Sokolove Success Blog – Our Perspective on Legal News that Matters

Meeting with our co-counsel firms at the AAJ Annual Convention is one of the highlights of my year.  Next week’s event in Vancouver promises to be no exception to that rule.

Sokolove Law will be in the thick of things during the five-day convention, from our Annual Co-Counsel Event to a session on “Increasing Your Practice Ethically Through Social Networking” presented by our General Counsel Gabe Miller. But our core mission, as always, will be to connect with our co-counsel and prospective co-counsel to understand the needs of your business and to share what’s new at Sokolove Law.

Leading that charge will be Marc Stern, Vice President of Business Development for Sokolove Law.  Marc directs our top-notch business development team and has overall responsibility for establishing and managing relationships with law firms who stand to benefit from Sokolove Law’s deep marketing expertise. Marc’s own extensive experience in developing, leading, and executing “B2B” strategies for organizations such as Fidelity Investments, The Kessler Group and Aliaswire has helped to shape Sokolove’s innovative B2B strategy.

Marc will be on-site throughout AAJ’s 2010 Annual Convention to engage with co-counsel and potential co-counsel about how Sokolove Law’s business model helps firms achieve their goals and to explore new potential opportunities to work together.  Shoot him an email if you want to meet in Vancouver next week.

Corporate retreats have acquired a bad rap with many in the legal and business worlds. And not without good reason: we’ve all heard the horror stories or done time in offsites that were either poorly conceived, or badly facilitated, or whose teambuilding exercises could make a “Survivor” challenge seem positively tame by comparison.

So I read with some interest a recent piece on this subject in the Legal Intelligencer by Joel Rose, a management consultant to law firms.  Rose’s article dealt with the topic of law firm retreats, and he argued that a retreat could be a very effective management tool to accomplish many purposes.

I agree. A change of venue can help jumpstart a change in thinking. Why? Being out of the office levels the playing field and gives everyone a chance to contribute and be heard. And leaving the day-to-day distractions of work behind—even for a brief time–is an effective way to get leaders to think outside of the box and dream. Finally, it’s been my experience that people simply behave differently out of the office.

But like Rose, I think that retreats have to be done right – and for the right reasons — particularly in challenging economic times. A retreat really isn’t supposed to be a day at the beach – even though you may be staying near one.

First and foremost, the retreat must serve a specific purpose.  Rose says it could be as simple as asking the partners to take a step back to think longer-term about the firm’s objectives, or it could be to gather the firm’s leadership to tackle a specific problem. Both are good reasons to forcibly wrest the partners from the shackles of their client work to briefly come together to make important decisions.

But retreats can serve another important purpose and that is to force leadership to think critically about the evolution of their industry and to develop strategies and tactics for how a particular firm or company can respond to those changes.

At Sokolove Law, for example, we’ve made good use of short and highly focused retreats on a number of fronts: to bring key leaders together, to hone strategy to better serve the changing needs of our co-counsels, and to set high expectations for the execution of that strategy. (We’ve recently had two successful retreats with subsets of our staff for exactly these purposes.)

Whatever your reason for calling a company retreat, Rose says that good planning and execution are the keys to a successful outcome.  This includes setting a focused agenda, having the right people in the room, making sure that there is a session leader who can get the most out of the assembled group, and setting a clear plan for implementing recommendations and action plans coming out of the session.

If you follow these practical steps, I think you will find that the company retreat is nothing to run away from.

At the American Bar Association’s recent midyear meeting in Orlando, an important hearing was held of the ABA’s Ethics 20/20 Commission.  The commission was created last August and charged with reviewing lawyer ethics rules and regulation across the United States within the context of a global legal services marketplace.  If I may paraphrase, the commission was looking to possible reforms to the ethics rules that would allow the U.S. legal market to keep up with the rest of the world.

Much to my surprise and pleasure there was a great deal of debate at the first hearing about the subject of non-lawyer ownership of law firms.  It’s about time.

As we know, Rule 5.4 of the American Bar Association’s Model Rules of Professional Conduct prohibits non-lawyer ownership of law firms.  Simply put, a non-lawyer investor cannot take an equity position in a law firm. The rule was created to ensure that lawyers did not prioritize profits ahead of the best interests of their clients.  We want our lawyers to have a duty to their clients, not be slaves to shareholders.  That seems to make good sense.

However, there are consequences to Rule 5.4 and none more important than the fact that it can stifle growth and innovation in the profession.  But don’t take my word for it.

The February hearing of the 20/20 Commission included differing viewpoints on the subject from Lawrence J. Fox, who practices with Drinker Biddle in Philadelphia, and Richard Granat, who chairs the eLawyering Task Force of the ABA Section of Law Practice Management.  Here are their arguments summarized in brief from the hearing transcript.

Fox compared the idea of non-lawyer ownership to the kind of conflict of interest that existed at Arthur Andersen when it served as both auditor and consultant to Enron. He further argued that the debate over non-lawyer ownership was similar to the debate over multidisciplinary practice that occurred 10 years ago when the ABA proposed allowing lawyers to practice law within entities that included non-lawyers. (A rule that the ABA House of Delegates rejected).

In short, Fox’s argument is that relaxing restrictions on non-lawyer ownership is a bad idea because it could give rise to a conflict of interest. Furthermore, we considered doing it ten years ago and decided not to, so we should reach the same decision today.

Granat, who runs what he calls a “virtual law firm” in Maryland, said that the existing rules limiting non-lawyer ownership stymie innovation in the legal market and prevent firms from finding new ways to  deliver legal services, including online offerings.

In a nutshell, Granat’s argument is basically that our competitors are innovating, and there’s a huge unmet demand for legal services to be delivered in more innovative and efficient ways.  To do that requires capital.

I don’t want to put my thumb on the scale, but it seems to me that Granat makes the better point.  What do you think?

No, it’s not a fairy tale.  The story of the lawyer and the entrepreneur is the vision of some forward-thinking administrators at Duke Law School and the University of Colorado School of Law. Both are in the process of launching LLM programs in “entrepreneurial law” as reported in the National Law Journal  (NLJ) and the WSJ’s Law Blog.

The idea is pretty straightforward. An LLM-level program in entrepreneurial law (with courses and clinics focused on entrepreneurship and emerging companies) will ideally give lawyers greater skills to advise start-up businesses—or to become entrepreneurs themselves.

In the NLJ piece, professors at both Duke and Colorado talk about how lawyers are increasingly called upon to advise start ups, and how a knowledge of business in general and entrepreneurship in particular will be helpful to lawyers in giving that advice.  I agree.  But to me, it’s the second part of the equation that is much more interesting—helping lawyers become entrepreneurs themselves.

Now, as regular readers know, I have argued over and over and over again that the legal profession needs to be more entrepreneurial. The fundamental model is in need of a huge overhaul to become much more innovative and customer-centric.  To do that, lawyers need to think more like business people.  Maybe having some courses in entrepreneurship will help. 

The Duke and Colorado programs promise to teach students about employment, organizational behavior and financial strategy.  These are, of course, critically important parts of business, and long overdue topics for law schools to begin covering.  That said, what about the other aspects of entrepreneurship? What about judgment, about knowing how to calculate risk, and when to take it, focusing on customers, and aligning incentives to maximize output and performance?  These are also critical, and they are not typically associated with law school curricula.

Instead, where entrepreneurs look to balance risk and reward, lawyers tend to minimize risk above all else.  Where entrepreneurs seek out innovation and efficiency, lawyers look to perfect the standard operating procedure, all the while billing by the hour.  Where entrepreneurs by their nature look for shortcuts, lawyers always seem to take the long route.  Where good entrepreneurs are maniacally focused on the customer, lawyers tend to be self-absorbed.

The bottom line is that the entrepreneurship programs at Duke and Colorado are a step in the right direction, and they will undoubtedly help lawyers as they advise their increasingly entrepreneurial clientele. But I’m hoping they will also teach lawyers how to be businesspeople in their own right. If they succeed in accomplishing that goal, the lawyer entrepreneur won’t have to be an oxymoron.

As close readers might recall, I have long called for an end to the billable hour model of legal service, arguing instead that contingency fees were a better solution for lawyers, clients and justice.

Well, as Claire Ruckin over at Legal Week reports, it appears that no less an authority than Lord Justice Jackson agrees with me.

Lord Justice Jackson, a widely respected appeals justice in the U.K., was asked to conduct an independent review of the rules governing the costs of civil litigation in the U.K. and to provide recommendations that would lead to greater access to the civil justice system.

Among Lord Justice Jackson’s conclusions are that lawyers in the U.K. be allowed to charge for their services through the use of contingency fees.

This is an important step for the U.K. because contingency fees had previously been prohibited on the grounds that lawyers with a significant final stake in the outcome might lose their ability to give impartial advice.

As a good English lord might say, that’s poppycock.

Contingent fees align the interests of counsel and clients, and they allow lawyers to take on costly and complex cases with little risk to the client. Finally, these fee arrangements promote efficiency because they encourage lawyers to be honest with their clients about the likelihood of success on the merits.

Most importantly, contingent fees are client-centric; something the legal profession could use a whole lot more focus on.

Whereas the billable hour essentially reimburses lawyers for their time, the contingent fee compensates the attorney for the client’s outcome. Lord Justice Jackson is 100 percent right, no matter how radical his proposal might seem to our bewigged brethren.

If there is one constant on the cocktail party circuit, it’s that you will undoubtedly have the same conversations over and over and over again.  The current winner by a long run is the Tiger Woods drama; I’ve heard that one at nearly every party I’ve been to in the last month.  But coming in a distant second is that annual stalwart—the airline horror story.

If you travel often, as I do, you know the story well.  And you’ve probably shared your version: flights delayed, connections missed, nights spent at the airport, etc.  Perhaps one of the best I heard this year was about a friend who was traveling from China on a 14-hour flight with all kinds of books to read, and laptop work lined up, only to be informed that due to electrical difficulties, there was no electricity or lights in the cabin.  Imagine 14 hours sitting bolt upright in the dark (the seat controls were electric and thus not working).

These stories reminded me of a piece I had read right before Christmas in The New York Times.  The article referenced a new set of federal regulations announced by the U.S. Department of Transportation that would impose stiff penalties starting this spring on airlines that keep passengers waiting too long on the tarmac without feeding them or letting them off the plane.  Essentially, airlines that do not provide food and water after two hours or a chance to disembark after three hours will face penalties of $27,500 a passenger.

Heralded by some as a key victory for airline passengers, the new regulations may actually be a step backward that takes the wind out of the sails of the so-called “passengers bill of rights” legislation currently pending in Congress.  That could mean that while the tarmac waiting problem may be resolved, other thorny consumer protection issues will remain.  Put a different way, passenger advocates may have won the battle and lost the war.

Chris Elliot writing over at the Washington Post back in October had a great piece on why the tarmac delay issue may prove to be a pyrrhic victory. He argued:

” In the past few months, a series of headline-grabbing tarmac delays has helped a couple of influential lobbyists convince the media and a few elected officials that tarmac delays are the No. 1 passenger rights problem in America. Worse, they’ve convinced many travelers that tarmac delays are the only important passenger rights issues… I’m willing to bet that my friends in the airline industry, who insist that they oppose the new turn-back law, are quietly pleased that the tarmac lobby has hijacked the passenger rights cause.”

Elliot points out that there are in fact many other passengers’ rights issues, such as truth in advertising, problems with federal preemption and failure to enforce existing consumer laws.

So the good news is that the airlines can not leave you sitting on the tarmac for nine hours without a bag of peanuts or a cold drink.  The bad news is that this “progress” may have come at the expense of thoughtful legislation which would extend basic consumer protection to airline passengers.

That just about guarantees content for your next cocktail party conversation.

D.M. Levine over at AmLaw Daily had a recent blog post titled “Where Do We Go From Here?” The post covered a panel discussion hosted in December by LexisNexis on the future of the legal industry.

As D.M. reports:

The discussion, entitled “Evolution or Revolution: The Future of the Law Firm Business Model,” was moderated by Darryl Cross, vice president of client profitability at LexisNexis, and included panelists from various sides of the legal profession.

The debate was part of LexisNexis’s release of a survey of legal professionals on the future of the legal services industry.

Here are the study’s key findings:

•    71 percent of corporate counsels believe law firms are not doing enough to respond to current financial pressures.

•    57 percent of them believe the billable hour will be replaced by alternative billing arrangements.

•    52 percent of private practice lawyers believe the recession will permanently change the way law is practiced.

One of the panelists summed up the problem thusly: “We’re a profession that, over the last hundred years, has not done anything differently and the only industry that is proud of that.”

Can I get an “Amen”?

As I’ve said here, and here and here, the legal business model is fundamentally changing, and those that respond to those changes will have meaningful strategic advantages.

Which gets us to the question, why is the legal profession so resistant to change? Why are we the only industry that seems to innovate at a snail’s pace?  Here are a couple of possible explanations:

1.     Lawyers like consistency. That’s not a slur, it’s just a fact. Lawyers interpret and apply rules. The more consistent the rules, the more predictable the outcomes, and the easier their jobs are.  There’s nothing wrong with that, and my colleagues who are attorneys will say that there is an important place for consistency and uniformity when it comes to the law.  I agree.  But should that same need for consistency and uniformity apply to the business model?  I think too often we are an industry that does things because “that’s how things are done.”  That attitude is anathema to the entrepreneurial spirit that typically drives innovation and progress.  Bottom line, consistency is important, but thinking outside the proverbial box is the first step toward progress.

2.    Lawyers don’t like risk. Closely related to #1, most lawyers are at some level, in the risk mitigation business.  They minimize risk for their clients and they try to prevent financial harm.  And they should, and they’re right to do so because that’s what they’re being hired to do.  But does that mean that lawyers should be unwilling to take some risk in their business? Of course not.  At Sokolove Law, our contingent-fee business is based on taking risk, with our co-counsel and our clients.  We vet cases and the cases we think have merit, we take to trial with our co-counsel.  We all—our firm, the co-counsel, and the client—have some skin in the game.  It’s one of the reasons our clients come to us.  One of the principal complaints I hear about the traditional legal business model is that win or lose, the lawyers always get paid.  For many in the business community, that’s totally counter to the tried and true idea of shared risk.

3.    Consensus is stifling. One of the topics that came out of the LexisNexis panel discussion is that no one really has the solution to what ails the legal industry, and the fact that there is no consensus seems to be stifling any progress.  That’s totally true. For some reason, the legal industry seems to be convinced that until there is consensus about a new business model, we cannot proceed.  I don’t think there’s much merit to that argument.

There’s a theory in academic circles about “pioneers, imitators, and generics.” While it’s generally used to refer to product R&D, I think it applies to the legal profession as well.

The premise is that the pioneers reinvent the business model through innovation, the imitators perfect the model through trial and error, and the generics go along for the ride, dividing up market share.  The problem with the legal industry is that we have too many generics, and not enough pioneers.   We don’t need consensus to experiment, to try new things, new processes, and new ways of doing business. We need firms that are willing to step out and experiment, to break the mold, to be more responsive to the client’s needs, and to find new and innovative ways of conducting our business.

That’s what we’re trying to do at Sokolove Law.  For thirty years, we’ve been changing how people obtain legal services. Today, we are continuing to pioneer a new business model based on helping our co-counsel do what they do best, while also expanding access to the civil justice system for people who have had no access to it in the past.  If you’re interested in learning more about what we’re trying to do, drop me a note. I’d love to talk about it with you.

Ralph Nader, crusading advocate for consumers, gave a talk recently at the University of Connecticut School of Law in which he blasted the legal profession and law schools for failing to adequately look out for “the administration of justice.”

Nader, who’s advocacy bona fides are without doubt, ripped into the system of legal education for spending too much time: “teaching substantive law, and too little encouraging students to think critically about why the law is what it is.”

Law.com has a nice write up of Nader’s talk here.

While I don’t necessarily agree with Nader’s politics on everything, I think he makes a great point here.  As I’ve written before, I think law schools spend too much time teaching lawyers about the way things are, and the black letter law, instead of talking about the underlying system of justice, and how we promote fairness and equality in society.  In many ways, our law schools are factories churning out widgets well prepared for the legal system as it is today, instead of how it ought to be.

If I can be so bold as to compare, I think our business schools (bias alert, I’ve got an MBA) do a much better job in their curriculum of trying to get young business leaders to think outside the box about the way the economy and business are evolving, rather than rigidly focusing on understanding the status quo.

Our economy and our profession are undergoing significant change.  Nader’s right that we need to rethink not only our business but also the way we prepare young people to enter it.  I’ll have more to say about that going forward. In the meantime, I want to know what you think.  Drop me a note, or leave a comment.

Mr. Ivory Tower Law School should be careful, because Mr. Big Law Firm has come down with a serious case of change, and it’s contagious.

As I’ve written before, the economic recession, an outdated business model, and international pressures are combining into a nasty fever for Big Law.  Gone are the first-year associate salaries that would make a Rockefeller blush, gone are the huge bonuses, gone are the stadium boxes and other perks and privileges.  Ashby Jones over at the WSJ Law Blog last week picked up on the fact that this fever is catchy, and that Big Law  just sneezed all over Big Law School.

Ashby’s piece quotes a recent article on the Conglomerate Blog, by Professor Erik Gerding of the University of New Mexico Law School.

Gerding’s piece focuses on the fact, that for years, Big Law has sustained Big Law School.  Specifically, he notes that the business model for Big Law School is basically, many students all paying high tuition.  That model is contingent, says Gerding, on the promise of high-paying Big Law jobs on the back end to help students pay off the tuition.  Less Big Law jobs and lower Big Law salaries means less Big Law School students.

Ashby goes on to theorize that perhaps this change might result in fewer students, and a more practical education at America’s law schools.  Here’s hoping he’s right, and if I may (though as I’ve said, I’m not a lawyer) offer my own suggestions for some changes:

1.  Focus on practice-oriented education.  At the moment, law schools put a nearly singular focus on bar passage, and rightly so, since that’s a prerequisite for practicing law, but don’t let the law schools fool you.  The reason they focus on bar passage is because that’s a key metric on the outside rankings by organizations like US News, etc.  I’d like to see schools focus more on practical curricula such as trial practice, alternative dispute resolution, and research.

2. Emphasize how to run a successful law firm.  For years, the path for law students has been to leave law school and go practice at a big firm.  As a result, the only thing they teach you in law school about running your own law firm is how not to steal your client’s money.  I’d like to see real classes in the business model of a professional organization.  Let’s teach lawyers how to run a law firm, and how to practice law at the same time.

3. Expand access to law school by offering diversified schedules. Simply put, law schools can be a bit uppity.  They resist the idea of a part-time legal education as not worthy of the profession.  Sure some have great evening programs (see Georgetown Law Center, for example), but those are few and far between, especially when compared to the many and varied flexible programs offered by top business schools. I would like to see us encourage more people to attend law school without sacrificing their current careers, or delaying having a family.  Let’s give young lawyers the same flexibility that we give other graduate students.

4. Lower the cost.  This one goes hand in glove with #3 above, and it’s going to get me in real trouble.  Law school does not need to cost as much as it does.  We need to lower the cost, by cutting out overhead that is wasteful and needless, and we need to expand the loan forgiveness programs that allow students to relieve themselves of debt by giving back to the community.  At one point being a lawyer was thought of as public service.  As the industry changes, we should do more to reward young lawyers who are in the profession for something other than the money.

These are just a few of my thoughts, but if the changes happening to Big Law have indeed infected Big Law School, I want it to come back better, stronger and leaner than ever.

As close readers may remember, back in September I wrote a post calling for an end to the billable hour.  At the time I wrote the following:

The problem with the billable hour is that the lawyers have no skin in the game.  Whether drafting a contract, or litigating a case, lawyers and the law firms that employ them should be compensated based on the quality of their work and the outcomes for their clients.

I also wrote:

Oh change is coming.  At the moment it’s being driven by clients, but it will not be long before the revolution reaches the masses, and people start to demand that law firms and lawyers get paid for outcomes not hours.

Well it seems change may be coming a little faster than I thought.  Two stories last week out of Boston and Dallas highlight lawyers who like me have rejected the idea of a billable hour, and are operating instead on a fixed fee for service model.

In Boston, the erstwhile Lisa van der Pool over at the Boston Business Journal profiles Jay Shepherd of the Shepherd Law Group an employment law firm.  I love the lede of the story:

Shepherd famously doesn’t charge clients by the hour. He’s a prolific blogger — and tweeter. He’s never worked for a big firm. And he thinks that sometimes, as a group, lawyers suck.
I like this guy already!!  Here’s a link to the whole story.

In Dallas, Mark Weintraub of General Counsel Law is helping small- and mid-sized businesses manage legal contracts, mergers and acquisitions, employment issues and more with a “when- you- need-a-lawyer” approach called FlexGC™, a flexible, fractional legal service that cuts costs while delivering senior-level legal expertise. The firm will assess the services offered on a monthly basis and charge clients a fixed fee each month.

The firm’s approach is profiled in a recent story in the Dallas Business Journal.

Kudos to Shepherd and Weintraub.  They seem to have the entrepreneurial spirit that will change the way we deliver legal services in this country.  Godspeed!