Posted by: johnocunningham | November 28, 2016

Corporate Client Communications Tips for Law Firm Litigators

I recently noticed an article by Mark Herrmann on the “Above the Law” website, entitled, “Five Ways Reporting Differs at Law Firms and Corporations,” and thought it did a nice job of illustrating some important points about communication with a corporate client.

The article was written from the point of view of one who has served in-house for a corporate legal department (something I did for nearly ten years) and demonstrates that there are multiple key constituents who need to be informed about critical and financially material events in the course of any legal matter, particularly a significant piece of litigation.

As the article illustrates, many companies have requirements for key level officers to authorize settlements that exceed a particular sum, and all public companies (and some private ones) have key financial officers who must keep track of, be alerted to and disclose to shareholders or stakeholders any prospective or concluded settlement involving a material sum of money.

Some other communications tips not mentioned in the article would include the following:

  1. Inform the appropriate corporate contacts when a matter is going over budget, or is expected to go over budget for legal expenses, regardless of a favorable settlement prospect or outcome because companies are constantly jiggering their forecasts of revenue and expenses to give accurate disclosure to stakeholders, and they need to track all expenses as closely to real time as possible.
  2. Tell your key corporate contact or contacts about what you have learned from a matter after settlement, letting them know of any exposures that might exist due to policies, practices, procedures or potentially deficient or inadequately trained management or staff personnel so they can correct problems. This kind of added value is something that shows your interest in being a partner and trusted advisor, as well as a service provider.
  3. Tell your key contacts about any good news you have learned in the course of representation. If the local manager and key witness was a star, tell them. If the records department of the company was incredibly responsive and well-organized, say so. People need to know what is working as well as what is not working, and plaudits are always well-received, and can open doors to new friendships with other personnel at an existing corporate client.

 

Posted by: johnocunningham | November 22, 2016

Bad Actors, Culture and Winning

I recently noticed numerous references on social media to an October 28 FORBES magazine article by David Parnell, entitled: “Law Firms Surveyed – Bad Actors Present Challenges for Leadership.”

Apparently, this piece about toxic law firm environments created by unregulated bad behaviors, struck quite a chord with those in the law.

It did a nice job of summarizing the bad behaviors most often cited as troublesome by workplace colleagues, the challenges of dealing with these bad behaviors, the current processes for dealing with it, and the potential additional solutions.

What I found most interesting about this article, and my comments thereon are as follows:

  1. While 87 percent of firms have written value statements, only 20 percent have specified sanctions for behavior not aligned with values. Comment: Lawyers deal with and craft codes of conduct for clients all the time, and many even draft legislation that specifies penalties for non-compliance. This should be an easy fix that will pay dividends and make it easier for managing partners and executive committees to regulate bad behavior.
  2. Although most firms have no specified sanctions for violating firm values, more than half of firms have dismissed partners in the last five years for behavior inconsistent with firm values. Comment: With regard to this circumstance, you would think that firms would want to move quickly to put written policies and sanctions in place, if only to defend the firm against lawsuits by bully victims and fired bullies alike.
  3. Bullying and lack of respect clearly came in first place among the cited bad behaviors within law firms – nearly 90 percent of respondents cited this as the most common “bad behavior.” Comment: There is no excuse for lawyers acting this way, as our profession is supposed to protect others, set an example, and avoid even the appearance of impropriety. If bullying is reported this commonly, clearly something is not being done about it.  Why?
  4. Only 33 percent of firms reported that they have a formal complaint process for bad behavior. Comment: This is perhaps one reason why bullying continues to be common, which further damages the image and the reputation of a profession already under siege, as well as harming the firm in which the bullying takes place.
  5. An estimated 75 percent of detrimental actors among partners have compensation equal to or higher than the firm average. Comment: This is probably the biggest reason that bullying neither gets reported or dealt with on many occasions. The fear is that the bully might take their book of business out the door, but the reality is that the bully’s origination numbers are likely inflated because he fights over them like a wolf over raw meat, and there is no measure for how many originations he defeats or how many client defections and valued employee defections he causes. As the article points out, the bullies can also chase away potentially huge lateral contributors.

A number of highly successful managing partners that I have interviewed are of the belief that dealing promptly and effectively with bad actors is essential to workplace productivity and long-term stability, and one who was particularly successful cited bully control and elimination as “economic addition by subtraction.” I think this is right. A raft of materials has also been written about the importance of this issue in the world of corporate culture, and both academics and executives have concluded that workplace culture and behavior are critical components to long-term success.

As Lou Gerstner, former Chairman and CEO of IBM once wrote: “Until I came to IBM [as CEO] I probably would have told you that culture was just one among several important elements in any organization’s makeup and success — along with vision, strategy, marketing, financials, and the like… I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it IS the game.”

Furthermore, as Parnell’s article points out,  Stanford professor Robert Sutton and other business gurus have made the case for adjusting hiring practices to align with cultural values, and this is where real bully control begins – at the front door. “The best firms spend an inordinate amount of time, sometimes even using psychometric testing, to ensure that a candidate is socially competent and if they obtain evidence to the contrary they don’t try to fix the problem, they just don’t hire the problem,” Sutton reportedly has said.

So, if you want a winning and collaborative culture, you have to deal with it at the point of hiring AND the point of firing. How well this gets articulated and communicated within your law firm may be the key to your success.

Posted by: johnocunningham | November 15, 2016

Trends Among Chief Legal Officers

Legal consulting firm Altman Weil has released its 2016 survey of Chief Legal Officers (“CLOs”), which reveals some interesting stats on which I would like to offer the following comments:

  1. Efficiency. More than 60 percent of in-house law departments are improving their efficiency by improving their internal procedures and technology tools. Comment: Law firms should also be engaged in process improvement and technology innovation if they want to keep pace with their corporate clients, which are fast becoming their competition as in-house departments grow.
  2. Outside Counsel Cost Control. The key statistics I see here are that 40 percent of CLOs are reducing the matters sent to outside counsel, and 36 percent have shifted significant work to lower priced firms. Comment: This suggests that there is indeed a price point beyond which the corporate legal consumer will not spend, and the client solution is to bring the matters in-house or shift them to lower cost firms.
  3. Legal Service Competition. More than 80 percent of CLOs will bring more work in-house this year, and 57 percent will outsource legal work to non-law firm vendors. Comment: Law firms have to be aware of the pricing offered for legal services by technology solutions and outsourcing providers. They also need to know the rough cost of adding lawyers, overhead and support to in-house departments because that is who they now compete with. If you can demonstrate that you are a higher quality and more cost-effective solution vs. in-house competitors and alternative providers, then you can win more market share.

The legal services landscape is rapidly changing, and the pace of change is only likely to accelerate in the years ahead. Now more than ever it is crucial to understand the marketplace and communicate value to current and potential clients.

This is my 47th post in a series of monthly features that I have dubbed “Best of My Blog Roll.” The concept is simple – at the end of a month I peruse my own blog roll (see that column on the right) for material created by other bloggers that I think is most worthy of sharing with others, and then I report on it here.

Reviewing blog posts for the month of October 2016, I have chosen to highlight the following:

  1. A timely and practical post on “Five Ingredients for a Successful Holiday Social Media Campaign” by Mandy Edwards of M.E. Marketing.
  2. A great post on the power of story-telling by rainmaking consultant Cordell Parvin.
  3. A thought-provoking post by Susan Duncan on her InFocus blog, entitled “Do Your Law Firm Leaders Lead or Manage?”
  4. An encouraging post for lawyers who must speak at conferences, posted by Nancy Myrland of Myrland Marketing, and entitled “Lawyers Stop Worrying About the Guy in the Third Row.”

Each of these posts offers something practical and/or thought-provoking. If you have recommendations for other good posts or great blogs, feel free to share them via the comments link on my site.

Posted by: johnocunningham | October 28, 2016

Managing Partner Nightmares From a Client’s Perspective

I came up with the idea for this blog post after I ran across a recent publication by Ward Bower from the reputable legal consulting firm, Altman Weil. The publication is entitled, “What Keeps Managing Partners Awake?”

The top 10 list of managing partner nightmares is an excellent summary of trending issues that law firm management groups must solve in order to keep their firms competitive, not just with other firms but with fast-growing legal service  contenders found among accounting and consulting firms, in-house legal departments, online and outsourced technology solutions, and contract staffing agencies.

In order to chart a successful course for the future, what law firm management groups will need to consider most carefully is the client’s view of these top 10 trending issues.

Based on my experiences interviewing executives, general counsel, and other in-house lawyers, here are some of the prototypical client perspectives on these issues:

  • With regard to the criteria for becoming partner, it should be about the service and the client satisfaction, and there should be some measurement of how well candidates for partner have served clients to their satisfaction and how well they have performed in retaining clients rather than causing their defection to other firms (these metrics would be supplemental to but very different from gross billable hours or claimed client originations).
  • With regard to law firm culture, the operative question-should be, “How do we create a culture of obsession with client satisfaction and constant improvement?”
  • With respect to eroding client loyalty, law firms must figure out how to inspire more lawyers to become “trusted partners and advisers” to their clients rather than just good service providers because trusted partners enjoy a different level of loyalty based on extraordinary mutual commitment.
  • With regard to price competition, law firms must stop thinking about hourly rates, and start thinking the way the client does – the client wants to know the gross cost per matter, which is often less when you procure the most experienced and highest priced lawyer by the hour. Firms that can train more lawyers to be “experts” and “trusted advisers” can charge higher hourly rates AND be lower cost providers.
  • With respect to new competitors and their growing share of the legal services pie, law firms must start to think about investing in more radical game-changing and disruptive innovations because that is what their competitors are doing, and those competitors are starting to steal legal talent and client matters from many firms.
  • With regard to marketing expense, law firms will need to do what their best clients have long done to survive – collect and analyze a lot of data about marketing activities, client perceptions and decision-making in order to invest marketing dollars where they will produce the best return on investment. Firms will also have to hire and trust marketing experts rather than putting someone in charge of marketing who will just take orders.
  • With respect to cyber-security, it is simply something clients assume you are handling well, and they will get very nervous or even flee the first time you have to tell them about a breach.
  • Finally, with regard to “partner denial of economic realities,” this is a problem that should provide a sine qua non factor in making partner or continuing to be a partner – the reality is that NO client would allow a management level person to last long in their position in a state of ignorance with respect to the marketplace.

Also, as I learned soon after arriving at my first in-house counsel job with an international retailer, the cold, harsh reality is that the client (or customer/buyer ) does not care whether you can solve your management problems. The buyer has lots of options in the marketplace, and they will simply vote with their feet, moving quickly and unexpectedly to the provider who has figured out how to serve them with the quickest, most effective and least costly answers to their needs.

Whether you adapt to change is optional, whether you survive is not.

Posted by: johnocunningham | October 24, 2016

Associate Pay Hikes and Partner Demotions

One of the subjects I write about periodically is law firm management, and two of the most interesting and curious aspects of that subject relate to compensation and partnership decisions.

In recent weeks, I noted a spate of articles about New York firms once again hiking the starting salaries for first-year associates, followed closely by stories about law firms demoting more partners as downward pressure on law firm profits increases. I think the two story trends are related not only by proximity in time, but by cause and effect. It is simply not possible for senior partners to maintain profitability while hiking salary structures without a consequent rise in revenues from their clients (which is not happening). Thus, some partners have to be demoted and take smaller slices of the equity pie  in order to pay for the incoming lawyers.

Of course, now that some NY firms are paying legal rookies as much as $180,000 per year, firms in other cities will probably follow the leader upward on their own pay scales, despite the fact that firms in other cities are not competing with Wall Street for top notch legal talent that otherwise flows into investment banking firms, private equity funds and hedge funds.

There are only so many lawyers that can sign on with investment and arbitrage firms, and there is an abundance of legal talent emerging from the more than 200 ABA accredited law schools each year, so that begs the question of why law firms would base their salary structures on competition with investment firms, which ultimately can offer to graduating students far richer entry-level and partner pay packages, as well as the opportunity to take equity participation in the next “big thing.”

Furthermore, in my experience surveying general counsel, I find that first-year associate compensation is one of the sources of greatest irritation to them, and one of the principle reasons that they seek out and obtain approval from senior management to start building out their in-house departments with more lawyers. Thus, the law firms participating in the race to pay more to associates are spurring on their corporate clients to hire more of the firms’ associates (after they are trained at firm expense) to go in-house. This is creating further downward pressure on revenues.

These firms are also demoralizing many of their mid-tier partners, who are understandably sometimes resentful of their younger colleagues, feeling caught in a squeeze between escalating starting salaries and flattening revenues caused by greater competition.

Another consequence of paying more money to associates is the tendency for partners to expect more of those associates, which puts additional pressure on young lawyers to work harder. That is yet another factor in the rising dissatisfaction with law firm lifestyles. Increasing numbers of bright young lawyers are looking at work-life balance and workplace atmosphere as key factors in deciding where they want to work, and curiously only a small minority of firms seem willing to compete in those areas instead of competing on compensation.

Law firms will never be able to compete with investment firms for dollar upside, but they could compete, if they so chose, on workplace professionalism, collegiality and community integration. Lawyers can compose an important part of every community, lifting the spirits and fortunes of those on Main Street, rather than focusing on Wall Street.  Young lawyers desperately want to be part of their communities, as well as their firms, and they are drawn to the profession in part by endangered notions historically associated with a noble profession – civility, respect, service to others and a code of ethics.

There is a huge opportunity for firms to recruit young lawyers based on commitment to these ideals and to standards of client service and client satisfaction tied to value-based billing and constant attention to improvement in efficiency. Firms that truly make this commitment can survive on a smaller compensation scale, and ultimately they will outlive the firms that are chasing “top dollar.” As they say in the corporate world, “Pigs get fat, but hogs get slaughtered.”

 

This is my 46th post in a series of monthly features that I have dubbed “Best of My Blog Roll.” The concept is simple – at the end of a month I peruse my own blog roll (see that column on the right) for material created by other bloggers that I think is most worthy of sharing with others, and then I report on it here.

Reviewing blog posts for the month of September 2016, I have chosen to highlight the following:

 

Posted by: johnocunningham | September 30, 2016

What’s New in Law Firm Innovation

A recent survey by legal consulting firm Altman Weil revealed that 52 percent of firms with more than 50 lawyers are creating special projects or experiments to test innovative ideas or methods. Interestingly, the survey also revealed that the largest firms – those with 1,000 or more lawyers – are doing the most innovation, with 100 percent of those firms pursuing special projects or experiments in innovation. Meanwhile, only 37 percent of firms with less than 100 lawyers are doing so, despite the fact that smaller firms have less bureaucracy and hierarchy to impede innovation.

This survey inspired me to do a post on specific innovations that law firms have rolled out in very recent years, and here is my list:

  1. Littler Mendelson developed the CaseSmart system to provide clients with a management dashboard that tracks the status of every employment action in something close to real-time, while enabling managers to identify particular regions or managers affected by repeated workplace complaints and associated costs. It also facilitates the generation of reports that compare attorney performance on specific matters by hours, results and other metrics, facilitating the constant improvement of performance by the client and the law firm alike.
  2. Reed Smith developed the Periscope discovery system to analyze current and historical data related to e-discovery, discovery costs and the efficiency of various discovery reviewers. The end result is a dashboard of useful information that helps the firm manage discovery better, lowering costs and providing predictability of future costs and timelines for discovery based on past cases. The management tool reportedly can also access the demonstrated efficiency and accuracy of individual reviewers so that they can be put to work on critical cases. Interestingly, the tool has determined that efficiency is not at all related to a reviewer’s school “pedigrees” or even how long they have been in practice.
  3. Baker Hostetler announced that it is implementing a variant of IBM’s artificial intelligence, known as ROSS (a technological cousin of Watson) to assist the law firm’s bankruptcy practice. ROSS can understand questions, and respond with a hypothesis backed by references and citations. It improves on legal research by providing users with only the most highly relevant answers rather than thousands of results you would need to sift through. Additionally, it is constantly monitoring current litigation so that it can notify you about recent court decisions that may affect your case, and it will continue to learn from experience, gaining more knowledge and operating more quickly, the more you interact with it, just like Watson.
  4. Kirkland Ellis reportedly has adapted and implemented a version of Intapp Wall Builder to centrally control access to client confidential matters and track compliance across the firm. The Wall Builder replaced distributed, ad hoc approaches to information security with a centralized system that provides central control over user access to specific applications, documents and other information.
  5. Clifford Chance utilized process improvement and “LEAN” management techniques to develop better, more sustainable ways of doing commonly recurring projects. According to the firm, simpler, more manageable, transparent, predictable and faster delivery of projects and transactions were among the benefits brought to the firm’s clients.

You can also read about 100 innovations in law over the years in the ABA Journal online, but I respectfully submit that the list of 100 innovations is really about innovations developed OUTSIDE of legal practice that have impacted the way legal matters are handled. Law firms must do more innovating of the varieties described above in order to survive and thrive in the fast-changing times ahead.

Posted by: johnocunningham | September 16, 2016

Governance by Committee: Can Law Firms Make it Work ?

I was intrigued by questions posed in a recent column on Bloomberg’s “Big Law Business” page, entitled “Do Big Law Firms Have Too Many Committees?”

The column’s focus was on whether management by committee was a plus or minus for law firms, which got me to thinking about my experiences in law firms and in corporations, which have two very different forms of governance and decision-making. Law firms – in general – try to manage more by consensus and committee. Corporations manage more by delegation of authority and empowerment of the authorized individuals on whom accountability is placed.

I know from experience that the latter approach certainly moves faster, and it tends to cultivate more respect and trust for those who have been empowered to do an important job or make critical decisions, but the two approaches are not always as different as they might appear, though they have different upsides and risks.

The downside of a committee approach to decision-making is not just the time consumed in attempts to reach consensus, but the potential for rather personal debates and a sense of some people getting their way and others “losing” the debate.  This can sap the team’s energy and breed disruption. On the other hand, this form of decision-making, when it incorporates all of the points of view of all of the important stakeholders, is less likely to result in a disastrous gaffe born from an oversight due to lack of collective input. It is also less likely to give one group or another the feeling that they have not been heard (provided that various constituencies are all included, such as different departments, different professional functions, different levels of seniority and so forth).

But the two approaches are not always so different. In a corporation, a professional who is empowered to make decisions is wise to seek input from others, including all of the departments in the company who could be affected by that individual’s decision. In fact, someone who blithely makes decisions on an island will quickly be escorted to the door after seeing the ruinous results of decisions made without input, both practical and political in nature; and someone who quickly gathers input from affected groups before making a decision is always blessed with a better outcome. The difference in the corporate world is that the empowered professional who seeks input is not required to make everyone happy with his or her decision. They are simply accountable for good results achieved with methods that don’t offend the key players in the chain-of-command.

In a law firm, the committee approach and the results do not have to be so different. The chair of a committee or board can run meetings in such a way that input is quickly solicited and incorporated into expeditious decision-making. The key is to limit the time for meetings while making it clear to people that decisions must be made promptly and actions taken by certain agreed deadlines in order for the body politic to function and the firm to survive in a fast changing world.

I have personally witnessed and learned from people in the corporate world who were very good at running effective meetings (there is even leadership training in the corporate world that focuses on effective facilitation of meetings and group decision-making). If you want to conduct an effective meeting that facilitates and enhances collaborative communication, here are some guidelines to follow (from one of my prior posts):

  1. Identify the group purpose of the meeting in advance, and limit the purpose to something that requires consensus, analysis or brainstorming by the entire group, so that you don’t waste people’s time.
  2. Communicate the purpose of the meeting ahead of time, and state what you hope to accomplish with such a meeting.
  3. Invite all people necessary to achieve the meeting’s purpose, but only those people necessary for that purpose as well.
  4. Select a meeting venue that is conducive to your stated task, perhaps one that is quiet and isolated from distractions.
  5. Well ahead of the meeting, provide all attendees with an agenda and any supporting documentation that will be discussed.
  6. Limit the number of items on the agenda so the meeting does not run too long.
  7. Designate a meeting leader or facilitator who understands meeting principles and who can skillfully and gracefully maintain group focus and pace while encouraging people to participate and collaborate in developing solutions to group problems. Such a facilitator should also know how to summarize and state conclusions or action plans for the group as a whole.
  8. Designate a note-taker who can work well with the facilitator on summarizing issues and proposals discussed at the meeting while identifying action steps to be taken after the meeting by various team members.
  9. Request that all pagers, cell phones, and other electronic devices be turned off during the meeting, so that everyone in the group is respected.
  10. Start and end the meeting on time, leaving late attendees to get their own information from meeting summaries and post-meeting conversations. This will train people to respect the group and put the interests of the group above their own.

If you need help facilitating a productive group meeting or conference, don’t hesitate to contact me. For several years running, I ran the highest-rated service department in a company with several thousand employees while maintaining a high level of employee satisfaction and retention.

The Wall Street Journal Law Blog recently featured a post about law firms battling weak demand by charging higher hourly fees, which noted that expenses per lawyer are rising faster than revenue per lawyer at most large law firms despite substantial increases in hourly rates in recent years.

Recent surveys of smaller firms have similarly shown declining demand, perhaps because individual consumer clients are increasingly choosing to do their own legal documents, resolve their own disputes and/or seek out cheaper alternatives to traditional legal services.

So what does all of this mean for the future of legal practice?

Lawyers and law firms that have developed expertise in specialized, high demand niches – such as patent practice for biotech or high-tech clients – can continue raising rates indefinitely. So can firms who have reputations for being “the best of the best” in high stakes matters, such as mergers and acquisitions or “bet the company” litigation. More competition may enter these practices, seeking a slice of the top-shelf pie, but savvy corporate clients will not be penny-wise and pound foolish in selecting legal service providers for these kinds of work (or so they have indicated in various surveys).

But the world is different for lawyers who are doing “commodity work” (and by the way, clients view most legal work as “commoditized work”). Those lawyers – most lawyers –  will have to figure out ways to use technology, improve internal processes and manage projects more efficiently, so they can deliver legal products and services less expensively while maintaining or even increasing margins. You CAN raise hourly rates if you figure out how to cut the hours in delivery time proportionally.

What you cannot do over the long term is raise rates simply to make up for declining demand. That is the kind of death spiral approach that the postal service tried (which only led to more customers fleeing to alternative providers).  Any business school can provide a long list of historical examples of companies or whole industries that became extinct by ignoring trends in demand and innovation.

For law firms, there is a critical need to innovate and become ultra-efficient right now. Lawyers will have to imitate their business clients, who are constantly obsessed with how to serve customers better because they must. Just because we are part of a profession, we are not immune from the laws of economics.

To see only a few examples of how just one firm is aggressively approaching the need to innovate and become more efficient, check out the following links to articles on changes in labor and employment practice at Littler Mendelson:

  1.  Putting Products Into Services at Harvard Business Review
  2. Using Big Data in Employment Work at Today’s General Counsel
  3. Why You Should Disrupt Your Own Company (by changing how it works) at FORBES magazine

And for a look at how four firms have approached innovation to lower costs in order to win the battle for more clients and more matters, check out this article by John Kennedy at Law 360.

NOTE: As of the current time, I do not receive compensation or perform services, nor have I ever performed services for any of the law firms mentioned in this blog post.

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