June 11, 2007

Lawyer's Services Should Be Theirs To Give Away...Not the ABA's

Connecticut Law Tribune - June 8, 2007

(This column comes on the heels of the recent Second Circuit Decision regarding pro bono fees, as a I promised.)

It's been a year since I read an Illinois Supreme Court ruling regarding mandatory pro bono reporting and I'm still feeling claustrophobic as the legal universe we are permitted to function in gets smaller and smaller.

That state's new rule, celebrating it's one year anniversary this month, requires lawyers to "annually report their pro-bono activities, including hours worked and any money contributed to pro-bono efforts." The rationale behind the rule is that, by having to report what they do (or don't do) by way of pro bono work or financial gifts to recognized legal aid organizations, lawyers will somehow be shamed into actually doing some, or do more than they're already doing.

It doesn't take a genius to see where this is really going. Although structured as simply a confidential reporting program for the purpose of accruing an aggregate total of pro bono hours, lawyers who fail to report their numbers to Illinois authorities face possible suspension of their law licenses. With this framework in place, if actual pro bono hours do not increase in a voluntary fashion, is it really a stretch to see pro bono work being mandated in order to continue practicing in the state of Illinois? (Note: Illinois is home to the American Bar Association.)

Who will have the hardest time meeting these requirements? Not large law firms that use their pro bono efforts as a tool for self-promotion. How much does it really cost them, anyway? At most large firms, it's low-level associates who do the majority of the firm's pro bono work. The firms write it off as a loss. At their worst, they take on high-profile cases in an effort to gain incalculable publicity. Mandatory pro bono wouldn't hurt large law firms. Rather, they will profit on many levels.

Solos, however, will be the ones injured. They will look ungenerous and self-serving, as they single-handedly face the everyday struggles to stay in business.

As the pro bono numbers generated by solos, the largest body of lawyers out there, fail to increase appreciably, what will be the next logical step? Forcing them to take on a minimum number of pro bono hours or face suspension? It is certainly plausible.

And as word is spread to the general public regarding an attorney's obligation to do pro bono work, is it unreasonable to believe that lower-income clients will demand lawyers represent them for free or at sharply reduced rates?

Yes, mandatory pro bono would be a great image enhancement for the legal profession, particularly large firms. But for solos, it would be a daily migraine.

Shouldn't Illinois officials be looking to catalog aggregate results rather than aggregate hours if the stated goal of this self-aggrandizing exercise is to actually help indigent clients? If painters took two days instead of two weeks to paint your house, wouldn't you applaud their speed and efficiency? We should be measuring effectiveness through results, not inefficiency through racked up hours.

And, of course, we can't let Illinois get all the glory for being so benevolent when giving away our services. All the states will want to jump on board for fear of looking mercenary and uncaring. They, too, will want to crack the whip and give away our time and money.

As a lawyer, I believe the role of the judiciary and national and state bar associations should be to provide a de minimus framework of what we can't do in order to avoid risking our law licenses. Outside of that, they should be a source of professional support and information.

It is not their job to legislate or mandate how I should aspire to be a better person or lawyer. Nor should they tell me that I must give away my services.

But that is where they are heading. Please don't order me to tithe to the Church of the American Bar Association. I still believe in freedom of professionalism. •

Susan Cartier-Liebel is solo practitioner, adjunct professor at Quinnipiac University School of Law and a business consultant for solo and small firms. Her blog, Build A Solo Practice, is at susancartierliebel.typepad.com. She can be reached at SCartier_Liebel@comcast.net. Copyright © Susan Cartier-Liebel (2007) All Rights Reserved. No portion of this material may be copied, transmitted, posted, duplicated or otherwise used without the express written approval of Susan Cartier-Liebel.

May 23, 2007

GC Mike Dillon of Sun MicroSystems, Inc. Seeks Out Small Firms

(UPDATE:  See blue highlights.)

Coincidentally, one day after my recent article "Revolting Against the Billable Hour," (Connecticut Law Tribune, May 21, 2007), Mike Dillon, GC of Sun MicroSystems, Inc. wrote this at his blog "The Legal Thing":

My point is that the epoch of the current law firm model - which derives its profitability from growing scale and raising hourly rates - will soon be over. The firms that will survive and thrive are those that recognize this change and focus on how to maintain margins by focusing on efficiency. In the future, I'll describe some the things we are doing in this area, but I'll point out that we recently selected a small number of law firms to support us as "preferred partners" during the next fiscal year. We believe that these firms "get it" and are receptive to looking at new ways to drive down their (and our) cost structure. Hopefully, more firms will embrace this change. If they don't, I fear they will go the way of the Mastodon.

And on May 23rd, this WSJ Thread called "The Traditional Law Firm: Going the Way of the Mastodon" took up the discussion started by Mike Dillon.   I especially liked this comments by "Counsel."

Whether Dillion is right or wrong has more to do with why large firms exist at all than what the future holds for their survival. I think most attorneys (at least from the smaller and solo firms) would agree that the ability and expertise of the retained attorney or firm has more to do with the “added value” of the engagement than how many names are on the firm’s letterhead. Where a large “one stop” firm (think Wal Mart) can assemble a team from its bench to handle a particular transaction or litigation, a small firm or solo practitioner with the needed expertise (think Orvis) is just as likely if not more so, to achieve the desired result (”value”) for a reasonable fee (”efficiency”). While it is true that you can shop at Wal Mart for the fishing gear, clothing and supplies needed for a fishing trip, if you are are fishing for trout, you might want the right flies, line and other gear from Orvis to maximize your chances of catching trout (value).

Probably the only time a GC would actually need to shop at a Wal Mart law firm is when he needs lots of bodies. But realistically, how often is that? In litigation, one experienced, capable hard working attorney usually has no trouble dealing with a hoard of billing units running off in all directions. In a large transaction, capable, experienced paralegal and secretarial support is often of greater value and lower cost, than a herd of over-paid associates charging several hundred dollars an hour each to learn how to correctly structure a deal.

The reality is that good legal services, those which are worth what you pay, are available from good attorneys with the expertise, experience and ability needed by the client for the particular legal problem. Such attorneys are found practicing solo, in small firms and at large firms. There might be some intangible benefit from buying “brand name” law, whether it’s the ability to CYA if questioned later or your ego makes you feel that you need “Big Law” because you are a “Big, Important, Legal, Klient” (”BILK”).

The bottom line however is this: Biggest rarely equates with best. The relevant question for GC is: “Best for what?” The idea that Wal Mart, Sears, Pennys, etc., will “always be best,” is at best, simplistic.

Comment by Counsel - May 24, 2007 at 1:20 pm

Counsel, your comments are truly informed and well received by this reader and I hope by others reading this thread.

Comment by Anonymous, Too - May 24, 2007 at 1:49 pm

And on the same day Larry Bodine posted on an emerging trend amongst large law firms attempting to shift from the billable hour in order to attract more business, at least in New York.

Most importantly for solos, Mike Dillon indicates (in the body of his post) he seeks out highly speciailized 'very' small firms for matters.  This has been an issue for solos believing they are relegated to lower paying clients or less prestigious clients if, in fact, they are looking to work for these clients and/or large corporations but have been unable to penetrate the Big Law barrier.  Well, this comes right from the GC's mouth, "We do want you."  But it is about positioning yourself and creative pricing strategies.

I personally know solos representing Fortune 100 companies, of course, in specialized areas.  But as large corporations look to creativity in billing and reducing their costs while maintaining efficiency, they are reaching out to talented solo practitioners and small firms.  And in a backlash against these outrageous salaries being offered (I'll talk more about this in another post) it will be happening more.

May 22, 2007

Revolting Against The Billable Hour

Connecticut Law Tribune - May 21, 2007, New York Lawyer - May 21, 2007 (Billable Hour = Apocalypto)

In my opinion, one of the worst remnants of a second-wave law firm is the billable-hour model of doing business. It has become the two-ton elephant sitting on the chest of most large (and some smaller) law firms.

The model is suffocating and crushing the life out of larger firms, in the form of associate and client attrition rates, and creates negative tensions with those associates and clients who remain. After all, associates' worth to a firm is based upon how many billable hours they can churn out to feed the bottomless stomach of the partnership monster, and the clients are the ones who are writing the checks.

One of the most profitable — and enjoyable — benefits of being a solo is freedom to create something new and effectuate change without having to first go through a committee.

We all talk about Darwin's oft misquoted "survival of the fittest" when, in fact, it is survival of those who can adapt. But it is best analogized to the Ice Age. Many of the larger, more lumbering animals who had long gestation cycles didn't survive because they couldn't genetically "change" fast enough thereby precluding timely "adaptation." However, the mouse (or its historical predecessor) was able to weather the environmental changes, because it was small and gestated so frequently with so many offspring (some survived, some didn't).

Now, I'm not comparing solos to mice. I'm saying the solo practitioner has the ability to "pro"-create rapidly precisely because they are solo; change isn't by committee. This enables them to change their billing practices (some will be profitable, some will not) and adapt with the times.

Why would anyone want to change the billable-hour model, which is the lifeblood of most firms? Because when one worships the billable hour, the client disappears. The billable hour has become the altar upon which we sacrifice the client.

Imagine a system whereby the resolution of a problem is given a value by the client. It is negotiated between the attorney and the client thereby creating a "budget" for the legal services. Absent any unforeseen circumstances of which there would be some contingency plan, the relationship is based upon the terms of the agreement which is a predetermined fixed value. It is results-oriented, not "hours worked" driven. The negative relationship is gone as the price for resolution is predetermined and accepted.

I will never hire a tradesman for a project on an hourly basis because there is an incentive to drag out the process. By having a budget or fixed cost, there is an incentive for the tradesman not to waste time.

If you believe this to be professional blasphemy, think again. How many times has an attorney gone to court to collect fees only to have the judge make her own value judgment about the attorney's work and reduce the fee accordingly? If solos can capture the fair market value for their work and repackage it as a benefit to clients who now no longer have to suffer under the billable-hour model, who will have more clients than they can handle?

It has been done for years in the real estate market. You know up front what a real estate closing costs as a buyer or seller. It is done in criminal practice and for simple wills, too. Some may argue the idea is not suitable for practice areas like family law. Well, maybe it is more suitable than we would like to admit. If a lawyer knew they were only going to get a certain dollar amount for resolution, they would be less inclined to participate in nonessential litigation.

Larger firms may have more of their attorneys arguing in front of the Supreme Court. But solos, well they have it over large firms in work/life balance, client relationships, office innovation, technology and now billing. It may be uncomfortable for larger firms to see the billable-hour model sullied and disregarded as unworthy by solos. But it will be these innovative lawyers who will pave the way for better client relationships and improve the image of the profession by removing the number one relationship and image-buster: the billable hour. •

Susan Cartier-Liebel, a solo practitioner, is an adjunct professor at Quinnipiac University School of Law and a business consultant for solo and small firms. Her blog, Build A Solo Practice, is at susancartierliebel.typepad.com. She can be reached at SCartier_Liebel@comcast.net. Copyright © Susan Cartier-Liebel (2007) All Rights Reserved. No portion of this material may be copied, transmitted, posted, duplicated or otherwise used without the express written approval of Susan Cartier-Liebel.

April 10, 2007

Picasso's Argument for Value Pricing

In Selling the Invisible by Harry Beckwith, there is the following passage:

A woman was strolling along a street in Paris when she spotted Picasso sketching at a sidewalk cafe. Not so thrilled that she could not be slightly presumptuous, the woman asked Picasso if he might sketch her, and charge accordingly. Picasso obliged. In just minutes, there she was: an original Picasso.

"And what do I owe you?" she asked. "Five thousand francs," he answered. "But it only took you three minutes," she politely reminded him. "No," Picasso said, "It took me all my life".

Don't try to guesstimate hours to get the work done and then map those to a particular price. Work backwards instead of forwards. Price by the value you bring to the project--which is a function of your years of experience (not just as a lawyer but as a human being) and unique talents. Don't price by the actual time you invest in the task as technology can reduce the actual time it takes to impart your 'value.' Understand this; because technology has reduced your time to accomplish the task it does not diminish the 'value' you bring to the task.   

And like the woman in the Picasso example, we have an obligation to break our clients of the habit of thinking in billable hours, too, otherwise we may hamstring ourselves when it comes to breaking free from the billable hour and educating them on a value model.

With technology, if you stick to 'selling time' you can go broke or overwork just to break even. If you break away from the hourly billable model and go high-tech you will be much more profitable and the client will be happier having also negotiated to pay the value he places on the task, which is equally important. You will feel freer, too, less invested in watching the clock, justifying every second of your day and spending precious minutes documenting those 'seconds' only to have them challenged or reduced by a judge.

March 29, 2007

Flat Fees More Profitable To Small Firms

Once again, on the heels of my last post, Law.com comes out with an article stating due to technology small firms are moving away from the billable hour to flat fees (and how far away from flat fees is the leap to project-based fees or budget-driven fees) because it is more profitable to the law firm...and more client-friendly.  Technology allows legal services once requiring two hours to now take ten minutes.  If lawyers billed for ten minutes they'd lose money.

It's a great affirmation of shifting from the archaic model of the billable-hour to more creative billing practices which benefit both the lawyer and the client.

"It's a desirable structure for all firms, but it is much more practical for small firms, said Alexander.

"It's much easier for us to implement it than a large firm because we have no bureaucracy to go through," she said. "Everyone wants to go in that direction, but they don't know how to get there." In the past, something that would have taken two hours, we can now do it in 10 minutes," he said. "If we only bill for that 10 minutes, obviously, we lost that revenue."

It's a desirable structure for all firms, but it is much more practical for small firms, said Alexander.

"It's much easier for us to implement it than a large firm because we have no bureaucracy to go through," she said. "Everyone wants to go in that direction, but they don't know how to get there."

I'm sure this article will fuel a great commentary across the blogosphere from value-billing proponents who have been spreading their gospel for years.  You should check out their collective wisdom and response to this article when it emerges. 

February 27, 2007

Freedom to Set Fees Creatively and Responsibly

There is a great post over at the Great American Lawyer talking about the "Billable Model" and how, in my interpretation, it has become the two ton elephant sitting on the chest of most large (and some smaller) law firms.  The model is suffocating and squeezing the life out of larger firms (meaning associate and client attrition rates) and creates negative tensions with those associates and clients who remain.

This is a great 'comment' posted on the Sui Generis blog that reiterates the above as it relates to associates:

"......the billable hour. What a mistake that was-- I'd like to find the guy who came up with the notion that lawyers should be paid like millworkers and show him what mischief he created. Since there are only so many hours in a day, and since rates can only go so high, we find ourselves working in exploitive pyramids, instead of as professionals interested in practicing a learned profession. "

One of the most profitable benefits of being a solo is freedom to create, effectuate change, try something new without having to first go through committee.  We all talk about Darwin's oft misquoted "survival of the fittest" when in fact it is surival of those who can adapt.  But it is best analogized to the Ice Age.  Many of the larger, more lumbering animals who had long gestation cycles didn't survive because they couldn't genetically "change" fast enough thereby precluding timely "adaptation."  However, the mouse (or its historical predecessor) because it was small, gestated so frequently with so many offspring, (some survived, some didn't) they were able to adapt and to weather the environmental changes. 

Now, I'm not comparing solos to mice.  I''m am saying the solo practitioner has the ability to 'pro' create rapidly precisely because they are solo; change isn't by committee.  This enables them to change their billing practices (some will be profitable, some will not) adapting with the times and ultimately surviving.

February 01, 2007

How Much Do Solos REALLY Earn?

As much as they want to.  That is the reality of solo life. 

There was a recently published chart on solo practitioner earnings which I had seen when it was first published but chose not to post it for my readers because I would have had to spend too much time challenging its validity. 

You can see it at MyShingle under "What Solos Earn"  along with Carolyn Elefant's observations of those salaries. The sampling is only 244 nationwide. (More than 51% of all private practitioners in this country are solos and there are over 750,000 private practitioners from over 1.1 million lawyers!)  So, this chart is not only not even close to being a representative sampling, it is very irresponsible because solos and those thinking of soloing can be misled.  (Let me clarify. The chart is irresponsible, not MyShingle. Carolyn Elefant notes the unscientific nature of the chart and makes some good generalized comments along with the posting.)

There is no description of how these solo practitioners were found or screened, what they were asked, or what variables were taken into consideration.  It also discusses "median" salary, not average.  Median means if there are five solos reporting (and some of these numbers are based on just that, five solos), it could go something like this....Solo #1  $25,000, Solo # 2  $40,000, Solo #3 $46,000 Solo #4 $225,000, Solo #5 $300,000.  The median would be $46,000 and that is what is reported. The average, however, would be $127,200.  Then, again, we don't know if Solo #1 and Solo #2 are doing it part-time, or in fact spent half their year unexpectedly disabled. 

My favorite chart shows the median income of (5) solo attorneys working in firms of 100-499 lawyers earning a median income of $200,000.

(Go back to the chart, scroll to the bottom and look under "Median Salary By Lawyers in Firm.").  (17) reported as solo practitioners working in firms of 17-49 and (134) working in firms of 1-9 Lawyers.  Do these statisticians know the definition of "solo practitioner?"

The reality is this: unlike associates who earn what their employers pay them, those salaries publicized and reported and easily quantifiable, a solo's income is dependent upon numerous variables and both professional and personal choices in the solo's life.  The metric remains the same, however.  Solos sell their time.  There is only so much time they can sell.  They can choose to sell all of it or part of it.  When they reach their individual maximum they can choose to bring on another and sell that person's time and take a percentage.  Or they can increase their profits by increasing their rate and/or reducing their overhead.   Or they can do all three.

My experience and those I've consulted generally follow a similar pattern.  Starting fresh, right out of the chute with no hip-pocket business, their second year income doubles their first (all things being equal year-to-year). Then it increases by half, yet again.  By year three most I know are outpacing associates in all Big Law firms within their practice area and geographic area providing they are at it full time.  Then there is a leveling off as the solo starts to reassess in which direction they are going to head with their business as well as their life.

Not all solos choose to make millions or build empires but simply want to sustain themselves in the lifestyle with which they are happiest.  Not all solos choose to sell all their available time. Some solos choose to sell some time, donate the rest of their time.  Some solos choose to sell some of their time and spend the rest of their time on non-legal or non-work related matters.

So, repeat after me..."A solo earns as much as they want or need."  It is up to them.

January 26, 2007

Value Billing and Random Acts of Humanity

Many attorneys talk about a changing system of remuneration.  Value billing describes a specific concept which varies from the traditional hourly rate/billable hour model.  Going from billable hours to value billing requires the attorney to understand that changing times call for changing methods of billing.  In order to be responsive to our clients, whom without we do not exist as practicing lawyers, we have to understand the value they place on the resolution of their problem, the money they are willing to spend and give to another to assist with the resolution of that problem.  Therein lies the essence of value billing.

However, I would like to create a second definition of value billing, one where we as lawyers show our clients we value them, and in turn they don't mind us billing for our time..... 

Continue reading "Value Billing and Random Acts of Humanity" »

January 11, 2007

What Does Size Have To Do With It?

Chuck Newton has a great post entitled "What Has Size Got To Do With It?" discussing why solos should not discount their fees simply because they are solos with lower overhead.

It reminds me of my previous life when I worked for another.  I had just come out of college and got my first job interview with a large advertising agency in New York City.  They offered me the job within a day.  I got the telephone call telling me they were interested in hiring me.  They also told me the salary.  I don't know what posessed me.  Here was the number three ranked advertising agency in the country offering a fresh graduate a coveted position (my friends didn't find jobs until six months out!) within two weeks of graduation.  I calmly and collectedly said, "I'm sure this position has a salary range of which you are offering me the low end in anticipation of a negotation.  I don't want to disappoint you.  You and I both know I'm worth more than that so please call me when you have another offer."  I hung up the phone and proceeded to tremble.  Here was the job of a lifetime and I didn't jump at the first offer.  I was establishing my worth, not just to the employer, but more importantly to myself.  I needed to feel good about working for this company and at that time, it translated into a higher salary.  They called back within two hours and offered me a salary 15% higher than the original offer. I took it.

Establishing your rate with clients starts with valuing yourself.  If you don't value yourself, neither will your clients.  When you feel properly compensated you just feel better overall about performing your tasks.  Regardless of the Rules of Professional Conduct, there is a component of self-esteem and, while we all know a positive outcome for your client can be very fulfilling and is our ultimate professional goal, being compensated fairly for that positive outcome takes that fulfillment to the next level.

It's your responsibility to see that you are compensated properly.  Your client is not going to volunteer to pay you any more than what you ask him to.

January 09, 2007

Solos In Charge of What They Charge

Connecticut Law Tribune - December 18, 2006

Others blogs have discussed these cases.  However, my perspective is a little different.

Recently, there were two very interesting court cases involving solos and the fees they both charged and received.

One took place in New York. In McDonald v Pension Plan, 450 F. 3d (2nd Circuit, 2006), solo Edgar Pauk represented James McDonald in a suit against the longshoreman’s union pension plan for improperly calculating the number of years in which he accrued benefits. Pauk prevailed and valued his work at $425 per hour. But the presiding judges (each presiding over different segments of the case) reduced Pauk’s hourly rate to $325 and $390 respectively. The court applied a “blended hourly rate” which considers a law firm model of different level attorneys working on the case at different hourly rates.

Applying such a model to a solo was a first. Even though Pauk performed all the work, the District Court “analogized Pauk’s situation to that of a large law firm” and “created the hypothetical ‘Pauk and Associates’—comprised of one experienced ERISA litigation attorney ($500 per hour) and a hypothetical group of inexperienced associates (less than $300 per hour)—and decided on [his] own which tasks should have been done by respective members of the hypothetical firm.”

This fiction was vacated by the 2nd Circuit for an incorrect application of a blended rate. In an unsigned opinion, the federal appeals court said, “there is simply no support for the proposition that a district court can decide what legal tasks could have been done by a hypothetical associate attorney working for or with Pauk in order to calculate a blended hourly rate of $390.”

The panel, however, still approved the fee award with the hourly rate reduction, based on the trial judge’s finding that Pauk was inefficient and “occasionally vexatious,” and his performance, “though effective, was less than stellar.”

Most interesting, though, was the 2nd Circuit noting that the lower court felt it was “of great significance” that Pauk was a solo practitioner, the implication being that he had much lower overhead. Even though the panel did not reject the trial judge’s finding, it did state in a footnote “that district courts should not treat an attorney’s status as a solo practitioner as grounds for an automatic reduction in the reasonable hourly rate.”

“Indeed, it may be that in certain niche practice areas, attorneys of the highest ‘skill, expertise and reputation’ have decided to maintain a solo practice instead of affiliating themselves with a firm. The reasons for doing so may be numerous, including the inherent problems of high overhead, fee-sharing and imputed conflicts of interest,” that footnote stated.

Which leads me to the next case, that of Curtis Kennedy, a solo in Denver, Colo. Kennedy, who has been practicing out of his modest home for 16 years, takes on the giants and has won scores of huge, sometimes multi-million-dollar, settlements on behalf of those who have been discriminated against in the workplace.

In the underlying case, Kennedy challenged one of the country’s largest class action law firms, California-based Lerach Coughlin, and won. He successfully got Lerach’s fees in a $400 million shareholder securities fraud case against Qwest Communications reduced from $96 million to $60 million. It would have been more than fair for Kennedy to take a reasonable percentage of the $36 million savings. No one would have batted an eyelash, whether he was a solo or not. However, he chose to take just $40,000 in fees and $23,000 for his expert witness.

It is not for anyone, including the judiciary, to say Pauk isn’t entitled to his fees simply because he is a solo. The court applying a blended rate to Pauk’s work by creating a fictional law firm and distributing tasks to hypothetical associates is inappropriate. Nor is it for anyone to say Kennedy is foolish for not taking more. No one is telling solos not to charge prevailing rates or to give their services away. But by not having the overhead, the choice remains theirs to make.

The moral of this column is: freedom from crushing overhead gives the lawyer the flexibility to do what he or she wants.

Susan Cartier-Liebel is solo practitioner, adjunct professor at Quinnipiac University School of Law and a business consultant for solo and small firms. She can be reached at SCartier_Liebel@comcast.net. Copyright © Susan Cartier-Liebel (2006) All Rights Reserved. No portion of this material may be copied, transmitted, posted, duplicated or otherwise used without the express written approval of Susan Cartier-Liebel.