September 6, 2007
| Our sponsor |
Super Durable Wallets as low as $1.95 each. Legal size, 15" W x 10" H, 5 1/4" expansion. Gussets riveted to thick back board. 16 pt. double thick red rope laminated. Extra long Tyvek®
reinforced flap. Fully lined Tyvek gussets with Mylar® reinforcement strip. Strong elastic tie. Buy in quantity and save.
Check out our
monthly special on legal supplies. Every month Blumberg puts law office products on sale. Save 10-15% every month.
|
|
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
Developed especially for this issue of ALA Currents and copyrighted by Altman Weil Inc. For more
information, visit Altman Weil’s Web site.
CONSOLIDATION AND COMPETITION: WHEN THE BIG DOGS COME TO TOWN
By Charles A. Maddock
camaddock@altmanweil.com
The continued consolidation of clients and law firms is now being taken seriously – very seriously – by
firms of all sizes. For the national or regional law firm, consolidation presents a significant opportunity to
expand its client base while reducing the cost of learning new clients’ businesses. In addition, large firms
with commodity or near commodity practices, the latter including environmental and labor practices, can
offer their clients one of the most basic benefits of consolidation: reduced outside legal costs. While the
large firm’s rates may exceed those of its indigenous neighbors, the client’s overall legal costs may be
reduced substantially if efficiencies in staffing, technology, and other hard costs can be reduced for the law
department. At the same time, the client gets bragging rights for using name brand law firms and reducing
costs, the Holy Grail for anyone who hires outside counsel.
How can local, midsized, or smaller law firms retain business that they have handled for years, or
even build new business, in the face of this competition? To answer this question, let’s take a look at
what both national and local firms are doing, and what presents the best benefit for the client.
Expansion
The rationale for large firms to expand their practices is simple: go to where the clients are, create a
benefit for the client, and establish a competitive advantage for the firm. In most cases, the overhead
per lawyer in the firm’s local offices can be considerably less than that of the home office. The client
benefits, too, by consolidating legal work into as few as one firm in all of its jurisdictions. As
DuPont and other large international companies have proven, consolidation of outside counsel can
have significant and positive financial impacts. As more and more businesses call for cost-cutting,
especially in their legal affairs, this can be an attractive proposition for many CEOs, chief legal officers,
and business owners.
When expanding into a new market, most national firms tend to hire partners from local firms,
especially those with books of business. Their proposals to these partners can be very attractive:
now you can work for large, national brand-name clients, charge higher rates, earn greater income,
have greater mobility, and be on the fast track to partnership in a new firm that is widely known to
potential clients.
National firms often arrive in second-tier or smaller markets as a result of winning a beauty contest
for a new client’s work. Establishing a physical presence in a new market can be cost-justified more rapidly
if the national firm recruits a local firm’s lawyers, especially if those lawyers have local books of other
portable business. Depending on the size and growth potential of the new office, a firm will often send one
or more partners from the headquarters office to help set and meet growth expectations and to assimilate
the new office into the firm’s culture.
Opening a New Office
Unlike fast food, retail, or franchise operations, there is no single best way for a national firm to open a new
office. In each case, firm management must consider staffing, office size and location, pricing, compensation
adjustments for attorneys and staff, portability of the brand, perception of the market, and more. National
firms rarely use local firms as co-counsel. They may use local firms in case of conflict, but this is relatively
rare.
Large firm billing rates are set by the local offices with the approval of the headquarters office. The range
of rates can vary greatly. Also regarding finances, one national firm Altman Weil consults with reported that its
overhead per lawyer was almost $300,000. The costs included the firm’s commitment to sales presentations,
public relations, branding, advertising, and a large annual conference. These are expenditures that local midsized
and smaller firms usually cannot compete with, and are likely to have a quick payoff for the larger firm,
enhancing its competitive position versus local firms.
Building Clientele
While consolidating work with a large national firm that enjoys a significant branding and even cost advantage
may be attractive to many clients, there are several steps an indigenous midsized or smaller firm can take to
retain and build its client base.
First, while it is tempting to cut rates in the face of out-of-state competition, with rare exceptions, this
step is not recommended. Instead, it would make sense to determine whether the local firm can delegate
more work to associates to reduce client costs without lowering its profitability.
Next, the local firm should determine whether it needs to improve the quality of its work. If this is an
issue for clients, it must be addressed immediately. Substandard work not only drives away clients, but also
greatly reduces the opportunity for client referrals, the most important way to build any firm’s business.
Internally, the local firms should assess and, if necessary, increase lawyer understanding of their clients’
business. Many clients claim that the distinction between one firm and another is not the size of the firm, but
the commitment that the law firm makes to learn the client’s business. This is part of the reason that client
teams are being formed so rapidly in firms both large and small. Client teams that are responsible for managing
the client's legal work can have significant value as law firms and clients begin to speak the same language,
thus increasing the efficiency and level of trust between clients and firm.
As large and small law firms begin to recognize that clients expect more than just quality legal work, the
smaller firm can get the jump on its larger competition by offering value-added services. These could include
on-site seminars, reverse seminars (in which the client conducts a seminar in your offices to discuss its
business, its strategy and its future legal needs) or annual conferences with substantive discussions about
current issues and trends, such as employment practices.
Success
There is no reason why smaller firms cannot stay on equal footing with their big firm rivals when it comes to
ensuring the highest level of client satisfaction. They can accomplish this simply by knowing the client, knowing
the local market, knowing the client’s business, and assuming nothing when it comes to client service and
satisfaction. Regularly asking for feedback often results in leads on new business expansion opportunities that
can be explored with the client.
Without question, large firms are an increasing threat to smaller local firms, even or perhaps especially to
those firms that have had long and rewarding relationships with local clients. This doesn’t mean that local firms
need to roll over and play dead. It only means they need to know the correct strategies to be able to compete
when the big dogs come to town.
REDUCE RISKS, DECREASE INSURANCE COSTS
A recent survey of legal malpractice insurance companies reveals that 88 percent of them encourage or
require law firms to implement automated court rules calendaring systems. This statistic is a significant increase
when compared to the 2003 survey response (55.5 percent). The survey was commissioned by CompuLaw,
publisher of calendar/docket software with built-in court rules databases, and was conducted independently by
Edge Legal Marketing.
“More insurance companies are recognizing the benefits of automated court rules-based calendaring
systems, and many companies are now discounting their rates or granting other financial incentives to law
firms that use this technology,” said David J. Kalmick, President and CEO of CompuLaw. “When comparing
the overall 2003 and 2007 survey results, a steady increase in awareness and accountability is shown. With
malpractice insurance rates on the rise, we will continue to sponsor these surveys to better educate law
firms on the increasing role of calendaring technology when underwriting policies.”
The results of the survey:
- 88 percent of insurance companies surveyed are aware that calendar-related errors are the leading cause
of legal malpractice claims (2000-2003 American Bar Association Survey, “Profile of Malpractice Claims”).
- 88 percent of insurance companies surveyed believe automated court rules-based calendaring is important
in reducing calendar error risk in litigation.
- 67 percent of insurance companies surveyed inquire if law firms or lawyers use court rules-based
calendaring systems before writing a policy.
- 38 percent of insurance companies surveyed discount their rates or grant other financial incentives to firms
using automated court rules-based calendaring.
For more information, visit CompuLaw online.
Management Innovations
HELP WANTED? SEEK OUTSIDE COUNSEL
Corporate lawyers are calling in reinforcements to tackle rising caseloads, according to a new survey
by Robert Half Legal. Nearly half of attorneys polled said their legal departments had increased their use of
outside counsel in the past 12 months, while only 12 percent said levels had decreased. Litigation support
topped the list of reasons corporations recruit outside counsel, followed by compliance and regulatory
matters and patent issues.
In the survey, lawyers were asked, “Has your corporate legal department increased or decreased its
work with outside counsel during the last 12 months?” Their responses:
| Increased | 45 percent |
| Decreased | 12 percent |
| No change | 39 percent |
| Don’t know | 4 percent |
Lawyers also were asked, “What types of projects, if any, are you most likely to assign to
outside counsel?” Their (multiple) responses follow:
| Litigation | 66 percent |
| Compliance and regulatory matters | 16 percent |
| Patent issues | 13 percent |
| Electronic discovery | 9 percent |
| Mergers and/or acquisitions | 3 percent |
| Other | 5 percent |
| None/do not use outside counsel | 4 percent |
| Don’t know | 1 percent |
“Corporate legal departments are looking to outside counsel as they continue to face
resource and staffing constraints,” said Charles Volkert, Executive Director of Robert Half Legal.
“With the growth of litigation caseloads and ever more complex regulatory and compliance
requirements, outside support can play a pivotal role in helping busy legal departments and
companies meet their business needs.”
Volkert added that in addition to outside counsel, corporate legal departments are turning to
project attorneys for assistance with large discovery requests and document reviews, and to
provide specialized legal knowledge not available in-house.
For more information, visit
www.roberthalflegal.com.
Peer Points
ALA Management SolutionsSM is a free service provided as an ALA membership
benefit. The professionals who staff this help desk explore resources and share information about
hot law-office management topics like the one addressed here. If you have a question, call ALA
Management SolutionsSM at (847) 267-1252 or e-mail
infocentral@alanet.org.
LATERAL COMPENSATION
Can you help me determine compensation for lateral hires?
A key consideration for legal administrators and firm managers is the proper calculation and
realistic expectation of a lateral partner’s “book of business” and how this value affects the firm’s
compensation system. Along with the risk management diligence that accompanies a lateral, the
impact of the attorney’s prior habits that affect profitability should be considered.
The ALA Legal Management Resource Center (LMRC)
has several articles on this topix from associations, consulting firms and government agencies, as well as ALA
sources on compensation. Log in using your ALA username and password for access to all ALA members-only
materials. Review the materials in the Human Resources Management Content Area, in the subfolders for
“Compensation.”
The ALA Management EncyclopediaSM
has two articles addressing the issues of hiring laterals – partners/practice groups and associates. They are
“Lateral Partners and Groups: Setting the Stage for Success with Recruiting, Integrating and Marketing” and
“Integrating Lateral Associates Effectively: The Administrator Can Foster Success” in the General Management
& Strategic Planning sections. These articles provide information and checklists on how to approach the issue
of hiring laterals, and how to prepare for them to lay the foundation for the success of the individual and the firm.
Click on the Encyclopedia link for information on obtaining this resource. (These articles are available by
subscription or by individual article purchase.)
For issues regarding offering compensation to a new partner with a book of business, calculating a
lateral’s profitability and value to the firm is discussed in several articles. See:
The ABA’s Law Practice Management magazine featured in its October 1998 issue
“Deals: The High-Risk Art of Managing Mergers, Acquisitions and Lateral Hires” by Anthony Davis.
Check with your law library for that issue; the article is not freely available online.
Your law library should also be able to locate for you the newsletter Accounting for Law Firms,
Leader Publications, vol. 11, no. 10, October 1998. See the article “Can Your Firm Afford a Lateral Hire?”
by John Iezzi.
For background information regarding partnership agreements, see:
NALP, an association for legal career professionals, offers a recent “Lateral Hiring Best Practices Guide”
with information on all aspects of bringing a lateral attorney into the firm, from performing a pre-hiring needs assessment to
integrating the attorney both professionally and socially. In addition to this online material, NALP’s research foundation published
the book The Lateral Lawyer: Why They Leave and What May Make Them Stay – see their online
Bookstore for additional information.
Special Note: ALA members have free access to the ALA Reference Desk. Send questions on legal
management to infocentral@alanet.org. Staff will conduct
personal research on each question.
ALA Currents is copyrighted, 2007, by the Association of Legal Administrators.
All rights reserved. ALA Currents is a subscription-only electronic newsletter.
Reproduction in whole is strictly prohibited. Individual news items may be reproduced solely for
internal distribution within the subscriber's organization.
If lines of text of ALA Currents appear broken or irregular, please try resizing
your e-mail window. The newsletter can also be printed and read as hard copy.
CREDITS
ALA Currents is edited by Amy Dvorak, who can be reached at ALA Headquarters via e-mail to
advorak@alanet.org. Send technical questions (subscription
problems, delivery options) to webmaster@alanet.org.
To unsubscribe from ALA Currents, click here.
The opinions expressed in articles and releases included in ALA Currents are solely those
of the contributors and are not necessarily those of ALA or its members.
The content of ALA Currents is drawn from many sources, and all reprints and
excerpts appear here with the explicit permission of the authors and/or original publishers.
