The New Whipping Boy?

Earlier this month, I wrote a column "about wringing our hands" (its actual title was How High Quality Are Your Lawyers?  And How Can You Tell?) and I've just received a most thoughtful email from Alec Guettel, one of the co-founders of Axiom Legal, which is extensively discussed in the earlier piece. 

I want to share it with you, but first permit me a few observations. 

Essentially, Alec recaps Axiom's experience in measuring the quality of lawyers--at least as perceived by clients--and provides some refreshingly concrete suggestions, based on hard-earned experience, about how to secure meaningful client feedback.  These valuable observations speak for themselves.

But Alec also takes a roundhouse swing at the famous profits per partner "success metric," which he says "continues to amaze and entertain us.  Increasingly, it seems to be the only metric that matters to firms [even though it] is almost perfectly cross-aligned with the clients' interests." 

Is this actually correct? 

Hasn't PPP become, in some ways, everyone's favorite new whipping boy?  Alec argues that PPP can "basically" be increased by raising rates, raising hours billed per attorney, raising leverage, or cutting costs (which, he says, "we have yet to witness in a meaningful way from top firms").  Are those the only, or the "basic," ways to raise PPP? 

More to the point, what's so bad about PPP, anyway?  The poliltically correct gang is warring with the economic gang, and I wonder whose side you come out on.  Whichever side it is, thanks to Alec for lobbing in the question.

Dear Bruce –

Thanks for what you’re doing with "Adam Smith, Esq." – really interesting and really necessary. 

I was pleased to see your recent post on the failure among clients to measure the quality of legal work they are receiving and the failure among law firms to measure client satisfaction.  You could not be more right that this is a. lacking and b. critical to the improved function of the legal services market.

This is a topic we’ve invested a lot of time and energy thinking about at Axiom so, for what it’s worth, I thought I’d share some of our views.  We’d love to help you catalyze a broader discussion in this area.

After trying some less structured approaches with mixed results (read: abject failure), we began to insist at the outset of our relationships with new clients on a highly structured series of feedback sessions at specified points in each engagement.  These meetings are always in person (otherwise they get cancelled) and after some experimenting, we’ve begun to schedule them for only 10-15 minutes.  This has increased our clients’ enthusiasm for the meetings and forced all the parties into having very focused, prepared, surprisingly productive conversations.  In specified meetings during the process, we have a quantitative review where we walk the client through a survey about technical legal skills, business counsel, responsiveness etc.  We don’t send these quantitative questionnaires to the clients – again, because they’d never get around to filling them out – we walk them through the questions and record the answers.

This process yields superb feedback for our individual attorneys and for Axiom as a firm, and provides a relatively objective measure for performance evaluation and compensation of our people.  As a next step, we’re looking at ways to provide transparency to future clients about the performance of individual Axiom attorneys on prior engagements and about the firm as a whole. 

These lines of thinking have also generated a separate internal discussion about the whole notion of “profits per partner” as a success metric.  The level of importance and pride assigned to the P3 metric by traditional law firms continues to amaze and entertain us.  Increasingly, it seems to be the only metric that matters to firms - a very  public, highly scrutinized measure of success of firm management and overall status.  Even where individual partners care about more than the size of their paycheck, they have to manage toward that number because it’s become shorthand for the quality of the firm.

The problem, of course, is that P3 is almost perfectly cross-aligned with the clients’ interests.

There are four basic ways to increase profits per partner. Three of them put the firm in direct conflict with their clients’ goals and the fourth has been neglected:

• Firms can increase rates, which we have seen plenty of in recent years and is self-evidently a negative for clients.
• Firms can increase hours billed per person, which is bad for associates and bad for clients as they result in lawyers who are unhappy, overworked and moving between firms at an alarming rate.
• Firms can increase their leverage (number of associates per partner). This is destructive in countless ways, including deterioration of work quality and the quality of life of the partners themselves, which exacerbates rising attrition among associates (who wants to be a partner these days?).
• The fourth solution is to cut costs, which is a solution we have yet to witness in a meaningful way from top firms. In fact, costs have increased as lawyer salaries have escalated. Ironically, this is the only one of the four approaches that is, on balance, good for clients.

 

In contrast to profits per partner, we’ve been developing an alternative metric based on the percentage of the client’s overall legal spend that Axiom constitutes year-over-year.  This provides client-favorable motivation in both the numerator and the denominator.  In the numerator, we are motivated to win “market share” within existing clients.  In our view, this is the most reliable expression of a client’s level of satisfaction (though we also ask them to rate us, as outlined above).  In the denominator, we are motivated to reduce our clients’ overall legal spend, which has resulted in our doing free consulting on best practices and recommending a range of solutions that have nothing to do with Axiom.   (Note: one could argue that the numerator provides an incentive for us to raise rates, but we think that’s outweighed by the primary focus on winning “market share” within the client.)

Finally, I wanted to draw readers’ attention to the comments you quoted from Jeff Carr, GC of EMC.  The system he reports combining performance feedback and performance compensation is in our view close to ideal.  We’ve proposed a similar approach to a few clients but have never succeeded in getting a performance compensation system adopted.  Carr’s comments are inspiration to try again, and I encourage other legal service providers to do the same.

We all appreciate the work you’re doing to highlight this issue via your publication and look forward to continuing the discussion. Thanks for being a catalyst for these conversations!

Best regards,
Alec
_____________________________
axiom
law redefined

alec guettel
23 austin friars
london EC2N 2QP UK