The Business of Law – Marketing and Business for Enterprising Attorneys

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.

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!

Law firms of America, we want to hear from you!!  Seriously, as I’ve written before , at Sokolove Law one of the things we take very seriously is our relationship with each of our co-counsel firms.  With that in mind, from time to time, we survey our partners and other law firms to explore new services and ways we can engage with co-counsel firms.

In the coming weeks, you may receive an email invitation from Isurus Market Research, an independent market research firm.  The email will have a link to an online survey and information about a cash incentive for those who participate.  If for some reason, you don’t get the email, and would like to participate in the survey, you can contact John Cole at Isurus at 617-547-2400 or jcole@isurusmrc.com.   Participation is of course confidential and really appreciated by all of us at Sokolove Law.

Get the smelling salts, I’m writing a blog post on “process management”. Seriously, I came across an interesting piece over at the Legal Intelligencer by Gina Passarella this week, that talked about the idea that the legal profession could improve its business model by indulging in a little bit of project, and process management.

“Egads” you say…and as Gina points out “process management is the antithesis of the billable hour model”.

But I ask: Does it have to be?

Why couldn’t lawyers price their work, not by the billable hour (whose death knell, I have predicted), and instead look to outcomes. The model is quite simple, instead of being at the whim of the billable hour, lawyers would look at an overall legal project, estimate how difficult the project is, and then provide the client with a cost. If the project can be completed in less time, then the law firm adds to their profit. If it takes longer, then the firm knows that it needs to perfect its method of estimating.

Imagine if you went to your mechanic to have the brakes on your car fixed and you were given two options. First, you could have the master mechanic with thirty years of experience fixing your kind of car. Good news is that it will only take him one hour to fix the problem; bad news is he charges 800 dollars per hour.

Second choice would be the new guy, he’s just out of mechanic’s school, and basically has no idea what he’s doing. He’ll tinker around for about 5 hours before he figures out how to replace the brakes, but the good news is he only charges about 50 dollars per hour. Only other issue is that if you have the new guy do it, are you really sure it was done right (I mean after all we’re talking about brakes here—pretty important). So again your choices come down to:

1. Have it done right in one hour, but pay $800 for it, or
2. Have it done (maybe) right, in five hours, but pay $250

Kind of feels like a Cornelian dilemma to me.

Wouldn’t you rather the mechanic just tell you how much it will cost to fix your brakes? You agree to the price, and if the shop can figure out how to fix the brakes really efficiently, then everybody wins—you get your car back sooner, and the shop has more profit?

I’m no MBA (o.k. I am Babson class of 1996), but it seems to make sense to me.

No of course, Dora the Explorer is not made with asbestos, but based on the news of Mattel’s recent settlement, the defects and subsequent recalls of the toy giant’s products are certainly hitting Mattel’s wallet in an asbestos-like way.

News hit last week that out of Federal Court in California that Mattel has reached an agreement to settle 22 separate class actions over millions of toys that were made in China and found to contain excessive levels of lead. The reported settlement could reach into the “tens of millions” according to reports.

According to Law 360 (subscription required):

“Mattel recalled over 14 million toys in the U.S. alone in 2006 and 2007. The toys were found to have lead levels that exceeded legal limits or to have small magnets that could become loose and harm children if ingested, according to a statement from Mattel.

More than 95 different types of children’s toys were affected, including some of the companies’ most popular items, like some Sesame Street toys, Dora the Explorer and Diego toys made by Fisher-Price, and Mattel toys such as Batman, Polly Pocket, Barbie accessories and Sarge cars, according to the company.”

There’s a lesson to be learned in the Mattel tragedy, and that is that too many manufacturers are still willing to cut corners and put consumers at risk.  When they do, civil litigators act as an appropriate safety net to compensate victims.

But civil litigation also makes products safer and changes policies.  Consider the following as has been reported publicly:

•    As part of the settlement, Mattel will donate $275,000 to the National Association of Children’s Hospitals and Related Institutions, a not-for-profit group of 150 children’s hospitals and pediatric units.
•    The six Mattel-related recalls in 2007 triggered recalls by dozens of other companies resulting in 21 million potentially toys being recalled.
•    The recalls drove Congress to pass a new law that sets strict limits for lead, lead paint and other chemicals.
•    Last year, Mattel and Fisher-Price agreed to pay $12 million to 39 states to end a lengthy investigation into the lead-tainted toys.
•     In June, Mattel also agreed to pay a $2.3 million civil penalty for violating the lead paint ban.

At Sokolove Law, we are actively marketing legal services in a number of categories related to product liability. If you’re interested in partnering with us, please get in touch with my colleague Marc Stern.

Amidst all of the news about the Bear Stearns criminal trial that started last week, we should not lose sight of a different battle brewing on Capitol Hill.

According to the Huffington Post, Wall Street financiers are waging a battle against President Obama’s call for a Consumer Financial Protection Agency.

From Huffington Post:

“This is a David and Goliath fight,” says Heather Booth, executive director of the Americans for Financial Reform coalition, which includes major labor groups and aims to push for genuine reform. “The biggest banks that created the circumstances that led to greater misery, people losing their jobs and seeing their communities deteriorate, those circumstances have not been changed and there needs to be real reform and structural change.”

The financial crisis and the huge investment losses that it brought about cry out for reform, yet now that some of the dust is settling, and the financial institutions are starting to pay back TARP funds, they are at the same time lobbying against sensible regulations meant to protect consumers.

Meanwhile countless Americans are still trying to recover from huge losses suffered perhaps as the result of incompetence, recklessness, and in some cases, outright fraud.  Of course the consumer financial protection agency should be created, but the broader question is what to do about the victims who suffered these losses.

At Sokolove Law, we’ll be making sure that those victims understand their legal rights, and if they have a case, we’ll be helping them to assert those rights under the law.  The new agency may help going forward, but we still need to look backward and see if we can’t compensate those who have suffered from Wall Street’s greed and recklessness.

As has been widely reported, the third quarter of 2009 saw 13 mergers among law firms, bringing the total number so far in 2009 to 45.  There were 25 in Q1 2009 and 7 in Q2 2009.  In 2008 there were 70 mergers among law firms.

These figures might lead an outside observer to ask: Why the merger mania?  To be sure, there is much about the legal industry that is changing.  Many of these changes are outlined in an excellent article over at law.com (subscription required).

The article reports on a recent panel discussion at the ALI-ABA ACLEA 2009 Summit in Arizona held yesterday.

The panelists outlined a series of external forces—namely globalization, changing regulations, and evolving demands of clients, and they talked about the dramatic changes those forces could bring to the education of law students, the practice of law, and the business model of running a law practice or firm.

Here’s a brief excerpt:

The globalization of clients will continue to force even small firms to deal with matters abroad or represent foreign clients in the United States. Large and quick law firms will have the competitive advantage, he said, but smaller firms can compete with the use of technology.

Another big change that is already in the works is the switch to a buyer’s market. Law firms used to be the ones dictating how matters would be staffed and priced, but that is no longer, Bower said. Sophisticated clients are demanding that first- and second-year associates stay off their matters. They are also off-shoring work themselves or demanding their law firms do it, Bower said.

Perhaps the most dramatic change that is further down the road is one Bower called the “ticking time bomb” overseas. That is the Legal Services Act of 2007, which when it takes effect will allow law firms to raise capital like a public company.

Now I’ve talked about the Legal Services Act quite a bit and here’s how it relates to the merger mania that we’re seeing.  Law firms currently have limited ability to raise capital.  To innovate or expand the business, firms can either borrow money from a bank, raise capital from existing partners, or merge.

As you might imagine mergers often look like the easiest route to partners who don’t want to saddle the firm with debt, and certainly don’t want to dig into their own pockets to provide growth capital.

Of course the obvious question is why can’t firms raise outside capital to fund expansion like any other business.  The answer is that the rules of professional responsibility prohibit it.  That’s where the LSA comes in.

In the U.K. the LSA would allow firms to raise outside capital by selling shares in the firm.  Of course there are safeguards in place to prevent conflicts of interest, or lawyers putting the interests of shareholders ahead of their clients.

The net effect of the LSA though is that firms headquartered overseas will now be able to raise outside capital to grow and expand, and as U.S. law firms continue to compete in a increasingly global legal marketplace, the pressure of this outside capital will be enormous.

Will U.S. firms survive, will we change the rules to allow U.S. firms to raise outside funds to compete with their brethren across the pond.  As always, we’ll be staying tuned…

This morning, the ABA Journal recognized our blog initiatives here at Sokolove Law and showcased my blog I wrote back in September to kick off their “Legal Rebels” online and editorial project.

The piece came from a blog post I wrote back in September entitled “This blog post would cost you $400: Billable Hours RIP”. In the article I stated:

“All told, that whole process took me about an hour plus maybe 15 minutes by my secretary for proofing and editing.

If I were a lawyer at a big firm, this blog post would have cost my client as much as $400. That’s a little crazy and I’m not the only one who thinks so.”

To read the entire article click here.

Alright I’ll admit it, I’m the last person who normally cheers for uniformity, in fact one of the things I love about my job at Sokolove Law is that we’re constantly breaking from the pack, and thinking outside the box.

That said when it comes to the business of law, I think uniformity can be a good thing.

As everyone knows, the practice of law is governed by individual state laws in 50 different states, in fact, the rules can vary quite a bit, up to and including what it takes to actually become a lawyer.  For example in some states you have to take their bar exam to become a member of the bar in that state, while in others (most notably the District of Columbia) you can opt in to the bar, provided that you’ve passed the exam in any other state.

So if you were born in Massachusetts and went to law school in Massachusetts, and took the bar in Massachusetts, then you moved to another state, you might have to take the bar in that state, depending on how long you had been practicing law (again the rules vary).

Some folks are trying to change that.  Law.com had an article yesterday talking about the effort to adopt a “uniform” bar exam that would try to create a system that would allow for people to take one exam that would demonstrate their ability to practice law in different states.

To be sure there are arguments on both sides of the issue, and the article does a nice job of laying them both out.  What’s intriguing to me is the idea, generally, of streamlining the regulatory process to foster more access to the legal system.

Sure, some laws are different in different states, and it is important that attorneys know the quirks of state law, but does it make sense that there are 50 different codes of professional conduct, 50 different sets of rules with respect to legal advertising, 50 different sets of rules about referral fees and other procedural issues.

I’m not an attorney, but I do seem to remember the constitutional concept that interstate commerce is governed by federal law, exactly because it eliminates the risk of different states passing laws that are parochial, or otherwise frustrate the free flow of economic activity.

With that principle in mind, wouldn’t a little bit of uniformity with respect to our legal rules mean that legal advice and representation would be more readily available?  Wouldn’t a little uniformity mean greater competition in the legal market, with the best and brightest rising to the top?

Let me be on record firmly in favor of competition and greater access…at Sokolove Law, it’s worked for us so far.