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Trending for Law Firms in 2012: What to Expect This Year


Trending for Law Firms in 2012: What to Expect This Year.

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Trending for Law Firms in 2012: What to Expect This Year


United (States) Parcel Service.

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                                                                                      Jerome Kowalski

                                                                                      Kowalski & Associates

                                                                                      January, 2012

 

Thirty items affecting the legal profession that are guaranteed to dominate the headlines in 2012

It is that time of year when you are entitled to know what to expect for this new year.  Accordingly, here is what the hot trends for 2012 will be:

  •  Continuing decline in legal spend on outside counsel.
  • As law firms continue to more efficiently and timely bill for matters and, the trend of law firms whittling away at their inventories (WIP), while not being able to replace that inventory because of the lethal combination of  reduced headcounts and  reduction in the legal spend, lenders to law firms will require more stringent reporting and will in some instances, reduce available credit lines.
  • Deleveraging of work with partners and other senior lawyers billing increased hours and the trend towards the inverted pyramid model continuing.
  • Law firms establishing subsidiaries to engage in services complementary to their services, including e-discovery, document review, legal staffing services, investment advisory services for high net worth clients and the like.
  • Congress, the courts and the judicial conference will make serious progress about modifying e-discovery rules, bringing down their current gravity defying costs as well as dampening down the torrent of spoliation claims and the attendant Herculean tasks companies need to take to avoid these claims.
  • Given weakening retail sales and decreased demand for most commercial real estate, buyers will emerge to take advantage of attractive pricing on some properties, perceiving real value opportunities.  Private equity funds will move in to this arena in a big way.
  • Increased  focus on collaboration, within the law firm, vertically with clients and horizontally with vendors of support services and co-counsel. Extranets will be enhanced and new technologies will emerge to provide greater transparency and real time feedback and collaboration.
  • More paperless offices.  With the bulk of communications now being electronic and the expected decline in timely services from the United States Postal Service likely to increase the trend of communicating electronically, law firms will be incentivized to go completely paperless. Incoming snail mail will be scanned and digitized. The huge cost of storing paper documents will evaporate.
  • Increased use of outside facilities management companies for mail, fax, reproduction, IT, bookkeeping and legal records departments.
  • Law firms will make more investments in technology than in people. The IT hotspots are knowledge management, software to farm information for the purpose of responding to RFP’s, making an AFA proposal, based on prior similar work handled by the firm and for project management purposes.
  • Every lawyer will tuck an IPad under his or her arm and no lawyer will attend a meeting without opening one. Continued development of apps for lawyers will simply make this tool not only essential, but a lawyer not having an IPad at the ready, risks a serious loss of credibility.
  • Tough times often brings out the worst in some folks.  Last year’s small spike in BigLaw partners and even other law firm personnel who engaged in defalcations of client funds will sadly probably continue.  Look for more headlines of such tales.  Law firms will be well served to now tighten controls and checks and balances regarding client finds.
  • There will be periodic announcements by a partner at a BigLaw firm stating “after 25 rewarding and wonderful years with my former firm, I have decided to open a solo practice so that I can work more closely with my clients.”  Sometimes these announcements will be sincere and genuine.  Sometimes these announcements really mean “I’ve been on the job market for almost a year since I was asked to leave my former firm.  I haven’t been able to find a new slot and my firm wants me out right now, so I may as well give this a try.”
  • Virtual law firms, such as Clearspire and Rimon will continue to grow and gain real traction and increased market credibility.

I am quite sure that we have been fairly thorough and inclusive. If you think we left anything off the list, please let us know by commenting below. Similarly, if you think we are wrong about any of the above, post a comment.

It’s going to be a challenging year.  Please fasten your seatbelts, hold on to the handrail and make sure that your arms and legs do not extend outside your car. We are in for an interesting year.

© Jerome Kowalski, January, 2012.  All Rights Reserved.

 Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com .

I Know You Hate Keeping Time Sheets, but Even in the New Era You Must Still Do So and Here’s Why


Taxi meter

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                                                                                      Jerome Kowalski

                                                                                      Kowalski & Associates

                                                                                      December, 2012

 

Some time ago, I wrote that even in the era of alternative fee arrangements and value billing, it remained essential for lawyers to record time.  I’ve been asked to revisit the issue and still come to the same conclusion, perhaps even more forcibly. There are myriad reasons that compel this conclusion.

First, despite the continued proliferation of AFA’s and value billing arrangements, the American Bar Association Model Rules of Professional Responsibility does not specifically permit for pure value billing.   Accordingly, well informed lawyers must be exceedingly careful in drafting their AFA agreements so as to meet the Model Rules.  But, even in a carefully drafted AFA, with both parties negotiating in good faith, some courts have continued to hold that fixed fees are unethical and unenforceable, requiring a plaintiff law firm suing a client to prove the value of its services based on the hours actually billed.

Sure, as others observed the old model of the client getting in your cab and all that you were concerned with was that the meter is running, but the taxi driver didn’t really care where you’re going no longer applies. In the old days, it was just about getting your fare. Today, you need to be far more concerned about where your client is going, but you need to keep that meter  ticking away for a variety of reasons, not all of which relates to collecting your fare at the end of the ride.

Just yesterday, the Delaware Chancery Court, in a derivative case in which plaintiffs’ counsel obtained a judgment of some $375,000,000,000, the court awarded plaintiffs’ counsel total fees of $285,000,000 (no, those are not typos).  The fee award came to a staggering $35,000 an hour.  Defense counsel argued for fees of less than $14,000,000.  Clearly, the battleground was neither the plaintiffs’ counsel’s customary and hourly fees nor the amount of hours billed to the case.  But, in order for these plaintiffs to celebrate a huge payday, they were required to submit a written application, which included details of its hourly billing, Similar rules exist in every bankruptcy court in the nation, which approves every fee application for every professional, save for those rare instances for which the court previously approved either a fixed or contingent fee.

In a case decided just last May, noted New York attorney Thomas Puccio successfully prosecuted a class action on behalf of New York City police entitled Scott v City of New York officers and thereafter filed a fee application for some $2,000,000, based on reconstructed time records. Puccio’s award was knocked down to $515,000,  The reason:  Puccio and his colleagues did not keep detailed contemporaneous time in derogation of Second Circuit rules which provide:

 “All applications for attorney’s fees, whether submitted by profit-making or non-profit lawyers, for any work done after the date of this opinion should normally be disallowed unless accompanied by contemporaneous time records indicating, for each attorney, the date, the hours expended, and the nature of the work done.”

As one commentator on this case observed:

“This issue arises because the lawyer for New York City police officers, who successfully sued New York City for overtime violations, sought over $2 million in attorneys’ fees. He submitted a 96-page attachment to the fee motion reflecting more than 2,000 hours of work. But these were not contemporaneous records. The lawyer acknowledged that “the entries were prepared instead ‘by my office working with outside paralegal assistance under my general supervision'” and that “the paralegals based the entries on ‘an extensive database of incoming emails maintain by my law firm in a computer folder.'” In other words, the time records in support of the fee application were prepared after the case ended, not contemporaneously. The time entries were also riddled with errors and mistakes.”

The simple point is not simply that keeping accurate, detailed and timely time records is not simply the gold standard, it remains the only standard.  Yes, virtually every lawyer abhors the notion of justifying his or her daily existence in twelve minute increments, and, yes, we all now know we sell valuable services not hours, time accurate, detailed and timely record keeping still remains with us.

But, there is more.

We have also recently learned essential the need to engage in project management, particularly in AFA engagements. Project management requires maintain GANT, PERT or similar charts, identifying critical paths and projections of the time necessary for each player to reach each critical path. Each player must also provide estimates as to when he or she will reach each critical path. No project manager can effectively carry out his or her responsibilities without tracking  in real time the time expended by each player. And at  the end of the day, in order to measure the profitability of the project and the efficiency of each player, an analysis of the time expended is a vital, indeed, essential tool. Lessons learned in the required post mortem of every completed project leads to more informed decisions on future pricing. Indeed, many RFP’s require law firms to describe their project management programs.  Some clients also require that the project management software be available to the client on an extranet.

Time management is also an essential tool for risk management.  In a recently well publicized case, a counsel at a large law firm was arrested for allegedly defalcating with many millions of dollars of client escrow funds.  While all of the facts are not in, it appears that the alleged perpetrator was handling work for some regular firm clients, not recording their time and privately charging the clients for his work.  These moonlighting activities ultimately apparently required the alleged perpetrator to deposit funds in an escrow account.  Since the matter was not recorded on the firm’s records, the young lawyer apparently went across the street and opened an escrow account in the firm’s name and he was the sole signatory.  The funds in this escrow account seem to have disappeared, with the law firm being the subject of claims for the funds as well as a failure to adequately supervise the alleged miscreant. It may well be that if this lawyer’s time charges were more carefully monitored, the entire problem may well have been avoided.

While you cannot always foil a determined and clever thief, requiring lawyers to account for all of their time, including non-billable time does serve as a deterrent.  Yes, banks with security cameras and guards stationed on the banking floor do get robbed.  But, some number of thefts are deterred.

Finally, I have long advocated that finders, minders and grinders all need to be equitably compensated.  In this more perfect world, lawyers who make contributions to the firm by entertaining clients, blogging, attending conferences, speaking at seminars, writing important articles, as well as those lawyers who toil away at pure client services or engage in the thankless task of managing the enterprise, are entitled to compensation for their efforts.  These efforts shouldn’t be simply recalled anecdotally, but recorded on a timely basis.

So you’re still incredibly annoyed about recording your time in twelve minutes increments, I am afraid  you’re just going to keep sucking it up. You’re probably equally annoyed about developing creative methods of pain and pleasure to assure timely compliance with time keeping requirements, but that annoyance is not quite going away either.

As they say, there’s an app for that:  A wide variety of timekeeping programs allow a timekeeper to toggle on and off at his or her computer time working on client matters.  And for the road warrior, there are IPad, IPhone and Android apps that you can also toggle on or off and the information is downloaded to your mainframe or your cloud.

The Law Firm of the Twenty-first Century isn’t your granddaddy’s law firm. But it still requires detailed, accurate and timely time keeping of all of your activities.

© Jerome Kowalski, December, 2011.  All Rights Reserved.

 Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com

What are the Most Significant Legaltech Changes You Have Seen During Your Careers?


What are the Most Significant Legaltech Changes You Have Seen During Your Careers?.

What are the Most Significant Legaltech Changes You Have Seen During Your Careers?


English: IBM Selectric II typewriter (dual Lat...

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Jerome Kowalski

Kowalski & Associates

December, 2011

 

While our heads continue to spin with emerging technologies which have dramatically changed the way we practice law, the ABA has asked me to write a piece for its Spring GP Solo Magazine, marking the journal’s fiftieth anniversary,  describing how technology applying to the practice of law has evolved over the past one-half century.

I certainly remember the old days of secretaries taking dictation through Greg and Pittman shorthand, with spiral bound special steno pads, with the wire spiral on the top so that the pages could be quickly turned.  I also remember old fashioned Dictaphones, which were ultimately replaced with microcassette tape recorders.  I also remember carbon paper and the old fashioned wet waxy photocopy machines.

The next big change was electric typewriters which ultimately morphed into ubiquitous IBM Selectric typewriters and then the birth of IBM Mag Card machines, a word processor of sorts that had no screen. A few years later, word processing was born, first with the Vydec machine, improbably manufactured by Exxon.

We used to send urgent messages by Telex and we had cable addresses.

Do you remember any of these?

I think that the first rattling change was the advent of the fax machine (printing out on endless roles of waxy paper at the rate of four minutes a page).   A few years later, law firms acquired mainframe computers for accounting and word processing.  CRT’s hadn’t yet found their way on to each secretary’s desk and certainly not on any lawyer’s desk.  The next big change was the birth of the personal computers.  That was followed by Al Gore’s invention of the Internet.  The Internet begat emails, which frankly was one of the business world’s most rattling game changers.

Some lawyers carried pagers. Then one day, we all had cell phones. Cell phones morphed in to Blackberries. Blackberries in turn morphed in to smart phones.

Once upon a time, we had conference calls; today we have video conferences.  We used to travel to CLE classes and bar association meetings, today we attend webinars sitting at our desks or in our dens.

We finally put computers on our desks and then laptops came along. Laptops are now being replaced by tablets.

We used to send our clients detailed legal memoranda and other complex legal documents by mail or fax.  Today, we are in the business of Knowledge Management and manage elaborate Extranets.

We once had armies of young lawyers reviewing documents.  Today, that function is handled by computers.

Clients used to come in to the office and meet with their lawyers and obtain their counsel. Today, clients are just as likely to obtain legal services from an Internet based provider of legal services.

Lawyers used to look for jobs through recruiters; today they use job boards.

We used to have young associates and paralegals assemble documents.  Today, we have computer document assembly systems.

We used to record time on slips of paper. Today they are recorded real time on a mobile app. And in some instances, we no longer even record time.

While many lawyers resisted every change to the way they do business, they were often left with little choice but be dragged along, often kicking and screaming.

Let me know what you think the most significant technology changes you have witnessed over the past many years and why.  Tell me about your own experiences in adapting to each of these technologies as they came along.  And also let me know where you see the next wave of changes coming in over the horizon and what, if anything you plan on doing to cope with the next technological revolution.

© Jerome Kowalski, December, 2011.  All Rights Reserved.

 Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com

The Key for Law Firm Growth and Survival for the Coming Years is Contingent on Mastering Collaboration


The Key for Law Firm Growth and Survival for the Coming Years is Contingent on Mastering Collaboration.

The Key for Law Firm Growth and Survival for the Coming Years is Contingent on Mastering Collaboration


TEAMWORK WINS - NARA - 515550

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                                                                             Jerome Kowalski

                                                                             Kowalski & Associates

                                                                             December, 2011

 

In the 1967 Academy Award winning Mike Nichols film, “The Graduate” a young Dustin Hoffman starred in his breakout leading role as Ben Braddock, a recent college graduate, who was floundering about trying to figure out what to do with his life after graduation. Early in the film, Braddock’s parents hold a graduation party for Ben, during which friends and family offer Ben all sorts of career advice. In one famous line, a family friend takes Ben aside and whispers “Ben, all I have to say to you is one word: Plastics” and then walks away,

As we contemplate what will doubtless be a challenging 2012, I have one word to say to all of you:  Collaboration.

In 2010 the concept of the year was “Alternative Fee Arrangements” and value billing. In 2011, it was LPO’s and outsourcing. Plastics, AFA’s and LPO’s have stayed with us since they each emerged as the flavor of the month; so too will collaboration.

Yesterday, I had the pleasure of attending The National Law Journal’s Managing Partner’s Breakfast, which was led by a panel consisting of Tom Mills of Winston & Strawn, Alice Fisher of Latham and Elizabeth Stern of Baker & Mackenzie, each of which served as their respective law firms’ Washington offices managing partners.

All generally had some serious concern, but guarded optimism for 2012.  Panel Moderator, NLJ Editor in Chief David Brown asked many probing questions. Interlocutor Brown based much of his probing predicated on Citibank’s foreboding report on law firm profitability for the third quarter of 2011.

Each panelist separately presented his or her own version of the same theme:  Their firms were engaging early and often with their clients and were being proactive in both anticipating their clients’ needs, objectives and issues were on every level. The key to success was adopting a collaborative mode on every front.

Liz Stern of Baker & Mackenzie put it best, when she said the old model where lawyers were simply like taxi drivers with their meter running. “The meter is running, but the taxi driver doesn’t really care where you’re going,” Stern said. “It’s about getting your fare.”  That model, Ms. Stern said, just doesn’t apply any longer. Lawyers need to understand why the client is embarking on the journey, what the most efficient route is to that destination and arrive at an understanding as to what a reasonable fare is for the journey, predicated on the value of the journey is to the client. Client and law firm need to reach a shared understanding of each of those issues and the only way to do that is by engaging early and continuing to engage as the journey proceeds.

Collaboration must be conducted both horizontally and vertically.  Client collaboration is if course essential, as is collaboration among the law firm partnership. In addition, I would suggest that further collaboration among other stakeholders, such as LPO’s, e-discovery vendors, staffing companies and other law firms serving these same clients. Clearly, a strong hub and spoke system is required with the client at the hub. Those who master collaboration on each of these fields will emerge as the winners in 2012.

Collaboration begins of course with the direct attorney client relationship, bearing in mind that given the shift in supply and demand, clients are fully empowered, as never before. Legal services are now being acquired through the prism of purchasing agent mentality.  Under that lens, the purchasing agent often first makes a “make or buy” decision; and more often, making is less expensive than buying.  Thus, we have seen a rather universal growth of legal departments and a reduction in budgets for the outside legal spend. As Jones Lang general counsel Mark Ohringer recently said, “I am law firms’ biggest competitor.” Said Ohringer “If I could have 100 percent of the work not done by law firms, I would.”  Ohringer  currently keeps 75 percent of his corporation’s legal work in-house or sends it to non-firm vendors.

Recognizing this reality, law firms need to engage proactively with such general counsel and collaborate with non-firm vendors demonstrating through such proactive engagement that the firm, working collaboratively with general counsel could provide better value and more favorable total pricing. Failure to engage here, is that general counsel of the mind set of Ohringer may well succeed in keeping all work out of the law firms. Such general counsel are primarily interested in getting the job done better, cheaper and faster.  That mindset does not denote a universal fatal allergy to outside law firms. The antidote to this allergy is engagement and collaboration.

Mark Hermann, chief litigation counsel at AON and a former BigLaw lawyer recently wrote a compelling essay concerning one of his company’s outside law firms regularly assigning a litigation partner to handle work for his company and Hermann consistently found this partner’s work sub-par.  The law firm just didn’t get it and it appeared that the relationship was becoming strained. Hermann explained that greater enragement and collaboration was necessary to maintain the relationship. He even laid out in direct terms how law firms should engage:

 First, have disinterested lawyers — partners not involved in representing the client — solicit candid feedback from clients. Solicit that feedback mid-year, so the conversation doesn’t conflict with an annual year-end review. During that session, listen carefully to what the client says. (Hint: “I rate the quality of your firm’s work as just below middle of the pack” is not praise.) Ask the client what your firm can do to improve (or expand) the relationship, and heed the advice you receive.

Second, impose real quality control on partnership decisions. A client that has a bad experience with just one of your partners may mistakenly choose to condemn your entire institution. This makes the quality of your partnership awfully important. Try to apply uniform criteria, applied equally across all offices, when you make partnership decisions. Hire lateral partners sparingly (because you probably know little about the true quality of those folks’ work).

Finally, think about how you can encourage clients to switch lawyers, rather than firms, when clients are unhappy with the service they’re receiving. If it were easier (and less embarrassing) to replace the lawyers working on a team, then firms would not lose clients unnecessarily.

We have all read about the explosive success of Clearspire. Clearspire’s success is not merely that it is a virtual law firm, with minimal expenses. It is built on an elaborate custom digital platform which provides for real time, full time collaboration among its lawyers and in real time among its clients.

 

            Some other vital areas for collaboration:

  • Understanding fully the strategic goals and objectives of your clients by engaging in detailed face to face regular discussions with them.
  • Recognize that some of your clients work will be downsourced to smaller firms.  Offer the clients your availability to collaborate with these firms so that they can take advantage of your pool of built up knowledge and experience so that the smaller firm can work more efficiently. And, yes, offer to share your work product with them. After all, the client already paid for this work.
  • If you are one of the smaller firms that is the beneficiaries of the downsourcing, ask the client to assist you in collaborating with other firms with which it has worked so that you are not reinventing the wheel.
  • In some engagements, a law firm will essentially function as a general contractor, with clients directing the law firm to subcontract work to a variety of vendors.  There are many moving parts and disparate players in these engagements.  For the law firm/general contractor to succeed, its principal function is not only to direct and supervise the work of the various subcontractors, but to also share full time, real time collaboration.
  • Build a strong collaborative relationship with LPO and e-discovery vendors, making sure that the clients is very much part of this process. Insist on full time and active collaboration and choose an appropriate real time extranet platform for such engagement.
  • Recognize that general counsel’s office is overloaded and offer a program of secondments.   Liz Stern of Baker & Mackenzie explained how her firm has effectively established a global system of regular secondments that has stood her firm in good stead for many years.
  • Build up your extranet capacity. Engage your clients on the extranet. Get them to utilize the extranet for real time collaboration and feedback. Ask the clients if your extranet platform is adequate.
  • Monthly bills should be a further platform for client engagement and collaboration. Every monthly bill rendered should be accompanied by a letter that describes the objectives the firm had set out for the preceding month for the matter, the steps the firm had taken to meet those objectives, the results and the objectives for the next month. Even where the matter is undertaken on a fixed fee or an AFA, these monthly letters are essential.
  • Engage the clients regularly on discussions regarding bills you have rendered, preferably through either a relationship partner or a non-lawyer professional. Identify issues early and address them collaboratively with the client.
  • Collaborate internally on all strategic goals. Make sure your partnership is fully engaged on all key strategic decisions. Tom Mills of Winston and Alice Fisher of Latham made it clear that all lateral acquisitions are strategic, based on firm leadership and partner consensus.  Latham apparently has most of its laterals visit each of its domestic offices and sometimes each of its foreign offices.
  • Be sure that the legal work the firm is handling is fully integrated with those best suited to do the work are handling the work.  That means that originating partners should not assign work only to members of his or her own “team.” Rather, practice group leaders should guide the assignment of work. Do not allow partners to create silo practices.
  • Keep the partnership fully informed and engaged in the firm’s strategic goals.  Share both the good news and the bad news in real time. Fiats emanating from behind smoke and mirrors breed resentment and distrust,
  • Build consensus.

Plastics were indeed a boom industry in 1967.  Collaboration will be a boon to those who master  the art in coming months. Those who fail to adequately collaborate both vertically and horizontally and vertically do so at their own dire peril.

© Jerome Kowalski, December, 2011.  All Rights Reserved.

 

Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com


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