the fog of the numbers

Posted on May 16, 2013 by Norman Clark

Earlier this week, I had the privilege of teaching an advanced course in Law Practice Management as part of the LL.M. program in Law and Management of the INIDEM Business Law School.  INIDEM is an international institution based in Panama, which offers graduate programs, including an LL.M. at locations throughout the Americas. We had eight outstanding lawyers, all from Central America, in the class. The class included associates, in-house counsel, and partners from some of the best law firms and legal departments in the region.

"I miss the old financial reports... the ones without the pictures."

“I miss the old financial reports… the ones without the pictures.”

What particularly impressed me by the people in the class was their ability quickly and efficiently to penetrate through numbers and surface details in the fiendishly devious case studies I presented, to diagnose underlying issues and vulnerabilities that were the real potential causes of the problems, and to find solutions that could produce lasting results.

As we worked through the eight case studies, I thought about how many lawyers and law firms never take the time or invest the intellectual effort to do that. Instead, they frequently focus on obvious, quick-fix responses that usually only cover over the basic issues, which always return sooner or later and sometimes worse than ever before.

For example, we considered the varying realization rates reported by the practice groups and partners in our case study law firm. The typical response of many law firm partners would be to blame the collections department or the billing partner. In fact, as one of the group suggested, the real source of the problem might be weak or non-existent client intake procedures.

Another partner in our case study had very high lockup (i.e., unbilled work in progress plus accounts receivable). The traditional knee-jerk response in many firms would be to say that she’s lazy or not a team player.

Her practice area was labor and employment.

“How much of that work is paid by insurance companies?” one of the people in the class asked.  ”That might explain the high accounts receivable over 90 days old.”

These were excellent examples of a diagnostic mind-set that we encourage Walker Clark clients to adopt: using data as diagnostic indicators of hidden issues, rather than merely as blunt-instrument boundaries between praise and shame.

If we can apply our lawyer skills — such as healthy skepticism and relentless analysis — to academic case studies, why don’t we use those same skills in real life?

Norman Clark

A word about INIDEM

logoI enthusiastically endorse the INIDEM program, especially for lawyers in Latin America who are looking for an LL.M. degree that provides content, skills, methods, and tools that they can apply immediately in their practices. As one who has taken and taught a number of graduate level courses in law and business over the past 35 years, I can say, without reservation, that this is one of the best practical advanced legal education programs that I have ever seen.

To go to the INIDEM website:

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DIY

Posted on May 16, 2013 by Norman Clark

“Why couldn’t we just do this ourselves?”

My colleagues and I at Walker Clark LLC are frequently asked this question when we submit a consulting proposal to a prospective client.

Our answer usually is something like:

“You haven’t done it so far.  What makes you believe that you can do it now?”

We try to be a little more diplomatic than that, but the “do it yourself” mentality that some law firms have — especially small ones — raises several important points about law firms and consulting services.

iStock_000023716474XSmallThere are three flaws in the DIY mentality that need to be remembered.

DIY usually takes much longer.

One of the advantages of outside help is that you and your partners do not have to figure out what to do and how to do it before getting to work. This is why our firm, for example, can guide a law firm through an in-depth sophisticated strategic planning process in 45 to 60 days. By contrast, many DIY strategic planning efforts fizzle out, or drag on for six months or longer, without producing significant results.

DIY devalues the worth of partner time.

The scarcest and most valuable resource in any law firm is the time of the partners. It’s valuable because of the expertise and earning potential it represents.  It is true that most law firm partners could figure out how to do a strategic plan, or a merger with another law firm, or a new partner compensation plan, by themselves. However, this is not the best use of their time.  The efficiencies gained by having an outside expert facilitate the process and do much of the intellectual “heavy lifting” can save partners literally hundreds of hours of their time.

DIY seldom produces the best possible return on investment.

Home-made efforts usually produce homely results.

I cannot speak for other consultants and vendors to the legal profession, but Walker Clark LLC will not even propose an engagement unless we already know that our work will produce a substantial, measurable return on investment that is far more than our consulting fees and the value of the time of the partners who work with us during the project. Moreover, we look for ways to add sustainable long-term value, and not just a quick fix.

Our clients tell us that the international perspectives and our years of experience add a resource that they simply do not have, but which sometimes can make a big difference between the best possible results and disappointing ones.

Can you do it yourself?  Probably.

But don’t you have better things to do with your time?

Norman Clark

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Who’s going to be in the audience?

Posted on May 10, 2013 by Norman Clark

Law firms today are confronted by an almost endless parade of opportunities to improve their visibility — ranging from paid “speed dating” sessions at commercially produced conferences to a seat on a panel at a regional or international conference. Almost every day, one of my partners or I receive an e-mail from a marketing director or managing partner at one of our client law firms asking whether a sponsorship, or a pay-to-publish article, or participation on a panel at a conference would be a worthwhile investment.

Who’s out there?

iStock_000016767830XSmallThe first question we usually ask is “Who’s going to be in the audience?”

Who will hear your message?

Will it be people who are specifically interested in what you have to say – you, not the other people on the panel?

 Are these people the decision makers?  Are they in-house counsel who select or influence which law firm their company should instruct?  Are they law firm partners who refer their best clients to local counsel in your market?

Even if the right people are in the audience…

…will you be able to make a memorable (good, one hopes) impression? Moreover, will you have enough time to say enough to make a difference?  Remember that the average total time that most panelists at conference get is usually less than 15 minutes.  (Don’t believe me?  Bring your stopwatch to the IBA Conference in Boston.)  That usually is not enough to differentiate yourself and your firm from the other experts on the platform.

That is why one of the biggest mistakes that some conference speakers and panelists make is to ignore the “overtime.”  Instead they leave immediately after their session adjourns. The better practice is to hang around in the hall until the last person leaves — then head straight for the refreshments.

A strategic decision, not a guess

If you are considering advertising or paying for placement of an article in a periodical, the questions are similar. Who is going to see your marketing piece? What is the likelihood that the reader or viewer will share it with others in his or her firm or company?

If you cannot answer these questions with anything more than guesses, it might not be the “golden opportunity” for you and your firm.

Norman Clark

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American legal education and non-renewed dog licenses

Posted on May 9, 2013 by Norman Clark

When I earned my J.D. degree 40 years ago this month, I felt that I was fully ready to argue a case before the U.S. Supreme Court.

But I did not know the first practical thing about drafting a simple commercial contract, writing a will, or defending a prosecution for non-renewed dog license.

Even with the excellent substantive legal education that I received, most of my classmates and I felt compelled to pay for an independent two-week “cram school,” to prepare for the bar examination (even though, at the time, the bar examination in our state was almost scandalously easy).  After we were admitted to the bar, many of us took an additional “bridge the gap” course, sponsored by our county bar association, during which we were taken on a guided tour to learn basics such as how to file a lawsuit, how to probate a will, and how to record a deed.

iStock_000010343139XSmallMy colleagues and I at Walker Clark have long maintained that the traditional 3-year program, which most American law schools still offer, is too expensive and time-consuming.  American law schools still focus on learning how to “think like a lawyer” — which is a critically important skill — but they do a poor job of training students how to practice law.

Brooklyn Law School in the United States is the latest U.S. law school to reconsider the paradigm of the traditional 3-year J.D. program. As announced yesterday in the National Law Journal, the new “2-3-4 track” allows law students to finish the content of the traditional 3-year curriculum in two years, by skipping the summer recess. This could be especially attractive for foreign lawyers who want to be admitted to practice in the United States.

Quoted in the National Law Journal, Brooklyn Law School dean Nick Allard said:

“It’s going to be intense, and we are going to selective in our admissions. But we believe it will be an attractive option for many different people, including MBAs, CPAs or people who are looking to start a second career.”

A fundamental re-thinking of American legal education is long overdue and, spurred by the grim employment prospects for recent law school graduates in the United States during the past few years, it is finally underway.

 

Norman Clark

 

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quality assurance: Where to start?

Posted on May 6, 2013 by Norman Clark

One of the persistent themes of this blog has been the power of quality assurance as a profitability tool for law firms. It also can be a low-cost, high-yield investment for corporate legal departments by improving the ability of in-house counsel to add measurable value to corporate business initiatives (and not just delay, as is frequently accused).

The term “quality assurance” means more than having spell-check on your computers or painstaking after-the-fact inspection of documents. Instead, I refer to a documented, business discipline that identifies the causes of errors and unbillable rework in law firm processes and reduces their occurrence, if not eliminates them altogether.

"I really should have attended that quality assurance meeting when they were drawing the flow charts."

“I really should have attended that quality assurance meeting when they were drawing the flow charts.”

One of the most frequently asked questions about quality assurance is “How do we start?” Actually, the better question is where to start?

For most law firms and legal departments, the best way to begin the “quality journey” is with a quick demonstration project that will:

  • give people experience in using quality assurance tools and methods
  • address a significant problem that affects profitability or client satisfaction (and usually both)
  • deliver significant, measurable improvements in 60 to 90 days

Where can some of this “low-hanging fruit” be found in a law firm or corporate legal department?  We usually offer these diagnostic suggestions:

  • What is producing the most mistakes?
  • What generates the most complaints from clients?
  • What appears to the biggest waste of time?
  • Where do you need to be more productive without adding new people or spending more money?
  • What are the high-volume, repetitive functions and tasks?
  • Which tasks and functions are the most document-intensive?

There is a very high probability the your first quality assurance project fits one or more of these criteria.

Problems like these exist in even the best-managed law firms and law departments. With a thoughtful application of basic quality assurance tools and methods, what often appear to be relatively minor changes in policies and procedures can produce the biggest benefits.

Norman Clark

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zombie hours

Posted on April 29, 2013 by Norman Clark

When a law firm faces severe challenges to its profitability, sooner or later someone will say, “We just need more billable hours.” This often results in the promulgation of minimum billable-hours requirements for lawyers and other fee earners, often accompanies by exhortations to fee earners to comply or face dire consequences.

In most cases, there might be a brief increase in recorded billable hours, but it usually has little if any impact on profitability. There are several reasons why these “zombie hours” produce few benefits and might actually make things worse.

Zombies_NightoftheLivingDead_Wikipedia_Commons

“more hours…must..have..more..hours…”

A frequent phenomenon during these campaigns is that while recorded billable hours increase, realization — the percentage of hours for which a fee is actually collected — drops. This is especially the case if associates are pressured to produce more hours. Instead of doing more billable work, they frequently just take longer to do it.  Most reasonably sophisticated clients spot this right away and refuse to pay.

Moreover, my colleagues and I have observed that these “zombie hours” are often the result of partners and associates taking on work that is marginally profitable, or actually loses money for the firm, simply in order to satisfy the requirements for more billable hours.

In other words, they might be working harder, but they are not working harder on the right things.

A demand for more billable hours is irrelevant in the “alternate universe” of non-hourly fees, in which many practice groups must operate.

In the traditional economic environment of a law firm, more billable hours usually meant more revenue, provided the additional hours represented legitimate work for which a client would pay. The shift to fixed fees and non-hourly rates has changed all that. In the traditional “universe,” more billable hours was a good thing. In the new “alternate universe” of fixed fees, many of the tradition assumptions and “best practices” are turned upside down; and more billable hours can be very bad. If a practice group is attempting to transition from hourly rates to non-hourly fee structures, an unrealistically high demand for a minimum number of billable hours could undermine profitability.

Minimum billable hours standards for partners can weaken leverage.

Leverage — the ability to delegate work from partners to associates, who can do the work at lower cost to the firm — is a critical method for managing profitability in practice areas that have become increasingly price-sensitive, are dominated by non-hourly fee structures, or involve high-volume low-margin legal work. When partners are required to record a minimum number of billable hours, we usually observe a sharp increase in hoarding of work by partners, and a dramatic weakening in the workflow leverage in practice. This also can result in partners having sharply reduced availability to invest their time in activities, such as marketing and business development, that produce higher sustainable value for the firm than merely grinding out billable legal work.

Billable hours are still important.

Although it can sometimes take on zombie-like characteristics, the billable hour is not dead.

The billable hour is no longer a reliable indicator of financial performance or profitability

"The reports of my death have been greatly exaggerated." Samuel L. Clemens (1835-1910)

“The reports of my death have been greatly exaggerated.”
Samuel L. Clemens (1835-1910)

in most law firms, and I question whether it ever was. However, it remains a very useful short-hand tool to gauge the general short-term productivity of a practice group and to make rough forecasts for the balance of a fiscal year. (I qualify this with the words short-term, because in practice groups that have undergone a shift from hourly rates to non-hourly fees, billable hour comparisons over periods of more than two years usually are not reliable. The impact of an additional billable hour today might be less important to profitability than it was two years ago, and might even be counterproductive.)

To ensure that, when additional billable hours are recorded, they do not become “zombie hours,” law firms and practice groups should:

  • Emphasize that the goal is not to “work harder,” but to focus attention on working on the right things. What are “the right things” will vary among practice groups.
  • Do not attempt to impose minimum billable hours requirements on practice groups or in practice areas in which the billable hour is no longer a relevant measurement of fee production or profitability.
  • Set partner-specific and group-specific goals, not a single, inflexible standard for the entire firm.
  • Monitor all of the other drivers of law firm profitability — price, realization, cost management, fee earner compensation, and leverage — not just productivity.  They can be more important in understanding and improving profitability.

The economic forces and dynamics of law firm profitability are more complex than ever before. A modern approach to profitability problems therefore requires a holistic, multi-faceted approach. This will usually produce better, sustainable results.

 Norman Clark

 

 

 

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An overdue conversation

Posted on April 20, 2013 by Norman Clark

Many of the issues that  jeopardize the collegiality and commitment of partners in a law firm — and even wreck the firm itself — have their roots in the failure of the partners ever to articulate and agree what they expect of each other.

Business Colleagues Working TogetherThink about these two questions:

  1. What do you and your partners expect of each other?  

What are the ingredients in the “glue” that binds you together as professionals and business people? What are you and your partners committed to reward both tangibly and intangibly? What are the standards that are so fundamental to your identity as a partnership that you are willing to enforce them through sanctions, including expulsion in the event of aggravated or chronic failure.

2.  Have you and your partners recently — or ever — discussed them candidly and in a structured way?

If not, this might explain why decision making can be difficult in your law firm, or why there are some issues that you and your partners are afraid to discuss.

Informal conversations among two or three partners do not count.  To be effective, the discussion must include all partners.

An idea for your next partners retreat

Here is an idea for your next partners retreat. Devote an entire day — yes, at least six or seven hours — to a discussion of the business responsibilities of a partner in your firm. I suggest a focus on business responsibilities, rather than professional competency, ethics, or general good law firm citizenship, because business responsibilities to one’s partners and one’s firm are usually easier to describe as observable behaviors.

Before the retreat, appoint a small committee to draft a statement of responsibilities.  This will give your partners an intellectual framework for the discussion — something to which they can react, analyze, object, endorse, and amend.  In fact the fact that you are having this discussion — even if it gets animated at times — can be as valuable to the cohesiveness and ultimate performance of your partnership as the words that emerge at the end of the the day.

Here is a sample discussion draft, which is a composite of the agendas of several law firms.

 The Business Responsibilities of a Partner

A partner in this law firm is accountable to his or her partners for his or her best efforts and judgment in these five areas:

Responsibilities to build the business value of this firm

  • Develop the client base and long-term client relationships.
  • Develop the professional and technical skills of other lawyers, fee earners, and staff.
  • Manage the firm’s reputation.
  • Enhance the firm’s competitive advantages in the legal market.
  • Participate in the performance appraisal process.
  • Participate in in-house training programs for lawyers, fee earners, and staff.
  • Continue one’s own professional education and training.
  • Uphold the firm’s values in one’s own personal behavior.
  • Comply with the firm’s policies, procedures, and codes of conduct.

Responsibilities as a professional fee earner

  • Charge a fair and reasonable fee for one’s experience and expertise and for the nature of the professional services performed.
  • Meet or exceed the firm’s expectations for fees billed and collected.

Responsibilities as a manager of professional services

  • Ensure that worked performed by others under one’s own supervision meets the firm’s expectations for:Provide opportunities for junior lawyers and fee earners to interact directly with the client.
    • hours billed
    • realization rate
    • management of working capital
  • Delegate work in order to:
    • improve profitability
    • provide partners with more time for client relations, marketing, and high-value legal work
    • provide opportunities for fee earners and staff to develop their technical skills and client relations techniques

Responsibilities for client relationships

  • Support and sustain long-term client relationships with the firm.
  • Manage and maximize the financial performance of each client relationship.
  • Monitor and manage working capital extended to the client in all matters.
  • Serve as the client’s point of contact for service delivery and quality issues.
  • Regularly review the way in which the firm is meeting client needs and expectations and managing the client relationship.
  • Introduce other partners and fee earners to the client, in order to sell additional services, especially from other practice areas. and, whenever possible, expand client relationships.

Responsibilities for the management and administration of the firm

  • Serve on management committees of the firm as requested.
  • Perform other responsibilities for specific positions, such as: Managing Partner, Marketing Partner, Finance Partner, Professional Development Partner, et cetera.

Don’t try to do it yourself.

Don’t try to facilitate this discussion yourself.  It is very difficult to facilitate a meeting, especially when sensitive topics are discussed, and also make substantive contributions.  Do-it-yourself facilitation can also undermine the effectiveness and intellectual legitimacy of the process, especially if the “in-house facilitator” is the managing partner or some other respected authority figure in the firm. The best facilitator will be someone from outside the firm, who is experienced  in law firm partnership and governance issues. So invest some money in a top-quality facilitator who knows about law firms.  It is money very well spent.

Norman Clark 

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How do you know?

Posted on April 3, 2013 by Norman Clark

Perhaps the two most important components of business strategy in professional services firms are to know what your clients want today and how those needs will change tomorrow.

Unfortunately, most law firms and lawyers guess at both of these questions.  I frequently hear law firm partners say, “I know what my clients want?”

My response is “Good.  But how do you know that?”

When my colleagues in Walker Clark and I probe this question — often to the great, but temporary, annoyance of our clients, we find that these partners do, in fact, know a lot about the needs and expectations of their clients, but…

  • Their information may be months or years out of date.
  • Their understanding of the clients’ objectives, which shape those needs and expectations, might be only vague at best.
  • Many of these partners’ conclusions are based on anecdotal evidence or episodes of very good performance or, less frequently, very poor performance.
  • They usually know, at best, 80% of this essential information.  It is the “unknown 20%” that can sneak up on you and wreck client relationships.  Genuine, differentiating competitive advantage also can often be found in that 20%.

There are a variety of ways to find out about that “missing 20%.”  Frequent, personal discussions with the clients is usually the best method, provided that the approach that you and your partners take is reasonably consistent and systematic, and that the results of these discussions are shared in the firm.  Well-designed client surveys, such as those offered by Walker Clark, have proven to be highly-effective methods to develop this information, although usually not to the depth possible with a one-to-one conversation with  client.

Whichever method you use, be sure that you can answer these questions:

  • What is most important to your clients in the legal services that they receive from you?
  • How frequently do you meet those expectations?
  • How does your firm’s performance with respect to each expectation compare to that of  your competitors?

 Experience is no substitute for actual knowledge.

Norman Clark

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“We don’t need to worry about profitability.”

Posted on March 21, 2013 by Norman Clark

There are a significant number of law firms that appear to be doing quite well. My colleagues and I occasionally meet them at international conferences and other events.

When we begin to describe Walker Clark LLC and the services we deliver to the legal profession, some of them respond with statements such as:

  • “We almost have more work than we can perform.  We’re doing very well.”
  • “Our fee revenues have never been higher.”
  • “We always put money into our pockets at the end of the year.”
  • “Strategy and profitability are concepts for law firms in trouble.  We don’t need to worry about them.”

More than complacency

"Everything looks good from here."

“Everything looks good from here.”

There might be some truth in the factual assertions in each of these comments, but they overlook several other important truths that we have observed in legal markets worldwide:

  • Such bravado ignores basic changes that are taking place in almost every legal market in the world. The old assumptions that clients are going to pay ever-increasing fees — and that law firm profits are thereby ensured forever — have been soundly disproven in the past decade. Factors other than price now determine profitability for most law firms.
  • Fear of change sometimes explains these attitudes. Partners continue to see increases in their year-end distributions, so everything is okay. However, this apparent complacency can mask a fear of change can sometimes deter them from making the investments — both financial and operationally — needed to make those distribution checks substantially larger. Risk aversion, not greed, is often the more powerful force in law firm partnerships.
  • Most law firms do not know the factors or understand the forces that drive profitability, especially at the practice level. In some cases, they don’t know because they have been afraid of what they might find out. As the chairman of one large U.S. law firm once told me, “We don’t look at the profitability of practice groups because it would be destroy the collegiality of our partnership.”
  • Most profitability problems can be fixed. Better delegation of work, better time-recording and billing practices, and a serious, fact-based, approach to quality assurance can produce immense improvements in profitability, even in high-volume, low-margin practice areas. All of these can contribute to improved profitability even when fee revenues are falling.
  • The best time to study and to improve profitability is when your law firm is doing well, before a crisis strikes your firm.  The events during the recent Great Recession demonstrate that most law firms are incapable of addressing profitability issues for the first time when they find themselves in the middle of a crisis. They have too many other things to think about, and serious financial crisis sometimes brings out the worst in a partnership culture, rather than the best.
Does your legal market look like this?

Does your legal market look like this?

Current success guarantees nothing.

Even law firms that are successful today are tap-dancing on thin ice.  This can be done with a reasonable degree of success provided that:

  • You know the depth and contours of every square meter of the pond.
  • You dance with great precision.
  • You warn your partners away from the dangerous spots.
  • You have a plan to get out of the freezing water if things do not go as choreographed.

The last factor is critical. We have seen how a downturn in the economic performance of a sector of a law firm’s client base, increased price sensitivity among sophisticated clients, and the entrance of foreign competitors can change the dynamics of profitability of  practice groups and entire law firms in two fiscal years or less.

Profitability in an era of profound changes

We practice law in an era of profound changes:  changes in the needs and expectations of the clients; changes in the legal markets; and a consequent need for basic changes in the way in which most law firms deliver legal services.  There is already, and will continue to be, a direct relationship between a law firm’s willingness and ability to manage profound change and its prospects for future profitability.

This is why now — not next year or when things turn bad — is the best time to make a serious analysis of your law firm’s profitability.

Norman Clark

Click here to learn about Walker Clark’s profitability diagnostic services.

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Three reasons why partners don’t cross-market

Posted on March 11, 2013 by Norman Clark

Everyone knows that cross-marketing “is good for you,” but many law firms do not do it effectively.

Occasionally we encounter a law firm partnership culture that simply is too toxic for cross-marketing — or for any other productive collaboration. Not surprisingly, these firms fail to achieve much of anything and usually find themselves in a financial death spiral from which they cannot escape, at least not without a serious (and sometimes expensive) intervention by highly-skilled external advisors.

Why cross-marketing does not happen.

Why cross-marketing does not happen…

In most firms, however, there are three common reasons why partners fail to cross-market — even when they want to do so:

  • inadequate incentives and rewards
  • inadequate information and internal communications of activities
  • inadequate structures to plan and executive individual and practice group cross-marketing plans

The good news is that all of these problems can be fixed. However, unless partners are willing to make the investment of time, attention, and (frequently) external support, all the best intentions in the world will not be enough.

Norman Clark

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