international law firms

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

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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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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:

realise

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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Will a ‘One Asia’ strategy work for BLP?

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I spent just over a decade in Asia between the 1990s and mid-2000s. In all the time I spent there I never considered the Region as ‘One Market’ – but rather as a multitude of diverse and different markets.

By way of example, almost everything we did in Asia was “ex-Japan“. This wasn’t because we didn’t see Japan as part of “Asia” – as it very much is – but rather because the international legal market there (NB, the Japanese local legal market is a very different issue) has far more in common with the US market than the Asian. As a result, we lumped Japan in with the US when discussing strategy (and you’re free to question that thinking/strategy).

Likewise, any strategy discussions we had that involved Singapore almost always included India, the Middle East and the Philippines. Similarly, strategy discussions that involved Hong Kong included not only mainland China but also Indonesia.

Finally, SE Asia (Thailand – where I was located, Myanmar, Laos, Cambodia and Vietnam) was its own regional discussion.

All up then, when discussing “Asian” strategy we had four or five discussions – not one.

That said, I worked with (but not for) firms (notably Herbert Smith as it was then) who operated on a fly-in fly-out basis. In my day we called this the “hub and spoke” approach, where the expertise went to the client need and, I have to assume, strategic discussions were done on a Regional basis.

While not criticising firms who took this approach – some did very well out of it – I didn’t think it worked for the firms I worked with as we held the view that, probably more so than any other market in the world, Asia operates on a relationship basis. Our experience was that relationships trumped expertise, and in the very family operated business world of Asia at that time, cost.

So why the history lesson?

Last week, in the Asian Lawyer, I read Bob Charlton – Asia Managing Partner of Berwin Leighton Paisner (BLP) – comment, following the firm’s Asian retreat, that:

“…in broad terms we agreed we must have a one Asia approach.”

Interesting, I wonder what BLP could mean by “a one Asia approach“?

Fortunately the article sets out exactly what that means:

“BLP’s “one Asia” strategy means the firm is doing away with the concept of geographic and practice area distinctions, focusing instead around sector groups. These groups include aviation, construction, oil and gas, private wealth and shipping.”

Now that really is interesting because, frankly, I’m not sure it is going to work.

A sector focus in Asia is a sensible move. A sector only approach to market in Asia is gutsy to say the least.

I say this for two reasons: (1) ‘relationships still trump in Asia’, and (2) Asia is not now, nor will it be for a very long time (if ever), one economic zone. That’s the case both for inbound and outbound work. And even if you don’t want to have people on the ground (which I would strongly recommend you do), you need to consider the geo-political economic implications separately.

And I’ve said all of this without mentioning the elephant in the room: “AdventBalance”. I wonder if they take a sector approach to their strategic thinking in Asia…

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AFAs accounted for less than 10% of all matters in the US last year

This month saw publication of the End-of-Year 2015 edition of the Enterprise Legal Management Trends Report by LexisNexis and CounselLink.

Based on data derived from outside counsel invoices – accounting for US$21 billion in legal spend in the USA – processed through the CounselLink platform, to my mind what makes this Report different to others is this: it provides insights others might miss because while talk can be cheap, the numbers rarely lie.

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From an Australian perspective, a couple of surprising statistics come out of this year’s Report.

  • the use of AFAs, to govern the service payment of matters, only accounted for 9.4% of matters processed through the CounselLink platform. Given all the chatter and whining you hear from law firms, I would have expected this rate to be much, much higher.
  • Employment and Labor (at 17.3%) is a fairly significant practice area leader in the number of matters (but not revenue – see below) using AFAs, but Real Estate accounting for something less than 2% of its practice area matters using AFAs seems out of whack.
  • Nearly 10% of Regulatory and Compliance matters are done under AFA arrangements. At first this seemed a little strange (given the grey hair nature of the advice being sought), but then I thought a large number of compliance programs could be sold using retainers, fixed fees and other AFAs.

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Moving on to percentage of “billings” executed under AFAs and things start to get really interesting.

  • at 12.4%, by far the biggest practice area using AFAs by billings is Corporate, General and Tax (excluding Mergers and Acquisitions, which is a separate line entry). Not sure I would have guessed that.
  • Finance, Loans and Investments ranked third highest practice area using AFAs by billings last year. Again, don’t think I would have picked that.
  • by billings, only 7% of Employment and Labor practice area matters are executed under AFAs. So, 17.3% of Employment and Labor matters were conducted under AFAs, but only 7% of billings. Might just be me, but that seems strange and I’d want to dig deeper into why that might be the case if my practice was showing these numbers. Then again, may just be the Pareto Theory in practice!
  • At roughly 2% of practice area billings, who says Real Estate has become a commoditized practice area? Because these numbers aren’t showing it.

Interesting numbers showing through this Report. Lots of chatter around the rise in M&A activity/revenue and the fact that “New Law” isn’t being hired to do big ticket work, but the use of AFAs and rationalization of legal panels (which I may well blog on later this week) were my two big takeouts.

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Altman Weil Flash Survey: Has the era of data driven pricing arrived?

Last week saw the publication of Altman Weil’s 2016 Law Firms in Transition Survey. Now in its eighth year, this survey continues to be a good indicator of the market forces law firms are facing and in recent years it has been a good indicator of the fee pressure clients are putting on firms.

So, how have firms been tracking when it comes to pricing pressure issues?

At first blush – well. When asked: “Is your firm doing any of the following to support its pricing strategy?“, “Developing data on cost of service sold” and “Training lawyers to talk with clients about pricing” rank head and shoulders (in first and second spot) above everything else.

AM 1

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Clearly moving in the right direction then, reinforced by the overwhelmingly positive response to: “Is your firm proactively initiating conversations about pricing / budgets to better understand what individual clients want?

AM 2

 

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until we get to this shocker…

AM 3

 

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So, almost half (44%) of law firms are now training lawyers to have the pricing conversation with their clients, a whopping 88% of firms are proactively initiating that conversation – and yet three-quarters (72.2%) of firms only make use of non-hourly based billing methods in response to a client request.

Am I the only one who finds that incredible?

But really, why does it even matter?

Well, here’s your answer:

AM 4

 

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There’s a clear lesson here for anyone that’s willing to listen to it: if you want your firm to be more profitable, be on the front foot when it comes to opportunities to provide alternative fee arrangements.

If you haven’t already, I’d like to recommend you download and read the full survey, if for no other reason than it contains this gem…:

 

AM 5

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Which, if you believe, suggests that around half of all law firm partners are not even aware of the challenges their firms face!

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The law firm disconnect in two images

This week saw the publication of LexisNexis’s Bellwether Report 2016. titled:- ‘The Riddle of Perception‘.

Based on structured interviews with 122 independent lawyers and 108 clients (all UK-based I believe), this year’s Report provides valuable insight into the thinking of lawyers and law firms and, incredibly, how far removed that thinking still appears to be from the views of their clients.

None so is this more starkly brought home to me than in two separate images in the Report in response to questions put forward around the issue of fixed fees.

The first (which is actually the second in the Report) can be found on page 22:-

Image 1

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where, in response to “Which of the following is an opportunity for your business going forward?” – 43% answered: fixed fees.

The second is found earlier in the Report on page 18, where when asked what “Changes forms implemented in the last year or plan to implement in the forthcoming year?” – a “deliberate shift towards fixed/capped fees” raked 12th. with only 13% saying there was anything planned around this for the forthcoming year.

Image 2

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Now call me crazy, but that seems to be as close as you can get to madness.

Read the Report though, it really is very good.

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

Valley of despair

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:

  1. what type of work do I want to be doing?
  2. who do I want to do this work for?
  3. what do I know [commercially] about these businesses [tip: if the answer is “not a lot”, get a research assistant on to it ASAP]?
  4. who are the decision makers at these companies?
  5. 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:

  1. will my partners give me relief while I try and rebuild my book of business? If so, how long?
  2. what level of fees do I need to generate (cost +, times 3, times 5)?
  3. 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?
  4. 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?
  5. 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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