Thoughts on law, business, technology, and economics.

We’ve written before about Bolivian President Evo Morales’  plan to market a coca leaf-based soft drink called Coca-Colla.  We’ve even suggested some trademark strategies that Evo might pursue as he follows this dream.  Because what’s the point of working your way up to head of state if you can’t use the position to infringe on the word’s best known trademark?  It’s good to be El Presidente, after all.

So, imagine our delight when we saw this week that during a friendly soccer match, our pal Evo intentionally kneed an opposing player in a, um, politically sensistive area. 

Our minds literally reeled under the weight of all the jokes that occured to us immediately upon viewing this.  Sadly, none of them are fit for publication on a work blog.  Let’s just say that as election season fast approaches here in the U.S., we’d all like to see this sort of thing added to the stale debate format we’re currently stuck with.

You go Evo. Sit next to Mahmoud Ahmadinejad at your next UN visit and recreate this act.  You’ll be the most beloved leader in the world.

Jeff Zucker announced today that he was leaving NBC upon completion of the Comcast merger in a few months.  This surprised nobody.  Comcast isn’t ponying up almost $14B so that it can leave the network in the hands of the man who oversaw its precipitous dive from #1 to #4 in the ratings.  And it isn’t letting its flagship be captained by the man whose handling of the Olympics and Leno debacles alone had the peacock hemorrhaging nearly a quarter billion in losses last year.

Still, if you read Jeff Zucker’s own comments in the press release, you might actually for a minute believe that this was somehow Jeff Zucker’s decision, or that it was done out of the deep goodness of the altruistic heart of Jeff Zucker.  And that might confuse you, or confound your sense of how the world should work. 

Fear not.  Thanks to our homegrown Interpreter technology, our backgrounds in law and marketing–and to an intensive Berlitz tutorial–we at Brightleaf speak fluent Pressrelease.  Please…allow us to translate for you: 

————————————————– 

RELEASE: SEPTEMBER 24, 2010, 11:55 A.M. ET

[This means "September 24th, 2010, a little bit before lunchtime. Mmmmm....lunchtime."]

UPDATE: NBC Universal’s Zucker To Leave Co After Comcast Deal

["Co" as used here means "company" and not "country." Or "cosmos." Pity.  It would be cool if he were actually forced to leave the cosmos. Like those bad guys in Superman II *sigh*]

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[The above are a list of social media and social media tools.  Despite the fact that they are used daily by several hundred million users and profoundly impact his industry's operating model, Jeff Zucker barely knows what these things are.  He believes them to be worthless.]  

By Nat Worden 
Of DOW JONES NEWSWIRES 

[Nat Worden is a writer.  Jeff Zucker barely knows what these things are either.  And he believes them to be worthless too. If he had his way, he'd replace them all with reality show producers.  Or, maybe, out of blind panic, he'd replace the network's entire script-written 10PM line-up with a lame talk-show that re-hashes the same three two tired schticks over and over and over to a rapidly aging audience.  Oh...wait...he did do that.]

A few years ago I had some dealings with a fast-rising associate—let’s call him “Jeffrey”–at a very large law firm.  I have to admit that I did not much care for Jeffrey.  He exhibited a pronounced tendency to agree to something during verbal negotiations and then, later, while back at his desk drafting, move the agreement goal posts dramatically.  To put it mildly, this produced a degree of mistrust between my client and his client that ultimately did not serve anyone well.  Except, maybe for the extra billable hours that it generated for Jeffrey’s timesheet.

However, Jeffrey seemed to be very well regarded at this firm.  He was clearly very smart and very, very hard-working.  He had been given a high degree of autonomy on my deal, and ran the junior associates under him the way a mid-level partner would.  By all appearances, under the metaphysics that govern the BigLaw associate universe, Jeffrey’s star was rising.

When I recently ran into one of his co-workers I was surprised to hear that Jeffrey had been let go.  We at Brightleaf work with a lot of large law firms and are well aware of the exodus of their associates over the past two years.  Still, given Jeffrey’s apparently upward trajectory, his departure initially seemed odd to me.

When I asked what lead to Jeffrey’s ouster, I was told (paraphrasing), “the stuff that got him to the doorstep was not the stuff that was going to get him over the transom.”  I’ve thought about this conversation over the past month or so, and have come to believe more than ever that the way firms train and rate and promote associates does those associates a disservice.  It’s not just the pace and lack of formal instruction and pressure to bill hours, it’s what Jeffrey’s co-worker said:  the selection pressures you evolve against in one phase of your profession often leave you ill-suited for the next phase.

This is certainly true for other professions as well.  Focus and self-involvement might get you to the top ranks of the pre-med class at a competitive college, but they do not correlate with the empathy and listening skills required of excellent doctors.  Republicans race to the right and Democrats to the left during party primaries, only to then have to race each other desperately back to the middle for the general election.  The course you chart to follow your goal often abandons you part way to that goal.  It’s like an old boss of mine used to say:  if you are trying to get to the moon and you start climbing a mountain, you might delude yourself into thinking that you are getting closer and closer to your goal as you go up and up.  But ultimately, no matter how hard and fast you climb, when you reach the summit, you’ve gone as far as you can go along that approach.   In order to reach your goal, you have to come down from the mountain and build a rocket. 

From what I could see, Jeffrey’s particular work style—lots and lots of hard-churned hours driven in part by a willingness to keep re-negotiating negotiated points on behalf of his client, a pinch of personal abrasiveness—worked well in the short term but killed him in the long.   They got him up the mountain but kept him from the moon.  Ultimately, it was difficult to see how even his clients would like his approach for long…let alone how he would ever bring in new clients.  And the large firm that benefitted for years from the undoubtedly huge number of hours he spent during his climb should perhaps shoulder much of the blame for encouraging him on that path before pushing him off a cliff.

Let’s hope wherever Jeffrey is now, he’s hard at work on his rocket.

Lynne Zagami Riquelme came to Brightleaf from a background at Proskauer Rose and Brown Rudnick.  At the former, she participated in spirited debates on the subject of carried interest taxation and its implications for the tech economy.  Here’s her well-informed take on this in-the-news issue…

In recent months, a lot of attention has been paid to the question of whether Congress, as part of a larger financial overhaul, will change the taxation of carried-interest income for managers of investment funds that are organized as partnerships.  In other words, Congress is poised to change the face of private equity and venture capital as we know it.

We know an overhaul is in the works – House and Senate bills are being debated, Elizabeth Warren is talking tough to NPR and ads for Fox News are asking whether America is broke.  We here at Brightleaf don’t presume to know the future (and we can’t seem to find a crystal ball on eBay), but we’re pretty sure we’re in for the biggest set of financial reforms since the 33’ and 34’ Acts were passed.     

Further, we bet that whatever reform measure is passed will include an increase in an important tax rate tied to long-term investment.  Congress has been trying, with limited success until now, to change the tax treatment of carried-interest income, which is the share of profits that private equity, venture capital and real estate fund managers receive as part of their compensation.  The problem, according to Senate Finance Committee Chairman Max Baucus (D., Mont.) and House Ways and Means Committee Chairman Sander Levin (D., Mich.), is that carried-interest is treated as capital gains (and taxed at a rate of 15%), when it should be considered ordinary income (and taxed at rates up to 38.5%).  Their argument?  That the managers running these funds have been paying capital gains rates on money that should be treated as wages because they earn this money for managing other people’s money (i.e. working).  Indeed, many proponents of the change argue investment managers should be thankful the U.S. isn’t proposing a U.K.-style excise tax of 50% on managers’ incomes.

So what’s wrong with that argument?  There are two important things to note: 1) fund managers take on a lot of risk when they make investments and 2) lots of people benefit when fund managers take these risks.  The first point boils down to this – fund managers don’t make money just by going to work, as the rest of us do.  Carried-interest, in the context of private equity and venture capital funds, is earned years after an initial investment is made.  Further, as Douglas Lowenstein, president of the Private Equity Council, points out, “earning carried-interest involves taking risks . .  . and exposing yourself to the possibility that you’ll have to return your earnings if things don’t work out.”  The rest of us simply don’t face consequences like this in our professional lives.

Second, saying that keeping carried-interest rates low provides an unfair advantage to fund managers is remarkably shortsighted.  When we begin orienting our tax policy around people, and not activities, we set a dangerous precedent.  Do fund managers sometimes make lots of money?  Yes.  But in the process, they provide essential funding to companies that in turn hire U.S. workers (indeed, emerging companies were the only ones to add jobs in 2009).  The Private Equity Council’s report on the proposed rate change states that the hike could prevent between 36,600 and 127,800 jobs from being created through private equity investments.  Taxing carried-interest at lower rates encourages capital formation, construction activity, and job creation, all of which are in short supply these days.  Can we really afford to discourage those activities at this point in history? 

We here at Brightleaf are inclined to say no.  In fact, we’ve spent the past few years growing and hiring talented workers thanks to the support of a venture capital firm.  While other companies were struggling, we were bringing in additional talent to respond to the demands of a changing legal industry.  We were advising law firms and corporate legal departments on ways they can incorporate document automation into their plans for the future.  And we will continue to do more of this.  Whether other companies will be as fortunate as we have been, we’re not so sure.

After the success of our first round of Entrepreneurship Talks wth Foley Lardner, we’re glad to be heading back for a second at 2:00 PM (EDT) on June 17th.  We’re focusing this time on practical (!) solutions to the intellectual property challenges that face new ventures.  Details and official Foley press release here.

And, for those of you who want a re-cap of the first round, you can listen to our Dave Curran and Foley’s Gabor Garai right here.

Trained as a lawyer in his native Canada, Jordan Furlong has spent most of his career as a legal journalist and a strategic consultant to Canadian law firms.  He writes well and convincingly about fundamental economic issues in the contemporary practice of law.  His blog, Law21: Dispatches from a Legal Profession on the Brink, is one of the best sources we’ve read for good writing and deep thought on the subject. He does not mince words.

Jordan’s post earlier this week, How to Compete on Price, is superb.   He begins with the often-heard truisms that law firms can’t compete on price–that it provides a fast path to commoditization and that it is ill-suited for the specialized, knowledge-based nature of legal services.

But then Jordan shifts gears, saying in effect that the more he considers the subject, the more that he realizes that lawyers will have to compete on price.    ”Whether we like it or not, price will become a significant competitive factor, and it will be dangerous to run our businesses pretending otherwise.”

Fortunately, Jordan also offers a solution:  law firms can compete on price by competing on cost.  By lowering costs, they can price more competitely (or flexibly) while maintaining or even growing margins.  While this may seem obvious, it isn’t.  Law firms (epsecially larger ones) have famously been cost-oblivious.  They compete to pay higher and higher salaries to incoming associate classes.  And they traditionally occupy the most expensive real-estate in their respective cities (Side note:  I was at a meeting in Boston last week with several GC’s and large-firm partners when one of the GC’s blurted out, “Why are you guys all in the Back Bay or the Financial District?  When is a firm going to locate its offices in Woburn?  Because THAT’S the firm I want to hire!) .

Fortunately, Jordan offers several basic tenets of cost-competiton that firms should follow:

1. Initiate project management
2. Automate anything repetitive
3. Focus your high-value people on high-value work.  Offload everything else.
4. Use technology wherever possible
5. Think seriously about outsourcing
6. Adopt non-hourly billing and compensation

We often hear one or two of these tenets in our client meetings.  But it’s especially interesting to see someone list them all in once place in such a well-written posting. 

Nice work, Jordan.