Posts Tagged ‘law firm economics’

b.leaf: NLJ reports “deepest cuts” they’ve ever tracked in BigLaw attorney population

Monday, November 9th, 2009

Today’s National Law Journal leads with a report of plunging “lawyer population” (their term, not mine) at the AmLaw 250.  The article lead is stark: “the United States’ largest law firms this year suffered the deepest cuts in their attorney numbers since The National Law Journal began tracking their census figures more than 30 years ago.”

All in all, the census tracks a loss of 5,529 lawyers in 2009 at these firms.  It also notes that 113 of these firms reported that they deferred a total of 2,784 associates

Interestingly, during the same time, the number of partners at these firms actually increased 0.9 percent, leading Altman Weil’s Ward Bower to conclude that the associate cuts “were made were done primarily to preserve workloads for partners.”

61% of legal departments seek alternate billing structures from the outside counsel they hire

Friday, November 6th, 2009

According to this week’s Corporate Counsel magazine, more and more legal departments are paying less and less to their outside counsel and they are adopting a variety of strategies to achieve that reduction in spending.  The list of these strategies vary from the traditional (keep more work in house) to the more novel (ban first-year or even second-year associates from working on their projects), but what is noteworthy about them is their increasing popularity.  61% is a lot.

At Brightleaf, we talk to a lot of in-house and outside counsel.  From the latter, we occasionally hear commentary–usually from very senior partners–that alternate billing is nothing new.  Their argument usually goes like this:  “Back in ’88 (…or ’01..or whenever), another bubble burst in the economy.  That bursting also caused clients to pull back on expenses just like this one has.  We survived that. Therefore, everything will be back to normal when the economy rebounds just a bit further.”

And, they’re at least partially right.  In tough economic times, clients will naturally spend fewer dollars and will naturally expect more for the dollars that they do spend.  But when law firms make this argument, I think  they ignore several trends that suggest that not all of the traditional legal billing toothpaste is going back into the client tube when the Dow hits 10,500.

Here are just a few of those trends:

  • Increasing realization by client that they don’t pay for anything else the way they traditionally have paid for outside counsel.
  • Emergence of technologies (like e-billing and matter management systems) that have made legal cost structures more transparent to clients
  • Increasing client dissatisfaction with the effects that the so-called “Cravath model” of associate recruitment and compensation have had on billings
  • The still-rare, but increasingly popular practice where large, influential clients ban 1st and 2nd year associates fromworking on their matters.
  • Continuing disaggregation, where partners pinch off from large firms to form tech-savvy high-end boutiques that scale far better today than they would have ten or twenty years ago.
  • The growing influence of Purchasing or Finance departments on selection of outside counsel, and the resulting focus on cost structures.
  • The growing glut of associates and the effect it will have on the ability to charge to dollar for their services.
  • The influence of high-profile corporate counsel — Mark Chandler, Mike Dillon, Amy Schulman, Jeffrey Carr, Rich Baer – who speak and write and blog about their efforts to ref0rm client-firm economics.
  • Competition from firms that do offer alternate billing models.

I guess that only time will tell.  It will be interesting to see where that 61% number is next year.  From what we hear, it’s not likely to go down.

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Incisive and really funny blog on shifting legal business models

Sunday, October 25th, 2009

We b.leaf types read a lot of blogs that discuss the changes that technology, client demands, novel business models, competiton, and the economy are all wreaking in the business of law today. So far, the funniest–and among the most incisive–is Jay Shepherd’s Client Revolution.  When he’s not dropping thought-provoking and often-hilarious posts into the ether, Jay runs a well-regarded employment law boutique in Boston that may be best-known for its complete eschewal of all hourly billing.  We don’t know him personally, but we’re big fans of his writing. 

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Two days; two articles

Thursday, October 8th, 2009

Yesterday, Mass High Tech wrote us up as an emerging legal technology trend.  Today, American Lawyer sat down with our latest hire, Lynne Zagami, and talked about how Brightleaf represents a change in the traditional BigLaw economics and may be emerging as a new way for really talented young lawyers to work.

Lynne, a former Proskauer/ Brown Rudnick associate, is Brightleaf’s new Director of Client Strategic Processes.  She’ll be working with our large firm clients to help them automate the way they create and approve and manage their transaction documents and free themselves from the strictures of their exisiting economics.  Lynne’s previous life gave her an up-close look at the some of the labor-intensive sausage factory processes that corporate clients increasingly disfavor in their outside counsel.  Now she gets to help re-form those processes.

We’re fortunate to have Lynne on our side.  BigLaw’s loss is our gain…which is ultimately BigLaw’s gain too!.

Article here.

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b.leaf from our intrepid embedded 2L correspondent

Monday, September 28th, 2009

Note: Akshara Kannan was a completely great 2009 Brightleaf summer intern.  We miss having her around.  But here’s the next best thing: during the year, she will occasionally share her thoughts here on how contemporary legal education is preparing her for the changing world of legal employment.

When I began my summer internship at Brightleaf Corporation I had just survived the infamous 1L year of lawschool. I knew Rule 12(b)(6), res ipsa loquitor, and all of the other things 1Ls think make or break their careers.  But most importantly, I knew that the economy would pick up by the time I graduated and I would be fine. How did I know this? When I entered law school, they said that 94% of their graduating class had a job within 9 months. The world needed lawyers and I was going to be one. After all, I got good grades, made the National Trial Team and I was in a Clinic. I had big dreams of running down a Manhattan street in my power suit on my way to some major law firm where I would work my way up the ranks. There was no reason for me to worry, right? Wrong.

I came out of my internship with a completely different frame of mind. The idea that I would need skills that law school didn’t give me had never crossed my mind before then. Didn’t they want us to be prepared for our future careers? How had I never heard about the inefficiencies of law firms? How did I not know about the economics of firms?

In trying to answer these questions, one professor came to mind. My 1L Property professor had been the only one who had taken the time to talk to us about things we would need to know. In the “Last Ten Minutes” we would discuss a variety of issues, from interviewing to billable hours. So, I went back and picked his brain one more time.

He had spent years working for a big law firm down in D.C. While he was there, he suggested document automation to his firm and oversaw the implementation. Now, he teaches his Estates class how to use the system to quickly make documents from templates. So, I asked him why other classes or even law firms never discuss that? He responded with another question. What was your major in undergrad? I immediately saw where he was going with this and quietly mumbled “political science.” And there it was. Most lawyers do not have a background in science and are not as receptive to the use of technology as a result.

He also explained that this was the same basic reason as to why many law firms are not managed well. The skills we use as lawyers do not always translate to management skills. Does it really make sense that the lawyer with the most billable hours should end up running the firm? As much as it pains me to admit it, probably not.

Lawyers and law schools need to reevaluate what is important in today’s legal world. The advancements in technology and changing business models are lost on most of us. If we don’t make an attempt to catch up, we will fall hopelessly behind on the curve.

Timely notes on legal practice innovation from the Georgia Bar Association (June, 1922)

Monday, August 31st, 2009

 

Plus ça change, plus c’est le même chose.

The more it changes, the more it’s the same thing.

Forgive us if we go a little old-school here.  We were thinking the other day about the application of business practices to contemporary legal practice when we ran across the decidely non-contemporary Report of the Thirty-Ninth Annual Session of the Georgia State Bar Association, held at Tyree Island on June 1-3, 1922.

Yes. 1922.

While we ordinarily pride ourselves on being up-to-date and ahead-of-the-curve, this 87 year-old report caught our attention.  Two of its essays–confusingly, both were entitled “Reports on the Business Methods of Law Firms”–struck us for their clarity of expresion, their business-focus, and the odd timelessness of the issues they presented.

“It behooves us, therefore, to follow the lead of business men and study efficiency, the elimination of waste, the accomplishment of best results with the least effort, and the least expense, and the other principles which are recognized as necessary to the conduct of any successful business in these days of strenuous competition and most earnest endeavor.”
- George Jones, Esquire, of Macon, Georgia (p. 148)

When he’s not using the word “behoove” in gentle admonishment, the author above, George Jones, spends much of his nineteen pages arguing for closely tracked but flexibly deployed billing practices.  As his timesheet (pictured below) shows, Jones was a big believer in lawyers scrupulously recording and reviewing the increments of time they expended on client matters.  But, rather than solely invoicing clients for these increments he argues for a blended approach to billing, preferring to use his timesheets as backup to prove to disbelieving clients that amount of work their matters actually consumed.  

“Everyone will agree that the basis for charging fees is one of the most difficult and unsatisfactory of a lawyer’s problems…I maintain that they are four such bases, stated in the order of their importance:

  • First, Time occupied [billable hour]
  • Second, Amounts involved; [contingency]
  • Third, Character and importance of the questions involved and work done; [matter-based
  • Fourth, Results to clients. [success/outcome-based]

[italic text added]

It is the combination or aggregate of these elements which consciously or unconsciously actuates us in determining what to charge…It is important that clients shall be satisfied with the reasonableness of the charge made ..a client thoroughly dissatisfied with an exorbitant charge is likely to seek out somebody else.” (Jones, pp-144-145)

With the cascade of articles in this month’s trade and popular press about the viability of the billable hour, we thought Jones’ 1922 discussion seemed especially, um, timely.  Like we said: plus ça change…

Check out his state-of-the-1920′s-art billing and matter management system below or see the attached for complete copies of the two “Business Methods” papers.
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Killable billable?

Tuesday, August 25th, 2009

Just below the fold on page one of yesterday’s Wall Street Journal is a feature article titled “‘Billable Hour’ Under Attack.”  Its authors, Nathan Koppel and WSJ’s resident law blogger, Ashby Jones, bring to the surface much of what has been increasingly appearing in the print and online trade press over the past eighteen months.  The highlights are basically as follows: 

  1. The downturned economy has exacerbated the already-existing dissatisfaction with the way that law firms charge their corporate clients. 
  2. Some very large clients are using their leverage to drive reform. 
  3. Some lawyers willingly comply with these reforms and have come to appreciate some of the attendant changes in their workstyles.
  4. Other firm lawyers maintain that the frenzy is largely ephemeral and that it will all be business as usual as soon as the economy bounces back to its mid-decade self.
  5. The numbers (alternate-model spending up more than 50% to $13.1B so far this year) suggest that an awful lot of toothpaste is out of the tube already and isn’t going back anytime soon. 

Our thoughts?  We think this nicely exemplifies one core Brightleaf tenet: that the consumers of legal services like the producers of those services and they like the product; they just hate the production.  Clients don’t mind paying top dollar for direct interaction with their outside counsel.  They don’t mind paying top dollar for the more strategic, knowlege-intensive portions of their invoice.  But they perceive little or no value in the routine, repetitive, and process-based tasks that account for a huge chunk of almost every bill they get.   Intellectually, deep-down, they may understand the necessity of some or all of these tasks, but that understanding is not the same thing as value perception. And when it comes to keeping clients happy about bill-paying–and keeping clients happy in general–value perception rules.

Nice mention…

Tuesday, July 28th, 2009

We got a nice mention in a good post from Jay Parkhill of VLP on his Startup Toolbox blog here (even if it still had us under our old name!).  VLP describes themselves as a “distributed web-based law firm” and is comprised of some pristinely qualified people united around a very interesting service delivery model.