Archive for Big Law
Lawyer Productivity: Why Are Software Programmers Way More Productive than Attorneys?
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I had a fascinating conversation with my web site developer last year. He mentioned that, on average, one programmer could do the same amount of work today as six programmers could do in the late 1990s. That’s a massive productivity improvement: 600%! Some people even recommend that, when building an online company, you should focus on mostly hiring programmers, because this continuing productivity improvement means each person you hire will give you an ever continuing productivity increase during their tenure with you.
I asked my developer why this is possible, and he responded that the constant breakthroughs in computer science, new programming languages, the availability of open source software, and constant communication within the field on novel ways to solve challenges, all combine together to improve the ability of programmers to do more work in a timely manner.
This discussion triggered a Passover memory from about eight years ago. I attended a friend’s Seder and sat next to an elderly gentlemen in his eighties who promptly engaged me in a conversation about the legal world. He practiced law for over fifty years, and regaled me with stories of legal life back in the 1950s. Apparently, a talented, experienced secretary was invaluable, as they did most of the contract drafting. Additionally, he told me transactional attorneys faced a limit on the length of contracts and the number of revisions, as massive editing simply took too long via a typewriter too satisfy the business needs of a client. He said that these constrictions actually are quite positive, as they forced attorneys to hone in on the key expectational concerns of their clients in a deal, and there was little incentive to add a great deal of belt and suspenders language or to argue endlessly over limitation of liability/indemnity provisions (which, let’s face it, are usually of little concern to clients and are often unnecessary in their most extreme, aggressive forms which trigger tiring, lengthy negotiations).
Contrast that context with today’s situation, where we routinely go ten or twenty versions deep into contract drafts, prepare voluminous documents that our clients rarely read, and argue strenuously over provisions that provide little risk protection. Despite all the tremendous tools at our hands over the years, such as overnight mail, faxes, email, word processing, and cloud computing, I have the strong feeling that we are less, not more, productive today. The quality of our work is constantly driven downwards by the weak link in any negotiating chain. For instance, in negotiating an original equipment manufacturer supply agreement, there might be an attorney on each side, a customer procurement manager, a customer operations manager, a salesperson, a finance expert on each side, and an information technology expert on each side. Any one of these people, and each individual’s boss, can grind negotiations to a halt with unreasonable negotiating positions, poorly drafted language, massive spelling and formatting errors, document corruption, loss of version control, and unclear email communications. That’s eighteen possible weak links in the chain! And, one might argue, that the two attorneys are sometimes the two weakest links.
This weak link issue doesn’t really exist as much in the programming context, as the programmer is engaged directly with the client on building an outstanding product, not constantly compromising the quality of that product due to an adversary on the other side who has little incentive to achieve high quality (e.g., a crystal clear contract with little ambiguity that sets up the parties in a satisfying, mutually beneficial business relationship) and instead desires to seek one sided concessions (e.g., a contract that insulates one party from any liability while leaving the other party wide open). Having handled many software development contracts myself, when I have seen programming efforts fail, the common cause is too many people involved in the project who demand short term, one sided efforts that result in overly complex code which is unable to function properly or be completed on time. Essentially, programming projects founder on the shoals of an overly legalistic, adverse project management style.
Ultimately, I don’t believe lawyers will ever change and improve their productivity without a sea change in the financial incentives that drive unproductive behavior. I always engage my developer on a per project flat fee basis with a hard deadline. We work together up front to design and lock down a specification before we agree on the fee and the deadline. As a result, his financial incentive is to do great work (so I give him future projects) with tremendous productivity (so he hits the deadline and makes a good return on investment for his time). We’ll need financial incentives in the legal world that drive a similarly positive state of affairs before we will see a massive increase in legal productivity.
Innovative Services
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An Interview With Deborah Gordon, Law Firm Efficiency Expert
Today we are interviewing Deborah Gordon, a health law expert and partner at the full service law firm, Seyfarth Shaw. Deborah is one of the most innovative law firm attorneys I have met, and is on the cutting edge in using advanced management techniques taken from the non-legal corporate world to spur efficiency in the legal arena.
Please tell me a bit about your firm and your practice area.
Seyfarth Shaw (“Seyfarth”) has approximately 750 lawyers practicing in Atlanta, Boston, Chicago, Houston, Los Angeles, New York, Sacramento, San Francisco, Washington, D.C., and Brussels, Belgium. As a full-service law firm, Seyfarth provides a broad range of legal services, including Labor & Employment, Employee Benefits & Executive Compensation, Corporate & Finance, Tax, Real Estate, Intellectual Property, and Litigation. I am the Vice-Chair of the Corporate Department and I Co-Chair the firm’s Health Care Practice Group. My practice is focused on general business transactions, such as finance transactions and acquisitions, as well as regulatory and compliance matters.
Your firm is the only one I am aware of in the legal field that boasts substantial experience in Six Sigma, Lean and process improvement. Why is this the case?
About five years ago, Seyfarth invested in learning about and integrating Six Sigma and Lean principles at the encouragement of a few clients. We invested in training and were impressed with what we learned. We decided that Lean Six Sigma was the best approach for our firm and realized it could have significant impact for our firm and our clients if we applied it to our service delivery model.
We also understood that the traditional application of these principles was not something that easily applied to the legal services delivery model. We spent several years tailoring the approach to fit legal services, an approach we now call SeyfarthLean. Today, we have 75 in-house certified Green Belts and we have applied SeyfarthLean in every practice throughout the firm to deliver quality and efficiency that also delivered client cost savings ranging from 15–50%. I received my Green Belt in 2006 and have utilized Lean Six Sigma principles in both internal and client projects.
What are some examples of how you’ve assisted clients in their processes that one does not normally find in the typical legal representation?
One is process mapping. Process mapping is a critical exercise in our SeyfarthLean approach that lays the foundation for increased efficiencies, reduced costs, and other desired outcomes. A process map lays out, step by step, the process followed in handling certain types of matters. Each stage is broken down into individual tasks. Using historical matter data, we take a look at the typical timekeepers and estimated time taken to perform tasks. We then critique that process, and identify ways we can be more efficient and cost-effective. Areas that are driving the wrong results—inefficiencies, higher costs—are re-engineered and a new process is created. We have applied process mapping throughout our practice areas to develop best practices for the benefit of our clients. Most typical legal engagements are not as data and process driven.
The second is project management. We worked closely with a client to develop an extensive and detailed plan for organizing, structuring and approaching the project. Leveraging the skills of one of Seyfarth’s client-facing project managers, our team partnered with the client to review organizational structure, critical path and resource accountabilities while establishing effective reporting protocols. We then participated with the client in presenting the project plan, goals and the implementation strategy to multiple team leads across many different workstreams.
What initiatives are going on at your firm in the area of knowledge management and associate training and development?
As we apply SeyfarthLean, we continually seek ways to improve our ability to collaborate with and enhance communication internally and with our clients, as well as more efficiently provide services. One outcome of that is advanced knowledge management tools, including SeyfarthConnect, our internet-based client services information system. Through SeyfarthConnect, clients gain real time access to information that is pertinent to our work, including documents, budget, correspondence, calendars, schedules, discussions and almost anything related to specific clients or matters. Furthermore, our team relies on it as a robust knowledge management tool that helps them access information more quickly and effectively to more efficiently work on client matters. We have employed similar, internal databases of documents and resources to aid in knowledge management.
With respect to training, we are in the process of training all of our attorneys and staff on SeyfarthLean in 2010. Many of our attorneys have already been trained. The training includes an overview of Lean Six Sigma and the DMAIC process (Define, Measure, Analyze, Improve and Control) that we use to drive efficient, high-quality solutions for our clients. We also regularly engage in practice development training and CLE programs for associates. In the Corporate Department, for example, we are concluding a year-long program of the anatomy of a deal, providing a detailed focused of an M&A deal. We are planning a continuation of that program into 2011 with the focus on financing transactions.
Do you find that your unique approach better positions your firm in the new alternative fees environment?
SeyfarthLean provides us a unique platform on which to provide alternative fees. It allows us to base alternative fees on a true understanding of the costs involved in providing services in the most efficient manner, through extensive data analysis and our historical experience providing those services. Additionally, it provides clients the assurance that when we offer them a flat fee, we are not simply pushing the work down to the most junior staff available. Our flat fee offerings, for example, are based on right-sized staffing models that drive the greatest result and value for our clients. Because of this, we have had success with predictable alternative fees.
Thank you, Deborah.
Law Practice Should Be Tribal
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Debra Baker raises a provocative point over at Law Transitions. She notes:
“Organizations shouldn’t work in teams, they should work in tribes. In a tribe, there is a chief and a circle of senior elders . . . The chief’s job is to help make the elders successful in doing their jobs. In this way, the chief will be more successful than a captain trying to lead a group of functional equivalents. This paradigm shift from team to tribe got me thinking about law firms. Partnerships often struggle with organizational dynamics and decision making because of the flat hierarchical structure.”
This is a terrific point. I’ve always thought the flat hierarchy of the legal world is a major challenge to increasing productivity. This is especially the case in thinking about cycle time in transactional law. Clients would love to see deals close quickly, but lawyers spend enormous amounts of time negotiating contracts. Much of this is due to a slow contracting process that has numerous end points, with each individual lawyer on each side’s attorney team capable of grinding negotiations to a halt. A tribe, with a chief who has authority and accountability to constantly move forward within the contracting process, would be a much more effective model for driving a negotiation to conclusion and quickly concluding a high quality agreement. And this is just as true in the corporate legal environment as it is in the law firm arena.
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Are Legal Services Products?
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I think you’re on the right path if you position legal services as products. This is especially so as we move towards flat fee and alternative fee arrangements. One area where I think firms miss out is knowledge management. I find it odd that knowledge management is not positioned front and center as part of a law firm’s business development activity. Having been in-house counsel at a Fortune 500 company, I was always on the lookout for a firm that could meet our needs while selling itself as the most productive and efficient provider in particular practice areas, but I never found one. As a result, and given how few law firms do this, I think there is an excellent market opportunity to distinguish one’s firm in the competitive landscape by focusing on speed and excellence through proper use of knowledge management, and making this focus clear to potential clients as a driver of quality improvement and reduced cost.
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Is the Focus on Shareholder Value Hurting Law Firm Performance?
Posted by: | CommentsIntriguing post up today by Robert Sawhney, who asks here:
“[W]ho said that shareholder value was the primary objective of any firm? The well known and outspoken economist Milton Friedman was a vocal supporter of shareholder value as the primary objective of any firm. He claimed ‘the social responsibility of business is to increase profits’. That may be so and I am not here to argue the ins and outs of economics, but surely the objective of any business is to enhance client value and create economic value through innovation. Not only that, but economic value should be based on innovation and not destruction. Within the law firm environment and professional service firms in general, we are sorely lacking an alternative view of capitalism.”
I certainly agree with Robert that the leveraged law firm model is an entrenched system that does not do a very good job of creating economic value through innovation.
I would take issue with the comment regarding Milton Friedman, as I don’t think he would have ever said that creating value for customers through innovation is in opposition to shareholder value. Friedman’s core message was quite the opposite, mainly, that focusing on shareholder value pushes firms to compete to provide the best possible products at the most affordable prices, and they do this by innovating under competitive pressure. However, I think Robert does a strong job of pointing out how law firm path dependence creates a big problem for Friedman’s supposition, because law firms’ laser-like focus on profits per partner leads to poor, short term oriented decision making and worse allocations of resources which result in unnecessarily costly services that are often not provided with optimum performance.
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Padding the Bill – The Leverage Issue
Posted by: | CommentsLeverage is the dominant business model at large law firms, where partners seek to leverage relatively low cost salaried associates against high hourly fees and hire as many associates as possible to maximize revenues. While this model has been battered in the recent recession, I have not seen any systematic change encouraging a fundamental shift away from leverage. The biggest problem with a leverage approach is your value is measured in the number of hours you bill, not the value you provide to your clients, resulting in an incentive to pad your bill.
There’s a nice debate going on right now on this subject within the Legal Innovation Group on Linked In, you can check it out here. Here’s my most recent comments on the issue, challenging the idea that it is not easy to change the current model (it is, but there is little incentive to do so) and the supposition that managing partners often have firm wide policing to prevent padding (they usually do not):
Gary, I would have to respectfully disagree as to this point “It is not easy or obvious how to accomplish this”. Law firms, being loose federations of individual businesses, each business consisting of an equity partner with a book of business and the willingness to walk away from the firm, would need to do the following:
1. Secure a commitment from each partner with a book of business to make the clients those of the firm.
2. Impose optimized processes using Lean/Six Sigma for doing all of their work and make sure that they are followed.
3. Use knowledge management and software automation to speed up document preparation.
Frankly, Patrick is right, without fixed fees there is little incentive to take these steps, and, in fact, a disincentive to do so. But it would be a straightforward process that is already widely performed in other fields, such as software development.
And:
Chris, I would recommend caution in referring to firms where certain behavior is allowed or isn’t, as I find that firms don’t do much of a job of policing behavior internally, and often times one partner will pad a bill while another partner at the very same firm would find that ethically abhorrent. Also, speaking from the in-house perspective, it really is one’s responsibility to question bills on a regular basis from larger law firms because of this lack of policing. At small firms I find this is less necessary, as you have much more of a chance of establishing a regular relationship and better billing expectations once you’ve removed leverage from the equation.
What Michael Jackson’s Billie Jean Says About Software Spending: The Chair Is Not My Son
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I’ve always thought that Michael Jackson, belting out the chorus of Billie Jean, sounds like he’s saying, “The chair is not my son.” Of course, he’s actually saying, “The kid is not my son.” The same kind of confusion – misinterpreting words – applies in most big organizations, particularly when it comes to runaway IT spending, and is driven by different internal political agendas that lead to a waste of money.
I’m a big proponent of using out of the box thinking to reduce IT budgets, which are an incredible boondoggle at most sizable companies, including law firms. In fact, Greg Lambert from 3 Geeks and a Law Blog has an intriguing post up on encouraging open source software use in law firms right now. But pursuing budget saving alternatives is not as easy as it may seem.
There’s a fundamental internal political obstacle to surmount in encouraging companies (including law firms) to use open source software and other lower cost opportunities. I remember attending a worldwide meeting once for an organization that employed me, and after a presentation by our senior technology expert, he asked for questions. I asked whether we could radically reduce our IT budget by going to lower powered computers exploiting browser based software and open source applications. He brushed off the question. A number of our IT experts came up to me afterward and explained that, while they would love to pursue this approach, the IT department’s power base depends on the size of its budget, so IT leaders will oppose an approach that reduces the budget and thereby reduces this power. Since then, I’ve paid a close eye to the organizational dynamics that can create perverse incentives which prevent efficiency gains.
What I failed to understand when I asked the question, is that when I said, “Let’s reduce the budget and save the company money,” the IT executive heard me say, “Let’s reduce your power base, stall your career, and let non-IT experts waste your resources.” For that reason, he wasn’t interested in a good opportunity.
Instead, he was too focused on telling everyone that the chair was not my son.
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Supply Excellence’s Justin Fogarty was kind enough to cover my recent presentation at the IACCM Americas conference entitled “Alternative Fees Meet Web 2.0: How to Cut Law Firm Cost and Make Clients Happy.” The presentation uses strategic sourcing principles for procuring legal services, but really explains how to rein in costs for any services that you might need. Check out the presentation slides here (which use the amazing Prezi.com presentation software). Also, read our previous post on alternative fees here.
To capture some of that spend and have better legal representation, Jason recommends negotiating “incentives that motivate people to do better”. Meaning, structure your relationship with outside counsel so that there are either caps on fees for specific, clearly defined projects OR include “efficiency bonuses” that reward the firm for coming in under budget.
Couldn’t have said it better myself.
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Top NFL Draft Pick Player Contracts: Too Much Money?
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If you’re a football fan, you know that the NFL Draft is happening today, where teams take turns picking the best players among recent college football athletes. In recent years, guaranteed signing bonus money has spiraled out of control, with over $40 million dollars being guaranteed to this year’s top pick, Matthew Stafford of Georgia.
Many teams are complaining, and want the NFL players’ union to agree to limit compensation to draft picks. The new union director, DeMaurice Smith, has brushed this idea aside, noting that no one is requiring the teams to pay this much, and that limiting compensation is not the job of the union (check out the fees section of our procurement contract to see how you can limit compensation to vendors here).
I am sympathetic to Smith’s inclinations. Why should employees have to be responsible for stopping employers from paying more? When I used to work at a top New York law firm, starting salaries were $125,000 per year. Extra signing bonus money was paid to former U.S. Supreme Court law clerks, usually around $25,000. What if a bunch of major law firms banded together to demand that all associates sign a collective agreement to stop these same firms from paying bonus money to these clerks? Setting aside the antitrust, employment, and collective bargaining law issues here, I can’t imagine law firm associates like myself showing any interest to help the firms (check out our sales contracts that control fees here).
But let’s change the hypothetical! What if the signing bonus money, instead of being just $25,000, was substantially more? How about $100,000? $250,000? $400,000? At some point, the amount would be so great that firms would be forced to cut salaries for everyone else just to afford to pay these huge bonuses. Suddenly, staring at a lower salary, I might be quite open to helping the firms out and signing a deal to cut law clerk bonuses down to size (see how to strategically source and cut vendor service fees here).
A similar situation appears on the football front. Teams pay so much money to top NFL draft picks that they don’t have as much money left to pay everyone else, including their veteran, proven players who are much more important to the team. For that reason, I think Mr. Smith needs to give this some more thought. Who knows? Maybe he already agrees with me and is simply playing possum to maximize negotiating leverage with the NFL. After all, there are many other issues he wants the owners to concede on, so holding out on the draft bonus issue does nothing but help his negotiating stance.
Regardless, I think there’s one last thing to focus on here, and that one thing is . . . Go Rams!
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Alternative Rocking Lawyers: They Might Be Giants
Posted by: | CommentsOne of my fondest memories from Washington University (in St. Louis!) was jumping up and down in a throng of thousands of students while we belted out “Istanbul Not Constantinople” during an outdoor concert by the alternative rock band “They Might Be Giants” (I was sad to recently learn that they didn’t write this great song, but only covered it; it was written by Nat Simon and originally performed by The Four Lads). Here’s a telling lyric for lawyers:
“Why did Constantinople get the works? That’s nobody’s business but the Turks.”
Alternative rock bands like They Might Be Giants originally emerged because they didn’t fit into any of the genres established by the recording industry/radio axis of musical power, even though listeners yearned for something different. Alternative music also flowed from punk rock, which itself emerged out of a negative reaction to the dominance of disco and other overly sentimental musical styles. The music business, like any other, is subject to market forces. And if an entire industry is not catering to its customers’ desires, then a new, young Turk player will emerge to do so, subverting and reinventing the old Constantinoplesque industry along the way.
Triggered by this NY Times article, people in the legal world are currently wondering if law firms will end the billable hour model and move to flat fees and other alternative approaches (click here for a list of articles on this topic). Many partners at major law firms are extremely fearful that they are looking at significantly less profits if they switch to alternative fees. I actually think that partners do not have to accept a drop-off. They do, though, need to fundamentally restructure the way they do business to make the same or more money than they have with the traditional approach. And they are tremendously resistant to do so.
I used to be an in-house lawyer at a Fortune 500 company. On one occasion I had a real estate law firm pitch me. The partner asked, “What can we do to get your business?” I said, “I think a lot of the word processing and the back and forth on contract versions is a big waste of time. I’d love to see a firm that uses contract creation automation software, and has all of its typical contracts and likely negotiation positions loaded into the software for automatic drafting, using a regularly updated knowledge management system. I’d also love it if you had an extranet to store all contract versions so we can skip the old email trap of zapping countless drafts back and forth that leads to version control nightmares. And I’d like you to bill me a flat fee determined up front for each matter.”
He blinked hard, swallowed, and said, “What else can we do?”
His question revealed the tremendous resistance to change in the legal world, where firms are stubbornly committed to a business model that does not meet their clients’ desires for better efficiency and predictable charges. The irony is that if a firm emerges that would actually embrace an alternative approach, it would have a huge competitive advantage in the marketplace and, in the long run, would make more money by growing its business. At some point a full service law firm or outsourcing legal services company will step up and seize this competitive advantage (we’re already seeing up front flat fee alternatives from partners like Jay Shepherd of The Shepherd Law Group, a highly regarded Boston employment law firm).
The biggest problem this new player would face is that all of the most desirable clients, major American corporations, have internal legal departments that choose which firm to hire, and all of these departments are populated by lawyers who used to work for law firms following the traditional model. They’ve all been conditioned to believe that billable hours, unpredictable budgets, and lack of efficiency are par for the course, so they won’t be interested in hiring this new player. Who will then?
Procurement. Right now, almost everything a major company buys, from cardboard boxes to management consulting services, is handled by a strategic sourcing manager who limits the number of vendors and uses that leverage to negotiate improved quality and lower cost. These procurement managers are chomping at the bit to control legal services, but, so far, most law departments have fended them off by making the law seem too mystical to tame. These managers would be the new player’s target market. If the law department tries to fend off their desire to hire, then the company will have a showdown. The arbiter will be the Chief Financial Officer, who, as long as she complies with the law, is almost always more powerful than anyone in the legal department.
And Chief Financial Officers love savings. And Istanbul. Not Constantinople.
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