Recent Trends Impacting International Law Firms Looking To Grow their U.S. Presence

/0 Comments/in , /by

A recent article published in the Global Legal Post does a good job summarizing what some of the so-called “Magic Circle” U.K. Firms have been doing to grow their presence in the U.S. Specifically, the article identifies recent moves made by Allen & Overy, Freshfields, and Linklaters to hire lateral partners from Am Law 100 and open offices in various major U.S. locales such as Boston, New York, Los Angeles, San Francisco, and Silicon Valley.

Setting aside that the phrase “Magic Circle” might sound strange and witchcrafty to certain American ears, the expansion of Allen & Overy, Freshfields, and Linklaters into new U.S. markets has interesting implications for other international law firms who want to expand their U.S. presence but lack the resources to pay lateral partners millions of dollars or to invest in long-term leases in Class A buildings in the most expensive real estate markets in the U.S.

So how should most international law firms react to the spells cast by the “Magic Circle”?

Strategic planning begins by recognizing opportunities and threats.  Much of the legal media treats the biggest global firms as constituting a distinct market segment, such that they barely mention what is happening to most law firms, even ones with 200-500 attorneys. The first task for leaders of sizable international law firms is recognize that what Allen & Overy and others are doing impacts their efforts to attract U.S.-based clients.

Let’s start with the threats posed to most international law firms. Historically they relied on attending international legal conferences and joining associations of international law firms to expand their visibility within foreign markets. When larger firms open physical offices in U.S. cities and other countries, it makes it less likely that attorneys in those cities with reach out to foreign-based law firms. Joining an association or consortia of firms is going to be less effective when, for example, a law firm based in the UK doesn’t need to communicate with a firm based in Greece and can instead directly talk  to their colleagues in their Greek offices. And given that the largest U.S. firms are also opening up more offices in more countries, there is a growing risk that the biggest global firms will interact with each other, and other sizable international firms will be increasingly cut out of the picture.

The expansion of the global megafirms into more U.S. cities also presents opportunities for other sizable international law firms. One opportunity involves increasing legal fees; Allen & Overy attorneys are pricey, which has the effect of allowing other international firms to charge more, but still be perceived as relative bargains. To take advantage of this dynamic, international law firms must be selective and focus on expanding their U.S. presence with respect to specific practice areas. There are some practice areas, such as antitrust, global mergers, and bet-the-company international arbitrations where corporate clients are unlikely to move away from the global giants. But that leaves other practice areas, such as intellectual property, real estate, privacy compliance, and tax, and others where international firms are well-positioned to attract U.S.-based clients.

In addition, many international law firms would be well advised to reach out to firms that are also competing with the biggest of the big in their home markets. There is an adage that the enemy of my enemy is my friend. And that principle applies here. Too many international firms fail to connect with large U.S. based law firms who compete with the Am Law 100. This oversight is understandable. It can be hard for foreign lawyers to grasp the size and scope of the U.S. legal industry. It is a $250 billion USD industry annually, and while the biggest law firms gain a lion’s share of the media attention, there are hundreds of firms with between 50 and as many as 500 lawyers who would be natural potential allies for sizable foreign law firms.

As consultants to law firms, we have firsthand knowledge and over 20 years experience working with these large U.S. firms. Opportunities do exist for foreign law firms looking to expand their presence in the U.S. or generate more work from U.S. based business clients back in their home countries. The first step is for the leaders of international firms to recognize that, notwithstanding what the “Magic Circle” conjures up, they do have options in the U.S.

The Two Most Important Lessons Learned from 25 Years in the Law

/0 Comments/in , , /by

I turned 55 this week. That still looks like a typo. And reaching this milestone – if it is one – reminded me of where I was 25 years ago.

On my 30th birthday, I deposed a building contractor in connection with a pro bono lawsuit. I was a junior associate at the L.A. office of Skadden Arps. The client was Covenant House California, a homeless shelter that focuses on helping runaway teenagers, and its director at the time, Fred Ali. Covenant House was involved in a real estate dispute with its landlord, who refused to return Covenant House’s substantial deposit when the organization vacated the premises. We were suing to recover the funds. The landlord countersued, claiming that Covenant House had substantially damaged the property before vacating.

The deposition was memorable. It mostly involved looking at dozens and dozens of pictures of soiled toilets and other bathroom fixtures. The contractor used the photos as the basis of his damage claims.  After a lengthy series of particularly gruesome pictures, I asked, “Your job isn’t all glamour, is it?” The building contractor laughed, as did the court reporter.

At trial, we were able to show that all the damage reflected in the photographs took place after Covenant House vacated the premises. I was the second chair. The lead attorney was Robert O’Brien, then a mid-level associate at Skadden. The judge ordered the landlord to return the security deposit and pay accumulated interest and awarded substantial attorney’s fees.

The landlord opposed the attorney’s fees awarded on the grounds that attorney’s fees shouldn’t be recoverable by lawyers working pro bono. In 1995, that wasn’t a settled issue in California. With the assistance of a few amicus briefs, the court issued a written opinion affirming the right of pro bono counsel to collect attorney’s fees if a contract provides for such fees. A few months later, as a token of Covenant House’s appreciation, Robert and I each received a replica of a sculpture (pictured here). Mine is one of the few objects that I have retained from my days as a practicing attorney.

Fast-forward 25 years, and as a consultant to law firms, my week has been focused on helping firms with succession planning, lateral partner questionnaires, speech coaching, and strategic planning. Many of these issues either didn’t exist in the law or would have been hard to predict even a short time ago. Fred Ali is now the President and CEO of the Weingarten Foundation. As such, he is one of the leading figures in philanthropy in Southern California. Robert O’Brien is now National Security Counsel to the President.

So what can be learned from this nostalgic look back? Some of you might be thinking that Fred and Robert have done more with their careers in the last 25 years than I have. Undoubtedly true, but obvious.

Two less obvious lessons stand out.

First, in a world that is rapidly changing, and where it is easy to get stuck in the minutiae of day-to-day work, including business development activities, what sticks with you over time are the causes you have pursued. If you seek to represent people and organizations that do things that matter to you or that you admire, you are far more likely to attract and keep the clients that you most want.

Second, embrace change. When I left large law firms to start a consulting firm, a lot of people thought that was crazy. And now, law firm partners are more likely to see leaving the law as a sign of intelligence. That is an oversimplification and gives far too much credit, but what is true is that the law and the world are changing too rapidly to tie your happiness and fortune to the status quo not changing.  Who knows, 25 years from now, and potentially a lot sooner, large law firms could disappear as independent entities, subsumed by even larger accounting firms.

Those who work as, and on behalf of, lawyers are fortunate to have careers that can span decades. Here’s to the next 25 years (or even more).

Why Being A Good Lawyer Isn’t Enough To Succeed Financially

/0 Comments/in , /by

I still come across lawyers who feel that the distinguishing feature of their practice is their technical skill as a lawyer. Most recently that sentiment was conveyed to me by a business litigator with about ten years of experience who feels that many of the lawyers he encounters aren’t as technically proficient or reliable as he is. He wanted to make that a central piece of his marketing strategy.

I understand the appeal of this message, but there are at least three reasons why it’s likely to have limited success attracting more clients.

First, lawyers are hired before they provide their services. Thus, the decision to retain a lawyer depends on whether the client trusts the lawyer, not whether the lawyer will in the future be technically proficient.

Second, It is exceedingly rare for one lawyer or law firm to have a material advantage in technical knowledge over all of its competitors. This is especially true for lawyers based in large US cities who serve business clients.  No lawyer has a monopoly or anything close to it on any aspect of legal knowledge. Clients almost always have the alternative of substituting in another competent lawyer.

Third, it is possible for clients to perceive that one law firm is the go-to firm in their community for a particular service or legal problem. But a law firm doesn’t reach that status by proclaiming that its lawyers or level or expertise is superior. That message largely needs to come from others. If enough lawyers and clients and members of the media and other arbiters of taste identify a particular lawyer or firm as distinctive in some superior way, then that firm has created a brand.

But  look around. How many  law firms outside the AmLaw 200 have a brand identity? If you just mention their name that evokes a sense of higher quality lawyering. That kind of brand almost doesn’t exist in American legal services. Individual lawyers have established a personal brand, but even there the brand isn’t built on the lawyer saying they have  better technical skills than their colleagues.

This is not to suggest that it isn’t important for a lawyer or law firm to be experts in their field. Expertise obviously matters once you are in a position to serve a client. And doing good work for a client is the best marketing strategy for keeping them as clients. What too many lawyers fail to appreciate, however, is that doing excellent work doesn’t constitute an effective marketing message for folks who have never retained you before. Part of the message to prospective clients involves your expertise. It is a necessary element, but it is not sufficient to attract new clients.

Being a lawyer in today’s turbulent times increasingly requires sophisticated marketing strategies and messaging.  Lawyers who above all prize their technical expertise often don’t like to hear this message.  But that doesn’t make it any less true.

Why Law Firm Partners Resist Projecting Revenues

/0 Comments/in , /by

There are two fairly obvious benefits to projecting revenues. One is cash flow; the second is work flow. Knowing how much money you expect to generate in the next 30, 60, or 90 days helps identify potential cash flow problems. That in turn can act as an early-warning system for a firm’s collections efforts. Likewise, revenue projections will help identify whether one lawyer, team, or department is likely to be overloaded while other lawyers don’t have enough to do. And that information can help a law firm allocate work more rationally.

Despite these benefits, a surprising number of law firm partners struggle to project revenues. Many aren’t used to being asked, and those for whom this is a new requirement often object to doing so. They let their perfectionist tendencies get in the way. They will confuse an inability to project revenues precisely with not being able to project them at all.

In addition, some partners see the process of projecting revenues as a threat to their autonomy. Their unspoken logic seems to be this, “you should trust me to handle my work, and asking me to project what will happen in the matters I am handling is none of your business.”

Partners are right to suspect that revenue projections are a potential threat to autonomy. This is especially true for the folks whose future performance isn’t likely to meet their projections. And that’s the primary reason to resist partner objections and require partners to project revenues.

It’s a matter of accountability. Business owners should be held accountable for the financial results of their activities. All things being even, those who generate more and predict more accurately should be recognized and rewarded for doing so. And business owners wouldn’t be doing their jobs if they weren’t sufficiently aware of their case load to make certain educated short term guesses.

And that is the unfortunate situation that applies to many law firms. The partners—even many equity partners—don’t take on the full responsibility of being business owners. They are partners in name only. And in the dynamic and unforgiving climate facing more and more law firms, that’s a recipe for financial disaster.

This is a particularly important subject to address this time of year.  If you want to start 2016 on a sounder financial footing, you should have a good sense of what revenues will be generated during the first quarter. For many firms, January and February are their worst months for collections. So it is doubly important to project first quarter revenues accurately. And if you want do project revenues systematically, the beginning of November is a good time to begin the process of asking partners to project revenues.

When One Law Firm Partner Wants To Increase Their Pay

/0 Comments/in , /by

Some law firm partnership agreements call for the equal division of profits among partners. This is especially true for newly created firms and firms with two, three, or four partners. In my experience this most commonly occurs when two lawyers come together to start a new firm and decide to split revenues and/or profits evenly.

Invariably, the contributions made by the respective partners to the financial well-being of the firm are not identical. One contributes more. And at some point, partners who feel that they are contributing more begin to resent that they are dividing money equally.

In the past two years or so, I’ve been approached a half a dozen times by the partner who feels that they should get more about how to make that happen. They feel like they have been patient, but can no longer tolerate a compensation system that they feel grossly undercompensates them for their efforts and results. By the time they call me, they have already considered splitting off and going out on their own. This can therefore pose an existential threat to a law firm.

So what should law firm leaders do to address the desire of a partner to earn more than other partners?

First, recognize that compensation terms in law firm partnership agreements are not intended to be permanent. A well-run firm will periodically revisit the appropriateness of its compensation system and the extent to which it serves the needs of the partners. We rarely see a firm with ten or more partners that has a totally even split among partners. And large firms have long compensated some partners better than others. Thus, a smallish firm that divides profits evenly should expect that this arrangement will need to be modified in two or three years.

Second, discussions relating to modifying the compensation system should be part of a broader strategic planning process. One of the most common mistakes that law firm leaders make is that they try to change the compensation system without recognizing that compensation drives firm culture and is tied to other critical aspects of the firm and how it functions. Thus, a discussion about compensation should begin with a discussion of what the partners want to accomplish over the next several years, what behavior they want to encourage and reward, and more broadly what kind of firm they want to build.

Thus, for example, if firm leaders decide that they want to bring in more clients, increasing compensation for partners who bring in clients is one way to do that. This is what firms do when they to adopt a compensation system is that is more “eat what you kill.” Different firms have reached very different conclusions, however, about how much credit should be given to what is commonly referred to as the “originating partner.” In other words, what percentage of the revenues generated by a law firm client should go to the partner who brought in that client, even if that lawyer didn’t do any legal work for that client?

Likewise, law firm compensation systems vary dramatically in terms of how discretionary and transparent they are to the partnership. For example, in some firms compensation is calculated in accordance with a formula. In other firms, compensation is highly discretionary. Some firms keep partnership compensation hidden from all but a few decision makers; in other firms every partner knows exactly how much every other partner earns. And firms have thrived and failed using all of these compensation systems. This is not a situation where one size fits all. It’s more that the partners of a particular firm need to reach a consensus about what will work best work for them.

Third, the process of addressing and changing a firm’s compensation system works best when the partner(s) who want to increase their compensation can offer specific proposals as to what they want. Too often, partners who approach me about this issue focus on the shortcomings of their fellow partners. They emphasize how much more ty have billed or collected than their colleagues have, or how many more hours they have devoted to rainmaking activities.

But many law partners who don’t like the current compensation system fall silent when I ask them, “How would you like to change the compensation system?” or “What compensation system do you want?” Not surprisingly, lawyers are better at spotting issues with the current compensation system than they are coming up with proposed solutions.

If you want to change a compensation system, the key is to be able to communicate about specific options and the reasons behind them. When lawyers feel that the numbers in the compensation system are aligned with certain kinds of values or a desire to encourage certain kinds of behavior, it increases the chances that they will find the compensation system to be fair and be willing to accept different levels of compensation for different partners.

Compensation is a complicated and emotional issue for many businesses, but discussing changes to it shouldn’t be traumatic or life threatening. If approached correctly, it is possible to negotiate a change in the compensation system in weeks rather than years.

You’re More than Just a Lawyer

/0 Comments/in /by

You are a subject-matter expert. One of the areas in which you are an expert might, for example, be litigating disputes between healthcare providers. But that is hardly the sum total of your expertise. Experienced healthcare litigators know quite a bit about how physicians groups operate and how doctors think and work. Almost every practicing attorney is a subject-matter expert in areas that are not limited to the narrow practice of law. Our hypothetical healthcare lawyer could use their knowledge of the healthcare industry to help clients who aren’t specifically in need of litigation services.

On some level this has always been true. Attorneys are book smart and many of us have the intellectual fire power to become a subject-matter expert in several areas. From a strategic planning perspective, what is new is the combination of economic, technological, and social forces impacting law firms. Those forces are making the practice of law more competitive, while simultaneously making it easier to reach more people with your varying areas of expertise.

So what is a solid law firm citizen to do?

Stop thinking that all your expertise must be channeled through the restrictive economic model that is the American law firm. Because of technology, informational experts can now tap into in a powerful economic model that among other things generates passive income. Suzi Orman makes more money selling books and other informational products in her sleep than most attorneys earn in several years. Moreover, informational entrepreneurs can lawfully pay referral fees and, when they want to sell their businesses, aren’t hampered by archaic Rules of Professional Conduct. Over the course of their careers, they can earn substantial speaking fees, royalties, and build enduring and valuable personal brands.

I know that most lawyers either look down at the Suzi Ormans of the world or feel that they could never do what she has accomplished. And there is some truth in that. She has built an informational empire that would be hard to duplicate. But the economic model that allows her to generate wealth while reaching millions is one that could benefit many lawyers. And best of all, becoming an informational entrepreneur doesn’t mean that you have to forego your law practice. If you love the practice of law, you can continue be part of a law firm.

So in what areas are you already an expert? You don’t have to be the world’s foremost expert. You just need to have enough expertise to provide information and advice to people who would be willing to pay for it. If you have that level of expertise, there are countless ways of cheaply and efficiently disseminating that information in an entertaining and educational way.

Who knows, it might actually be better than billing hours. And I can tell you from personal experience, it’s fun and rewarding helping someone become an informational entrepreneur.

It’s at least worth considering, isn’t it?

It’s Time to Create Your 2017 Org Chart

/0 Comments/in , /by

What kind of law firm are you building?

Whether you are a sole practitioner or the managing partner of a 200 attorney firm, that’s the question you have to constantly answer. You have to create the future in advance. That’s the essence of leadership. And one of the singular tasks of law firm leaders is strategic planning.

The phrase “strategic planning” gets tossed around a lot. It can be hard to define, but the idea behind it is unmistakable. You are more likely to grow and thrive if you follow a plan. Just as you can complete a jigsaw puzzle faster if you know what the finished product looks like, a law firm should know where it is going. And that is where an organizational chart comes into play.

But strategic planning requires a special kind of org chart. Unlike the chart that human resources departments churn out, you need to create the chart that reflects what you want your firm to look like in about 18 months. In fact, the best way to create the strategic organizational chart is to do it independently of the current chart. This is not an exercise in looking at precedent and extrapolating from there. That approach tends to generate incremental changes. And the whole point of this exercise is to see how far you can push your firm in the next 18 months. That is the best way to ensure that your firm will thrive in turbulent times.

In my experience the single most difficult aspect of creating an effective organizational plan of the future is visualizing evolving roles for existing partners. Most firms have some kind of process for identifying which associates are likely to become partners; that is an example of a more foreseeable change. But identifying a partner who would be willing to open up a new office requires an active and open-ended discussion of what’s possible. Likewise, too many firms fail to create succession plans for members of the leadership team. There seems to be an unspoken assumption that firm leaders will want to stay put, or that they won’t shift their responsibilities. That might be true, but the future of the leadership team is too important an issue to leave to chance.

A strategic organizational doesn’t have to be entirely accurate to be effective. The future can’t be predicted perfectly. But if you take the lead in creating the future you want, your firm is less likely to be the victim of circumstances.