The Estrin Report is a great resource for paralegals and other legal support professionals.  The March 22nd post quotes a Maryland Daily Record article where an attorney has been suspended twice - TWICE - for mismanagement of client trust funds.  He never took one penny, however.  Instead, he was the victim of two consecutive bad hires.

The Maryland solo practitioner hired a paralegal, among other things, to manage a client trust account.  The paralegal, without oversight, embezzled nearly $150,000 before being caught.  After being disciplined, the attorney hired another paralegal to "clean up the financial mess left by " the predecessor.  This one took over $170,000 from his clients.

The attorney complained that he had several hundreds of cases he managed and was in court a lot.  "You’ve got to delegate things. You can’t be there to sign every check.”   

Whether these were paralegals or not isn't the point.  What is noteworthy is the exposure attorneys have, especially in small firms, when trusting unmanaged staff to control firm finances.  Embezzlement is more common than we'd like to believe.  (Admin charged with embezzling over $200,000 from firm; Bookkeeper embezzles over $400,000 from firm;  New Orleans firm dissolves after Chief Financial Officer embezzles $2 million;  Office Manager embezzles $700,000 from firm;  Bookkeeper accused of taking over $4.3 million from escrow accounts)  

Ignorance is no defense.  You can't spend all day watching your staff either.  “You’ve got to have some trust in your employees,” the aggrieved attorney said. “You pay them good money.”  In his case, you'd think a little skepticism would have been prudent.

What are some things that can be done to avert a would-be-embezzler?  Tom Collins wrote the following in his September 6, 2006 post:

First, select business software with built-in audit trails and controls. Remain alert to the reality that it can happen in your firm. Keep your eyes and ears open. Obtain professional assistance to implement appropriate internal controls including segregation of duties. Insist that employees take vacations on consecutive days under an arrangement where others assume their duties. Do not let a crisis take over and circumvent normal controls and procedures. Budgeting, comparative financial results, and detailed review and questioning of monthly financial statements are an essential function of law firm management and play a vital role in protecting and preserving the assets of the firm.

Scott Barrett wrote an article in 2004 that addresses ways to avoid being a victim of embezzlement.  Read it by clicking here.

 We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

Related posts

• Speeding Up Law Firm Billing and Collection
• Opportunity Focused Law Firm Management
• Increase Realization on Law Firm Fees from Insurance Companies
• Generation X
• Fewer Attorneys Would Open Their Own Practice

We will soon start accepting submissions for the 2008 Law Firm Economic Survey.  This is our 3rd year to conduct the survey and in two short years we have created the largest survey of its kind focused on the mid-sized law firm.  Our survey serves several purposes, including but not limited to:

• Providing a measure of annual performance for mid-sized law firms based on per-partner income;
• Validating the core profit drivers that affect per-partner income;
• Providing expert analysis and content for managers to help increase per-partner income.

This year we are adding a focus on client development activities.  In our 2007 survey, 25% of managing partners responded that marketing and business development activities were their firm's best ways to achieve higher profitability.  In the 2008 survey we are asking managing partners what marketing and business development activities they utilize and how effective each are.

We are also asking questions regarding rate as it pertains to practice area.  I have had more questions regarding what firms charge for specific industries than any other finance-related question.  Attorneys want to know whether they are charging the appropriate market rate for their specific industry.  Since each industry can be pretty specific, we have chosen some broad practice areas that we hope will give firm leaders some insight into pricing. 

We are also hoping to do more regional breakdowns by rate, utilization, margin, leverage, etc.; another area in which we receive many requests.  Of course, the main focus of the survey will remain the law firm business model and the key profit drivers that affect per-partner income.

The survey will be broken down into two main parts:  the first part requires financial data and will take some time to assemble since there will be questions regarding 2007 year end numbers (such as standard blended rate by equity partners, non-equity partners and associates, and paralegals).  We will be conducting this part by telephone to help respondents with any questions.  We hope this will also reduce the possibility of invalid responses.  There have been several instances of firms having their responses disqualified due to inaccurate numbers after we were unsuccessful in our attempts to contact them to correct the responses.  We believe the best time to validate responses is at the time of submission and hope the telephonic interview process will help in this regard.

The second part will be for managing partners/shareholders/directors/etc.  Because this part doesn't require financial data (and thus shouldn't require assistance to complete accurately), it will be offered as an online questionnaire to encourage participation by managing partners.

The survey is geared to mid-sized firms.  For us, that means firms from 5 to 100 fee earners (which includes partners, associates, paralegals and others who bill clients for their work).  Although we hope to broaden the scope of the survey in the future, this year we are only accepting submissions from firms in the United States.

All respondents who complete the survey will receive a complimentary copy of our 2007 Law Firm Economic Survey and 50% off the price of the 2008 Survey.  The price has not changed and is still $495, so the value for participating is approximately $750.  The cost of the survey at $495 is among the lowest (if not the lowest) in the industry.  Further, firms who also complete the Managing Partner section of the survey will be offered a summary benchmark comparison of their firm against other respondents.  The benchmarking comparison is valued at over $1,200. 

Due to the time it takes to compile the data and prepare the survey for release (which we hope will be mid-summer), we are only accepting submissions for a two month period and may stop accepting submissions at any time after we reach our target of 375 respondents.  If you would like to participate in the 2008 Law Firm Economic Survey, please email me by clicking here and fill out the email request.

Related posts

• Law Firm Economic Survey
• The Case Against Income Partners
• Size Does Not Have to Determine Law Firm Partner Income
• Six Basic Law Firm Metrics
• Midsized Firms Have Available Capacity and a Pricing Advantage

Bruce MacEwen, an economist at heart, reminded law firm leaders that sooner or later, they are going to face another recession. His post on Adam Smith, Esq. noted that the Hildebrandt/Citigroup 2007 Client Advisory anticipates that the 2007 bottom line for U. S. law firms will be squeezed by increasing cost with little, if any, revenue growth over 2006.

Morepartnerincome’s outlook for midrange law firms is more optimistic. Nevertheless, as Bruce reminds us “….we all know one lies in store sooner or later.” The important question posed by MacEwen is, “Will you be ready?”

Prepared organizations not only survive the periodic downturns of a cyclical economy, they prosper in relation to peers. They come out of recessions stronger with increased market shares. Bruce MacEwen’s post includes some examples from the commercial world. Morepartnerincome offered the following 2007 advice in the earlier post Law Firm View of the Economic Outlook for 2007:

While the outlook is for a good year, it may be one best suited to consolidating your gains and strengthening your law firm financial health and operation performance—emphasizing improved planning, workflow efficiency, and the firm’s overall performance metrics. Concentrate on improved effective rates, better scheduling and delegation to the firm’s associates and paralegals as well as on faster billing and collection. Use this period to replace any remaining legacy systems. You don’t want to get caught in recession or downturn with systems that are no longer supported or that become operationally unsound. Nor do you want to have the competitive disadvantage of being behind your peers.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-374, e-mail info@juris.com or go to www.Juris.com.
 

Related posts

• Law Firm View of the Economic Outlook for 2007
• Top 25% of Law Firms Earn Margins Above 40%
• The Funny Thing About the Brits' Move to EWYK
• Survey Discloses Factors That Influence Law Firm Partner Earnings
• Recession Resistant Law Firms

Unfortunately, there is an overhanging concern that world events or terrorist activity could abruptly change the normal course of events.  Nevertheless, the odds-on favorite is for a good economy in 2007.   One investment organization I deal with places the chances of a down turn in the low 15 percent range.  We appear on course for a GDP growth in the range of 2.75 percent to 3.25 percent.  Inflation should hold to the 2 percent to 2.5 percent range.  It looks like the Federal Reserve will hold interest at their current level or even ease in the second quarter.  All in all, the outlook is a healthy one.  

 

Nevertheless, world uncertainties warrant keeping some powder dry.  Avoid overextending the firm in terms of debt, merger activity, or overreaching in terms of talent additions.  Relying heavily on a major client or particular industry could prove to be an undue risk.  If you are heavily dependent on a few clients or single industry, it is time to consider their susceptibility to the particular kinds of risks we face today, including the risk of a sudden change in the availability of oil.

 

While the outlook is for a good year, its may be one best suited to consolidating your gains and strengthening your law firm financial health and operation performance—emphasizing improved planning, workflow efficiency, and the firm’s overall performance metrics.  Concentrate on improved effective rates, better scheduling and delegation of the firm’s associates and paralegals as well as on faster billing and collection.  Use this period to replace any remaining legacy systems. You don’t want to get caught in recession or downturn with systems that are no longer supported or that become operationally unsound. Nor do you want to have the competitive disadvantage of being behind your peers.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Related posts

• Economic Outlook for Law Firms
• Alan Greenspan Versus The World - The Debate Matters To Law Firms
• Top 25% of Law Firms Earn Margins Above 40%
• Recession Resistant Law Firms
• Outlook for 2005 is Positive

Rees Morrison reported that the InsideCounsel/DataCert Annual Report of Corporate Law Departments listed the top steps taken to reduce corporate legal cost. The list was derived from a survey of 180 law departments.

The top five cost reduction steps included:

1. Bring work in-house
2. Use of interns, paralegals or temporary staff
3. Moving to alternative fee arrangements
4. Preferred provider programs to reduce the number of outside law firms
5. Cutting staff

I was surprised by the third item on the list. Close to one-third of the surveyed firms reported using alternative fee arrangements to lower cost. Of course, we don’t know how extensively each of those firms is using alternative pricing, but it is worth noting that it has moved up in the consciousness of the General Counsel.

While the hourly bill is still king, we continue to encourage law firms to propose alternative arrangements wherever possible.

You want your alternative pricing approach to provide the firm with the opportunity to increase margins through efficiency while reducing the client’s cost and increasing their cost certainty. In my book, that means a fixed fee per transaction, project phase, or for a portfolio of business. In more common general business terms, it means packaging (defining scope) and adopting product-like pricing.

Clients want lower cost and certainty of cost, not just cheaper services. The law firm and the client can both win through increased law firm efficiency:

• Better scheduling
• Use of competent but lower-cost talent where appropriate
• Improved reuse of knowledge
• Better project management
• Taking increased advantage of technology to automate processes
• Equipping the client to carry part of the load

In most cases, law firms are viewed by the clients as too good, too expensive, and too complex. Alternative pricing is one way to shift law firm thinking toward “a solution that is good and simple enough for the situation at a reasonable price."

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

Related posts

• Exaggerated Impression of Law Firm Firings
• What Corporate Clients Read Into Law Firm Bills
• Top 25% of Law Firms Earn Margins Above 40%
• The Shine Wears Off Of UTBMS for Law Firm Clients
• Recovery Strategies Offer New Opportunities for Law Firms

Recently we were asked to provide advice to a young firm that was the product of a break off. The group had been a part of a law firm acquired by one of the mega firms. After a short time the group decided to separate and form their own partnership.

After a couple of years, per partner income was still well below the earnings level the partners had been used to prior to break off. Some of the partners felt that the solution was for the firm to add one or two laterals for a quick fix.

A review of the numbers quickly disclosed that the firm’s production or utilization was well below norms. The firm just didn’t have enough business for the resources on board including partners, associates and paralegals. Our advice to this particular firm was to stick it out a little longer without adding laterals.

The partners are engaged in the great American dream. They are investing “sweat equity”—sacrificing current income to build something of value. They are almost there. Given their capacity each new source of revenue drops to the per partner income line. The best solution is to continue to concentrate on building their book of business one client at a time. Yes, they need to kick business development up another notch but what they need most at this time in the life of the firm is a little more patience. They should forego “quick and easy fix” solutions, which are never that “easy” and seldom “fix” anything.

Based on the experience of others, it is unlikely that the lateral’s book of business will move in mass to the lateral’s new professional home. Overestimating client portability appears to be the standard rather than the exception. The very fact that this previously highly compensated group of partners now finds itself with inadequate income is one more confirmation of the tendency is to overestimate the amount of business that will follow an attorney. Second, lateral additions are small acquisitions. The addition of new personalities and the stresses of assimilation and integration are distracting to day to day business operations and can render a fatal blow to the firm especially one in the early fragile phases of its life.

Another “quick fix” alternative proposed by one of the existing partners is to reduce the firm’s professional staff including the number of partners. Doing so is a law firm’s equivalent of factory closings. It is a bad choice unless it becomes essential as a survival move.

Most of the time there is no such thing as an easy or quick fix. Success takes time and investment. In the case of a professional service business that investment often involves sacrificing immediate personal income for future benefit.

When are laterals the right thing to do? How do you find them? What are the risks involved? How do you make them a success? We will explore those questions and report on related best practices in some of my post over the next two weeks.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

 

Related posts

• Managing Partner Forum Attendees: Business Development Most Effective Way To Improve Profitability
• Why Law Partners Hoard Work?
• Top 25% of Law Firms Earn Margins Above 40%
• The Law Firm's Web Site Has Become the Manager of First Impressions
• Survey Targets Business Development In Law Firms

A survey conducted for Robert Half Legal, a staffing service specializing in attorneys, paralegals and other legal professionals, disclosed that 93% of attorneys in private law firms would not open their own law firm even if they had the capital to do so.  Surveyed attorneys cited the technology, administrative and management aspects as the obstacles they didn’t want to deal with.  What is most interesting is that the results compare to 84% and 78% for the same question in 2002 and 1997 respectively.

The survey findings probably have more to do with Generation X than anything else.

Generation Y, the new associates entering your firm, may reverse the Robert Half trend.  They are more entrepreneurial and more tech savvy.  You will have to work even harder to keep these folks on your team.  They want income.  They want to be an equal among equals. They want challenge.  They want more than a one dimension life.

Generation Y does not live by work alone.

Related posts

• Generation X
• Look Beyond Averages
• Law Firms' Lack Of Oversight Risk More Than Money
• Law Firm Clients Want Their News and Information with Pictures
• Generation Y Attorneys - Is It Lack Of Motivation, Or A Difference In Focus?

Juris® connects to most popular case management systems. It is pretty obvious that connecting the firm’s core business system and case management system to work together will result in “more partner income." I recently got my hands on an article by Jeff Tefelske that highlights the benefits their clients can expect by taking advantage of the connection between their product, LawBase, and Juris®. What he has to say is worth your time. 

Jeff wrote “You can greatly improve the efficiency of your office by connecting the firm’s case management application and business system. One of the leading law firm business systems, Juris®, connects with LawBase case management application from Synaptec Software, Inc. The resulting benefits for LawBase clients include: 

 

Related posts

• Software for the Modern Lawyer
• Reward Attorneys for the Commoditization of Reproducible Work
• New Web-Based Benchmarking Service for Law Firms
• Lawyers Hiding from Phone Calls and E-mail
• Law Firms' Lack Of Oversight Risk More Than Money

Stephen Collins, President of Juris, Inc., and I were discussing the events of The 2005 Southeastern Managing Partner Forum held June 7 in Atlanta, Georgia. Stephen was part of the faculty of the Remsen Group event.

An issue raised by many firms is the question “how to deal with Generation X associates?".  Apparently most felt that the work ethic had changed, yadda, yadda, yadda. 

Being on the leading edge of Generation X, Stephen was surprised at the concern. He reports that “the more we discussed the topic, the more apparent it became that this was a perception issue more than reality.  You know the routine — when I was your age we walked 20 miles to school, in the snow, uphill, both ways, barefooted."

What did come out of the conversation was the realization by attendees that you don’t have to guess if associates are doing what is required.  Use the technology you have to measure performance and to alert you when an associate is not pulling his or her weight, is currently unassigned and available, and/or isn’t turning in his/her hours on time.

Actually, most law firms are not behind in terms of technology.  They are behind in using what they have; they are behind in “applied management”.  I try to stay away from commercials, but managing the firm's resources (associates and paralegals) will become much easier later this summer when Juris® releases its new Practice Management tool for managing attorneys, supervising attorneys and the firm’s legal professionals.  This business intelligence tool gives the attorney a drill-down, graphical field of view over their area of responsibility.  You can tell at a glance what is happening and isn’t happening related to target. I think it is the first time that managing and supervising attorneys are getting a tool that gives them information in time to change the outcome, rather than just analyze “why” after the fact.

Generation Xers are not slackers.  In fact, they are uniquely independent to the point that some would say they lack traditional employer loyalty.  They include a high percentage of entrepreneurs.  Among the non-entrepreneurs, they easily transition from one employer to another.  Comfortable with computers and the Internet, they tend to work smarter and more confidently rather than harder and pressure driven.  If you think Generation X has been a challenge, get ready for Generation Y.  They are just entering the professional labor pool and have their own unique traits. Later postings will discuss more about Generation Y.

Related posts

• Managing Partner Forum Keynote Interview
• Law Firm Value, Partner Compensation, and Continuity
• Law Firm Growth Prospects - 2005 Survey Results
• Fewer Attorneys Would Open Their Own Practice
• What Will Determine Your Law Firm's Future?

As a practice area matures, firms (and competitive firms) gain experience. They develop work product and increase their ability to use less experienced staff for an increasing portion of the work. Clients seek out these firms because of their prior experience handling similar cases. But now other firms also have successful experiences. So there is competition for services. The trailblazer professionals have moved on to other practice areas or left the firm. They are no longer challenged once the trail has been established. The value of the services provided by the firm has declined due to competition and because the value of their work, while based on the firm’s experience and track record, nevertheless relates to increasing routine issues. Recruiting and retention has changed. Rather than hiring laterally, most of the additions to professional staff come from recruiting new associates. The firm is attractive to the recruit because the practice has an established history of advancement within the firm. The practice can sell the candidate on the opportunity to become a partner. Those that don’t reach partner within an expected period of time will leave the firm voluntarily or by being counseled out. The firm must now anticipate its needs and recruit and hire accordingly. The importance of leverage now makes it one of the most important areas for the firm to manage.

Partner income has become more related to leverage than fees. Partners have to handle multiple cases or matters at a time. The more effective the partners are at using associates and paralegals to do the work, the higher the firm’s per partner income will be. Firms that are less efficient at using associates and paralegals will have a lower partner Income. Thus, inefficient acquisition and or use of leverage in a mature practice area threaten the very continuity of the firm. Leverage is now a key factor determining success or failure of the practice.

Related posts

• Leverage and the trailblazer practice
• 2008 Law Firm Economic Survey
• You May Not Know Your Law Firm Has Been Fired
• Whatyasay?
• What Margin Should Your Law Firm Generate?