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It Takes a Village to Build a Successful Law Firm; Fewer Residents of that Village are Actually Lawyers


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Jerome Kowalski

Kowalski & Associates

May, 2011

Jordan Furlong, a brilliant analyst of the legal profession and an important thought leader, recently authored a thought provoking piece entitled “Law Schools and the Laws of Supply and Demand.”  Jordan’s enticing opening salvo was “If law schools were publicly traded companies and you held some in your portfolio, I would be strongly advising you to sell. Fast.”

With all of the noise emanating from across the pond about private equity investments by non-lawyers in law firms (to which I confess to having contributed), a similar thought occurred to me: If existing corporate law firms were currently publicly traded, now may well the time to sell.

The business model of the existing business model for corporate law firms is that they are generally built on the Cravath pyramid model, which is breathing its last, as Larry Ribstein reported last year. Jordan correctly notes that the profession needs “fewer, differently skilled lawyers than it has during the past several decades” and that law schools are not providing graduates with those required skills. Professor Ribstein describes the increased fragility of BigLaw firms and the diminishing leverage extant in BigLaw.

Yet, as the recent AmLaw rankings reveal, BigLaw may have either recently experienced flat, nominal or negative growth in gross revenues, most have reported increases in net profitability. Assuming the reliability of these public reports, a proposition, not universally accepted, the increases in profitability is largely attributable to the stark differences in the work force deployed by law firms in service of their clients. In short, law firm profitability and survival no longer depends on the ability of law firms to recruit cadres of bright law students; rather, the key to profitability and law firm survival is hiring talented professionals with entirely different skill sets. I posit that it is indisputable that the proceeds of any equity investments in law firms will not be invested in talented lawyers; they will be invested in a combination of infrastructure and infrastructure.

Corporate clients and law firms have been rudely awakened to the fact that law firms are in the knowledge management and processing system. And they have also awakened to the fact that traditional law firms do not have a monopoly on the delivery of legal services. Market realities are rapidly eroding ancient guild rules of bar admission require law firms to either compete directly with or sub-contract to off-shore entities, “virtual” law firms, systems and purely automated computer driven systems.

This just isn’t your Granddaddy’s style of law firm any more. And the important folks in the law firm are increasingly likely to be those with virtually no formal legal education.

First, start with the intake process:  The strong likelihood is that new clients as well as existing clients which are referring increased amounts of business to the law firm are influenced more and more by marketing directors.  Moreover, many new engagements are secured through responses to RFP’s – Requests for Proposals. The personnel involved in preparing these responses are dominated by non-legal personnel; often a team effort by the firm’s marketing and accounting functions.

Procuring a significant engagement through an RFP is not like putting in the winning bid on E-Bay.  You don’t simply exchange billing and shipping instructions.  Rather, the next step is often a discussion of an Alternative Fee Arrangement, which requires significant input from a firm’s risk management function and its legal project management team.

The next steps involve performance of the engagement within the scope of the AFA.  Before this work even begins, the law firm’s own data archives need to be mined for work previous product that may be instructive with respect to the current engagement, calling on the expertise of the firm’s information sciences department.  Finally, the issue of law firm legal staffing presents new challenges. This means decisions need to be taken about staffing, for which lawyers with the firm are only a component. Some of the work may be out-sourced, some down sourced, some assigned to automated computer based models.  Important players in this function are members of the legal project management team and the client relationship managers.

As the engagement proceeds, the informed client will also require some real time transparency, requiring the deployment of an extranet, a portal through which the client will have real time access to the work as it progresses.

So, let’s recap here: Increasingly important stakeholders in the future success of a law firm are those schooled in marketing, business management, accounting, risk management, information management skills and legal project management.  The day will soon arrive when the successful law firm will boast of the fact that its support teams are trained in outstanding business and information sciences schools just as its smaller number of lawyers are the products of outstanding law schools.

The effects of this brave new world are far-reaching and some yet not even completely understood.  Work will certainly be increasingly commoditized. Processing information already at the law firm will play an increasing important role. Processing accumulated information forms and templates will be key components in servicing client demands. Price pressures will continue to increase. In days of yore, a lawyer might have roamed the halls and inquired “anybody ever do a brief on a forum non-conveniens motion?” or “anybody ever do an S-1 for a B2B dot.com?”  Modernity changed those hallway chants to circulated emails with similar inquiries.  We’re now past both of those as IT specialists mine the firm’s data banks for answers to those questions with nary a lawyer’s hand involved.

We’ve previously addressed what we anticipate the effects will be once law firms will be permitted to accept equity investments by non-lawyers.  Those proceeds will largely not be for new legal talent, but in required ancillary services.  A number of forward thinking enterprises have opted simply not to wait until bar associations proceed at their typical glacial pace. These include www.legalzoom.com and www.clearspire.com .  Jacoby & Meyers just entered in to the fray by commencing litigation challenging the prohibition of non-lawyer ownership of law firms.

We believe that these efforts will have material adverse trickle-up effects in the profession. Mark Cohen, Esq., a Clearspire founder (and a former law partner of mine) made it very clear to me that Clearspire’s objective is to be a very real, credible and viable alternative to AmLaw 200 firms. Clearspire is apparently using the bulk of its initial $5,000,000 capital investment to build infrastructure.

Similarly, it appears that Legalzoom.com is utilizing its remarkable $46,000,000 capital investment in investing in technology and infrastructure. Compare the array of legal services offered by www.Legalzoom.com  with those offered by many fifty and under lawyer firms and the overlap is remarkable.  The price differentials are breathtaking.

Both the business models of Clearspire.com and Legalzoom.com pose real and present dangers to important components of the business model of BigLaw based on both price and quality.

Business success is not simply a function of supply and demand; it is also a function of meeting competition and deploying the appropriate assets.

We are not yet adequately focused on assessing the competition or deploying assets now required in a changed world.

Until we adequately understand and plan for what warriors we need to house in our law firm village and are sure that they are adequately trained for the tasks,, we may be at a serious competitive advantage.

© Jerome Kowalski, May, 2011.  All Rights Recerved.

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Are 100 Page Responses by Law Firms to Client RFP’s Really Efficient or Necessary? Some Radical and Revolutionary Changes are Upon Us


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Hundred Page RFP Submissions which Clients have Been Demanding of Law Firms Got you Down? Change is-a-coming.

 

                                                                                       Jerome Kowalski

                                                                                      Kowalski & Associates

                                                                                      September, 2010

Many of our client law firms have expressed enormous, indeed almost unspeakable,  frustration and dissatisfaction with the RFP process that so many corporate clients and potential corporate clients now require, particularly in connection with engagements that will require Alternative Fee Arrangements, in which such responses seem to have become a staple. The RFP typically requires completion of a 60+ page questionnaire, which frequently require scores of hours and professional time to complete.  Added to this frustration is the fact disappointment experienced by firms who have gone to such lengths to and not get to the brass ring.  Many firms have simply thrown their hands up in the air and basically abandoned most or all efforts to respond to such detailed RFP’s.

The good news is that there may be significant change coming down the pike with regard to the RFP process.  Jeff Carr, the well respected trend setting General Counsel of FMC Technologies, who has not only been the most vocal advocate for AFA’s and Value Billing, has taken note of the fact that compelling law firms to complete such cumbersome questionnaires too often results in lawyers not only pulling their hair out, but, as I mentioned, simply abandoning these cumbersome processes.  One consequence is that corporate clients are getting short changed since otherwise eminently well qualified law firms have simply responded to the whole RFP process with a simple no mas.

Inside Counsel recently reported how Mr. Carr has recognized the problem, but, in addition, as part of FMC’s convergence program, reduced its previous 56 page RFP questionnaire down to a one page yes or no questionnaire, publicly posted for all to see at www.legalonramp.com , a document outlining FMC’s general terms and conditions for engagement of outside counsel and FMC’s pay for performance system. FMC also “published its historic litigation data and invited the participating firms to rank themselves by type of litigation or litigation competency, provide their historic data and metrics, and provide their default ACES budget for the major types of litigation FMC has.”

Mr. Carr then culled through 52 responding law firms and invited 32 to provide  the ultimate “elevator pitch” by providing a Tweet on Twitter, which of course is limited to 140 characters. FMC dubbed this as a “Tweet and Greet.”   For those of you who scoff at Twitter as kid’s play and merely a social tool, the recent article in the Guardian will certainly be an eye opener in connection with its real utility for lawyers and clients.  Twitter is but one of the tools that more and more in house lawyers are using to identify competent outside counsel, in the same way that they use blogs. In fact, if you or your marketing personnel have created your blog with all of the appropriate tools of this new Internet era, your blog posting should be fed automatically to Twitter.  This one is, as are all of ours. Doubters or skeptics can check us out on www.twitter.com  @jerrykowalski.

Of the 32 firms that responded to Mr. Carr’s “Tweet and Greet” invitation, 16 were invited by Mr. Carr to meet with him and, in his words, “wow not woo.” In the end, FMC selected six law firms and “decided to form a joint venture among them, wherein new cases are handled by a team the law firms form. Sometimes the team consists of one firm, several or even all of them.”

“The JV is administered by one of the outside counsel on retainer with a performance-based hold back,” Carr explains. “All cases have a default target budget [based on an FMC-designed pay-for-performance plan] lower than our historic data. The overall savings will be shared between FMC and all the firms, with the distribution reflecting how well they worked with the other firms.”

All of FMC’s various pending cases were then re-assigned to the new law firm joint venture, as are new matters coming in the front door.

Mr. Carr then went on to note, “traditional RFPs have a reputation for being complicated, mostly useless and quite painful, but it doesn’t have to be that way, So, out with the 56-page RFP, little of which is used in the ultimate decision-making, and in with the three-page non-RFP.”

Jeff Carr is, as is well known, an articulate and outspoken advocate for change in the relationship between client and counsel. He is the ultimate trend setter for corporate counsel. Watch for other companies to follow suit.

But, when you get home tonight, spend some time with your kids and have them explain to you what Twitter is all about and how to make best use of it.

© Jerome Kowalski, September, 2010.  All Rights Reserved.

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