May 2004 Archives

If a University of California study is to be believed, 800MB of electronic data is generated every year for every man, woman, and child on the planet. (And some of us are responsible for more than others.)  Be that as it may, this Legal Week article is a nice precis of the state of e-discovery, with particular attention to metadata and the US/UK "state of play."  About metadata, I have little to add other than to state the fervent hope that at this point everybody concerned better know that dealing with metadata is dealing with live ammunition, that it can be (innocently) altered simply by opening a file to look at it, and that severe court-imposed sanctions for altering it are beginning to occur.

Far more interesting is the US/UK divide on e-discovery in general.   Surprisingly, litigation support managers are a rare breed in the UK, whereas no serious US firm would be without one.  The implication?  "US firms may be able to steal a march..." 

So don't think of lit-support as merely an unavoidable cost center; could it be a tool in your new-business development efforts?

A recurrent theme in the managerial literature surrounds the pitfalls and difficulties encountered when a line manager moves up to a "CXO" level position and must simultaneously shed the comfortable involvement with the day-to-day "transactional" work—something at which, by hypothesis of their promotability, they have been good at—and adopt broad new strategic perspectives.

An intimately associated recurrent theme in the managerial literature is that rivers of ink are spilled on this issue to no avail.   Can, in fact, anything meaningful be said about this, or does it always just boil down to learning on the job, painful as that may be for everyone in sight?

When faced with what seems to be a chronically difficult issue, I often ask myself if some sort of procedural or tactical "crutch" could be introduced that would tend to improve matters over time?  In other words, if the problem does not seem to admit of a frontal assault (as here, where everyone in their right mind knows it's a problem, but people still fail left and right), is there an available flanking maneuver?

A current CIO article has a nice approach, called the "Top Two." 

Devote an inviolately-scheduled time once a week with each of your key direct reports discussing their "top two" issues.  You'll learn what's truly important, and maybe even get an early warning of something truly important that is in danger of running off the rails.

The legendary Washington columnist Walter Lippmann once suggested the President should hold a wide-open news conference once a month, with no pre-set agenda.  Why?  Not so the press could have a stab at the President, but for the far more powerful and insightful reason that it would require all the President's direct reports to figure out exactly where they stood on key issues of the day and articulate their rationale to the President.  Not, as they say, stupid.

I rarely if ever will use this blog for editorial purposes, but as a securities lawyer who chose that practice specialty primarily out of my (economist's) immense respect for the United States' capital markets—an area where we have a comparative advantage in spades—I must draw your attention to and resoundingly endorse an Op-Ed in today's Wall Street Journal by John Thain, CEO of the NYSE:  "Sarbanes-Oxley:  Is the Price Too High?"

First there was the Foley & Lardner study showing public companies' compliance costs typically had doubled, then we had evidence that VC's were chilled by the suddenly-higher price of life-after-the-IPO, and now we have evidence that European and Asian firms are staying away from tapping our capital markets.  This is not good news.

But then, my approach to securities law is much like my approach would be to campaign-finance reform:  Anything and everything is legal, so long as it is instantly, fully, and accurately, disclosed.

All of us have peeked inside the cockpit of big, modern, commercial aircraft and, if you're at all like me, you see every available square inch covered with dials, knobs, toggle-switches, and warning lights, and you wonder how on earth the pilot keeps track of it all.

The answer is, if he's good, he doesn't.  The three big things that matter are airspeed, altitude, and the artificial horizon.  Everything else is programmed to "speak up" if it needs attention.

Now analogize this to your financials.  You don't really need to view realization rates on  paralegal billings office by office every month (although this information is surely available today).  What you need to keep an eye on is trend-line growth of revenue vs. expenses.  These in turn are driven by only a very few variables:  Billable hours, hourly rates, realization/write-down rate, number of fee earners and fixed overhead. 

Sit down with your CFO and this article, if you haven't already had this conversation.

The marketing function at major firms has now received acceptance, albeit grudgingly at first.  Even advertising—tasteful black and white quarter-pages in The Wall Street Journal—is becoming more commonplace.

But salespeople?!  For a certain stratum of firm, and client base, that day has arrived. 

I will readily confess to deeply mixed feelings about this development.  Econ. 101 would tell us that if salespeople are all but universally employed across the rest of the business universe, they have demonstrable value, and why would law-firm-land be any different?  Of course it's not that simple.  (I'm reminded of Frank Lloyd Wright's memorable observation that "the truth is more important than the facts.")  Law firms, especially at the level where the practice gets truly interesting, sell a service with a very high "intangible" quotient.

Partners may be able to learn to be more effective sales/persuaders (try listening, and try learning your client's business, for starters) but I'm still skeptical that this trend has legs.

After all, I still remember the ineffably fitting marketing expenditure by Brobeck at the height of the dot-com mania:  "Real Time Market Quotes [on CNBC] Brought to You by Brobeck."

Moving to new offices?  You might want to visit MIT first.

The 1,000+ people in MIT's computer science labs are moving from the WWII-era "NE43" building to the $285-million, 719,000 square-foot, Frank Gehry-designed "Stata Center." 

Computer science engineers are, in many ways that matter, much like lawyers:  Solitary specialists who must also collaborate, confronting real-world problems and dreaming of paradigm-shifting solutions, perhaps not naturally gregarious but benefiting immensely from interaction and cross-disciplinary pollenization.  Whereas NE43 was one enormous rectilinear box, there is scarcely a right angle to be found at Stata.

"It's a people building," says Chris Terman, associate chair of CSAIL, who asserts that the Stata Center's layout promotes conversation and interaction among people. It's designed for ease of movement. It promotes collaboration. It welcomes change.

Unless you're Skadden, you may not have $285-million to spend (and you're renting not buying in any case), but MIT is nothing if not confident that it's giving its crown-jewels department a powerful new platform for innovation in the 21st Century.

Take a look: Food for thought.

The former IT director of Herbert Smith, the large UK firm, evaluates the state of the art on the lawyer's desktop, and finds it deeply unsatisfactory.

I told you that "lawyers live in Outlook," and evidently that's more true than most people suspect—to the point where many lawyers refuse to live anywhere else.  Why alarm at the state of the art?  As O.W. Holmes famously said, "The life of the law has not been logic; it has been experience."  Well, today's desktop is a product of experience, not logic.

As lawyers required or suggested more and more IT tools (document management, matter tracking, time sheets, billing, contact lists, email itself, etc.), IT departments responded, in general, by researching the "best of breed" application on the market and installing it.  The problem becomes, of course, that none of these applications: (a) communicate with each other [certainly not out of the box]; (b) look or feel like each other; nor are they (c) intuitive enough to learn that a lawyer, who won't sacrifice a billable hour for a training session, actually has a chance of figuring them out.

The result is tremendous power unused.

Now, at last, some of the IT vendors are beginning to talk with one another, and some large firms (Herbert Smith being the obvious example du jour) are insisting on integration, or at least on the technical prerequisites for integration.

This guy has identified a genuine problem.  Ultimately, what transactional/corporate lawyers need is essentially Outlook plus Word (with a bit of document management in the background); what research/litigation lawyers need is document management plus a rich "portal."  My suggestion:  Two screens on every desk.   One global view of everything needed is unrealistic.  Just look at any trading floor.

Does your finance department contribute strategic direction to your firm's business?  Or are you satisfied if they just have accounts-receivable buttoned-down?

According to this survey by Accenture, 79% of executives polled viewed "strategic financial thinking" as one of the three most important qualities in a CFO, but barely one-third felt their finance departments actually made a contribution to executive decision support.  If it's true that finance is merely "how you keep score," then I suppose it's OK if the umpires can't coach.  But if you envision finance—and if your CFO envisions finance—as a critical ingredient in your team's performance, then this survey, while anecdotal, is alarming.

To be sure, the trains must run on time, but that's scarcely an aspirational vision.  If your CFO is not fully engaged with the management team, whose fault is it?

Michael Schrage of CIO Magazine has a characteristically sane and clear-eyed column about the value—and the concomitant risk—of free-wheeling internal corporate blogs, and he apparently has the goods on some in-house Fortune 500 examples.

What topics do these blogs address?  IT project management seems to be a favorite, which is only logical since both the target audience and the author pool would tend to be familiar with blogging technology and comfortable absorbing information on-screen.  But how badly does the CIO really want to know about the progress of the massive ERP installation with Bangalorean outsourcing and hot and cold running Big Four consultants?  (We know the answer is that, if he's smart, he wants to know about problems early and often, but we also know that such a pioneering attitude can invite arrows in the back.)

Would your firm have the nerve to permit free-wheeling internal blogs?  As a reality check?  Think about it; odds are somebody else is already.

What are the pitfalls of document management in the digital age? Let me count the ways:  

• statutes (e.g., SOX) may tell you how long you have to retain documents (five years past an audit, e.g.), but if not you have to decide what your policy is;
• you can violate that policy (inadvertently, we assume, but tell it to the judge) both by destroying things too early and by retaining things too long;
• water-cooler conversations that once evanesced into thin air now tend to be searchable e-mail threads (see:  Henry Blodgett, Jack Grubman);
• meta-data can reveal the genealogical history of a document's changes (Slashdot first revealed that the complaint in SCO's Linux copyright-infringement lawsuit was originally drafted not against AutoZone and DaimlerChrysler);
• backup tapes are typically written and re-written over, and previous data may be recoverable;
• what do Fed. Rules of Evidence §§1,002 and 1,003 dealing with "Requirement of Original" and "Admissibility of Duplicates" really mean in this day and age? (a metaphysical question, if you ask me);
• and on and on it goes.

I'm not a litigator, much less a fan of the medieval rules of evidence, but this lays it out with reasonable succinctness.

Law firms have the reputation of being—from an internal perspective—more "command and control" organizational environments than the typical corporation.

Please, don't get defensive:  What Fortune 500 has "classes" of "associates" that typically rise in lockstep until the climactic up-or-out moment?  Even top-flight management consulting firms and investment banks allow for people who make Managing Director at preternaturally young ages, and likewise for people who make tremendous contributions for years on end without being put to pasture.

 The always erudite, readable, and sane Warren Bennis makes a point that cannot be made too often, no matter how it fails to take with the Michael Eisner's of the world, that the approach of the Michael Dell's of the world is the only sound way to build lasting organizations where everyone feels ownership and a shared cause.  Given the price of even a first-year associate these days, how can you afford to approach it any differently?  Fungible commodities, in the long run, they are not. 

First off, let me admit I feel a bit self-conscious ("self-referential" might be more apt) about this post, but I decided not to let that stop me from pointing out what I think could be a truly valuable wrinkle on the utility and purpose of blogs—besides, I can't claim it's my idea.  It comes from the former head of IBM's Internet Technology division.

He characterizes blogs as "the first derivative of the Internet," and sees tremendous promise in their ability to fulfill what once upon a time it seemed the 'net itself would do:  Permit everyone to be a publisher.  Actually he (and I) don't want "everyone" to be a publisher; we want people who are experts in particular fields, who are thoroughly up-to-date, and who have at least a passing ability to express themselves, to be a blog publisher.  Blogs globalize the familiar phenomenon, "Ask Sally; Sally will know." 

Moreover, blogs have at least the potential to fulfilll the promise of Knowledge Management.  He thinks, as do I (see a trend here?), that the problem with KM is not that it over-promised but that it under-delivered.  After all, who would argue with the proposition that we should not reinvent the wheel, that we should distribute best practices, that we should distill the exact thing law firms sell:  Knowledge.  In reality, of course, if a KM initiative depends on forced collaboration mandated from above, the genuine experts are the least likely to share their crown jewels, and the knowledge-base chronically undershoots the firm's real expertise, discouraging adoption, discouraging contributions, etc.

Fine; now what?  Well, does your firm have a 10b-5 guru?  Challenge them with a look at The 10b-5 Daily (hosted by a corporate partner with Wilson-Sonsini in Reston, VA) and ask them to out-do it for internal use. An expert in practice before the Supreme Court?  Appellate practice?  You get the picture.

Do you know who your key clients are?  That is, the clients whose loss would seriously affect your firm's economics?  I sincerely hope you do, and mine is not to preach the importantce of what I hope is a self-evident key "metric" for your firm.

Rather, I want to pose the next question:  What are you doing to make sure those clients are joined to your firm at the hip—that they are aware of and take advantage of the full panoply of services your partners can provide; that you are "locked in" with all the key decision-makers at the client; and that every interaction they have with your firm, from the relationship partner to the summer associate, reflects people singing from the same hymnal?

In today's ever-more-competitive world, this is a quick and worthy read.  Executive Summary:  Manage these relationships because they will not manage themselves; outstanding technical work alone is not enough.

Booz-Allen's Strategy + Business might appear an odd source for counsel on law firm management, but sometimes it helps to do a little mental stretching and try to imagine how concepts developed around consumer packaged goods, apparel, and healthcare, might apply to your firm.

The issue du jour in this article is "innovation," and more generally why so many companies are so bad at it, and what the few who are good at it do differently.  The key is to treat innovation as a process that can be managed like (almost) any other, and to understand that between the inkling of a new idea and marketplace acceptance stand four phases:

• "ideation," which in plain English means having the light bulb go off to begin with;
• "product selection," which means the Darwinian algorithm of choosing, from among everything that could be done, what is actually most valuable to do given resource constraints;
• "development," or moving from idea to realistic market offering; and finally
• "commercialization," or packaging, explaining, and distributing the new service.

Diagrammatically, it looks like this.

Still seem remote from what your firm might has done or might ever do?  Think again.  What happens when new financial instruments are created:  Junk bonds in the '80's, derivatives and swaps in the '90's, structured finance's imperial aspirations right through the present day?  Or, in the area of corporate control, greenmail, poison-pills, proxy-fights, and LBO's were all "new" in their time.  Today, the new issues might be control of intellectual property in cyberspace, labor standards in third world countries, or of course every securities lawyer's new champion, Sarbanes-Oxley. 

Can your firm "innovate" competitively around these new opportunities?  You might want to read the full Booz-Allen article.

Thinking of building or updating your firm's on-line "portal?"

Can we start by just defining our terms?  What is a "portal," after all, and what strategic objectives is your firm trying to achieve?

According to this article in Legal IT, there are three ways to approach building a portal:

• start with your own internal document management system and essentially put it on-line (Allen & Overy took this route);
• go high-end, buy, and then customize (and customize, and customize) a product from LawPort or Plumtree (Morgan-Cole's choice); or
• just start with the basic functionality that comes with Microsoft's Windows Server 2003, especially its built-in Sharepoint Services.  Freshfields chose this for a cost of less than $30/year/desktop.

As we should all know by now, the make-or-break issue with introducing a portal is not the technology platform; it's lawyers' pace of adoption of the new capabilities.  And here, Freshfields took a remarkably common-sense view:  Only with Windows Server 2003 is Outlook an integral part of the portal, and "lawyers live in Outlook."  No cultural ramping-up required.

OK, so this really doesn't have anything to do with the economics or management of law firms.

Still, Barron's has a wonderfully contrarian editorial about the pending Google IPO, pointing out among other things that under the Corrupt Bad Old Frank Quattrone System of IPO allocations, shares tended to end up in the hands of the most wildly exuberant speculative bulls.  Whereas, under the Transparent Hygienic New Dutch Auction System of Google's IPO, shares will tend to end up in the hands of the most wildly exuberant speculative bulls.

Could this be the end of Silicon Valley as we know it?  Or only the end of mutually parasitic (ooops—we meant to say "symbiotic") dance between the VC's and the investment banks?  Or are those the same thing?

Improbable trivia quiz:  What do Adelphia, Tyco, and Worldcom have in common?

Being headquartered in very very small towns:  Respectively, Coudersport, PA (pop: 5,390), Portsmouth, NH (pop: 21,000) and Clinton, Miss. (pop: 25,000).

And according to no less a figure than Richard Breeden, former SEC chairman, isolation increases pressure on the financial staff to accede to pressures to engage in shenanigans.

Yet another reason you should be in New York.

The Wall Street Journal front-paged a story today about the barriers women face in attempting to return to the workforce after having taken time off to be with their kids.

Horror stories abound:  A woman who last was a prosecutor with the Manhattan DA's office sent out hundreds of resumes and at last in desperation applied for a job as an executive assistant.  She was asked to take a typing test and did not get the job.

Now let's debate the proposition: 

"Women who opt out of the career path for child-rearing—particularly in a period of rapid technological change—will and should expect to be at a disadvantage compared to women (and men) who juggled children and career straight through."

Pro:  The economics of the proposition are self-evident.  Employees with a steady work history, who have maintained their skills and their professional networks, are clearly more valuable (read:  more deserving of a position to begin with, or a promotion, or a raise) than are other individuals who chose for reasons of their own to stop working and whose skills are, ceteris paribus, rusty.  Moreover, it's only fair that people who consciously chose a personal over a career priority should anticipate that choice will have consequences.

Con:  The economics of the proposition are not self-evident.  Putting nearly-insurmountable obstacles in the way of perfectly talented, highly educated, willing workers-in-waiting is not only an affront to their humanity but is an unjustifiable waste of a productive asset.  To be sure, the "returnees" may need to be realistic about picking up at a more junior level than that at which they left off, but closing the door entirely is simply irrational; they will be highly motivated to learn the new skills they need to learn and their hunger to work will make them unusually reliable and conscientious.

My view?  That's for me to know and you to find out. 

Seriously, I believe the one-size-fits-all career track has been obsolete for some time (just ask a "non-equity" partner).  These women—the article is about women—do not deserve to be treated as disposable, inferior goods.

If the law is a business, should law school be more like business school?  This New York Law Journal article provides the full spectrum of perspectives on that question, making it either journalistically professional and even-handed or else a complete hodgepodge (guess where I come out?).

The article's key analytic failing is confusing and conflating "what a lawyer needs to know about business in order to run his firm" with "what a lawyer needs to know about business to advise his client astutely and strategically."  They have always been two different things, and from the perspective of what it takes for true success in practice, the second has always been absolutely indispensable and the first best left to others.

Having graduated from Stanford Law School and having earned 98% of an MBA at night at NYU's Stern School of Business, I can testify that law school is far more rigorous and intellectually demanding—something of a graduate degree in raw thinking, vs. the business school's emphasis on cultivating teamwork, and throwing in a dose of falsely precise financial-analysis tools and breathtakingly common-sense wisdom-bites.  (For example, in marketing:  "Make it easy for your customer to do business with you.")

Yet the most intriguing question of all goes completely unaddressed in the article:  Is there something intrinsic to "thinking like a lawyer" that disables a true gift for business?  While it's true that Harvard Law School ranks third among professional schools (including MBA programs) in the number of alumni serving as Fortune 500 CEOs, that is scarcely a representative sample:  These people are outliers if anyone is.  And would any of them be accused of "thinking like a lawyer?"

Is Instant-Messaging just for the under-30 crowd?  Think again.  Used with discipline (read: with sensitivity to cultural considerations), and once it grows up in terms of:

• interoperability across platforms (AOL, Yahoo, Microsoft),
• archiving, and
• security

it may be just one of any number of media people use to communicate depending on what they're otherwise doing, the urgency of the communication, and their "degrees of intimacy"—meaning one partner replies to another partner as fast as to a spouse.  But that's another column.

Does your firm currently ban it?  Perhaps a re-think is in order.   Restrict it?  How and why?   It will soon be time for a conscious and considered IM policy, if it's not already;  IM is not going away, and like many other aspects of the technology arms race, it will only become more functional and powerful over time.

Sarbanes-Oxley "lite" in the European Union?  CFO Magazine has a nice discussion of the state of financial regulatory reform in Europe, especially in the wake of the Parmalat meltdown and scandal, which deeply implicated some of the key banks funding the Italian conglomerate.  The banks' usual cries that self-regulation will cure all may not, this time, carry the day.

Currently, the EU has no regulatory body that remotely resembles the SEC, and whether or the extent to which there should be a "Brussels SEC" is what the debate is all about.  Among the specific initiatives under consideration is whether a single prospectus should be valid in all EU member-states, and whether GAAP ought to be mandatory.

Perhaps interesting, you say, but remind me again what this has to do with law firm economics?  Simply that any heavyweight U.S. firm has a deep reservoir of expertise with the matrix of mandated financial disclosure; if Europe adopts something similar, won't we have an advantage in advising European firms?  Is your corporate/securities practice group ready?