Australian law firms

Why asking someone to work 2,000 billable hours a year will kill their spirit

According to a post by Casey Sullivan of Bloomberg, earlier this week US law firm Crowell & Moring announced that it would increase its billable hour requirement for associates, from 1,900 hours per year to 2,000 per year. This new target will take effect 1 September 2016, but on the plus side 50 pro bono hours will count as billable.

15 Years ago I would have cried out “all kudos to you”. Back then my yearly billable target for an English ‘Magic Circle’ firm was 1,400 hours and I flogged my guts out to achieve that. So if you can effectively put 50% of billables on top of what I was doing (and trust me when I say I wasn’t going home at least one day a week), then you’re a better person than I (or so I would have said then).

But if you really need validation of what asking someone to work 2,000 billable hours a year means, then I would like to recommend you read “The Truth about the Billable Hour” by no less an institution than Yale University. In that publication, Yale caution aspiring lawyers that if you are being asked to “bill” 2201 hour, you need to be “at work” (includes travel time and lunch, etc.) 3058.

Taking that further, from an Australian law perspective, if you are being asked to bill 2,000 hours a year then you need to bill 8.3 hours a day (assuming a 48 week year and you never get sick; which, if you are being asked to do this, you most likely will be). That means you are very likely going to need to be “in the office” around 12 hours a day – and that assumes no write-off by your partner or leakage.

But here’s the question: “What difference does this make?”

I ask this because I wholly agree with the following comment my friend Kirsten Hodgson made when I posted a link to this article on LinkedIn:

“why would you reward the number of hours someone spends working? Surely it would be better to focus on how to deliver value smarter and more quickly. This doesn’t incentivize innovation or any type of process improvement.”

Exactly right, you’re measuring all the wrong things!

Leaving aside the Balance Scorecard argument, asking someone to do 2,000 billable hours a year doesn’t take into account:

client satisfaction
realisation (it’s a utilisation metric)
working smarter
innovation

or many other metrics.

And for those who may point out the benefits of this including 50 hours pro bono I say this: the Australian Pro Bono Centre National Pro Bono ‘Aspirational Target’ (ie, where we would like to get to), is 35 hours per lawyer per year.

But probably more importantly than all of this is this:

– if you ask someone to do this, then you really leave them very little time to do anything else.

This really should be a concern, on the business front because you leave almost no time whatsoever to train them in the business of law – ie, you kill any entrepreneurial spirit they may have. And, crucially, the only metric that really counts to them is that all important 2,000 billable hours (keep in mind that like I was, they’re very young). Which for a profession that has the mental health issues we do, is not good.

For all of these reasons, I’m hoping no other law firm follows this. But sadly I think they will.

Oh, and if you are a law firm client reading this post you might just want to look up whether your local jurisdiction has a “Lemon Law” rule that applies to provision of a service.

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Survey: The role pricing specialists play [or don’t] in RFP responses

Last week the USA’s J Johnson Executive Search, Inc and the UK’s Totum published their combined ‘RFP Survey Responses: U.S. and U.K. Data 2016‘.

A fairly evenly distributed demographic of large (defined as being 600+ lawyers), mid-sized (defined as being 100-600 lawyers) and small (up to 100 lawyers, for the U.S. only) law firm respondents, insights from the survey include time spent responding to RFPs, persons within firms charged with project managing responses, as well as tools and expertise made available to responding teams, in both the U.S. and the U.K.

As with most surveys of this nature however, it is the role that pricing plays that typically grabs my attention and given this survey’s combined U.S. and U.K. perspective even more so in this case.

Given ongoing market pressures, it should surprise no one that responses of “strong” from the U.S. (58%) and the U.K. (64%) to the question of what current “price pressure” for proposal & RFPs were fairly similar.

A little more surprising to me was the difference in responses between the U.S. (40%) and the U.K. (60%) to the question “when developing proposals and RFPs, I have easy access to” the answer was “pricing guides/professionals“.

Now don’t get me wrong, even these days I think it is particularly progressive and somewhat comforting to know that 60% of my colleagues in the U.K. have access to some sort of “pricing guide/professional”.

Until, that is, you get to see who actually gets to sign-off (i.e., the “decision maker”) on the all important issue of pricing in RFPs in the U.K.. Here, and I kid you not, the response in the U.K. of “pricing specialist” (that same person who 60% claim to have some form of access to – either via guides or in person) was 5%.

I think that is worth repeating – 5%.

Put into context, that means in the U.K. pricing in your RFP is more likely to be signed off by Marketing & BD (9%) or Finance (14%). Indeed, in the U.K., “It varies” is likely to have more of a say on final pricing in the RFP response than the so-called pricing specialist.

I’m not so sure why the results of this particular survey so surprise me. After all, time and time again survey results show that we typically say one thing about pricing, but do quite another.

What I will say though is this: if you have access to a pricing specialist, and pricing by your pricing specialist is being determined in 5% or less of your RFP responses, my guess is going to be one of two things: (a) you have no idea if you are making money from your RFP “wins”, or (b) more likely, you are leaving money on the table big time!

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* images should be enlargeable, apologies if they appear a little blurred.

How long before we see a ‘Red Team’ service in #Auslaw?

Of note overnight (OZ time) was news that Bernero & Press (Wendy Bernero and Aric Press) have launched a service called: ‘The Red Team’. Described as being “A Lifeline for Marketing and Business Development Departments” the aim of The Red Team is to provide:

“…high-quality, experienced marketing, communications, and business development professionals to law firms on a project basis or to fill temporary needs.”

Sounds very similar to the sort of lawyer placement service we are seeing from the likes of Crowd & Co here in Australia, only in this case the target market is specifically support services.

I have to say that outsourcing back office services such as marketing and business development was something I saw becoming popular in Asia during the Asian Financial Crisis in late 1998 and I have often wondered when we would see such a move take hold in the West.

Today may just be that day.

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Independence Day & The Billable Hour

Two things got my attention on Friday. The first was the decision by the UK to exit the EU (so-called “independence Day” by some of the more fanciful politicians and “Brexit” to most of the rest of us). On a much smaller scale, the second was an article in The Australia Financial Review that “Ditching the billable hours case a struggle“. (print edition – NB: online the article title is “Billable hours to always hold a place in law firms“).

With the first of these two items, I have very little to no control over and am left at the mercy of others.

The second on the other hand is absolute rubbish!

To be clear, mention of the billable hour in the opening four (4) paragraphs of this article are all to internal metrics; specifically how many hours fee earners need to bill each day to make budget (and a side note here, anyone else note how this changed from an annual figure of 1,400 hours to a daily figure of between 6 and 7.5 hours depending on which firm you work for? Is this because a daily figure is much easier to live with than an annual figure that daunts you by its task? If so, kind of simplistic thinking towards people who are supposed to be in the top 1%).

Anyhow I digress as this has nothing to do whatsoever with how clients are charged, much less how they want to be charged, and whether or not the billable hour needs to remain the “go to” fee arrangement of choice by firms and paragraph five (5) of the article tackles this issue head on when it says:

“However, the majority of firms said they worked with clients and offered alternative fee arrangements if suitable.”

You’re kidding right?

For those of you who have not seen it lately, here is the Thomson Reuters Peer Monitor ‘Chart of Billed and Collected Realization Against Standard‘ for the period 2005 to 2015:

That squiggly little line in free-fall tells you realization rates have fallen from roughly 93 cents in the dollar in 2005 to just over 83 cents in the dollar in late 2015. It also tells me that you are not doing a very good job if you are working with your clients vis-a-vis how you charge them for the work you do and it puts to rest any attempt to suggest that billable hours are the preferred method of clients to be billed (unless, that is, you’re suggesting that clients know they can get discounts, or just not pay, bills that accrue on an hourly basis).

So over the weekend I got to think: like the article says, pretty much all of the reasons why the billable hour continues to be a struggle to ditch are down to internal measurement metrics. So, maybe, just maybe, like the UK did on Friday, it’s time for Australian law firms to opt out of the known and disruptive itself – and maybe the rest of the world with it!

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$180K for a First-Year Associate – so what!

One of the big news items this week has been the decision by Cravath, Swaine & Moore to raise its starting salaries for first year associates to $180,000. Cries of “Not worth it!” and “What value do first year associates provide clients?” (answer: probably none) can be heard from all four corners of the planet.

My view on this though is so what? I don’t really care what you pay your first year associates. In the same way I don’t really care what you pay your other associates or partners. Nor do I really care what your rent is costing you.

Unless, that is, I get to thinking that: I am the one paying for all this. In which case, I suddenly become very interested.

But here’s the thing: I’d only really start to think that I’m the one paying for all your luxuries – the boat you have moored at the marina, the sports car you drive, the house you live in, the first year associate you can call on day and night – if I didn’t value the service you provide me. In other words: If I didn’t think I was getting value for money.

So if you’re one of the many private practitioners questioning the move by Cravath, Swaine & Moore, my only comment/question is this:

If you are providing your clients with a value for money service offering – and you are able to communicate this, why should it bother you?

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Report: Collected realization plummeted to 82.2% in Q1 2016

Thanks to an article by Dave Galbenski of Lumen Legal – ‘Overcapacity, Underutilization and Realization Rates Plummeting‘ – I have just been made aware of the publication last month (May ’16) of the Q1 2016 Executive Report (.pdf download) undertaken by Peer Monitor Index (Report).

While the Report gives glimmers of hope (demand slightly up for certain practice areas), the overall message is bleak. And none so more than this:

“After showing some recent signs of stabilizing, collected realization took a sudden and sharp drop in the first quarter. For most of the past two years, collection rates have hovered around the 83% mark. But in Q1, collected realization plummeted to 82.2%. Not only is this a new historical low, it was the largest quarterly drop in more than three years.”

OK, two things here:

a collected realization rate of 83% is not a benchmark we want to be heading to, but away from.
if you keep putting your hourly rates up (recently BTI Consulting’s The Mad Clientist asked: ‘Is $5,000 an Hour Next?‘) but your collected realization rate is “plummeting”, then you’re most likely losing money (as well as the respect of your clients I might add).

My only other thoughts are:

why do we insist on the hourly rate model as our primary means of charging if our collected realization amounts to 82 cents in the dollar? Seems absolute madness to me; and
how many law firms out there can continue to operate on such an “historic” low collected realization rate? I know a number of accountants and bankruptcy lawyers who’ll happily tell you: “not many”.

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What do clients value most when dealing with their lawyers?

Last week I posted on the recent publication of the 2016 LexisNexis Bellwether Report (this year titled ‘The Riddle of Perception’) – with specific reference to the disconnect within the Report between opportunities lawyers identify and approaches they plan to take.

Looking at the Report further, when asked: “How do you rate the service given/received in terms of value for money?” – 30 % of lawyers thought they offered “excellent” value for money, whereas only 8% of clients agreed.

Probably more worryingly, 46% (almost half!) of law firms believed they provided a “very good” service, and only 19% of clients agreed.

And of extreme concern to law firms? – 32% (or almost a third!) of clients thought the service provide by law firms was “average“, whereas [not too surprisingly] only 5% of law firms agreed.

[click on image to enlarge]

Clearly a disparity remains between the service that lawyers believe they are providing and those that clients feel they are receiving.

And herein lies the problem: as we all know, “value” is subjective, in the eye of the recipient. In other words, it really doesn’t matter what “value” law firms believe they are delivering, but what the client believes they are receiving trumps all.

So, “What do clients value most when dealing with lawyers?“:-

[click on image to enlarge]

Well, fortunately that question is answered in the Report too.

Takeout from this?

Just because a lawyer agrees to provide a discount doesn’t mean they’re providing greater value!

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Exiting the ‘Valley of Despair’: Tips on rebuilding a book of business

source: Emily Carr:- ‘Practical Change Management for IT Projects‘

The ‘Valley of Despair‘ is a term used in IT process improvement projects to describe the period of time where productivity decreases immediately after the implementation of a new process. In essence it describes that period of time during which you shift away from what you know and are comfortable with to what is new and unknown (but which will ultimately, hopefully, results in better processes).

Although a term commonly associated with process improvement, to me this has also become a good way to best describe a growing trend in the modern lawyer’s life; namely that particularly difficult period during which a disruptive element impacts on their book of business. Examples would include:

economic: with the GFC most securitization lawyers lost their practices overnight.
panel: when your firm loses a panel appointment with your practice’s biggest client as a result of the client rationalizing the number of its panel firms.
relationship: the key contact at your biggest client moves to a company your firm has no relationship with; or, worse, is promoted to a role where they no longer have influence over who gets the legal instructions.

There are many others, but you get the gist: your performance hits a wall called ‘change‘.

In my experience, partners who face this scenario come face-to-face with Elizabeth Kuber-Ross’ “Five Stages of Grief“:-

Denial —> Anger —> Bargaining —> Depression —> Acceptance

To overcome the Valley of Despair you need a sixth element: a desire to move forward.

Step 1: Accept your fate

The first step in any recovery program is accepting you have an issue. Too often law firm partners stick their heads in the sand and refuse to accept that anything is wrong until the Managing Partner is knocking on their door asking them what their plans are for the future (wink, wink: it’s not with us!). By then, you are well and truly in to the ‘bargaining’ and ‘depression’ phases. If you want to rebuild your book of business you need to be much further ahead of the game than that.

Step 2: Do an audit

Here’s the thing: things in life are rarely as bad as they first seem. So, as soon as you become aware of a change agent – such as those above – get out your pen and a piece of paper and write down a list of who you know, when was the last time you contacted them, what type of work could you be doing for them, are you already doing that type of work, etc.

In short, take stock of what you have and who you could be doing it for.

Step 3: Make a plan

Alan Lakein is reported to have said: “Failing to plan is planning to fail“. I’m not sure if he actually did, but it’s pretty accurate and if you want to rejuvenate your book of business then you will need a plan of how to go about this.

This plan should include the obvious, like:

what type of work do I want to be doing?
who do I want to do this work for?
what do I know [commercially] about these businesses [tip: if the answer is “not a lot”, get a research assistant on to it ASAP]?
who are the decision makers at these companies?
how likely are they to give you / your firm the work [tip: rank the likelihood from 1 – 5 (very – unlikely)]?

Your plan also needs to include things you may not think of, such as:

will my partners give me relief while I try and rebuild my book of business? If so, how long?
what level of fees do I need to generate (cost +, times 3, times 5)?
what rates will I need to charge to generate that level of fees? will the target client accept these rates? if I need to discount, will my partners accept me discounting to win work when their clients are paying full freight?
who is currently doing the work for the target and what am I bringing to the table that would make the target move the work to me?
how will my competition react to me invading their turf?

Step 4: Execute on the plan

I’ve heard it said that: “a plan without an action is a wish“. In the world of professional services, we see a lot of wishing!

So, as soon as you have your plan in place you need to get out from behind your desk and start to execute on it. Look at what

inbound and outbound related activities you need to do;
networking events are taking place and when;

then set yourself a 30-60-90 day action plan to work towards.

Most importantly, always be responsive and never, ever quit. Building a book of business takes patience and repetition, you cannot adopt a “lottery mentality” as one shot actions nearly always lead to failure.

So if at first you don’t succeed, try again. That way, you’ll give yourself the very best chance of rebuilding your book of business and moving forward.

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Report: Do high growth firms share common traits?

This month saw publication of the 2016 High Growth Study by Hinge Research Institute. Although not limited to law firms, law firms (along with “Healthcare & Other”) made up 12.9% of the 968 respondents who answered Hinge’s survey and, therefore, the Study’s findings help provide some insight into whether or not “High-Growth” firms share common traits.

First, “High-Growth” was defined as being a firm with:

“Over $1 million in revenue and had an average yearly growth rate of at least 20%”.

Not exceptional. Having said that, of the firms surveyed:-

30% generated over 88% of new revenue growth and were 45% more profitable than their No-Growth counterparts

so most definitely desirable.

So, did these High-Growth firms share any traits? In short, “yes”; and these included:

Target Clients: High-Growth firms are 75% more likely to have a highly specialized practice – i.e., not all things to all people or full services firms
Client base: High-Growth firms are more likely to target the larger clients (over $10 million in revenue)
Research: High-Growth firms are 2X more likely to conduct research on their target client
Differentiation: differentiators favoured by High-Growth firms are twice as likely to be easier to prove and are more relevant to clients. Importantly, these don’t include “reputation” and “awards won” (favour of No-Growth firms) and do include “culture” and “people”
Marketing investment: High-Growth firms invest 23% less in traditional marketing than No-Growth firms. This is because what marketing High-Growth firms do is targeted and measured

While some of these may surprise, they reinforce that in order to grow in today’s market firms need to have a clear understanding of who they are, who they work for, who they would like to work for, and the value/benefits they provide. In short, they’re focused.

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Medibank Idea Exchange

For my sins I am a member of Medibank Private Health Insurance. I understand it has something to do with having a young family and the Medicare rebate. Anyhow, regardless the reason I get a lot of emails from Medibank that have always gone to straight to my trash folder. That is, until this morning.

What makes this morning any different? Well, I received an email inviting me to join the Medibank Idea Exchange community. In part wondering why they were suggesting the singular rather than the plural, I thought I would take a look.

What did I find?

Well, while I have no intention of joining, what I found was an offer to join an ‘invite only’ community where I will be able to share my thoughts and ideas on a variety of different topics and issues and:

Contribute to discussions and surveys – so you can tell Medibank what you think and help shape future business decisions,
Talk with other members – so you can share experiences and handy tips,
Earn rewards for participating – that you can redeem on a great range of products and services.

and I thought to myself: “there might be something in this for law firms to learn from“.

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