The difference between value and money

Last week (18.5.2018) Seth Godin published a post on ‘The difference between time and money’. In the post, Seth states:

You can’t save up time. You can’t refuse to spend it. You can’t set it aside.

Either you’re spending your time.

Or your time is spending you.

Very profound. Especially if you work in the legal industry.

At roughly the same time (15.5.2018), the Association of Corporate Counsel (ACC) named its 2018 Value Champions.

One of the quotes – in the accompanying news reports to the announcement – states that, when considering value, the committee/clients give(s) consideration to: “cutting costs, improving predictability of spend, and improving legal and processing outcomes.

For a long time now our industry has used time as a metric of success and tried to equate value with the cost of that time.

What I hope we can take out of these two completely unrelated posts is this:- cost of service may have something to do with how we value something, but more often than not it has nothing to do with it at all.

So if you are looking to be a client-centric value champion ask yourself everyday:-

‘What am I doing to add value to my clients’ businesses?’

Because that’s surely how you will survive moving forward.

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Is the end of the ‘full service’ law firm nigh?

Quoting from a recently published ‘UK Business Legal Services Market’ report, last week (10 April) the Law Society Gazette (England and Wales) published an interesting article re ‘Demand for business law rising but top-200 go niche as competition intensifies’.

The article reports that:

IRN surveyed the websites of the top 200 law firms to guage how many have created vertical sector teams to advise different industries. Thirteen vertical sectors are listed by over 50 firms, led by real estate (101), financial services and insurance (97), and hospitality, leisure and sport (91). Another 10 sectors reach double figures.

Interestingly going on to state that:

Some vertical sectors are already becoming crowded, the report warns, with the next emergent trend a move to more niche expertise. In health, for example, niche specialties include GPs, independent hospitals and social care.

With the likes of Tim Williams having advocated for a number of years that ‘niche expertise’ is one of the principal ways law firms can survive the future, with the publication and public discussion of this report maybe the time has one again come to ask:

  • what do we mean by the term ‘full service’ law firm?, and
  • is there any negativity moving away from this term.

In response to the first point, personally I have never truly understood what law firms were trying to achieve by claiming to be ‘full service’. Indeed, I’m not sure I can cite a single honest example of a big law firm being ‘full service’ (in Australia, most don’t do Wills & Estates and syndicated bank lending under the same roof).

On the support services side, ‘full service’ always seemed to be something Marketing had come up with in the early 2000s to ensure we had ‘cross selling’ collaboration and were not missing out on any opportunity with the rise of Globalisation.

On the lawyer-side, the term ‘full service’ law firm over the last 20 years seems to have meant that the lawyer could put their hand up to do bankruptcy as well as your latest employment contract (especially when there is little incentive within the firm to refer the work to the ‘true’ expert) – i.e., Jack of all trades, Master of none.

In response to the second point, I believe the article itself clearly answers this question – clients would prefer to deal with subject matter experts.

And therein lies the most interesting twist to this issue today:- it has been the case since I first started out in this business over 20 years ago that if you were considered a ’subject matter expert’, you would do well.

So, taking this all on board my take-out from this post is this:-

moving forward, if you want to be taken seriously, stop promotion your firm as ‘full service’ and start promoting both the firm and its lawyers as the subject matter experts.

Because that’s how we survived the future in the past.

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The Three Noble Horsemen of private practice: ‘Finders, Minders and Grinders’

When I first started working in private practice there what were then commonly known as the Three Noble Horsemen of private practice law firms:- The Finders, The Minders and The Grinders.

The Finders‘ were what we today call ‘rainmakers‘. They went to all the conferences. They were members of the most exclusive golf clubs. They spent hours at some of the finest gyms and clubs. Indeed, there isn’t anywhere they wouldn’t go – often at short notice – if they thought their next big deal was there. On the flip-side, they had also forgotten most of the law they studied at university and hadn’t spent a day on the tools in years.

The Minders‘ were charged with looking after the client once the Finders had brought the client in. They were good lawyers and they had some good/great networking skills, but they weren’t very good at sourcing greenfield opportunities. To that end, they went to conferences and played golf so long as their prized client was at the conference or playing golf that day. Today this group are more commonly known as ‘Client Relationship Partners‘.

The Grinders‘ were academically brilliant lawyers who gave spot on advice. They were the product that the Finders could sell and the bedrock that the Minders could rely on. Mostly introverted and shy however, they neither liked the idea of ‘selling’ themselves nor the thought that they would have to network with clients. The just wanted to be on the tools – lawyers as a profession, not a business.

And, in those days, most firms knew, accepted, and encouraged, that if the firm was going to succeed it needed all of these partner skill-sets. To have Finders without Minders and Grinders was a quick route to failure. As was having Grinders, without Minders and Finders.

They were all interwoven.

Introducing the balance scorecard

And then we introduced the ‘balance scorecard’.

Under the balanced scorecard, in order to maximise your revenue (100 point partner), you needed to be a little of everything – but expert at nothing.

Finders needed to do some minding and, heaven forbid, grinding.

Minders now needed to do some finding and grinding.

And, worst of all, those introverted Grinders now needed to do some finding and minding.

Unsurprisingly, after a short period of time, the Grinders were on their way out. It was just too hard for them to find work and even if they did fluke a new matter, they simply couldn’t keep the client past one or two deals. So, on the basis that “if you cannot beat them, join them” many of the Grinders decided to join the growing ranks of in-house counsel.

More surprisingly, the Finders found themselves in a spot of trouble. They were a heavy cost, and under the new performance structure, they weren’t making any money/profit. Sure they may get the odd referral credit, but they weren’t really doing any of the work and so – in truth – anyone could do what they were doing.

Out of all of them, the Minders were doing the best. But without the Finders to help them find the work and the Grinders to actually do the work, the Minders soon become what we like to call ‘entrepreneurial‘ partners.

And so that is where we are today.

But I do miss the days of the Three Noble Horsemen of private practice:- The Finders, The Minders and The Grinders, and I think any firm looking at its 2025 strategy could do a  lot worse than get a hell of a lot better at its finding and grinding, even if that comes at the cost of some minding.

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Is it time for ‘ARMs’ to replace the ‘RFT’ process?

Last Friday, 2 March 2018, Alex Berry, in the UK’s Legalweek, published ‘The end of panels? Barclays adviser shake-up provides vision of RFP-free client relationship‘.

Berry’s article outlines reaction to Barclays Bank’s announced shift away from the traditional [and largely, IME, procurement-driven] panel review process – in that, by the end of this panel term, in 2021, Barclays will not be re-tendering its panel.

The good news for the current private practice client relationship partner(s) – but probably not the many tender writers out there (including me) – is the news that:

“When the latest panel appointments come to an end in 2021, Barclays will fully move over to the new model, with lengthy panel reviews – and the laborious RFPs they entail – becoming a thing of the past.”

Which, begs the question – “What new model?”

The answer according to Berry is something termed:

‘active relationship management’.

Think about that for a second: ‘active relationship management‘ – then ask yourself: “How that differ from BAU (business as usual) in your firm?”.

Berry’s answer:

‘active relationship management’  – “will give the bank more flexibility to manage the size and composition of the panel, with law firms added and removed from the line-up on an ad hoc basis.”

But hang on a second – ‘Isn’t that what the whole RFT process is?’

Isn’t that what we have been talking about for years, vis-a-vis the whole rationalisation of panels?

It would appear not.

In Barclays Bank’s case:-

“Barclays argues that this model will help it to develop deeper relationships with its long-term advisers, while the bank is also looking to increase its use of alternative fee arrangements and move towards the “redundancy” of the hourly rate.”

Really?

Replacing a legal panel with an ARM structure, with no end term, with the aim of helping the client “develop deeper relationships with its long-term advisers”. I’d second that.

But, “the bank is also looking to increase its use of alternative fee arrangements and move towards the “redundancy” of the hourly rate” – sorry, but wrong platform to have a constructive discussion on this issue.

End result:- likely to be a churn a burn until the next RFT.

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Podcast: In conversation with Ian Mountford – some thoughts on how well law firms use Social Media

I was fortunate enough to have recently been invited by Ian Mountford, of Fit for Social, to join him in a  general discussion on our mutual thoughts around how well #Auslaw firms are doing with their use of social media as a business development tool.

Chat lasts about half and hour and can be heard here.

For those of you who listen, hope you enjoy it.

As usual, feel free to let me know whether you agree or disagree with my views.

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How much do you love your client?

I read an article last week in which Jeffrey Cashdan, a partner at King & Spalding, who represents Coca-Cola, is quoted as saying he had banned all [Coca-Cola] competitor drinks from his home.

Think about that for a second…

…banned all competitor drinks from his home!

That’s a hell of a range. And a hell of a commitment, especially if you have children under the age of 20 running around!

So I started to think:- how many of the products in my home belong to my clients?

And I was pleasantly surprised by the answer – a fair few.

But I was also surprised how many competitor brands were in the house.

So I got to thinking, if we expect loyalty from our clients (whether that’s expertise or brand), how many of us out there are willing to go as far as Jeffrey Cashdan, who would appear to walk the walk when he says:

“I’m all-in for my client,”

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The pointlessness of the ‘billable hour’ set out in two charts

Overnight, Australia-time, the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute, relying on data from Thomson Reuters Peer Monitor, published the findings of its ‘2018 Report on the State of the Legal Market‘. Reviewing the performance of U.S. law firms in 2017, as well as looking at the trends expected in 2018, this annual report is typically the “first” big report publication of the year and so a trendsetter of where we may be going as an industry over the next 12 months.

As has been the case in other years, the first chart I typically like to see in this annual report is the one setting out ‘Collection Realization against Standard Rates by Law Firm Segment‘ – Chart 9 in this year’s publication – to hopefully give me an indication of how an industry that largely relies on increases in hourly rates each year to boost top-line revenue is fairing.

As you can see, yet again the results here can best be described as ‘disappointing’:

Chart 9

AM Law 100 firms are tracking an ever declining realised recoveries of circa 80 cents in the dollar. All others aren’t doing all that much better at circa 85 cents in the dollar.

Either way, those levels of realisation would have most bank managers in a panic. And the reason they don’t comes down to one small issue: in law firms this collection rate – other than telling you that the market doesn’t see your hourly value as highly as you do – is absolutely meaningless.

What it is, is pie in the sky internal budgetary metrics against market reality cash in the bank.

So we turn to my second “go-to” chart: ‘Collection Realization against Worked (Agreed) Rates‘. This year this is represented in Chart 10:

Chart 10

As the name suggests, what this chart is showing us is “Collected v Worked (Agreed)”. I’m   assuming the “agreed” here is upfront, and I’m accepting that the picture is far from perfect, but there is a far better flatline realisation rate here of 90-ish per cent, or 90 cents in the dollar.

So, what’s my take-out from the two charts?

If you want to try and get a better handle on your projected cashflow, no doubt better to have an upfront conversation with your client about how much you are going to be charging them – however that is (fixed fee, hourly rates, etc) – than having an arbitrary, and less and less meaningful, ‘billable hourly rate’.

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