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ALA Currents is a free newsletter about law firm management trends and innovations provided exclusively upon request to members of the Association of Legal Administrators.

News & Views

SURVEY PROVIDES SNAPSHOT OF LAW FIRM ECONOMICS

The new Altman Weil Survey of Law Firm Economics, 2007 Edition reports on law firm revenue, profitability, compensation, billing rates, billable hours, and staffing ratios in law firms across the United States in 2006. The report is summarized as follows:

Law Firm Financials
Average revenue per lawyer in the law firms surveyed was up 4.3 percent to $419,826 in 2006. Law firm expenses were up 2.9 percent, just above the 2006 inflation rate of 2.5 percent, and resulting in per lawyer income up 5.3 percent. The median profits for law firm equity partners were just above $307,000 in 2006. Non-equity partners received $200,000 in total compensation. Median associate compensation was reported at $123,000.

Billing Rates
The median hourly billing rate for equity partners in law firms was $305/hour in 2006 and $200/hour for associate lawyers. Washington, D.C., lawyers reported the highest median rates at $455/hour for partners and $295/hour for associates.

Billable Hours
The Survey reports that equity partners in law firms billed a median 1,704 hours in 2006. Associates billed 1,840 hours. Partners with significant management responsibilities in their firms billed only 10 percent fewer hours than their non-manager peers.

“Unlike other big firm scorecards, the Survey of Law Firm Economics provides a broad-based look at the economics of the legal profession in the United States,” said Altman Weil Principal James Cotterman. “We try to look a little deeper and provide a comprehensive set of benchmarks for lawyers practicing in law firms of all sizes and in all regions.”

For additional information or to purchase a copy of the complete survey results, go to www.altmanweil.com/SLFE.

HOT TRENDS IN LEGAL MANAGEMENT

Robert Denney Associates Inc. recently released its midyear update on trends in the legal profession. The firm identified the following as some of the most significant developments:

• Environment – Many firms, particularly in California, have formed Climate Change and Global Warming practice groups since Gov. Schwarzenegger signed the state’s greenhouse gas bill.
• Advertising – Florida and New York are the two of the latest states that have issued new rules or proposals, and people can expect more.
• Law School Courses in Practice Management – This spring, Detroit Mercy School of Law launched a pilot program.
• Family Care – The firm Fulbright & Jaworski offers in-home and center-based care providers in the United States and Canada, and it offers not only in-home care for children, but also long-term care for an elderly parent. All employees, not just lawyers, may participate in the program, which includes providing a nanny in another city when a nursing mother takes her infant on a business trip.

The report also identifies the following trends: hiring of full-time managers, outsourcing marketing departments, and creating alternative-billing structures.

For more information, visit www.robertdenney.com.

Management Innovations

EARLY CASE ASSESSMENT EQUALS FAVORABLE OUTCOMES,
REDUCED LITIGATION COSTS

More than three quarters of cases are resolved favorably and litigation expenses are reduced in half of all cases in which early case assessments are performed, according to a recent survey conducted by Cogent Research on behalf of LexisNexis®.

Impacts on Litigation
Survey results indicate early case assessment has a positive impact on both the practice and business of law, including:

• Successful outcomes – attorneys responded that, on average, performing early case assessment results in a favorable outcome in 76 percent of cases.
• Strategic planning – 87 percent of respondents said case assessment is beneficial for determining the best way to proceed with a case.
• Reducing expenses – conducting early case assessment enables attorneys to reduce the litigation expenses in 50 percent of their cases on average.
• Managing budgets – 57 percent find early case assessment assists in their ability to prepare more accurate litigation budgets.

Challenges
Despite the tangible benefits of performing early case assessment, survey results point to challenges. For example:

• 87 percent of attorneys who perform early case assessments said they do so on an informal basis rather than utilizing a specific methodology or set of tools.
• 64 percent of survey respondents cited time as the greatest barrier to performing effective early case assessment.
• 66 percent said they could enhance their case assessment skills.

Practice of early case assessment
According to the survey, the benefits of early case assessment underscore the value and necessity that litigators assign to the process. For example:

• 75 percent of attorneys surveyed said that early case assessment is important to their practices.
• 90 percent of partners and 69 percent of associates perform case assessment in some way.
• The most important elements of early case assessment include an initial review of case facts, collecting key documents, looking at case law, interviewing clients, and creating a fact chronology.

“Survey results show that attorneys put a premium on being able to clearly gather, organize, and review the facts of a case before doing anything else,” said Michael Gersch, Vice President of the Case Assessment & Analysis group for LexisNexis. “This is a priority even over researching the opposition, judges, or potential witnesses.”

For more information, visit www.lexisnexis.com.

Caucus Insights

This section features condensed versions of recent discussions in ALA’s Large Firm Administrators Caucus ListServe, which is exclusively for people working in firms with 100 attorneys or more.

THE TOPIC: Financial Arrangements with Retiring Parters

What are the general guidelines in structuring financial arrangements for ongoing relationships with partners who either retire or go into an Of Counsel arrangement? Do you pay the partner a percentage of his/her collections as a timekeeper and then some percentage of collections on clients/matters originated by the partner for whom other attorneys render services?

SELECTED RESPONSES:

1. When partners “retire” from the partnership and go Of Counsel (OC), we come to a compensation agreement that is like any salaried lawyer and do not continue to pay them a percentage of their fees, billings, etc. In other words, once they have retired and we have paid them under the retirement plan provisions of the partnership agreement, if we want to keep them on as OC we set a salary. We have historically made this about 50 percent of their income from their final year as a partner, and then it graduates down from there depending on how much they bring in, etc.

2. When we do these types of arrangements, which is not very often, we normally pay out 40 percent of working attorney collections and 10 percent of originating attorney collections, not including the OC’s working attorney collections. These arrangements apply only if the attorney is working in the office, so the overhead still applies. In accordance with our partnership agreement, a partner who retires and no longer works has no entitlement to collections from his or her clients.

3. Each of our deals has been done on an ad hoc basis. The most recent deal pays a base salary and 12 percent for all work originated from “new” clients. (We excluded clients whom we thought and agreed had become legacy clients.) In addition, the individual is paid a percentage for individual work credits in excess of a specific threshold. All in all, the individual received compensation that approximated 22 percent of new business generated.

4. The firm sets a fixed annual payment that tends to be about 25 to 40 percent of regular base draw. For the handful of others, we set base lower and then pay out 30 percent of collected working attorney time plus 10 percent of collected billing attorney time. Roughly half of our OC’s participate in firm benefits at their own costs, with the other 50 percent receiving paid benefits. Finally, a few are eligible for a “bonus” depending on merit and overall firm profitability.

5. When partners want to substantially retire, but wish to continue doing work on a limited basis, we cut them standard OC deals in addition to whatever they could be entitled to for a fully retired partner. The salient terms are as follows:

A. Pay the OC 50 percent of fees collected on own work on own clients.
B. Pay the OC 20 percent of fees collected on work performed by others on own clients subject to adjustment downward using a realization schedule from standard rates. The more they discount the fees, the further from 20 percent they get.
C. Pay the OC 30 percent of their standard rate for own work on others’ clients.
D. Use a sliding scale against billable hours recorded by the average full-time person, charge the OC a portion of 1/3 of a secretary.

6. In most cases we pay them 50 percent of what they work, bill, and collect on their own time, if we decide to keep them on. We have never been big on origination credit, but we might consider a bonus if someone brings in a really big matter.

7. We generally do not pay any business generation bonuses. Because equity partners go on fixed incomes from age 65 to 70, in the few circumstances when the partners approved letting someone over age 70 continue, they do so on fixed income.

Special Note: ALA members have free access to the ALA Reference Desk. Send any question on legal management here. Staff will conduct personal research on each question.

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