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From the famous annual meeting of Berkshire Hathaway, "Woodstock for capitalists," comes news a couple of days ago from the WSJ that Warren Buffett, long an investor in newspapers, sees "unending losses" for the industry. He then makes even more pessimistic remarks:

The current environment is accentuating the problem in newspapers -but it's not the basic cause. Charlie [Munger, his long-time business associate] and I read five a day. We'll never give them up. But we would not buy these companies at any price. They have the possibility of going to unending losses. They were essential to the public 20 years ago. Their pricing power was based on the fact that they were essential to the customer. They lost that essential nature. The erosion has accelerated dramatically. They were only essential to advertisers as long as they were essential to readers. No one liked buying ads in the paper - it's just that they worked. I don't see anything on the horizon that causes that erosion to end.

For some inexplicable reason (sunspots?), there's a sudden confluence of articles about how e-book readers might come to the rescue of newspapers, including this strainingly optimistic piece from the NYT (leading with "the iPod stemmed losses in the music industry") to this piece in the WSJ quoting Rob Grimshaw, managing director for the Financial Times's Web site, weirdly echoing what sound like the self-protective incantations of the doomed: "This channel potentially could revolutionize the consumption of content in much the same way the Internet did." Finally, and for good measure, we have an entire story, "Newspapers' Essential Strengths," in today's NYT business section pegged on the hook of Mary Schapiro, chairwoman of the SEC, speechifying:

"Financial journalists have in many cases been the sources of some really important enforcement cases and really important discovery of practices and products that regulators should be profoundly concerned about. But for journalists having been dogged and determined and really pursuing some of these things, they might not be known to the regulators or they might not be known for a long time."

But before we let our prurient gaze rest too much longer on the admittedly engrossing spectacle of the newspaper industry contemplating the prospect of its own demise, let me reassure you that's not why we're here today.

I come not to praise or damn the financial press, the political press, or the arts and culture or sports press, for that matter.

I come to call the roll of industries whose fundamental business models are changing.

With help from Jeff Jarvis, and his column "The Great Restructuring," we can almost run down the litany of industries challenged at their core:

• Newspapers: These we know about.
• Magazines: I would think have brighter prospects, because there's no substitute for their glossy sexy inky tangible regularly scheduled appearance in your mailbox, but given the recent shuttering of Portfolio, a bright light in the increasingly dim firmament of business magazines, I am less optimistic today than I was last week.
• Books: The e-book model will, in time, inhabit the earth. This will up-end the publishing industry, and libraries, and bookstores, and yes, your and my own favorite dens to which we retire, walls lined with shelves of books we've read and others we have ambitions to read.
• Speaking of bookstores, retail will change and, yes, downsize, as online commerce grows. When I can comparison-shop by opening a new tab in a browser--and if it's not merchandise that requires touch and feel, a big if--then who needs the store?
• Residential and commercial real estate. As a dyed-in-the-wool city dweller, I would like to believe that development will become more concentrated, but I'm also a realist. The sprawl of McMansions may have seemed folly to me, and perhaps now folly to some who bought and invested in them, but they clearly struck a chord. Suffice to say their run seems to be up for the moment.
• Computers, where netbooks are the new new thing, and operating systems are commoditized or open source, face drastically shrunken margins.

But this is a publication about the economics of law firms.

So let's talk about that, and let's try imagining what our industry would look like if all bets were off. That's what's happening, after all, to all of the industries I just listed.

What type of service do we provide and what do you think clients are willing to pay for it?

I think we provide three primary categories of service:

• Commodity, repetitive, predictable work. Call this "C" work.
• Particularized services for clients, which, while specific, customized, and to some extent without precedent, are not frankly of transcendental importance. Call this "B" work.
• Unique, intrinsically valuable, high-stakes engagements. Call this "A" work.

The problem is that we bill for all three the same way, on the billable hour, without differentiation between either what they're worth to the client or what resources they call for from our firms and what demands they place upon our firms--demands ranging from the caliber of staff and professionals we assign to them to how that affects our long-run strategic plans including where we locate our offices, what practice areas we focus on, and where we recruit our lawyers and what level of excellence we expect from them.

Permit me to opine that billing for A and for B and for C the same way is insanity, and that we have only ourselves to blame.

The current crisis environment may give us a chance to change that. Such, at least, is my hope.

So what might that new future look like?

Starting with C work, this strikes me as supremely amenable to predictable, fixed fee arrangements.

Let me hasten to add that we can't quote a fixed fee for a single piece of litigation or a single corporate transaction, because nobody can predict how any individual matter will turn out, but we can nevertheless realistically predict what specific pieces of work during the course of those matters will cost or, at the other end of the distribution, what a large-ish portfolio of those matters would cost over a sufficient span of time and geography.

Getting specific, couldn't you put a price on taking or defending a deposition? Making or opposing a motion to dismiss? Marking up a simple acquisition agreement? Reviewing 10,000 or 100,000 or 1,000,000 pages of documents for privilege?

At the other extreme, how about taking on a major company's employment litigation east of the Mississippi for 3 years? All its EPA regulatory compliance matters for the same time and geography?

How would you go about this? (A) Examine your historic costs. (B) Hire some smart actuaries. (C) Think about pricing things at 60% or 70% of your median costs for that particular "unit" exercise. You can please clients with predictable fees and ensure that, over time, you will cover your costs and then some.

Prepare to make money.

B work is what you want to continue to price on the billable hour model.

For everything else you read and for everything else I say here, the billable hour is alive and well--exceedingly so. It has the advantages of being familiar, objective, quantifiable, itemizable, defensible, and familiar (oops--did we already say that?).

These are not idle benefits. When an in-house lawyer is challenged by an in-house finance type about a legal bill, the first and best line of defense the lawyer can offer is that (a) they really did the work--see, it says so right here; and that (b) we got a 10% discount. Defending a bill "for professional services rendered, $XXX,000" is a lot tougher, and immediately puts the in-house lawyer on the defensive.  (Finance types are convinced the value of legal services is always negotiable downwards, for starters.)

This is the bread and butter for many firms, the meat and potatoes that pays the rent, covers the fixed costs of staff and associate salaries and benefits, and buys you everything from online access and your IT infrastructure to malpractice insurance. It is, without doubt, the comfort zone for most of your lawyers, but don't kid yourself that it's a diffferentiator.

It is not a criterion on which clients will select or reject you, at least not on the basis of B work alone. Clients will and do and always have, of course, selected and rejected firms based on their specific treatment at the hands of individual lawyers, but that's not what we'd call a firm strategy. That's the serendipity of having the right, or the wrong, people spearheading your business development and client relationship initiatives. It's not what makes B work "strategic" in terms of billing.

A work is, after all, what we all aspire to, isn't it?

And if so--and if there's only so much of it to go around, which there is--shouldn't we try to price our services for A work creatively?

What I have to offer in terms of creative pricing actually has roots in an extremely old story, but a time-tested one: Shared risk. Shared risk simply means that when the client does well, your firm should do well, and when the client fares poorly, you too should fare poorly. (Need I remind you that the billable hour is a cost-plus model where the law firm makes money no matter what happens to the client?)

Billing for A work could proceed on this premise. Dear Client:

• Pay us a discounted, and fixed, amount on a monthly basis for the life of the matter;
• If it turns out poorly, that's it. We're done, and you have paid in full.
• If it turns out well, pay us more, depending on how well--in your sole discretion--you think it turned out. That "more" could be 1x the discount, to make us whole, or 2x or 3x or 5x, to share the largesse.

The discount is up to you, the firm, to determine, as are the terms of the premium or the bonus on the back-end. This is, by the way, the model that the famous Bartlit Beck uses, and according to this month's American Lawyer, Boies Schiller has also employed it to wonderful effect. 

An example may help.

A friend recently wrote from London that he represents creditors in corporate restructuring and insolvency and that "success fees make so much sense that they make time billing actually seem perverse." He elaborates:

I also act for hedge funds in some of the more junior subordinated debt, who will try and get a "consent fee" of, say, 5, 10 or 20c, to restructure the bonds they bought at 2-10c. The legal advice and management of either strategy is a significant determinant of value, which, if successful, can be incredibly lucrative. Conversely, if the strategy doesn't work, the client will have made close to nothing, but have incurred exactly the same legal expenses.

He contrasts the legal industry's antiquarian pricing model with that of the financial advisors:

All of the financial advisors working in corporate restructuring have done it - the model is a monthly run rate of (say) GBP 250,000, with a several million GBP sucess fee, where success is defined as a restructuring that achieves certain outcomes (often calibrated to post-restructuring leverage: ie, you get to own the company, and we get more if post-reorg debt is say only 2.5 x EBITDA than if it is 3.5x)

Does this seem to you to be "taking advantage" of clients? Not, evidently, so clients would notice. Does it seem "unprofessional?" Since when does doing less well when your client does less well and doing better when your client does better seem unprofessional?

Finally, let me note the consenting adults defense to this type of fee arrangement.

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Type A, Type B, Type C work: Should we continue to bill for all of them the same way?   Clients put different values on them, and so should we.

Finally, in the best tradition of Adam Smith himself, consider the dimension of self-interest. 

Under the billable hour revenue model, there are only four variables that matter:

• Rates
• Hours
• Realization
• and Leverage.

What's critical to recognize under this model is that every one of these variables has some intrinsic limit. We can debate what the limits are, but limits there are:

• Rates:  $1,000/hour?  £1,000/hour?
• Hours:  2,400/year?  2,700?  3,000?
• Realization:  100% (the days of 200% are so over)
• Leverage:  As I've argued, leverage is actually decreasing, not increasing.

But the escalating arms race on the PPP front has no intrinsic limit.  We therefore stand a fair chance of witnessing a collision between the marketplace demand for ever-higher PPP numbers and a revenue model that cannot grow to the sky (even if our clients claim otherwise).

Now, are you willing to take another hard look at how you bill for Type A and Type C work? 

If not, what could possibly be stopping you?  And inertia is not an answer.

According to a McKinsey study, in the corporate world, for every five attempts to enter a new market, four fail and only one succeeds.

And this isn't limited to startups or novice businesses; it includes very sophisticated firms. For example?

Anheuser-Busch tried to diversify into snack foods. Not, you might think, such a stretch. Distribution channels for beer and snacks are similar; advertising venues are nearly identical; the target market is indistinguishable; impulse point-of-purchase displays are mirror images; even shelf lives and production facilities are, in many ways, complementary.

But what they didn't count on was the ferocious counterattack from Frito-Lay, who saw their fundamental franchise being assaulted. The result: "Eagle" snacks (the Anheuser-Busch brand) is no more.  (In a move combining equal measures of rationality and humiliation, Anheuser Busch sold a number of plants that made Eagle snacks to Frito-Lay.)

Corporations launch forays into new markets all the time, be they geographic, brand or line extensions, or "next door" like beer into snacks. And there's a reasonable amount of management literature out there about the odds of success and "best practices." Can we learn something? And hopefully improve upon the 80% failure/20% success rate? Let's see.

To begin with, what's the real problem? Here are the basic dimensions which need to be working in your favor if you want to launch into a new market successfully:

• Timing. Never underestimate this. Human nature is always subject to the temptation to buy at the top when all is palmy and sell at the bottom when all is dire. How many firms went piling into Silicon Valley shortly before the dot-com bust? And how many are piling into Dubai, Abu Dhabi, and Qatar now that "sovereign wealth" is the new mantra? Not all will come to tears, by any means, but it's worth thinking a minute or two about what seems to be terribly out of favor and asking searching questions about why and how long that might be.
  
  
• "Scale relative to the competition," in McKinsey speak: Meaning simply whether you can enter with anything resembling critical mass and, if not, how long it will take you to get there and how much it will cost in the interim. Law firms are famously allergic to long-term investments, because they have to be funded out of current (after-tax) income. But if you're not serious about invading, say, New York, or London, or Abu Dhabi, best not try.
  
  
• Whether the new market complements your existing strengths. This may sound obvious, but it's shocking how often it's honored in the breach. It might make sense, for interest, for Texas-based energy firms to launch in Moscow or Kazakhstan, or for Silicon Valley firms to launch in Austin, Texas or the Research Triangle Park area, but how much sense does it make for everyone and his brother to think, just on general principles, that they need to be dragon slayers in core capital markets practices in New York?

But if these preconditions for success are so obvious, why do we see such a high failure rate?

Attribute it to cognitive biases, which McKinsey describes as "systematic errors in the way executives process information."  For example:

• Believing the potential market is bigger than it is;
• Failing to consider the certitude that rivals will respond; and/or
• Relying heavily or exclusively on "inside" views and opinions rather than trying to develop an untainted, outside perpsective premised on the track record of similar attempted market penetrations.

The last one is the most interesting, so let's dwell on that.

Begin by trying to assemble some examples of similar attempted market penetrations by other firms in the past.  Whether you choose to characterize this as the grandiloquent "reference class" is up to you but that's what MBA's call it—just so you can defend yourself at the conference table. Once you have your precedents assembled—something you should be quite comfortable with—bring in a "Red Team" to play the role of devil's advocate, seeking out flaws in your analysis, anticipating potential competitive responses, coldly gauging the investment required and the time frame, and, in general, seeking to avoid the myopic but all too human tendency to seek out confirming data and ignore or discount contradictory information or analyses.  (The term "Red Team" comes from CIA parlance, standing for the team designed to attack the strategy of the good guys, the "Blue Team.")

Again, rehearse in your planning the key indicators of success or failure in entering a new market:

• The size you will enter with, compared to "minimum efficient scale," or breakeven capability.  If you plan to enter at a scale assuring you will lose money for awhile, just make sure you know what you're getting into.
• How related the market is to your exisiting core competence.  (See above re piling into New York's capital markets.)
• The timing, or order, of your entry.  This can of course cut both ways depending on the savviness of you and your competitors at exploiting the new market.  In some cases, first movers by rights out to have a clear advantage, but a corollary phenomenon is that of the "optimistic martyrs" who fall in the face of more experienced players who diversify later.
• The life cycle of the market.  You might assume that some markets are evergreen, and some may be, but to tear an example out of recent headlines, are you tempted to plant a flag in Abu Dhabi (say) to snag a share of the "sovereign wealth" investment frenzy?  First of all, you will scarcely be alone, as some high-profile firms have already announced this year that they will be opening up there.   But it's not just firms leaping off the starting line more or less in tandem with you; consider that some Magic Circle firms have been there a quarter century. 

It's hard to overemphasize the need for cold-blooded, disinterested analysis of the opportunity and how it matches up against your firm's current competencies.    This comes hard up against some intrinsic human tendencies:

By and large, we're optimists.  We tend to gravitate towards the positive outcome rather than the negative one, to buy stock rather than to short it, to assume that what we paid was fair and the asset we acquired can only appreciate in value. 

Another flaw in our thinking is the power of "anchoring," or of giving undue weight to the first price, the first growth rate, the first level of investment that is mentioned.  Professionals are not immune.  McKinsey reports a study which distributed ten-page booklets on houses to residential real estate brokers, detailing prices and characteristics of comparable houses in the area.  The brokers visited each "comp" as well as the house in question, and were asked to select an appropriate asking price.  Unbeknownst to the brokers, the listing prices for the key house had been randomly assigned over a range of plus or minus 11% from the true listing price.    These bogus listing prices strongly affected the brokers' estimates—and even when they were told about the set-up, they denied that the "anchor" had any impact on them. 

Can you avoid these "cognitive biases?" 

Yes, with analytic rigor and a scrupulous insistence that the "Red Team" be taken seriously.  But never lose your sense of optimism.  Optimists may not always be right, but pessimists never change things for the better.

This past Thursday morning at the offices of White & Case, I had the opportunity to participate in presenting the results of a survey of how professional service firms (primarily law  firms) set strategy.  Held under the auspices of the Managing Partners' Forum, of which I am now the New York regional director, the 8:00 am — 10:00 am meeting addressed such issues as:

• Attitudes towards strategic planning
• Responsibility for formulating strategy
• Assessment of opportunities and threats facing firms
• Frequency, duration and time horizons when formulating strategy, and
• Overall satisfaction with the outcome

Which brings us to our topic for today:  Cognitive dissonance, or, to be more specific, our profession's truly impressive talent at suppressing same even when the internally inconsistent positions are being enunciated by the same people in the course of the same survey.

But let's back up and start with some of the survey results. 

 Over 100 individuals responded to the survey, 40% of whom were the managing partner of their firm and another 47% of whom were a senior partner or the business-side Executive Director, COO, or CFO.  Nearly 60% were from firms with more than 250 fee-earning professionals, and another 31% were from firms of between 51 and 250 fee-earners.

Asked what their most pressing strategic challenge was, nearly 80% cited "increasing client demands and downward pressure on fees."  Another 70+% said essentially the same thing, with a different spin:  "Increasing levels of competition within the profession."  So I take that as the most salient description of the environment these firms are trying to address through their strategic planning process.

Next, we asked how much of strategy is actually executed:  Here, about 40% of North America-based firms happily replied "most of it."  But 20% also replied somewhat cryptically "as much as we required," and nearly another 40% candidly reported "less than we would have liked."  A follow-up asked how satisfied they were with achieving pre-determined strategic goals: roughly 2/3rd's reported "satisfied" or "very satisfied," but 1/3rd chose "dissatisfied."

Bear with me through a couple of more data-points and then we get to the good stuff.

Asked about strategy's effectiveness in "creating meaningful differentiation from competitors," well over 50% said they were "dissatisfied," and less than 10% reported they were "very satisfied."

On the seemingly positive side, however, over 75% reported they were "satisfied" or "very satisfied" with getting the firm's employees to "buy into" the plan, and essentially the same figures held true when asked about partners' buy-in (vs. employees).

 But strategy should not exist in a vacuum, right?  So we also asked about people's satisfaction levels with its impact on two key financial metrics:

• "dissatisfied" or "very dissatisfied" with its impact on top-line revenues:  Almost exactly 50%
• the same, with respect to profits:  About 40%.

Finally, the bottom line question:  How satisfied were people with their strategy's impact on "improving client satisfaction with the firm?"  Over 75% reported "satisfied" and another  10% "very satisfied."  No one chose "very dissatisfied."

Where, then, does this leave us?

With, I submit, a severe disconnect between our optimistic (delusional?) belief that our strategic process is "improving client satisfaction" and the overwhelming number of us who report that "increasing client demands" is primary among the pressures on our firms.

For another perspective on this same disconnect, I commend to you the 18th Annual General Counsel Survey from Inside Counsel magazine (July 2007), which opens with the observation that there is a "collision" at hand in form of "law firms under pressure to make more money butt[ing] up against general counsel locked into budgets that won't bend."  Here's the table that sums it up, to my mind, which is the "overall" law firm report card as viewed by the 862 in-house counsel and 135 firm attorneys responding:

	In-House Counsel	Law Firm
A	19%	62%
B	70.5%	35%
C	10%	3%
D/F	0.5%	--

Disconnects are also apparent on specific components of client service.  For example, on the question whether service levels have improved over the past five years:

• 68% of law firms say yes, but only 29% of in-house counsel
• 15% of law firms say no improvement, but 35% of in-house counsel.

"Most law firms pad their bills:"

• 39% of in-house counsel agree, 24% are unsure
• 72% of law firm respondents disagree, 18% unsure.

"Law firms are actively seeking out ways to reduce the costs of their services:"

• 70% of in-house counsel disagree, 19% unsure
• 56% of law firm respondents agree, 20% unsure.

"Law firms make too much money:"

• 38% of in-house counsel agree, 40% unsure
• 76% of law firm respondents disagree, 15% unsure.

Finally, 77% of inhouse counsel say they're under strong pressure to reduce spending on outside counsel, but only a third of them believe that law firms understand this constraint.

Is there hope for bridging this divide?

I think so, and I'm going to suggest it comes from as old-fashioned a source as there is in our profession, from a value that must, or should, date to the first days when it ever began dawning on people that this thing called lawyering might be tantamount to a profession.

To approach that conclusion, here's the last data I'll present from the Inside Counsel survey, namely hiring criteria for selecting outside counsel, ranked in order:

1. Quality of work/Responsiveness (tie)
2. Creative solutions
3. Billing rates
4. Providing preventive counseling
5. Multiple practice areas
6. Alternative fee arrangements
7. Diversity/National reach (tie)

Setting aside rates and alternative fee arrangements, which speak to pure economics and not service levels, and also setting aside practice area and national reach, which are typically irrelevant from the perspective of an inhouse lawyer hiring a firm to help with Matter X today—by hypothesis they handle the practice area in question and have the geographic reach required—the list reduces to:  Quality, Responsiveness, Creativity, and Preventive (read: holistic) counseling.

What do those boil down to?

Supreme levels of client service and consummate professionalism.  Sound familiar?  Wasn't this what you signed up for when you first became enamored of the profession?  Isn't this what you find most fulfilling today?  Don't your most admired colleagues aspire to precisely the same?

Wherein, then, lies the problem?  Why do we think we're doing so well promoting client service and clients think we're doing so poorly?

Communications, of course, is the answer; we're not communicating very well at all, which is a rather appalling failing considering how verbal and articulate we all presume ourselves to be.  It may be that we're not communicating on the frequency or wavelength clients are listening in on or want to pick up on.  If so, the answer may be that our firms need to invest more in client relationship development.  (This is different than traditional marketing.)

Does your firm have a Client Relationship Director?  Should you?

What do the stories "Qualcomm Meets a Stern Judge" and "Banking Giant Pioneers Adviser League Table" have in common?

The first is about Southern District of California U.S. Magistrate Judge Barbara Major coming out swinging against lawyers involved in the by-now famous and tremendous discovery fiasco by Qualcomm, involving its failure to turn over hundreds of thousands of documents to Broadcom.  Among other things, Major had this to say:

• [This constitutes] "gross misconduct on a massive scale"
• "If there isn't some kind of sanction, there's no deterrence. How can this possibly be tolerated in the age of digital evidence?"
• [Absent an explanation,] "the inference is that Qualcomm intentionally decided not to search for these documents"
• And my own personal favorite:  "At best, the documents reveal a massive responsibility deflection and an incredible breakdown in communication of leadership between [the] client, the attorneys and among their counsel."

Henceforth whenever anything goes wrong hereabouts I intend to ascribe it to a "massive responsibility deflection."

She reserved a ruling on sanctions just as, apparently, Qualcomm has reserved deciding whether some malpractice litigation might be in order.

Now, I don't know what the real story is at the bottom of this all but unbelievable imbroglio, but one of the smartest observers I know of this scene proposed to me that it was a foreseeable breakdown "where everyone's responsibility is no one's responsibility."   He may be right; and people may be suffering severe court sanctions, at the very least, as a consequence.

The second story reports:

"Banking giant UBS has launched a radical review of its global legal advisers in an attempt to slash costs and become one of the first top financial institutions to formally grade law firm performance.

"The review, UBS’ first in five years, is set to shrink the bank’s cross-border panel. [...] The Swiss-based bank said the move is in response to increasing legal bills which now account for 1% of UBS’ total annual revenues." 

Now, 1% of UBS' revenue ~ US$400-million.  To put this in perspective, if you or I could start a firm today dedicated solely and exclusively to UBS' total legal spend, our firm would be around #65 on the AmLaw 100.

And there's more:  For several  months, at least 100 of UBS' in-house counsel have been scoring outside firms on a 1 to 5 scale across seven criteria including speed, quality, and cost.  As UBS' GC, Peter Kurer, put it in what would be pluperfectly obvious in any other relationship, "the bank's legal bills were too large not to be analysed and that it was important that both firms and clients take steps to improve efficiency."  Once the point scoring system accumulates sufficient data, it will begin to come into play in determining which firms stay on the panel and which are invited off. 

Now, what do these two pieces have in common?

The clarion call embedded within each demanding highly professionalized and full-time management of critical activitiess within your firm:

• Qualcomm's "massive responsibility deflection" calls for your firm to have a dedicated General Counsel.
• UBS's tightening up of its panel criteria and partial quantification of the basis for selection calls for your firm to have a vibrant and energetic partnership among your CFO,  your Director of Client Relations (you have such a person, of course, do you not?), and key relationship partners to the client, all in service of delivering not just legal services of impeccable quality but client service of impeccable quality.

If you are still enamored of the antique notion that talented and whip-smart lawyers can handle all these challenges in their "spare time," when they're not serving clients, be prepared to find yourself on the wrong side of an angry US Magistrate Judge, or of a calculating and determined General Counsel with a budget sizable enough to vault one of  your competitors into an altogether different league, leaving you proud, comfortable, and irrelevant.

On Monday of this week Proskauer Rose published something brand-new online.  

I use "brand new" advisedly.  I would be the first to confess I may have missed something like it beforehand (and if you're aware of any analogs, please let me know), but what they published is:

• remarkably ambitious,
• truly practical and useful,
• without precedent online or off, and
• the end result of an impressive investment of time and resources by the firm.

"It" is Proskauer on International Litigation and Arbitration:  Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes, an e-book, with all that implies—you can search it, download it, email links or excerpts, copy and paste, etc.  And, of course, from Proskauer's end, they can (and vow to)  update it. 

What is "new" about this?

More on that anon.  But first, I learned most of what you're about to hear about this from Louis Solomon, the Proskauer partner who had the gleam of the idea behind the e-book in his mind 21 months ago, and who I was able to spend some time with to get the background for the story.  (He reports that he was aided immeasurably by Jennifer Scullion, a senior counsel at Proskauer.)

Louis has been doing international litigation for a long time—starting about 25 years ago when Pepsico (Proskauer's client) wanted to terminate an intransigent bottler in Taiwan.  The longer he's been doing it, the more he had come to realize that there's not much written about the rules of the road for international litigation:  Certainly nothing comprehensive, nothing by way of a "practical treatise."

So he decided to get the Proskauer Litigation Department to write the treatise, and began with a one-page outline; the first meeting attracted all of six people.

As they set out, a key decision upfront was write it with a decidedly practical bent:  "We discouraged footnotes and multiple case citations; but we still wanted it to be comprehensive."  So, for example, how do you actually obtain jurisdiction over a foreign entity or in a foreign court?  How do you actually enforce a foreign judgment?  And how do you do everything that comes in between those two end-points?  The result is a  28-chapter e-volume with nearly 50 Proskauer lawyers as contributors.  (Lou contributed four of the chapters himself and edited the rest.)

What types of "practical" questions?  Well, for example, did you know (I did not) that inhouse counsel in France aren't considered counsel, so no attorney-client privilege attaches to their communications?  Or, that patent examiners working for a manufacturer in Sweden are likewise deemed outside the scope of privilege—but if a US challenger sues to invalidate a patent their internal communications are presumptively privileged?  (Can you say, "asymmetrical playing field?")

There are a litany of other areas where, as Lou charmingly puts it, "the law is quirky."   Examples?  At least in the 2nd Circuit, which of course covers our home town of New York, foreign litigants can come to the US and take discovery in aid of their overseas matters without regard to the "relevance" requirement of Federal Rule of Civil Procedure §26(b)(1).   No, the 2nd Circuit has not "interpreted away" that requirement, at least not on its face; it has instead decided that since 28 USC §1782, "Assistance to foreign and international tribunals and to litigants before such tribunals," does not contain an express relevance requirement, none obtains.  Quirky indeed.

Here's how Proskauer introduces the volume:

"Commerce in today’s world pays little heed to traditional geographic boundaries. Manufacturing, marketing, and distribution routinely criss-cross the globe. The Internet has all but obliterated historical national and state borders. These realities -- especially given overlapping, diverging, or converging regulatory regimes -- have led to a vast increase in the number and complexity of international or cross-border litigations, arbitrations, and regulatory investigations or proceedings.

"Cross-border business and regulatory disputes present unique challenges. Yet there does not exist for the client or practitioner any comprehensive treatment of the issues arising in managing, resolving, and avoiding controversies affecting multiple jurisdictions.

"Our objective here is to fill that gap by providing that essential reference guide. Proskauer has a long and extraordinary history in international practice. The specific contributing authors to this Guide, members of Proskauer’s Litigation and Dispute Resolution Department and International Practice Group, have helped shape the very law and practice in the topics treated.

"Our aim is not towards the bookish or academic. We have tried to write a resolutely practical guide, emphasizing the concrete and strategic over the theoretical, the lore as well as the law, the unique opportunities presented by international matters as well as the challenges. We intend to maintain this Guide as a timely compendium of current best practices as well as our most creative approaches to tackling new developments.

"We are publishing this Guide in e-Book format, over the Internet, for ready access and for ease of updating as the law evolves in this dynamic area. For this project to succeed and meet the needs of our clients, though, it must be interactive. Please, direct questions, comments, or reactions to any of our authors, to our Editor, Jennifer R. Scullion, or to the Editor-in-Chief, Louis M. Solomon. We look forward to hearing from you.

New York City, September 2007

To get a real flavor of how comprehensive the volume is, I'll list just a very few of its 28 chapter headings:

• Securing US Jurisdiction
• The Role of Comity
• Choice of Law
• Discovery Abroad for US Proceedings
• Discovery in the US In Aid of Proceedings Outside US
• Privilege Issues
• Cross-Border Legal Ethics
• Extraterritorial Application of US Laws (Employment and Securities Laws)

You get the idea.  But, as Lou observes, "today there's no such thing as a small litigation—not with e-discovery."  So comprehensiveness is not really negotiable.

If you're like me, right about now you're wondering how on earth Lou was able to marshal the substantial resources to make this happen—and on top of that to persuade risk-averse lawyers to publish it online as an e-book free to all comers.

First, he argued the internal benefits for the firm:

• Clients need practical, real-time advice;
• Proskauer lawyers need to write more (Lou and I both subscribe to the belief that you probably don't fully comprehend something until you have to write about it);
• International practice is an area where Proskauer has genuine depth of expertise;
• Senior and junior lawyers need more opportunities to work together; and
• The project could foster the development of mentor/protege relationships.

Second, he argued the external/reputational benefits for the firm:

• Merely by producing this Proskauer would be seen as strongly capable in this area;
• By offering valuable intellectual property for free, Proskauer predisposes prospective clients to come back for more (why does Zabar's give free samples of cheese?);
• Most importantly, Lou told me with no small degree of passion that a key goal of the project was, and is, to "contribute to the debate, to participate in the dialogue."  How so?  "International litigation presents  courts all the time with issues and decisions where the law is, to put it charitably, not fully formed.  Courts struggle with this; they sometimes don't know how to approach an issue.  We wanted to suggest ways to think about these things.  In my experience, courts will never ever penalize a lawyer for taking a view in an unsettled area of law;  you're allowed to have an intelligent opinion.  Lawyers are allowed to further the profession without running afoul of judges."

What about the objection that this stuff is our bread and butter—how can we give it away?? Lou's answer, as mine would be, is that in fact no potential case or controversy in the real world is so simple that simply referring to a treatise will suffice to guide your action.  Or that if your question really is that simple, Proskauer wouldn't charge you for answering it anyway, particularly if the answer can be as short and sweet as "See Chapter 6."

Once the project got underway, the support by the firm itself was astounding, even inspirational, reports Lou.  He estimates that an average author devoted north of 100 hours to writing his or her contribution, and while segments came from nearly every corner of the litigation department, two chapters were also  prepared by the corporate department, on—what else?—avoiding litigation.  

"Nearly 50 authors @ roughly 100 hours apiece!?," you're thinking?  That's right; I told you this was a serious undertaking by the firm.   Although they did not track time to the 0.1 of an hour (Lou didn't track his own time at all, in fact), Lou reports that his "best estimate is that the firm has made a several million dollar investment, closer to mid-seven figures than low-seven figures."

Is this a model for the practice of law in the 21st Century?  Emphatically so, I believe. 

But be  forewarned:  Before attempting this at your firm, understand that to do this is a professional exercise at the highest level of ambition.  It's crystal clear to me from talking with Lou that it's also a labor of love (or, it had better be).  He confessed that he and Jennifer made people go back and hone their language "again and again; there was scrupulous editing and constant re-working."  And I believe it shows. 

Now that it's online, you be the judge; see for yourself.

---

Update (5 Oct, 6:00 pm). When I originally spoke with Lou, I asked what clients' reactions had been like and he replied that it was so new there essentially hadn't been time for any reaction. 

Well, here's the first report.  I'm not at liberty to identify the client, but suffice to say it's one of the largest multinational corporations in the world, in a business that affects all of us every day.  This comes from a senior in-house counsel and was entirely unsolicited:

"have skimmed through your guide.  it is terrific!  i think it's well done, great for issue spotting, well written, well organized, user friendly, etc. quite a lot of work, i cannot imagine how you fit it in!

"i have circulated it to my intl division colleagues and have forwarded it to a litigation dept colleague who has been dealing w some intl investigations/litigations. i'm sure she'll forward it within the lit department (and they may very well have been sent an announcement directly)"

So, for all the managing partners and practice group leaders who might still be rolling your eyes at the multi-million dollar investment Proskauer made in this guide, I have a question for you:  "What price client loyalty on that order?"  Put differently, how likely do you think it that that multinational will start giving its international litigation to a firm other than Proskauer?

The annual "Adam Smith, Esq." Reader Survey is actively in progress, and I sincerely urge those of you who haven't taken the two to three minutes it takes to complete it to do so right now. 

The point of the survey?  Two-fold:  I want to learn more about you, so as to better tailor the content of the site to your interests, and you get to tell me both what recommendations you'd offer me and, perhaps more importantly from your perspective, what the most pressing/important strategic, business, or financial issue facing you or your firm is.  Let your voice be heard; take the survey now.

Meanwhile, an interim report on what we've heard on precisely that last question, which reads verbatim thus:  "The most pressing/frustrating strategic, financial, or business issue facing me/my firm is."  Herewith follows a distillation of what you've been telling me.

Associate retention is a tremendous challenge for many of you.  Comments include (all exact quotes):

• associate compensation:  lockstep or merit?
• the position of associates in BigLaw, of course
• insane associate salaries
• and many many others who just said "associate retention" and left it at that.

This has been an issue I've devoted extensive—but perhaps still insufficient—attention to on "Adam Smith, Esq.," and I'll vow to do even more about it.  Fair warning:  I have no snappy answers on this one.  To a large extent we are facing a collision between an irresistible force and an immovable object whose constituent components are attitudinal, generational, and financial, and which is perhaps not susceptible of an enduring resolution absent a re-examination of underlying business models.   In short, this has been long in gestation and may be long in solution.

The War for Talent  is an ongoing challenge, perhaps more pressing now than ever.  Comments included "Finding and attracting top-level talent to a small boutique firm," and "attracting talent at the salary levels our firm pays."

Knowledge Management was mentioned by a large number of you, as something that firms have to do well but that very few in fact are managing to accomplish.  Technology and upgrades of same were a close second in this area.

Business development and marketing are perennial points of pain, and "some things never change."   The only fault with the bromide that "some things never change" is that in this case it's false:  This is getting worse.   Here are some more direct quotes:

• Business Development. Almost all law firm management issues are ultimately directed toward growing the top line (associate retention, training, marketing, strategy, etc.) It would be good to hear about this at both the individual level (aside from the standard cliches of "write articles, give speeches, network, and ask for business from all your friends," what other business development strategies do partners use) and at the firm level (what steps have been taken by national firms such as Latham and Kirkland to become more prominent and self-sustaining; how do firms organize and manage their practices and partners to maximize business opportunity).
• Continual pressure on fees and use of procurement.
• The pressure from clients for ever more efficient, lower price, better quality services compounded by the impact of procurement officers who don't understand and show little inclination to want to learn.

Just last week I learned of a Fortune 100 company whose panel for evaluating outside counsel consists of three people:  An associate general counsel and—two purchasing managers.  This is indeed only getting worse, and I'll try to bring back tales from the field that may be helpful to more of you.

The Hollow Middle haunts some of you. Faithful readers of "Adam Smith, Esq." will know what the hollow middle refers to, but for those who don't a quick refresher.  An increasingly prevalent industry structure sees firms migrating both to the high end, high-value, premium quality level, and to the no-frills, low-end, commodity level, with little comfortable territory remaining inbetween.   For example:

• Cars:  Toyota, Honda, Nissan, Chevy vs. Lexus, Audi, Mercedes, BMW, Ferrari, Porsche
• All wine/beer/spirits:  Budweiser vs. micro-brews, generic vodka vs. single-malt Scotch, magnum generic "chardonnay" vs. subscriber-only "Screaming Eagle"
• Financial services:  No-fee free checking for life  from Wachovia vs. private wealth management from US Trust.

And you get the idea.  My hypothesis is that our market is going in the same direction.  Here are some verbatim comments reflecting that same point of view:

• What happens to mid-sized firms in Europe - will they disappear over the next ten to fifteen years as a result of the inflow of US and UK firms? What should our US strategy be, with many former sources of referrals now setting up shop next door? And if mid-tier firms are to stay, what will their role be?
• The polarization of the market (the shrinking middle with more and more work being classified commodity/low fee or bet-the-company/high fee
• "Mid-Market Mush" or "why bother with a platform that's mediocre?"  Our practice group is very strong and we're not sure whether we should be a boutique or stay in the firm.

Since this is already a theme I have been sounding for some time, expect to see more coverage of it here as its impact spreads.

Finally, we have what emerged as the most important concern of yours by far—head and shoulders above anything else I've mentioned until now.  And that is:

Management.   Law firms are intrinsically complex to manage, and you are painfully aware of that.  (Indeed, the truth of that observation might be said to be one of the foundational reasons why "Adam Smith, Esq." exists.)   The theme that emerges is that lawyers just plain are not predisposed to cooperating in the management imperative.  

Aside from seeming to have been inoculated with some vaccine that provides lifelong resistance to management in general, the presumed structure of rewards for partners today—divvying up all the profits at the end of the year and leaving the firm's balance sheet essentially back at zero —works strongly against investment, a long-term outlook, or a strategic perspective. 

Here are some of your comments and worries:

• Ineffective management. Rainmakers are not always the best communicators or managers
• 1. Lack of firm leadership; 2. Partner apathy in "running a business" beyond simply collecting a bonus; 3. Lack of strategic planning
• Persuading lawyers to understand that hiring a consultant is not (always) an admission of failure, but can be a way of creating / seizing an opportunity
• Transition from older partners to younger partners and division of income amongst the same.
• Continuing to find ways to motivate all of our partners and to have them recognize we're all in a state of continuous change.
• Firms competing in a global economy. Firms realizing they have to act more like corporate America
• The lack of real understanding as to how law firm organisations need to change to get the best out of people; the impact of globalisation on law firms.
  [And finally, perhaps my favorite:]
• Balancing the desire to grow as a firm versus the desire not to change. Our firm is looking to grow, and most everyone supports the notion, so long as nothing changes for the individual.

Much food for thought.  One implication is clear: I shall never lack for topics to discuss here on "Adam Smith, Esq." 

Your comments have been remarkably candid, serious-minded, insightful, and just plain human. 

As I've written before in various contexts, I believe our profession is currently undergoing a sea change in the structure and composition of the industry that will transform it in ways that will endure for essentially the remaining working careers of most of us. 

You have, if anything, confirmed the strains, pressures, and uncertainties of being in the center of this rapid transition.   The settled certainties of our parents' world are indeed long gone.

Having some inexplicable instincts alerting me to this coming vortex many years ago, I continue to find it fascinating beyond measure.   Please continue to share your thoughts with me, either through the Survey or, more directly, by email.

Now that marketing has become an ingrained function at firms and no longer either an exotic foreign import or an isolated archipelago, it might be time to re-examine how the world's most sophisticated marketing organizations—consumer packaged goods companies—are re-inventing marketing in the 21st Century.

Booz Allen & Hamilton's strategy + business  has just such an article, The New Complete Marketer. 

Given that we're temporarily in the land of consumers, let me first provide their bullet points and then attempt to translate them into our world.  Based on Booz Allen's research, five themes emerged identifying characteristics of the best CMOs. (OK, they actually list six themes, but one of them, about partnering with a multi-media savvy ad agency, is a bit off point for us.) Quoting, they:

• Put the consumer at the heart of marketing
• Make marketing accountable
• Embrace the challenges of new media
• Recognize the new organizational imperative
• Remain adaptable

Swell.  Now let's interpret what this means for law firms.

Clients first

Focusing on clients means viewing the service your firm provides from their perspective and ensuring it's aligned with what they really anticipate, need, and expect from a premier law firm.  At Procter & Gamble, it means getting into laundry rooms at customers' homes and "really, really hitting on that [the information gleaned]," says Jim Stengel, P&G Global Marketing Officer.  At FedEx it means that a key part of marketing's job is “speaking up on the customer's behalf and ensuring that what we have to say is taken seriously,” according to Mike Glenn, executive vice president of market development and corporate communications.

This isn't necessarily easy.  Even at P&G, once again known as a nimble organization after a decade or so in the doldrums of comfortable market leadership, "it took nearly a decade to reposition to reposition the client at the heart of our business."

But we're starting.  More and more firms—particularly the ones that have a tradition of innovative approaches to their business—are launching "client relationship" programs, distinct from conventional marketing efforts. 

Accountable Marketing

The ROI of marketing has long been a thorny issue and I confidently predict it will remain so for at least the rest of the careers of most of you reading this. Booz Allen found that 90% of its marketing respondents identified it as "a major challenge, and the leading factor, by more than a two-to-one margin, that brings marketers under increased pressure from management."

So there is no magic bullet.

But that's not to say judgment cannot be exercised and inferences drawn.  I suggest you approach evaluating marketing's impact in two ways:  First, are prospective clients more predisposed towards your firm than they seem to have been in the past?  And second, how do existing clients evaluate their satisfaction with your service?

The first—prospects' predisposition—speaks to your firm's overall reputation in the marketplace, which is or ought to be influenced by your overall marketing efforts.  Recently The Wall Street Journal had a rather devastating article (devastating, at least, if you live in Detroit) detailing that fully 54% of US car buyers would not consider a domestic car.  (22% would not consider an import, and the remainder would consider both.)    Detroit finally realizes, as Rick Wagoner of GM put it, that "just building a great product and putting it out there isn't enough." 

If you're building a great product and no one is paying attention, you need marketing to change perceptions.

Second, how existing clients view your firm is less the purview of marketing than, I suggest, client relations.  That's why this emerging specialty should be on your radar if it's not already.

The Challenges of New Media

In consumer packaged goods land, new media can mean SMS'ing from your cellphone the secret code that changes the Times Square billboard display.

That's not what we're talking about.

But we are talking about finding your clients where they really are—be it on the online home page of The Wall Street Journal or in the shuttle lounges at Reagan National, LaGuardia, and Boston Logan.   And, increasingly, it could be communicating with them through the medium of a firm-sponsored blog on issues of specific interest to them.  If you try this, my advice is:

• Keep it highly focused:  Inbound project finance to China, for example, not "your corporate practice."
• Edit it with a very light touch.  It must have a tone of voice, a true character, and not be a PR or jargon-laden mouthpiece.  Hypocrisy will be detected in a heartbeat.
• Encourage feedback and even push-back; freely acknowledge corrections; respond promptly to inquiries.

Does all of this sound high-maintenance?  Well, yes, it is; but the potential connections you make can be invaluable.  Just don't go into it underestimating the demands for regular maintenance and feeding of the beast going forward.

Organizational Imperatives

Primarily, this means that marketing can no longer be an island.  To paraphrase Richard Nixon about Keynesians, "we're all marketers now."  If marketing is just viewed as "help with the RFP" or "get closer to the client" support, you're wasting their time and talents and you should face the fact that you probably in your heart of hearts don't believe in any of this and just want to be left alone to practice law. 

That's a fine and worthy choice.  Just don't expect to build, or sustain, a great firm down that path.

So what does it mean to "embed" marketing in the firm?

Booz Allen probably describes it best (emphasis supplied):

"Marketing does much better when it's incorporated into the greater business, say these thought-leading CMOs [from P&G, Yahoo, and Foster's beer]. It can drive growth more quickly if it is fully integrated with the different functions, and it can do so in a way that previous CMOs never realized was possible. For a CMO to be fully effective, all of senior management must have clarity about the marketing mission. The high degree of turnover in marketing leadership — and, indeed, among the subjects interviewed in this book — demonstrates the fragility of that shared understanding. "

Remain Adaptable

It's a truism that the market environment is ceaselessly changing and our firms must adapt to it—just ask a private equity hotshot how the world changed over this past summer in the wake of the subprime meltdown's spreading fear, uncertainty, and doubt throughout worldwide credit markets.  But that type of adaptation is fundamentally uninteresting:  It's reactive and dictated by external events.

The interesting type of adaptability is that we initiate from within our firms, sensing the beginnings of a shift in the market winds, being attuned to clients' emerging needs, or—better yet—to needs they haven't even been able to articulate.

Is it realistic, or even desirable, for your marketing or client relationship people to have a voice in charting the course of the services your firm provides?

I believe that, if you think those folks truly understand your clients' desires for service (and if they don't understand, we need to have a different conversation), then  you'd be crazy not to take advantage of that perspective.  This example, of the evolution of P&G's famous Pampers brand, may seem beside the point to law firms, but I believe there's a serious message about the discipline of drilling down from a superficial, appearances-mostly, view of what clients want to a far more fundamental understanding of what they're truly concerned about, what motivates them to action, and how you can demonstrate that you profoundly "get it":

"Several years ago, Procter & Gamble’s disposable diaper division was organized around the science of fluid absorption. “We had an entire R&D organization focused on fluid absorption, its speed, [its effect on] skin health, and so on,” explains Jim Stengel. The most important question on the table for P&G’s diaper scientists was, How can we make diapers stay drier longer? Yet under the tutelage of marketing leaders like Stengel, the company realized that the primary value it offered to parents wasn’t technological — it wasn’t limited to dryness or containment. Consumers were looking to Procter & Gamble for improvements in the overall development and health of babies. “That creates all sorts of new needs,” he says. “Babies wear a diaper 24/7 for almost three years…. But when you ask, ‘How do we know we’re better for a baby’s development than our competitors?’ — that means your competitive set changes, your market share changes, what you’re looking for in your equity changes.” The R&D lab and marketing team had been close before; now they became inseparable as they tackled innovative approaches to diaper fit and feel. And with a question on the table about baby development, the brand began a new round of market growth."

I leave the analogies to your practice and your clients to your own insight into their industries and the strategic, financial, and marketplace challenges they're facing.  

But if nothing else, you should take away this lesson:  Your firm does not provide "collateralized debt obligation" structures, or "employment litigation defense" or "executive compensation counsel."   

If you're good, you provide insight into the evolving landscape of your clients' businesses, and the legal architecture—always informed by strategy—best suited to your clients' posture tomorrow.

"CEOs and board members, who have been pushing Chief Marketing Officers hard for growth and for more effective marketing efforts, are frustrated by the difficulty of finding chief marketers with the full range of necessary skills. Turnover rates for CMOs are therefore high relative to those of their C-level peers, and CMOs are in short supply. (Just ask any executive recruiter about the number of difficult CMO searches he or she has under way.)"

So observes McKinsey in The evolving role of the CMO, but I suggest if you substitute "managing partner and executive committee" for "CEO and board members"  you'd have an accurate description of the law firm landscape in this precinct at the moment.

While the half-life of CMOs at law firms had been notoriously short, a glimmer of improvement appeared to be on the horizon in the last few years as firms became more comfortable with the marketing function, and as CMOs imported from other industries got their sea legs and began to understand how to apply their own form of professional discipline to our idiosyncratic industry. 

This "meeting of the minds" between senior firm management and CMOs has so far been a two-way street, with CMOs in law firms acclimatizing themselves to the law firm environment, and executive committees realizing marketing is an indispensable component of a high-performing firm.

Now, let's up the volume.

Two trends that are playing out in the consumer sector (as McKinsey reports) are finding their analogs or mirror images in law-firm land.  The first trend is the increasing reliance of consumers on the Internet to research everything from cars to electronics to prescription drugs online before making a purchase.  And "research" online, need I remind you, includes unvarnished opinions from untraditional sources as well as consumer manufacturing and packaged goods' companies' classic push marketing efforts.  Your firm's reputation is no longer yours to control.  (Well, it never really was, but the velocity of potential commentary has increased dramatically.)

The second trend is even more germane to our industry:  One of the most powerful components of fallout from increased access to information is to accelerate the trend—seen across a myriad of industries—towards a bifurcated industrial structure, with a low end and a high end, but very little middle.   As McKinsey puts it:

"But the change in consumer buying habits is broader. The proliferation of distribution touch points and the more rapid growth of the low and high ends of the market at the expense of the middle are forcing marketers to take low-cost, time-saving, “facts-only” sales approaches and, at the same time, higher-value, more service-oriented approaches."

To paraphrase, clients' law firm selection process has changed.  You can offer them two value propositions:  The "low-cost, time-saving," direct, commodity approach, or the "higher-value, more service-oriented" track.   Beware being neither.

But to get back to marketing:  What does the increasing availability of information, from traditional and unconventional sources, mean for a law firm trying to manage its reputation? 

Traditionally, there has been a divide between marketing, focused on customers; public relations, targeting the press; and, where needed, regulatory affairs, targeting state or other regulatory bodies with jurisdiction over a firm or influence over its activities.  And, traditionally, these functions reported to different people or were independent in how they acted and didn't necessarily communicate about or coordinate their efforts.

This must change.  Increasingly, all intersect with each other and require an integrated response.

Where, you may be asking right about now, are the partners in all of this?

They're at the heart of it. 

First, by embodying and exemplifying the principles, reputation, and values of the firm, and projecting those characteristics every hour of the day with every client and prospect, every associate, staff member, and potential lateral.

Second, by being the living, breathing manifestation of the firm as you strive to win new business and to cement connections with current clients.   The firm can spend itself blue in the face on marketing efforts, but, if the partners cannot deliver the professional, intellectual, and empathetic human connections required to persuade a client to entrust an engagement to the firm, all is for naught.

And what can the firm chair or managing partner and the senior firm leadership do to advance the marketing cause?

• Make sure you truly and deeply understand how clients and prospects view your firm.  The image you're trying to project may not accord with the perception being received.  Understand what influencers, traditional and otherwise, may be saying about your firm, and bring them to the table.  It perhaps cannot be said too often that the primary task of firm leadership is to communicate—to internal and external constituencies.
  
• Ensure the CMO is connected to the people who matter within your firm.  Make sure the CMO is included whenever senior firm leadership comes together.  After all, they can't project a progressive and accurate image of your firm unless they're getting today's news.
  
• Lastly and most importantly, think through the marketing effort with the CMO.  As McKinsey puts it, be a "thought partner."  If you truly want your marketing organization to mirror the excellence of your firm, your CMO—and more importantly, the audiences your marketing department is addressing—deserve no less.

 

I've been friends with the folks at the London-based "Managing Partners' Forum" for a couple of years, and tomorrow morning I'll be speaking at their event, "Managing Clients Across Borders," here at Clifford Chance's offices on West 52nd Street.

I've put together a summary-level presentation of my thoughts on the topic—my co-presenter, Peter Chaffetz of Clifford Chance and I are limited to half an hour altogether—but if you're interested, take a look.

Needless to add, I'd be happy to discuss my thinking on this key challenge for our industry as we move forward into the 21st Century.

Mark Chandler, a Senior Vice President and the Secretary and General Counsel of Cisco, gave a speech last week in San Diego at the Northwestern School of Law's 34th Annual Securities Regulation Institute, which has been getting a fair amount of play online, and deservedly so.

Called "The State of Technology in the Law," it's actually far far more than that; it's his vision of how our industry will be transformed by technology—and client demands—as the 21st Century unfolds:  Indeed, as some of us who hope to have decades left on our career will experience ourselves.

I'm quite confident I've never used the phrase "must-read" on "Adam Smith, Esq.," but this is my first nominee.  I'll attempt to highlight some of his key points and give you my take on them; but you should, to be sure, read it all.

Chandler frames his talk thus:

"I offer you three questions for our discussion today.
"First, how is technology driving change in knowledge-based industries?
"Second, what are the key areas of vulnerability in the legal services business to these technological changes?
"And third, what will it take to succeed in this changed environment?"

Chandler runs a "metrics-driven" law department, which is required to run that way "just as other corporate departments are run." 

And because he's driven by the imperative of productivity improvements, he expects the legal department's share of revenue to get smaller as Cisco grows. And he's brutally dismissive of law firms that have a different agenda:

"Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year. And not one of our suppliers comes to us to tell us how much their prices will go up next year. So from my perspective, I don't care what billing rates are. I care about productivity and outputs."

You may think this is spoken like a procurement manager in disguise, but he's barely getting started.   The transformation of our industry is a subset of the transformation of access to information, which is moving from centralized, command-and-control hierarchical dispensers of content, to zero-marginal-cost transmission and duplication.  (What did in Tower Records?i ITunes and Kazaa; and recording industry revenue is down 25% in the last 5 years.)

Michael Spence, co-winner of the 2001 Nobel Prize in Economics, has said that the worldwide networking  of computers is the most important development in economic history since the opening of the trade routes between Europe and Asia in the late Middle Ages.  Why?  Because it changes where and how people can work.  And Chandler reels off a litany of Old World entities built on the information-is-scarce paradigm, suddenly made obsolete by information-is-free upstarts:

• Encyclopedia Britannica vs. Wikipedia
• Frommers and Fodors vs. ePinions and TripAdvisor
• Corner bookstores vs. Amazon
• Newspapers vs. eBay and craigslist

And then he turns to law-firm-land, meaning to question #2, "key areas of vulnerability."

The heart of the matter is that devil with nine (or ninety) lives:  The Billable Hour.  "Put most bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour."

And while the Baby Boomers may have bought into the model of toiling ceaselessly for a decade or so in an attempt to win the tournament for a chance at toiling ceaselessly for a few more decades, today's associates aren't buying it:  Associate attrition rates are 20%/year and higher, and Chandler adds that "The chairman of one firm told me that only people in their 50s and 60s are willing to put in long hours these days, that associates regularly turn down the chance to work on major deals if it interferes with social plans or a vacation."

This, may I hasten to add, is not the associates' problem:  It's your problem.

Would you rather bemoan it?  Fine:  Be my guest.  Denial is always a superb adaptive strategy.

But as Chandler puts it: 

"Upending one's life to support inefficient means of communication, driven by a billable hour system, to maintain a relatively slim chance of making partner, just doesn't cut it. And when the next generation heads for the exits, it's a sign of a business model under stress."

"Under stress" happens to be my own nominee for best single turn of phrase in the entire piece.

Here on "Adam Smith, Esq.," and in my life in the real world, I devote a fair amount of attention to knowledge management:  It is, I believe, at the very core of a high-performance firm, living at the intersection of professional development, marketing, and client service.  A firm with a frustrating or ineffective KM system is at a serious competitive disadvantage.

But KM can be a double-edged sword, as Chandler astutely observes.

His problem is that clients cannot benefit from firms' KM systems without going through the tollgate of the hourly billing model:  "The legal industry has spent millions on IT to up speed access to information. But the only way I can get that information is through an individual billing me by the hour."  Chandler is fed up, and he's not going to take it any more.

The issue is that the gatekeeper, the one-on-one relationship of client and lawyer, is profoundly obsolete:

"My contention is that the very source of success for firms today – the ability to manage client access to information and require clients to use bespoke 1:1 systems – will be the source of failure in the future.

"So my answer to question number two is that the greatest vulnerability of the legal industry today is a failure to make information more accessible to clients, to drive models based on value and efficiency. The present system is leading to unhappy lawyers and unhappy clients. The center will not hold."

Chandler foresees a world with law firms sorting themselves into a "dumb-bell" distribution:  At one end, a group who are able to commoditize and standardize services to manage costs and ensure predictability, "where very good is good enough."  And at the other end, providers of top-notch bespoke services.  Rare will be the firm that can pull off both.

Don't count Chandler an ingrate.  He understands the integral role of outside counsel, and proudly (and rightly) cites Cisco's record of "no records with its stock options, minimal comments on our 10-Ks, and only one piece of litigation listed in the last 10-Q, and that one has subsequently been resolved."  He's proud of our profession.

But:  New technology has resulted in new business realities.  Clients are demanding greater value.  Associates are demanding greater engagement. 

As tempting as denial may be, I for one do not believe it's an equilibrium solution.  Personally, I don't even believe it's remotely tempting—not in the least.

Let me propose a vision for a law firm that Chandler would hire, and hire enthusiastically:

• A powerful and supple knowledge management system is its key competitive weapon.
• The firm is not afraid—indeed, it trumpets—sharing this system with key clients (obviously, within the bounds of confidentiality, privilege, etc., etc.).
• Lawyers are freed to work on truly higher-value work.
• For which they bill based on a measure of value-received instead of by "cost of production," a/k/a the billable hour.

What does this accomplish?

• It aligns the firm's economic interests with its clients'.
• It separates the firm from the pack, which means
• The firm can (honestly, truly, deeply) tell its clients that it understands what they've been through in terms of
  • down-sizing
  • outsourcing
  • streamlining
• And that it's doing the same things its clients have been doing.

Let's face it:  Corporate America (corporate-world, for that matter) has gone through the looking-glass of rationalizing every process they execute into as streamlined, efficient, and cost-effective a posture as they can possibly imagine; and they're still challenging costs every day.  Law firms haven't even thought about it.

But the Mark Chandlers of the world are telling us that we'd better start reading from the same playbook they've been using for a decade or more.

Is this the opportunity of a generation, or what? 

Imagine if your firm was not pushed kicking and screaming into this absolutely positively inevitable future, but if it led the way?  What competitive distinction would that be for you?  How enduring would the advantage to your reputation be?

I was discussing Chandler's piece with a good friend a few nights ago, a fellow who works for an AmLaw 50 in a senior managerial slot, and his reaction was:  "I wish we had more clients like that; imagine what we could do for them."  He's ever so right.

You read it here first.

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Update: Feb. 13:

Doug Caddell, CIO of Foley and Lardner, and a friend, writes as follows and asks me to include this as a comment. If you don't know Doug, yes, he's droll.

I generally agree with the above comments of Mark Chandler, GC of Cisco. However, I do take exception with one statement in particular.

Mark says, "Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year."

I thought about it: I don't know about my peers, but I receive a "letter" from Cisco every year informing me of my increased cost of doing business with Cisco. While these "letters" are not printed on stationary, the do arrive on Cicso invoice "letterhead". And each year the topic has been price increases. This is especially true with Cisco Smart Net, their maintenance "insurance" on routers, switches, etc. What used to be reasonable has gone the way of first year associate salaries. So much that we now only put critical gear on Smart Net, and "self-insure" the rest.

I'm waiting for this year's letter from Cisco. But, I don't need to open it to know what it says.

Doug Caddell, CIO Foley & Lardner LLP

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Update, Feb. 13:

Marco Antonio P. Goncalves writes me from Rio de Janeiro with these thoughts:

"Bruce, congratulations on the post. The subject is really interesting and has lots in common with something I wrote in a book on legal marketing that I'm co-authoring with another Brazilian legal marketing consultant. The book is not yet finished, but I try to explain the increase need by companies to look up to law firms that operate like them, like a business, as "corporate mirroring" (I believe this is the best translation from the Portuguese term I have used). In other words, companies want to see them reflected in the law firms they do business with. If they don't get this "reflection", they will simply look for another law firm who does."

Marco raises an insightful point: As the pressure relentlessly increases on Fortune 1000 GC's to operate their departments more and more the way marketing, manufacturing, finance, etc., operate—like a business—GC's and their teams will naturally look more and more for law firms that follow the same philosophy. The question is not whether your firm will get there, but when: And I invoke the bromide (in this case, truthful): "Lead, follow, or get out of the way."