what services were received in exchange for your payment. If the attorney did some research on the client's behalf as a result of an issue or question that arose, the client is entitled to be told what steps were taken and what the outcome was. And the client is certainly entitled to question the attorney about the charges. And it goes without saying that it would have been better for the client had the client gotten a written fee agreement (yes, I did say that this particular client was also an attorney - everyone makes mistakes).

But since my real focus is helping attorneys become more effective and more profitable, I'd like to focus back on the lawyer in this story. I think this is a great lesson for attorneys about what it feels like to be on the other side of the table. Clients want to know what they're paying for and what the result is. Many clients will have the same kind of agonizing second guessing that this client did - about both your bill and your services. While both may be clear to you, if they aren't clear to your clients, you're setting yourself up for trouble.

If you were in the attorney's position, would you want your client to feel the way this client did? Would a client that feels the way this client did be a 'raving fan' of your services? Would they wholeheartedly refer you to someone else? Wouldn't it be much better for the attorney if the client didn't feel that way? Wouldn't it be better if the client were comfortable with *both* the fee paid *and* the services that were provided in exchange for the fee? Both the attorney and the client should feel like they're getting a good deal, or the relationship isn't what it could be.

Some of the mistakes, such as the failure to apply the previous payment and the incorrect charge for the telephone call, may seem 'minor' to some. But these oversights call into question the attorney's bookkeeping and record keeping. If the attorney isn't keeping track of the payments the clients are making or ensuring that the clients are being charged correctly, what other things is the attorney forgetting or overlooking? (And in the context of an engagement totaling only approximately 6 hours, a 2 hour phone call would not only be memorable, but should have raised some questions upon review of the bill.) In short this kind of "mistake," kills trust and credibility with the client.

Here a few things the attorney could have done a lot better:

1. Made sure that the fee agreement was crystal clear to both sides;

2. Discussed the scope of the work to be performed for that fee;

3. Gotten both of the above in writing;

4. Specifically confirmed with the client the additional work that was going to be performed, and estimated the fee that would be charged for that work, getting agreement from the client if that fee were to exceed the 'cap' (if the cap was part of the original agreement) -- and put it in writing;

5. Had a system that was reliable and kept track of client payments;

6. Itemized the bill to ensure the client understood the services rendered;

7. Provided the client with the work product that was generated (at least a letter describing the outcome of the additional work);

8. Reviewed the bill for accuracy before sending it out.

Failing to do any one of these things is damaging to the attorney's relationship with the client. The combination is likely to be deadly.

Why Do You Have Difficult Clients?

Unfortunately, sooner or later, most of us get caught with difficult clients. But there's no reason to get caught with the same kinds of difficult clients over and over, is there?

During a discussion this week about dealing with difficult clients, one lawyer related that she had clients who called her incessantly, leaving multiple messages on her machine after hours, even while acknowledging that they knew the lawyer wasn't in the office. These same clients would arrive at the lawyer's office unannounced and demand to be seen, regardless of the lawyer's other appointments or obligations.

Not surprisingly, the lawyer also said that these clients were 'usually' clients who hadn't paid anything up front or who had gotten a discounted rate. The lawyer ended her commentary by saying, "I charge the lowest fees in town."

We've all heard the saying that the definition of insanity is doing the same thing over and over and expecting a different result. From the account above, it sounds as if this lawyer is repeating the same mistakes and ending up with the same difficult clients over and over. If she wants things to change, what she needs to learn is not how to deal with difficult clients, but how to identify and avoid them.

Although some practice areas are more emotional than others, and some clients are more needy than others, there is no need for lawyers to put up with this kind of behavior. Here are some ways to avoid or eliminate the problem:

1. Establish guidelines and expectations with clients up front
I'm a big believer in client service, but I also think that we're responsible for 'training' our clients and setting expectations at the beginning of an engagement. Clients who have unrealistic expectations or who balk at the guidelines are probably clients we don't need or want. This lawyer  needs to discuss the parameters by which she will communicate with clients. If the client doesn't accept them, the lawyer should let the client walk out the door - she'd be eliminating future headaches.

It is important that clients know that their lawyer is responsive to them, and knows when to expect return telephone calls, etc. But it is also important for clients to be aware that if they want their lawyer's undivided attention when the lawyer is working with them, the same service is being provided to other clients.

At the beginning of each engagement, the lawyer needs to advise the client that they will not be seen in the office without an appointment, and that if an emergency arises, they must call the office first. The lawyer should tell the client the length of time within which the client is likely to receive a return call, and suggest that the client make a list of things to discuss with the lawyer rather than calling every 2 minutes unless it's a real emergency.

These are just some general guidelines - there is a lot more to setting expectations with clients up front, but a lawyer that ignores the basics does so at their peril.

2. Change the fee structure
The correlation between low-paying clients and poorly behaved clients is often overlooked.

As a general rule, discounting your fees is a mistake, unless you have a very specific strategic reason for doing so. Don't let a potential client 'bully' you into providing a discount. Most clients that ask for a discount are likely to be trouble, as the lawyer above has seen first-hand.

A client that doesn't want to pay your fees doesn't see the value of the services that you provide. There are exceptions to this rule, and sometimes the fault is with the lawyer for failing to communicate value, but whether it's the 'fault' of the lawyer or not, clients that want a discount are usually not likely to be your best clients. Often, they continue to nickel and dime even after the fees have been discounted, they delay payment or don't pay at all, they fight you, second guess everything, resist your advice, are overly demanding, or are otherwise 'difficult.'

Other suggested changes to this lawyer's fee structure include raising her fees and taking money up front from all clients. Clients that aren't willing to put their money on the line probably don't think what you're doing for them is important. Clients that think what you're doing is important will find the money.

Whether we like it or not, often we equate price with quality. Most people are willing to pay more for something (whether product or service) if they perceive that the more expensive item is higher quality. Therefore, most consumers, whether they're buying a product or legal services, are likely to assume that the lowest priced item in the market is also the lowest quality. If you know you're the lowest price lawyer around, you're more likely to attract these kinds of clients.

3. Fire some clients
Although she doesn't say so specifically, it sounds as if the lawyer above has a number of clients that treat her this way. There are times when these relationships can be salvaged by sitting the client down and having the conversation that should have taken place at the beginning of the engagement, outlining the responsibilities of each party to the transaction and possibly suggesting other resources that the client can turn to for services that the lawyer doesn't provide.

Unfortunately, it is more common that these kinds of clients cannot be 'rehabilitated,' and the lawyer is better off withdrawing from the representation as soon as possible. Far better to weed out these toxic individuals before they become clients.

4. Look in the mirror
This may be difficult to acknowledge, but if you're stuck with a number of clients who don't value your services and whose main concern is the fee, you should examine whether you've attracted those kinds of clients. Perhaps you have a disproportionate number of those clients because your message is that you're the cheapest lawyer, and that's your only point of differentiation.

If this lawyer is having the same experience over and over, something needs to change, and there's no reason for her clients to change if she doesn't take some action.

What constitutes solicitation under the new advertising rules in New York?

Nicole Black, author of the Sui Generis blog, has posted on a twist on the new rules regarding 'solicitation' in New York: a reader posted a comment on her blog, "need a criminal lawyer prferabbly a women nyc vicinity." That comment sparked some discussion about whether a lawyer contacing the commenter would be subject to the new solicitation rule.

The rule, D.R. 1200 (b) states:

For purposes of this section “solicitation” means any advertisement initiated by or on behalf of a lawyer or law firm that is directed to, or targeted at, a specific recipient or group of recipients, or their family members or legal representatives, the primary purpose of which is the retention of the lawyer or law firm, and a significant motive for which is pecuniary gain. It does not include a proposal or other writing prepared and delivered in response to a specific request of a prospective client.

Does this comment constitute a 'specific request' such that a response to the commenter would be excluded from the solicitation rules? Nicole thinks so. I've posted my comments on Nicole's blog. I admit that I tend to err on the side of caution (not to mention that I wouldn't want to be the 'test case' for the new solicitation rules). But I think the rules aren't clear enough to allow a lawyer who wants to respond to the commenter to ignore the solicitation requirements.

What do you think?

Why Do Lawyers Leave the Law?

Yesterday's New York Lawyer contained an interesting article entitled, "Why Women Leave the Law." The article profiles six women who decided to leave the practice of law and pursue other interests. The reasons why these women left the law are as diverse as the avenues they chose to pursue after leaving the practice.

Although the entire article is worth reading, one portion of the article in particular struck a chord with me: one of the lawyers specifically blamed the structure of law firm life, in particular, billable hours, for her defection from the law. This portion of the article jumped out at me:

But law firms, she says, are designed not so much to complete tasks as to bill hours. “I felt that something I’m really good at is turnaround time, and I did not feel there was any reward for that,” she says. “The reward was more work. I didn’t see how I could ever get to the point where I was so good at my job that I could manage it all. The point was the hours.”

It's no wonder that lawyers get burned out, and many feel that they're headed for a meltdown. Under a billable hour system, this is exactly what happens: rather than being rewarded for being efficient (or, even better, effective) - which is what the client would most often prefer - many lawyers in a billable hour system are penalized for exactly the kind of work that clients want. Lawyers need to make their hours, so their alternatives are to either work slowly, inefficiently, and ineffectively, or to 'pad' their hours - unless they want to be passed over for advancement or compensation increases.

While law firms don't outright condone padding or actively encourage their lawyers to work slowly, if hours are the only thing that gets rewarded, lawyers are going to do what they need to do to advance within the firm. Until law firms change the system so that hours aren't the measure of success within the firm, the firms will continue to experience losses of many of their best and brightest in one of two ways: either because the lawyers who care more about the result they're producing for the client than the hours logged will leave the firm (or the profession), or because they will burn out and lose their 'edge.'

Should Convicted Felons Be Admitted to the New York Bar? What Should the 'Character and Fitness' Requirements for Admission Be?

Lately, there seems to be a lot of discussion about whether convicted felons should be able to be admitted to practice law.

On one lawyers' discussion group, a heated debate ensued after one member expressed outrage when a convicted felon was admitted to practice law in California. There was a decisive split in the discussion group about whether the individual should have been considered for admission at all, or whether the California bar could possibly have done its job in screening the individual's character and fitness.

Some members of the discussion group expressed the opinion that, having 'paid his debt to society' by serving his time in prison, this person should be permitted to enter the practice just like any other law school graduate that passed the bar exam.

Today's Wall Street Journal Law Blog seems to have begun a similar discussion among commenters to the blog post, New York Sets a High Bar for Convicted Felon, discussing the story of Neil Wiesner, who has been attempting (unsuccessfully) to get admitted to practice law in New York for the past 9 years.

According to the Wall Street Journal Law Blog, Wiesner was convicted of attempted murder in the 1980s, and has been denied admission to the New York bar nine times, reportedly as a result of the prior crime, his prison sentence, and the alleged lack of remorse exhibited by Mr. Wiesner.

Comments on the blog post range from those who think that the idea of admitting someone to the bar who has been convicted of attempted murder is 'absurd' to those who think that Wiesner has done his time in prison and deserves a 'break.' Others seem to think that because (in their opinion) the bar already includes some individuals of questionable integrity, it is hypocritical of the bar to deny admission to Wiesner.

But while it may be true that some lawyers that have been admitted to practice are not living up to the standards of the character and fitness committee, is that a reason to ignore the standards when reviewing new candidates for admission to the bar?

As for those that think that having served his time in prison, a convicted criminal deserves a 'break,' the mere fact that the bar is considering the individual for admission means that he is being given the same considerations as other candidates. All candidates must go through a character and fitness review. The committee has obviously felt, on nine separate occasions, that this individual did not demonstrate the requisite characteristics to qualify for admission.

What are the factors that the character and fitness committee use to determine whether an individual should be admitted to the bar? What should they be looking for? Why have a character and fitness committee at all if we're going to question their judgment in refusing to admit an individiual who was convicted for attempting to take another's life?

And what about lawyers who are already admitted to the bar and commit crimes? Should they all automatically be returned to practice once they have served their prison sentences? Should we have a character and fitness committee at all? In short, should there be standards for admission to practice law, other than passing the bar exam?

Your comments are welcome.