Adam Smith, Esq.

US/UK Alliances: The Same and Different

2010-08-28T19:45:05Z

Hogan/Lovells
Sonnenschein/Dentons
Squire Sanders/Hammonds
Proskauer/Berwins

Question: Which of these four does not resemble the others?

While you're thinking about that...

As LegalWeek described the Hogan/Lovells deal at the time:

Aside from its banking and corporate practices, the combined firm will be strongly represented in regulatory, antitrust, intellectual property, real estate and litigation.

[Warren] Gorrell [chairman of Hogan] told Legal Week: "We are putting together a new kind of firm - not a Washington or UK-based firm but truly a different kind of firm."

"The proposition is unique - we will be able to attract new business going forward," said [Lovells managing partner David] Harris. "We will have scale and a profile that will be much more powerful."

The deal will see the firms keep two operational centres, one in London and the other in Washington DC - rather than opting for a single base, with a total network of 40 offices with wide coverage in the US, Europe and Asia.

The points to note about these statements, carefully crafted as they are, are that (a) no mention is made of New York; and everyone knows that the (b) the fundamental strength of the combination remains in litigation and not transactional matters.

Sonnenschein/Dentons? Again, from the trenchant analysis of LegalWeek (emphasis throughout supplied):

Even the charitable would say both Dentons and Sonnenschein have not hit their stride over the last decade, having failed to quite keep pace with their peer group. On most financial benchmarks, Dentons has been the least impressive performer in its division in recent years and, as such, the 2000 tie-up between Wilde Sapte and Denton Hall must be judged a disappointment. What was by some measures the UK's eighth largest legal practice at the time of the union had fallen to 20th in revenue terms by 2009. And while Dentons had shrunk considerably since the 2000 deal, its profits have also substantially lagged rivals, even with this year's 20% jump in PEP to �360,000 (average PEP for a UK top 50 law firm in 2009-10 will almost certainly be well above �500,000). The years following the deal also saw the closure of its Asia network and the break from its European network.

But perhaps the clearest indication that the UK firm has struggled to live up to its potential comes from casting your mind back to the 1990s and the reputation of the legacy Wilde Sapte. This was one of the most respected banking outfits in the City, a practice that developed names like James Johnson and Nick Syson. It was also the firm that came within a whisker of merging with Arthur Andersen in a deal that clearly unnerved the magic circle until the big five accountant walked away at the 11th hour. A credible case could be made that even merely the spectre of the Andersen/Wilde Sapte union was enough to galvanize the magic circle into the revolution that turned the group into genuinely global powers. If you accept that analysis, then Wilde Sapte has been one of the most influential practices in the UK legal market of the last 25 years, even if it failed to benefit from its own vision.

With that legacy, it seems both sad and fitting that the Wilde Sapte name should now disappear. Back in 2000 the idea that a firm of the pedigree of Denton Wilde Sapte would hook up with Sonnenschein - which remains best known in the UK for pulling the plug on its City arm a decade ago - would have seemed unthinkable, but it's time to move on.

LegalWeek has to be kind, but its commenters do not, and while I put zero to less-than-zero stock in anonymous comments, this deal came in for some of the more vituperative criticism I've seen lately, among which "two drunks holding each other up" was one of the more kind. The opinions reflected in comments are not necessarily those of Adam Smith, Esq., or its management.

And, squaring the circle, this LegalWeek coverage of Squire Sanders/Hammonds:

But the greatest point of comparison is the essentially defensive nature of the tie-ups. If you were to take a 10-year view of the UK's top 25 law firms, judged purely on the numbers, Hammonds and Dentons would be the two firms that have most struggled to deliver on their considerable promise. Indeed, it speaks volumes about the reverses that have beset Hammonds over the last decade that many now forget what a hugely potent brand the firm once was. Go back to its mid-1990s heyday and it was the then Hammond Suddards that many were betting would prove how far a regionally-bred law firm could go, not Dibb Lupton Alsop (which went on to become the DLA in DLA Piper).

The loss of that status was quick and not pretty: heavy expansion costs and a City office that struggled to gain traction strained Hammonds' finances. Soon the firm was facing an exodus of partners, overpaid drawings and plummeting profits, a situation which culminated in the firm's decision in 2005 to put in place a partnership lock-in to stabilise the ship.

While some were expecting such tactics would fail, it is to the great credit of the firm and in particular managing partner Peter Crossley, who was on the first wave of the clean-up crew, that the doubters were proved wrong. Over the last five years the firm has continued to play a tough hand extremely well, but there has been no escaping the feeling that Hammonds wasn't going to regain its former vigour without doing something large and structural. Enter Squire Sanders (which had informally discussed a tie-up with Dentons before the Sonnenschein deal).

Despite having built a large US practice and a comprehensive network across the Central and Eastern European region, Squire Sanders has a few issues of its own. Its profits per equity partner for 2009 of $795,000 (�521,000) are well ahead of Hammonds' 2009-10 figure of �364,000, but that remains well below the $1.2m (�774,000) average across the Am Law 100. The firm, which last year saw veteran chairman Thomas Stanton hand over to James Maiwurm, has explored a number of mergers over recent years without closing a significant foreign deal.

Yet if the proposed tie-up is defensive, that appears strongly in its favour. It's an irony of strategic unions that deals done in such circumstances tend to do better than mergers between firms on a clear upward slant. Mergers often flounder because two sides believe in their own superiority and refuse to integrate, promoting an insidious wistfulness for the good old days. There's nothing like a nice run of calamities and dead-ends to make one constructively minded, helpfully self-critical and focused on the future. Perhaps all law firms considering a merger should engineer a few disasters before hand to sharpen their resolve.

There is one interesting wrinkle that is worth noting with the deal: the 436-word statement the firms issued announcing the talks, aside from making the mandatory nods to'global coverage', 'shared culture' and 'ambitious aims', also makes no less than four separate references to providing value or cost-effective services. As an explicit aim it should give the combined practice a little more distinction since many law firms see going global as a means of escaping domestic price pressures.

This leave us with, yes, the Proskauer/Berwin merger (talks have been confirmed on both sides, but the deal is clearly not finalized). Berwin was among the hardest-hit City firms in the downturn because of its concentration on private equity and commercial real estate, but Proskauer also has a strong private equity practice and that sector, while down, will never fundamentally be out.

So why do I nominate this as the one of the four that does not resemble the other four?

Three key reasons:

It would put together a heavily New York-centric firm with a heavily City-centric firm, creating a footprint with 400 lawyers in each trans-Atlantic financial capital; and
The resulting firm would have a strong corporate focus (albeit with smaller, but high-powered, litigation capabilities on both sides of the pond).
I can't think of a comparable offering in the marketplace.

Isn't this, then, on a less celestial scale, the long-rumored Freshfields/Sullivan & Cromwell deal? Two very strong corporate practices, New York and London-based, offering something new in the marketplace to clients?

All I can say to you, by the way, if you're still awaiting the Freshfields/S&C deal, or its functional equivalent, is please introduce me to your fast-forward future time machine, because I would love to experience it.

Finally, the Proskauer/Berwins deal strikes me as client-oriented rather than firm-oriented: It seems designed to create a firm with capabilities that aren't readily replicated elsewhere among its peer group, or otherwise, and if it's grounded in any internal sense of urgency on either side to "do a deal," I just don't see it. Witness the protracted period of contemplation, discussion, and, presumably, massaging the respective partnerships, both of whom are known to be strongly democratic, Quaker-meeting-ish (in the good, consensus-driven sense). Deals done of desperation aren't paraded in front of the public for months; they are typically announced days or weeks before the obligatory partner vote, with, one can only assume, names taken of those voting against, for future reference.

The other dimension in which the Proskauer/Berwins deal does not resemble the others, of course, is that it hasn't happened.

You now know where my money is riding on that score.

Conference on Alternative Fees: New York, October 5

2010-08-23T00:17:24Z

On Tuesday, October 5, I'll be facilitating a workshop here in New York at the AMA Executive Conference Center (1601 Broadway @ 48th Street, entrance on 48th) on What You Need to Know to Make Alternative Fee Arrangements Work.

Richard Wyatt, co-head of litigation at Hunton & Williams, will also be a key presenter, along with others.

More information is available here.

Hope to see you there!

"Leaving BigLaw Behind?" Indeed

2010-08-21T21:37:27Z

Copious have been the articles about BigLaw partners decamping to start their own firms, but when the story migrates from the legal press (among which I count law.com (comprising The American Lawyer, the National Law Journal, etc.) The Lawyer, LegalWeek, the occasional non-salacious news from AboveTheLaw, and a few other sources) to Slate, of all places, attention must be paid.

Under the headline Leaving Big Law Behind, we read that:

Lawyers often enter the profession because it's a safe bet, and they're paid handsomely to be risk-averse. But increasingly, Big Law partners like Marc Zwillinger and Christian Genetski--who started their Internet-focused firm in March and have since doubled the client roster--reach the pinnacle of success only to leave it behind.

After a career of being coddled--and drained--by esteemed institutions, these high-achieving lawyers, hardly naturals for entrepreneurship, find themselves choked, financially and otherwise, at the top of the heap. As the Big Law model--in which the nation's largest law firms turn the top law students into billable-hour-crazed associates and, sometimes, partners--evolves to accommodate global entities, companies below the $100 million-revenue level that can't or don't want to pay Big Law rates are being squeezed. And this presents a window for partners, fed up with the Big Law model, to strike out on their own.

True enough, right? Well, yes, but there's more to it than that, shall we say.

There have been many high-profile stories of lawyers leaving blue chip firms, notably Peter Chaffetz, global head of litigation for Clifford Chance, forming Chaffetz Lindsey in 2009, so this doesn't exactly qualify as new news. (Disclosure: I knew Peter when he was at Clifford Chance, although we haven't spoken recently.) Indeed, that firm's website succinctly states the case for abandoning BigLaw:

Conflicts
Conflicts have always been a problem at large firms. That problem became dramatically worse following the economic downturn, as so many of the resulting disputes involved firm clients on both sides. We saw a need for a top-quality firm that did not have those conflicts.

Costs
Even before the downturn, the large firm cost and fee structures made it difficult for clients to hire us on small to medium sized cases. Today, our clients face relentless pressure to reduce legal expense, even on the largest cases. With low costs and no excess overhead, our new firm provides the value clients require.

In short, the Chaffetz Lindsey team delivers the same quality legal work as always, but with the freedom to serve a broader range of clients and the economics to help those clients with a broader range of their needs.

The Slate piece also cites, as motivations to decamp from BigLaw:

The organizational overhead "tax" imposed on everyone (not just partners, although they're the only ones Slate mentions); big organizations require care and feeding. This is inelucatable.
Oddly, they also cite boutiques' relatively greater freedom to deviate from hourly billing, citing the example of an Sonnenschein spinoff that offers monthly "all you can eat" retainers covering everything except litigation. "Oddly," I say, because there's nothing remotely unique to the boutique model about this pricing structure.
Another strange argument that makes an appearance is that "partners are expected to cross-sell" in BigLaw. This is criticized on the grounds that a client might be steered towards someone who "isn't necessarily best suited for the job," or, conversely, that the lawyers receiving the cross-sold client "may be so busy that they don't give the inherited client the attention he or she deserves." If you can explain to me how either of these scenarios serves the interests of anyone at the hypothetical BigLaw firm being critiqued, I welcome your insights.

Don't misunderstand me: Could it happen? Yes, of course. Could cross-selling be a sustainable strategy if these scenarios were typical, and not exceptional? You, and clients, be the judge.

But I don't want to dwell on deconstruction of any specific article, or firm.

For one thing, I have also had conversations with people at many of the BigLaw firms from whence folks have loudly decamped, who have said the alumni were about to be pushed. Or that conflicts were a figment of their imagination. Or that their new rates are not materially different from their old rates.

The last thing I have any interest in is refereeing those debates. Just to note that there are always two sides to every story.

Instead, I want to suggest that's what's going on here, while it makes for great content for the celebrity-centric aspects of coverage of our industry (oh, you hadn't noticed that there is such coverage?), is the natural evolution of an industry under economic stress.

A year or two ago, I began to receive, periodically, emails from various partners and former partners in BigLaw, all of them requesting anonymity, which I scrupulously honor, who had either left to set up their own boutiques, had just seen a colleague do it, or were thinking about it. I can assure you that these emails were far "hotter," emotionally, than is typical for my inbox; these folks were passionate about whether this is what they ought to be doing, or, if they'd already done it, about why BigLaw was structurally broken and attending its wake would only be a matter of time.

I think it's fair to say that one way to encapsulate the feelings most of these people were expressing was the heartfelt, "This isn't the firm I joined!"

And you know what? They were right.

I won't rehearse for you the staggering statistics on the growth of the AmLaw 50, the AmLaw 100, the AmLaw 200, or the NLJ 250, over the past 20 years, but we've been on one heck of a sleigh ride, friends. Those aren't just statistics; those are living, breathing organizations. Firms have changed, some unrecognizably so.

What we're witnessing now, I believe, accelerated but not caused by the Great Reset, is people sorting themselves out into the firms they belong to be in. BigLaw is not for everyone. But its global reach, its wide and deep expertise across practices, its ability to handle the Big Deal at the drop of a hat, all serve clients' needs in ways for which there is no substitute. Boutiques, likewise, will always be with us: From Cartier to Ferrari to single malt scotches, every industry worth its salt welcomes, and is improved by the competition from, boutiques. But query whether they will ever be the main event.

What we're seeing, I suggest, is greater diversity of business models than we had in, say, 2006. This can only be healthy. We'll even give Slate the last word:

Ultimately, while Big Law is definitely not dead, the increasingly diverse models ensure an end to the days when clocking time as a Big Law partner is the best measure of success in the legal profession.

In other words, don't read Chaffetz Lindsey as a precursor of the demise of Clifford Chance. No more than you should read the success of Boies Schiller as implying fissures at Cravath (David Boies' alma mater).

What all this "means" is far simpler: May the games continue.

In Sao Paulo September 21 Through 24

2010-08-15T20:25:12Z

I will be in Sao Paulo from September 21st--24th.

Aside from a couple of speaking presentations, the primary goal of my trip will be to gather market intelligence on this intrinsically fascinating, deeply promising, and yet, at least to North American eyes, often inscrutable market.

I have long believed that we tend to underestimate the long-run importance of the "BRIC" countries, and this trip is part of an intentional effort on my part to educate myself better about them, up-front and first-hand. As for the importance of Sao Paulo, it's not merely the financial center of Brazil, but the most populous city proper in the Americas--over 11 million residents--and the second most populous metropolitan area--nearly 20 million residents.

In any event, if any Adam Smith, Esq. readers are in Sao Paulo and would like to get together, please drop me a note. I promise to arrive with nearly insatiable curiosity, and no preconceptions. I promise to leave with at least the curiosity part intact.

You Can Ignore 5 of These Trends: But Only 5

2010-08-15T13:14:31Z

Technology can be a blessing and a curse and, while my feet are firmly planted in the former camp, that's not why I'm writing what, I hope, you are about to read. Because it is about technology. I'm writing it for two reasons: I hope it provides an overview of what some of the smartest thinkers on technology that we have going these days are saying and, love it or hate it, technology is something we all spend a lot of money on. So that gets my attention in and of itself.

Our basic text for today is McKinsey's Ten tech-enabled business trends to watch, which is addressed, as per McKinsey's standard operating procedure, to "senior executives [who] need to think strategically about how to prepare their organizations for the challenging new environment." I hope that audience would be you.

Here are a few headline statistics:

Facebook has 500-million users, five times more than two years ago.
More than 4 billion people worldwide have a cell phone, and more than 10% of those are fully web-enabled.

I could cite more, but you get the drift. McKinsey lists the ten trends as follows.

Not all, by any means, apply to law-firm land, but all are worth reflecting on and those that do apply squarely to us deserve some comment:

Trend 1: Distributed cocreation moves into the mainstream
Trend 2: Making the network the organization
Trend 3: Collaboration at scale
Trend 4: The growing 'Internet of Things'
Trend 5: Experimentation an big data
Trend 6: Wiring for a sustainable world
Trend 7: Imagining anything as a service
Trend 8: The age of the multisided business mode
Trend 9: Innovating from the bottom of the pyramid
Trend 10: Producing public good on the grid

We realize, and apologize for, the fact that this is cast in the unfortunate, hostile to English, and un-euphonious argot of consultant-speak, but we place a higher value on quoting sources accurately, so there you have it. (It could and does get worse, by the way, but we'll try to spare you. For example, a little further along in the piece you encounter this positively remarkable demolition derby of words: "Because some of the most powerful applications of these trends will cut across traditional organizational boundaries, senior leaders should catalyze regular collisions among teams in different corners of the company that are wrestling with similar issues.")

What to make of this?

Their trends ##1, distributed cocreation, 4, the Internet of Things, 6, wiring for a sustainable world, 9, innovating from the bottom, and 10, producing public good from the grid, we can pretty much write off for present purposes.

But #2, making the network the organization, speaks quite directly to the challenge of outsourcing. McKinsey puts it this way:

We believe that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.

What they mean by that is that we need to define where work can optimally be done, and get it done there, not necessarily within our four walls. This need not be frightening, as I've written before: For example, drawing on external expertise could involve tapping into your firm's alumni network and even its retiree network--imagine the energy that a recent retiree would deliver to answering an inquiry in his/her area of expertise.

#3, collaboration at scale.

This means things as simple as investing in high-capacity, high-resolution videoconferencing and shared online workspaces. At one (unidentified) "high-tech enterprise," the "savings on travel were four times the company's technology investment [while] contacts per salesperson rose 45% [and] 80% of the staff reported higher productivity and a better lifestyle."

Where you can trip yourself up, however, is in assuming that technological tools per se will enhance collaboration: They won't, necessarily. What will enhance collaboration is if technology enables human interactions that people were already engaging in, or wanted to engage in.

#5, experimentation and big data.

No, we will never be as web-metrics, analytically savvy as Amazon or eBay, not to mention Google, who determine empirically everything from where to place buttons on web pages to the sequence of content the visitor sees, but we could at least be a little smarter about analyzing our clients' spending patterns with us. Such as:

What is your firm's "share of wallet" of a client's total outside counsel legal spend? Growing, or declining? In what practice areas?
What factors are correlated with client attrition and with client retention?
Do "acorn" clients grow into oaks? (Anecdotally, I'd be shocked if they do, but you might want to find out based on actual data and not simply partners' lobbying for their acorns.)
Which cohorts of your clients are the slowest and fastest to pay? Which complain the most about billing and provide the lowest realization and which complain the least and provide the highest? What can you learn from this?

Etc.

The point is not that we can't figure these things out. A decade ago, to be sure, we probably could not have. But now is not then.

Now we can at least take an educated guess at figuring these things out. And not to do so is, I submit, tantamount to managerial malpractice. (But then, you know that I'm a data junkie at heart.)

#7, imagining anything as a service.

We are, of course, one of the quintessential service industries, so this is easy: We sell knowledge, and knowledge classically lends itself to digitization and zero-marginal-cost reproduction.

That's not the point.

The point for us is that "cloud computing" should enable us to really get serious about alternative career paths and attorneys who want to work from home (or from the totemic South Sea Islands), or only a certain number of hours or days per week, or intensely on a particular transaction or litigation and then be "on the beach" for x months.

You may be thinking that all of this (a) has been tried and failed; (b) won't ever seriously be tried because it couldn't possibly work; and/or (c) will be shown to fail as soon as it is seriously tried. I am not here to argue for or against any of those propositions.

Merely to point out that, pregnantly, McKinsey writes:

Business leaders should be alert to opportunities for transforming product offerings into services, because their competitors will undoubtedly be exploring these avenues. In this disruptive view of assets, physical and intellectual capital combine to create platforms for a new array of service offerings.

What's "pregnant" about that observation is the warning that "competitors will undoubtedly" be trying to exploit the ability to deliver legal services from a distributed platform. Even if we're not. En garde.

#8, the "multisided business model"

Apologies, first and foremost, for the opaque consultant-speak. Perhaps even McKinsey can't help themselves.

But a "multisided business model" is nothing more than a business that has more than two counter-parties: More than the buyer and the seller or more than the law firm and the client. Wildly familiar examples are the newspaper, magazine, and television industries, where the publisher/broadcaster delivers content to the reader/viewer, sometimes for free and sometimes by subscription, while a major portion of the publisher's revenue, and the consumer's time, comes from advertising--the third party to the industry model.

Or Google. Their sponsored ads subsidize our free searches.

What might that look like for law-firm land?

I submit that we have not begun to capture, analyze, and re-package the vast amounts of data we have on litigation or on corporate transactions. For example, what if a firm with a significant management/employment practice began to systematically try to capture what the underlying characteristics were of cases that led to expensive and horrific claims versus the characteristics of cases that were benign and settled quickly and cheaply? Or if a corporate-centric firm analyzed what clauses in prospectuses, 10-K's, and other disclosure documents were the most frequent subjects of litigation? Or if an IP practice could analyze, on a geographic or time-series basis, where challenges to patents were rising and where they were subsiding?

Don't you think that non-clients would be willing to pay a fair amount of money for that information? If so, welcome to the multisided business model world.

Your view may be that some, all, or none of this is going to come to pass, or that however much of it does won't affect us.

The point of all this is different: Think about what it might mean for your firm if any of it happens. Use these possible scenarios to broaden your conversations with your partners, your clients, and your associates and staff. If a competitor or peer firm of yours decided to embrace one or more of these potentialities, how would you respond?

The abrupt resignation of Mark Hurd as CEO of Hewlett-Packard this past week over a seemingly trivial expense account peccadillo or non-harassment sexual harassment charge may have many people scratching their heads, but the smart analysis is that, as brilliant as he evidently was at delivering operational results by cutting costs, he also demoralized and insulted employees and staff left and right, and cut R&D to the bone, which is why HP was caught flat-footed by the Apple iPad.

Consider that a cautionary tale. After all, a larger form-factor iPhone could not exactly have been a shock to anyone paying attention to Apple, or to the evolution of technology in general. Yet HP was unprepared. Evidently, they weren't thinking about the future. You better be.

Don't wind up as HP did in this case. And please don't end up as Mark Hurd.

Cost vs. Value (Think Healthcare)

2010-08-11T21:41:23Z

Many people underestimate the contribution disease makes to the economy. In Britain, more than a million people are employed to diagnose and treat disease and care for the ill. Thousands of people build hospitals and surgeries, and many small and medium-size enterprises manufacture hospital supplies. Illness contributes about 10 per cent of the UK's economy: the government does not do enough to promote disease.

--John Kay, writing on the Op-Ed page of The Financial Times.

Tongue-in-cheek, almost surely, you are telling yourself, but how exactly?

Such reasoning is identical to that of studies sitting on my desk that purport to measure the economic contribution of sport, tourism and the arts. These studies point to the number of jobs created, and the ancillary activities needed to make the activities possible. They add up the incomes that result. Reporting the total with pride, the sponsors hope to persuade us not just that sport, tourism and the arts make life better, but that they contribute to something called "the economy".

The analogy illustrates the obvious fallacy. What the exercises measure is not the benefits of the activities they applaud, but their cost; and the value of an activity is not what it costs, but the amount by which its benefit exceeds its costs.

He rightly calls the strained and implausible efforts to justify the contributions of sports and art to the economy--by pointing to the people employed to do everything from build the stadiums to clean up after games, or to selling snacks and drinks at intermission of the theater or opera--"bad economics." And that they surely are.

Good economics here, as so often, is a matter of giving precision to our common sense. Bad economics here, as so often, involves inventing bogus numbers to answer badly formulated questions.

But good economics is often harder to do than bad economics. It is difficult to measure the value of a Shakespeare play: you can start with the box office receipts, but this is only the beginning of the story. Adding up the actors' wages does not help. Changes in relative prices since the time of Verdi mean that grand opera is now very expensive to perform. The relevant economic questions are whether the cultural and commercial value of the performance offsets these costs and whether these benefits can be translated into a combination of box office receipts, sponsorship and public subsidy. The appropriate economic criterion, everywhere and always, is the value of the output. [emphasis supplied]

But bad economics has been allowed to drive out good.

Swell, you may be thinking, but law (our colleagues' occasional hyperbolic and overly enthusiastic claims to the contrary notwithstanding) is neither a sport nor an art.

So what does this mean to us?

The key is that the "appropriate economic criterion...is the value of the output."

Meaning that the appropriate economic measure of what lawyers and law firms do is..."the value of the output."

Permit me to state the obvious: That is not the way the billable hour works. The billable hour has its feet firmly planted in cost of production, not value to client. It is therefore, economically speaking, almost ipso facto going to diverge from "value," and thus be an erroneous way of pricing legal services. Sometimes the law firm will get lucky--a high fee for poor service--and sometimes the client will get lucky--a low fee for extraordinary service--but the revenue model is intrinsically, conceptually, mistaken. Cost may tie to value occasionally--it should, of course, always be lower than value--but only as a result of running what are essentially an enormous number of experiments on client matters, every day, all the time.

This makes no more sense than lobbying for greater support of "disease," on the basis of its contribution to economic activity.

Ward-level political wisdom has long held, of course, that "you can't beat somebody with nobody," and that may, alas, be where we too often find ourselves vis-a-vis the billable hour. We may not like it, but as long as the alternative is "nobody," we will re-elect, and re-elect, and re-elect, the billable hour.

I suppose it beats electing pestilence.

Be Careful What You Wish For

2010-08-04T13:17:03Z

The Dodd-Frank Wall Street Reform and Consumer Protection Act is momentous. According to Davis-Polk,

It represents the greatest legislative change to financial supervision since the 1930s (few would argue on that score)
This legislation will affect every financial institution that operates in this country, many that operate from outside this country and will also have a significant effect on commercial companies.

David Brooks nicely summed up the scope of the bill in historical perspective:

The law that originally created the Federal Reserve was a mere 31 pages. The Sarbanes-Oxley banking reform act, passed in 2002, was only 66 pages. But the 2010 financial reform law was 2,319 pages, an intricately engineered technocratic apparatus. As Mark J. Perry of the American Enterprise Institute noted, the financial reform law is seven times longer than the last five pieces of banking legislation combined.
Once again, government experts were told to take a complex, decentralized system -- in this case the financial markets -- and impose rules, rationality and order. The law creates one �ber-panel, the Financial Stability Oversight Council. It directs government experts to write rules in 243 separate areas.

As our Mayor Michael Bloomberg has joked, "only 63 people in the world have read it all."

And most importantly by far for you, Dear Readers (back to Davis Polk):

Following the bill's passage, the regulatory implementation phase will begin. By our count, the bill requires 243 rulemakings and 67 studies. While few provisions of the bill are effective immediately and Congress has designed the bill to become effective in stages, regulators and market participants will need to begin responding to the legislation immediately after its passage. U.S. financial regulators will enter an intense period of rulemaking over the next 6 to 18 months, and market participants will need to make strategic decisions in an environment of regulatory uncertainty. The legislation is complicated and contains substantial ambiguities, many of which will not be resolved until regulations are adopted, and even then, many questions are likely to persist that will require consultation with the staffs of the various agencies involved. Agency rulemaking will, however, set the parameters of the new regulatory framework. An understanding of the older layers of regulation will be indispensable for understanding the new law.

I'm not sure how to state the last point any more clearly than Davis Polk has, but to be blunt about the economic implications of the bill for firms with substantial financial services and/or regulatory practices, this is the greatest thing since Sarbanes-Oxley.

If you want a merely 130-page synopsis, here's the ur-text from Davis Polk. And, for those of you into graphics:, here's the presentation, from our same faithful authors, of the implementation timelines. (Forewarned--I hope you like mice type. But comprehensiveness is a far more than offsetting virtue.)

But here at Adam Smith, Esq., we're not into the business of pointing you towards resources and walking away.

Rather, we point out the complexity--and, better yet, undefined nature--of the ~~Dodd Frank~~ Gift To Financial Services Lawyers bill because it can keep many lawyers busy for a long time: (a) participating in the regulatory build-out of the law; (b) educating their clients on what it means; (c) helping clients implement compliance; and (d) monitoring litigation that will inevitably ensue.

This alone is not, of course, anything that will remotely relieve us of dealing with the grave and enduring repercussions of The Great Reset, but it does constitute a small ray of practice-area specific economic hope.

Indeed, The Lawyer just published "US firms prepare for heavy workload as Dodd-Frank Act comes into force," with the following juicy quotes:

Randall Guynn, financial institutions head, Davis Polk & Wardell: "We've been active advising the Securities Industry and Financial Markets Association and several leading US and non-US banks on financial regulatory reform. Those representations have kept us very busy during the past year, but we expect our work to increase substantially during the regulatory implementation phase."
Ernest Patrikis, bank and insurance regulatory partner, White & Case: "I expect the Dodd-Frank Act to result in an increase in work over the next several years. Initially, questions will arise regarding the statutes and its ambiguities and alternative �interpretations. The federal supervisory/regulatory agencies have been granted a great deal of discretion that will be reflected in proposed regulations. Those regulatory proposals will result in increased activity."
William Sweet, finance and regulatory partner, Skadden: "My practice focuses on financial services regulation, which is the predominant theme of the bill. We've seen, and expect to continue to see, a significant increase in client demand for advice on matters covered by the Dodd-Frank Act."
Bradley Sabel, finance and regulatory partner, Shearman & Sterling: "Although near-term work volume isn't likely to expand significantly, we expect that the volume of work relating to the bill will pick up as proposed regulations are issued for comment and adopted, and even more so when final regulations are issued."

The bad news?

The law itself, of course. That is to say, precisely the compliance overhead I have been celebrating above.

I am far from a free market absolutist--no one who took their studies of economics seriously can be--but there are useful extra-market governmental interventions to address externalities, and then there are exercises in throwing sand in the gears, creating regulatory friction, and offering rent-seeking opportunities. The jury is firmly out, but I worry that this law may overweight towards the latter.

As a great friend of mine, and head of the securities law practice at a major New York firm, said years ago about Sarbanes-Oxley: "As a law, I hate it, but as a partner in my firm, it's GREAT!"

Ladies and gentlemen, start your engines.

Conference on Alternative Fees: New York, October 5

2010-07-28T12:16:41Z

For those of you in the New York area, or who might be here the first week of October, here's a heads-up about a day long conference on the topic of alternative fees that Adam Smith, Esq. will be hosting and which we developed, and we warmly invite you to attend.

Here's the summary of what it's about:

There has been much hand-wringing and ink spilled on the topic of AFAs. Will they take over? What do they look like? What permutations do they come in? Aren't they just "code" for clients demanding discounts?

Is the billable hour dead?

Unfortunately, most of these discussions have provided far more heat than light. It's time to demystify matters.

It's probably safe to say that AFAs are more complicated than the billable hour. That said, they are not intrinsically hard and they are most definitely not mysterious.

Most industries, including professional service firms, profitably manage the necessary resources to deliver effective, efficient, predictable solutions to their clients. The law is no different. (Indeed, it's the heavy reliance on the billable hour which is distinctive to law firms.)

What most discussions about AFAs have left out is what law firms need to do - and, yes change in order to be able to offer their clients a menu of pricing options, including AFAs.

Above all, with AFAs, firms (and clients) need to be willing to experiment. The genius of the scientific method is that you learn things even from experiments that fail. "There's a reason we call it research; we don't know what we're doing."--Albert Einstein.

This one-day workshop is intended to address that void - both in terms of how law firm models may need to change and implementation requirements and challenges.

Let's agree that AFAs are here to stay. Now what?

The goal of this is not to be your typical (forgive me) series of static talking-head presentations, but to be a genuinely interactive and participative workshop-like event where we can get well past the gallons of ink that have been spilled on whether or not AFAs are "coming" and start to deal with, "So now what do I and my firm do?"

What you need to know:

Date & Time: Tuesday, October 5, 2010: 8:30 am - 5:00 pm
Location: AMA Executive Conference Center, 1601 Broadway (48th Street, Crowne Plaza Hotel--north side of 48th, between Broadway and Eighth Ave), New York
Topic: What You Need to Know to Make Alternative Fee Arrangements Work
Key Contributors:
- Tom Clay, Principal, Altman Weil, Inc.
- Jim Hassett, Ph.D., Founder, LegalBizDev
- Janet Stanton, Partner, Adam Smith, Esq.
- and of course yours truly.
Agenda:
- Varieties of AFAs
- Implications of AFAs for law firm structures
  - Structural & strategic
  - Implementation & execution
- Intersection of AFAs with project management and financial reporting and analysis
- Implications of AFAs for client relationship development

Registration and more information is here.

Please note that there's a 15% discount for signing up before August 31.

Hope you can make it! Please let me know if you have questions, and do me the favor of shooting me a quick heads-up if you'll be there.

Childhood and Maturity

2010-07-26T15:34:30Z

Wouldn't you suppose that inarguable goals are, well, inarguable?

Welcome to law-firm land.

This is a story about how we let our firms be knee-capped in fealty to principles of individual autonomy.

Consider a hypothetical firm:

It might be a boutique and it might be a Global 50;
It might be primarily lockstep or primarily eat-what-you-kill;
It might be US or UK-based;
And in governance it might tend more towards Athenian democracy or more towards centralized management power.

In response to the Great Reset, or perhaps out of a sense that it's time for a generalized reassessment of its business, the firm's management embarks on a sustained and disciplined exercise in re-examination of its position in the market: How its partners, associates, even paralegals and staff, as well as its clients, and the media, perceive it.

You might think of this as akin to an individual (you?) undertaking a serious assessment of where you are, what you've achieved so far, and how to capitalize on your strengths and underplay your weaknesses. If you did this seriously--lose weight, quit smoking, treat your colleagues with more professionalism and respect, be more loving to your spouse or significant other--you would consider it a serious failing if you didn't carry through, and would rightly berate yourself.

The results of the firm's reassessment are not alarming but not entirely comforting either (so, I suspect, would your own personal reassessment of yourself be or, I regrettably confess, mine of myself).

Some things can be improved;
People are not entirely living up to their potential;
The firm has assets that it's not taking full advantage of;
And, most tellingly, people seem a bit smug and complacent about all of this.

Proceeding rationally and logically, you present these findings to the firm as a whole. Perhaps even--quelle horreur--with suggestions for improvement. People need to move out of their comfort zones; place a bit more value on ambition and aspiration than on entitlement; let clients know how hard they will work for them, and proceed to demonstrate it. This is potentially a seminal moment, even (in Andy Grove's famous phrase), an "inflection point."

Now what?

Pushback is what. Instinctively. We (lawyers) can't seem to help ourselves.

"If we implement any of what you're implying we should do, we shall put our culture at risk."

"Other firms who have reformed themselves along the lines you're suggesting are soulless places committed to revenue and profit maximization at the expense of clients."

"I didn't go to business school, I went to law school. For a reason."

"I practice law because I believe in and care about client service; that's all there is to it."

And how predictable is all of this? Utterly. You can see it coming from a mile away.

At this point, you have two choices: You can reassure everyone that nothing really is going to change, certainly not radically, that we're not going to ask partners to do anything not of their own unbridled free will, and that it has all been an illuminating exercise but such it shall remain.

Or you can insist that this is a key moment in the aftermath of the Great Reset and that your firm has a very rare opportunity to capitalize on its process of self-examination and, potentially, steal a march on your more complacent or nervous competitors.

Your decision turns, I submit, on the degree to which you credit the legitimacy of your partners' desire for unfettered autonomy.

And doesn't so much of it come down to that? The long-run best interests of the firm versus the reflexive and intrinsic cry for autonomy and individual self-determination from the partners?

This should serve as a clarifying moment.

This isn't just about one initiative or one, albeit critical, moment in the strategic trajectory of your firm. It's the opportunity to take a stand.

I hope few of you doubt that we are facing once-in-a-career challenges, not just from the economic conditions of the past few years, which I don't need to rehearse, but also from the incipient arrival of non-traditional competition as the UK's Legal Services Act kicks in for real and as outsourcing/disaggregation/unbundling continues to gather its irresistible force. The decades of quiet, incremental change are over.

What does the future hold?

The short answer, which unfortunately also happens to be true, is that no one knows. In the face of uncertainty, the only stance that makes sense is one of agility. Your firm needs to be standing on its toes, ready to move in a concerted and forceful fashion as the competitive landscape begins to gain clarity.

So let's re-examine the source of the opposition to firm-wide initiatives.

I have a modest diagnosis: They're juvenile. And "juvenile" not in a beguling or charming sense, but in a self-indulgent, callow sense. That is not the sensibility that should serve as the template for governance of any serious firm in a globalizing market.

In high school I had four English teachers in a row--freshman through senior years--who could not have been more different on the surface. One, "Mr. Worth," never referred to by any other name whatsoever, had the mien of an Oxford don and was probably, in distant hindsight, a closet gay (exotically, he lived on the Lower East Side), but with the impeccable manners of one to the manor born. Another, Mr. Reilly, looked perpetually as if he'd just come back from surfing at Malibu and had the attitude, tousled blond hair, and worldview to match. Mrs. Seiden was a Sadie-married-lady with the bottomless repertoire of brooches and hairpins to match, and the last, Mr. Greenwald, was an emaciated and ascetic academic to the bone with conspicuous disregard for the merely material.

But they all had one thing in common, and for this, at the time, I thought them all more or less Fascists: They could not leave anything I wrote--essay, report, book review, you name it--alone. Nothing was ever good enough.

You put pen to paper at your peril, knowing that everything from the overall architecture and flow of the piece to the order, substance, and length of the paragraphs, to the selection of subjects, predicates, and objects would be relentlessly scrutinized, critiqued, and second-guessed.

And improved.

From this sometimes demoralizing and occasionally excruciating experience, given the balm of time, I learned that few experiences in life are more rewarding than seeking excellence in intrinsically difficult pursuits. Sometimes there is no substitute for hard work, second-guessing yourself, setting the bar of ambition ever higher, and relentlessly challenging yourself to be better and better than you ever thought capable.

To have shrunk from this challenge would have been, well, juvenile.

Working in--being a partner in--a great global enterprise is surely as worthy a challenge as there comes. Ambition, hunger to achieve more, ceaseless dissatisfaction with the quality of the familiar, the comfortable, and the rote, are not irritations standing in the way of your professional pursuits and they are not challenges to the culture of the organization. They are essential to achieving excellence.

So you, and your partners, have a choice.

On Schumpeter & BigLaw

2010-07-25T14:26:12Z

In times of accelerated turmoil such as those we've been living through and which appear likely to continue, to the eye's visible horizon, it can be useful to return to first principles.

So, herewith, a quick precis of Joseph Schumpeter's famous analysis of capitalism in Capitalism, Socialism, and Democracy (1942), and in particular his exegesis of his powerful and original concept of "creative destruction."

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the same process of industrial mutation--if I may use that biological term--that incessantly revolutionizes the economic structure from within [emphasis original], incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.

Following on this, Schumpeter observes that it's "useless" to analyze a large firm's behavior at a single point in time, since the behavior of a firm is "on the one hand, a result of a piece of past history, and on the other hand, an attempt to deal with a situation that is sure to change presently--an attempt by those firms to keep on their feet, on ground that is slipping away from under them."

Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. [Strategy] must be seen in its role in the perennial gale of crative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull.

This also implies that the popular concept of perfect competition is, by and large, meaningless if one wants to grasp the world as it really is--although it has the academic virtue of being highly susceptible to mathematical modeling.

The primary flaw in perfect competition is that it "is always suspended whenever anything new is being introduced" because buyers and sellers cannot possibly have complete information about a potential market. Indeed, Schumpeter believed that most quasi-mature industries (law certainly qualifies) more closely resembled oligopolies, where "there is in fact no determinate equilibrium at all and the possibility presents itself that there may be an endless sequence of moves and countermoes, an indefinite state of warfare betweeen firms."

The type of competition that overturns everything familiar is not that based on price or quality, which are, after all, continuums, but "the competition from the new commodity, the new technology, the new source of supply, the new type of organization [since this] strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives."

And this looming threat is ever-present: "It disciplines before it attacks." Ignoring the potential impact of a spasm of creative destruction upon an industry is nothing less than ignoring a characteristic of capitalism which is intrinsic and endogenous.

So where does this leave us?

Were we to resurrect Schumpeter (1883, Czechoslovakia-1950, Connecticut) from the dead, and ask him to comment on this train of thought vis-a-vis law-land, here's my supposition as to what he would say:

The threat to the industry of BigLaw as we know it is not the next Skadden, the next Latham, the next Wachtell, the next Quinn Emanuel or Boies Schiller or Bartlit Beck.
- These are fundamentally familiar business models, indeed so profoundly familiar that to outside observers they surely appear indistinguishable from the largest and most prestigious firms with the longest pedigrees.
Instead, the threat will come from unforeseen competitors currently outside the tent, and who have no interest in being inside the tent.
- Some of these competitors, perhaps most of them, don't exist at the moment, or if they do exist, have only begun to find their sea legs.
You can't foresee what these new competitors will do; indeed, they themselves can't even foresee it yet in any clearly articulated or planned way.
And they won't look at all like BigLaw as we know it; if they did, they wouldn't be "creative destroyers."

Now, this is nothing to be afraid of.

Will the new competitors come?

Given that in the US alone, the total annual revenue of private, for-profit law firms is about $225-billion, yes. We inhabit a very large industry.

So the question is what can they do that we can't?

The tremendous advantage we have over these nascent competitors is that we know our clients and we know the law: In vastly nuanced fashion. But this won't do us any good if we're oblivious, indifferent, or too comfortable and complacent to recognize what's on the horizon. Our knowledge of our clients, and our tightly bound relations with them, is the only barrier to entry that we really have; but it will give us enough breathing room to figure out how to meet the new competitors on their own ground.

Or ours.

But only if we are prepared for the fight. Because the fight is endogenous to capitalism.

The Man In the Grey Flannel Suit

2010-07-21T01:48:40Z

The phrase "an American original" may strike you as overused, and I might agree, but I'd have to limit it to the narrow sense in which it may be applied to more people than deserve it. In other words, there aren't enough of them.

But today, we have a genuine contender: Jerry Della Femina, the famous advertising man, Hamptons restaurant owner, and creator of himself, profiled this past weekend in the FT.

What on earth, you are about to ask me, could Jerry Della Femina have to do with law-firm land? Well, stick with me here.

The occasion for the FT's profile was presumably the new season premiere of "Mad Men," "Matthew Weiner's phenomenally successful show about the advertising world in New York in the early 1960s," based on Della Femina's own memoir of the era, published in 1970, From Those Wonderful Folks Who Gave You Pearl Harbor. (The reference will become apparent; as I said, stick with me.)

Brief obligatory what/where/when (courtesy the FT):

1936 Born in Brooklyn

1961 Junior copywriter, Daniel & Charles

1967 Founds Jerry Della Femina & Partners. By 1970, the company is billing $20m a year

1972 Plans takeover of Saatchi & Saatchi (fails)

1984 Sells his agency, but continues to work there

1992 Sets up new firm, Jerry, Inc. - and opens a successful restaurant

1994 Jerry, Inc. merges to become Della Femina, Rothschild, Jeary & Partners - where he still works today

The studious will note no academic degrees listed, because there were none--he graduated from Lafayette High School and "attended" Brooklyn College. But he was the self-taught polymath extraordinaire, borrowing 10 books at a time from the New York Public Library ("Hemingway to pulp fiction") and says that he has a "small vocabulary," but one which he "moves around fast."

His father worked three jobs, as a pressman at The New York Times, a soda jerk in a coffee shop, and operating rides at Coney Island; his mother sewed dolls and dresses. Growing up in Gravesend, Brooklyn (notoriously characterized by a US Senator as the "breeding place for crime in the US"), he resolved as a child go "get out of here." So how did he become the Jerry Della Femina we think of today?

In the early 1960s, he started sending ideas to one of New York's smaller advertising agencies. Finally, the agency invited him in, and he offered to work for free. The partner said: "We have to pay you a token salary. How about $5,200?" Della Femina thanked him quietly, shook his hand and agreed to start on Monday. But when he got outside, on to lower Madison Avenue, he screamed with joy. "That 'token salary'," he explains, "was more than any Della Femina in the history of Della Feminas had ever made."

Perhaps his genius stemmed from his profound common sense and pithy ability to distill what everyone had to be thinking into the lingua franca: "When he wrote lines such as, "Are you scared stiff your first color television set's gonna turn out to be a $500 dog?", he was thinking about his mother in Brooklyn. "

But the Della Femina magic touch had just begun:

[Della Femina had started at] one of the smaller, Jewish agencies. He says: "I worked there for two, three months and I was coming down in the elevator one night at 9.30pm and the new boss gets on and he says, 'Workin' late tonight, kid?' And I said: 'Ma nishtana halayla haze mikol haleilot?' which is a Hebrew prayer meaning, 'Why is this night different from any other?' He gave me a $3,000 raise before the elevator hit the bottom." Not every Italian kid from Gravesend, Brooklyn, could pull that off.

This begs the question: Could anyone pull that off today?

Della Femina seems to have mixed feelings on how the advertising business has evolved. Under "Progress," one must surely count:

That people no longer smoke four packs of cigarettes a day,
That the "three-martini lunch" made immortal by Madison Avenue itself, has waned, permitting useful work to be done in the second half of the day,
That casual sexism is a thing of the past, at least in the open,
That formal sexism is very much a thing of the past (Get this: "For 25 years his firm ran a secret sex contest, in which people voted for the person they would most like to sleep with. The winners would get a weekend together at The Plaza Hotel, and the event lasted into the 1990s")
Clients would not say to an Italian from Brooklyn (as Ford Motors did) that they didn't want someone "of your kind"
And people who succeed and buy nice clothes are not told, as Della Femina's mother told his wife, wearing a "fabulous" outfit, "you look like a Jew."

On the "What We've Lost" front, count:

Computers: According to Della Femina, they're wonderful but they're cold, and what comes out of them is cold.
Less risk-taking in copywriting or art direction: "People just basically sort of do their job."
There really was more creativity then: People meeting with giant note pads and art directors with drawing pads. Now it's PowerPoint.

And the cryptic "from the wonderful folks who brought you Pearl Harbor"? His brainstorm when a large agency he'd just moved to was pitching the Panasonic account. "The room fell silent," the FT dutifully reports.

His persona, of the original mad man, did have this effect: He knew he had clinched an account when an executive at the potential client said "You are not as crazy as I thought you'd be."

The tale of his skirmish with the elders of the town of East Hampton is also priceless. Shortly after buying a house there, he opened a fruit and vegetable store, Jerry and David's Red Horse Market. First, the town required him to paint the shop in regulation green. He refused. Clash. Next, he placed pumpkins outside, and was told that they were impermissible"advertising". He said, "I am an advertising guy, and let me assure you those are not advertisements, those are pumpkins."

Matters escalated to a summons and arrest warrant being issued against him, and his lawyer advised him to turn himself in quietly. But, apprised that if he turned up at the police station instead of court, he would be publicly handcuffed and given the perp walk, three guesses as to what he chose to do.

There were photographs all over of Della Femina in handcuffs. Later, he sued the town for wrongful arrest, and won.

And the relevance, at last, Patient Reader, to law-firm land?

The FT reporter asks:

"Was it calculated, though, or just natural exuberance?" Della Femina looks me straight in the eye. "I invented myself."

The point precisely.

We need more lawyers who "invent themselves." We need more lawyers who are American originals. We need more lawyers driven to grow wildly beyond their roots. We surely need more lawyers who are slightly mad, whom clients hire when they realize they're "not as crazy as I thought you were."

More lawyers, in other words, who are the next generation's legends of the bar: Who are brilliant, fearless, profoundly insightful polymaths.

And who, again, invent themselves. Because that is the root of unwavering authenticity.

Innovators at the Barricades

2010-07-20T02:50:11Z

Outsourcing is here to stay. Whatever you call it, and whatever you think of its quality, clients have tasted of the fruit of the forbidden tree and they're not going back. If document review can be conducted by Ivy League law school grads trained at white-shoe and Magic Circle firms for $50/hour instead of $350/hour, what's not for a client to like?

Of course, "outsourcing" comes in many forms. Essentially, there are two dimensions to dividing this world, providing the always-handy matrix:

	Foreign	Domestic
Owned	Clifford Chance/India	Orrick/Wheeling, WV
Rented	Integreon	Axiom

The population of the cells in this table is, rest assured, by no means exhaustive; it's merely indicative and representative. (PR people for omitted firms, please hold your fire!)

The point is simpler: Every cell of the 2x2 matrix is occupied, and betting people would put money on the population of each cell growing, not diminishing.

A particularly interesting firm, which has ambitions you may deem admirable or frightening or a combination thereof, is CPA Global, which bills itself as the world's leader in legal process outsourcing, and which raised a mere $700-million in a private placement in the UK this past spring. For that nice sum, the investors got what? 49%. Not even control. This is a war chest on a scale the AmLaw 10 and the Magic Circle, put together, would be very hard-pressed to match. And they'd probably have to cede control.

So far, that's merely reality.

The more interesting question is, What do you do now?

Last month, McKinsey published an article called When companies underestimate low-cost rivals, which poses the dilemma thus:

When low-cost competitors appear, one of the toughest decisions facing executives in companies with premium products and brands is whether to respond. Should the company or business unit adjust its strategy to meet the low-cost threat or should it continue business as usual, with no change in strategy or tactics?

Of course, Clayton Christensen famously wrote about this topic in general in The Innovator's Dilemma, which I always thought should actually be titled either The Innovatee's Dilemma or The Incumbent's Dilemma. Established firms are at existential risk of ignoring or surely underestimating the nature and magnitude of the challenge, and the crux of the dilemma is that the risk arises precisely from the incumbent firms doing what they ought to be doing, namely focusing on their existing clients and existing competitors.

As if that weren't bad enough, there's another dimension to the challenge posed by young and initially quality-compromised, unworthy, upstarts: It's not just that they can steal market share from the relatively small slice of clients who are extraordinarily price-sensitive, it's that they can slowly change client behavior.

As an example, McKinsey cites the entry of low-cost European airlines--Ryanair, easyJet, et al. It's not just that they have taken market share from British Air, Air France, Lufthansa, etc., it's that they've changed passenger behavior. People now think nothing of going abroad for the weekend, or even of commuting to another country for the workweek and returning home, by air, every weekend.

Another challenge is that down-market upstarts can, accretively and incrementally, begin to move upmarket. EasyJet has adopted this strategy, leaving Ryanair at the rock-bottom price point. In the US, Southwest may be moving in a similar direction to EasyJet; they've introduced some (modest, to be sure) upscale alternatives such as a "Business" offering that permits priority boarding for a fee.

This is where it really begins to get dangerous in law-firm land.

As McKinsey drily reports:

Customers are often quite keen to have more competition among suppliers and in some cases help low-cost suppliers upgrade their offerings by providing information and support.

The ambitions, and business strategy, of CPA Global and their ilk are no secret: Bypassing law firms altogether and marketing their offerings directly to clients. If another word for outsourcing is disintermediation, welcome to the ultimate disintermediation: They would like to take the law firm out of the equation altogether.

Before you throw up your hands and stop reading, consider the smoothness of the upward-rising curve of value in all the integrated services law firms provide. Ooops: Did I say integrated?

Traditionally that has surely been so, and there are arguments why all those services should come from one firm, but if the economics of chunking up those services and mixing and matching providers become compelling enough, sophisticated GCs may feel it worth a rethink.

For example: There are clear benefits to having the same team of lawyers that reviewed the critical documents prepare the witnesses and draft the briefs applying case law to the anticipated facts. But if all those activities are being performed at New York (or San Francisco, or Chicago) rates, the benefits of that integration better be strong. Because the CPA Globals of the world will offer to review the documents and deliver witness and exhibit binders at Bangalore, or at least at Fargo, rates.

And this is precisely where the independent outsourcing firms can have an impact. Once clients begin to get accustomed to the notion of being able to unbundle, or unchunk, legal engagements-be they disputed matters or transactional ones-there's potentially little end to it.

First, clients hire, or "request" (read: demand) that you hire an outsourcing firm for, say, document review. Next, the outsourcing firm makes it known that it can prepare witness binders, and next, that it can aid in the preparation of witnesses.

Do they threaten the Supreme Court appellate practices, the white collar crime practices, the top-tier M&A, government investigatory or regulatory inquiries, etc.? Not on your life. But might they cause us to have to engage in serious re-examination of all the components of our business model? Here it comes.

The bad news is that the days of charging $300/hour to have Ivy League graduates review documents are over, but the good news is that that mind-numbing experience will no longer be a rite of passage and you might actually have to provide your associates with more interesting work clients will pay for. In the bargain, your associates will be speeding their development into becoming real lawyers.

This exposes the intersection between low-cost competition and the need for accelerated evolution of your firm's core business model in the wake of the Great Reset. Ask yourself what are the implications of the following aspects of the new normal, taken together:

Associate recruitment, and attrition, are down.
Associate/partner leverage is probably in decline to a new, lower plateau.
Clients are increasingly effective at insisting that associates deliver tangible contributions to matters if the firm expects to charge for them.
And as we've seen, clients averse to paying our retail rates for our traditionally bundled services have new alternatives, the providers of which fully intend to move up the value chain.

I would argue the implication is clear ("stark," if you prefer, but as for me, I'd choose "energizing,"or maybe even "chance of a lifetime"): our associates--indeed, your entire team--needs to move up the value chain even faster than your new competitors.

Serendipitously, the new normal landscape features far more favorable conditions in which you can do so:

Fewer associates, with less attrition, means each must be more valuable to the firm (scarcity: economics 101)
Enabling you to invest more in their professional development
While they are freed from the intellectually vacuous scutwork of the past
And as ever more powerful, sophisticated, and nuanced technology finally transforms Knowledge Management from a backwater (or a dream, or an irrelevance) into a daily, real world tool for professionals.

Finally, you might be surprised to hear that this all invites reflections on why your firm exists in its current configuration, and the market's tolerance for it to continue in that form.

In 1937, Ronald Coase wrote one of the most famous, and shortest (a dozen pages or so) articles, The Nature of the Firm, for which he decades later won the Nobel Prize, in which he explained why firms exist at all.

Why create the management overhead, bureaucracy, and administrative friction entailed in any firm of scale? Why not just purchase whatever is needed, when it's needed, on the open market?

Coase's answer was that large groups will enjoy a systematic advantage over smaller ones when large-scale coordination is called for, using skills organized more effectively and economically through personal interactions than through the market, with its inevitable transaction costs.

As globalization and technology have diminished these transactions costs, the need for your for to continue to demonstrate its economic and market superiority is under stress.

Your response must be to assume the mantel of an innovator within your own walls. Because the innovators outside your walls are coming.

The Strictures--and Irrelevance--of PPEP

2010-07-07T15:08:57Z

[Linklaters Managing Partner Simon] Davies said the firm was focused on overall profitability rather than its revenue, which has suffered due to the deflated M&A market with about 40 per cent of income generated by the corporate department.

"Our objective has never been to maximise our revenue," he said [emphasis supplied]. "We're not focused on being the biggest firm by revenue but on being the leading firm as far as our clients are concerned."

--From The Lawyer story announcing Linklaters' 2009-2010 results, showing a decline of 8.8% in revenue to �1.18bn and also a decline of 6.88% in PEP to �1.21m.

This raises the question: If not revenue, or if not PEP, what are the optimal metrics on which to judge law firm performance?

Orrick famously announced back in May that it would cease "using or reporting, internally or publicly, the metric of Profit Per Equity Partner." And on the heels of that announcement I wrote about some alternatives I might endorse. The list included:

On the quantitative side:
- Revenue Per Lawyer
- Compound annual growth rate (CAGR) of revenue over a multi-year period
- Realization rates (implying, I would argue, clients' perception of value-for-services-received)
- Associate retention rates (or attrition rates, measured negatively)
- Percentage of business from clients of long-standing duration (say, more than 3 or 5 years)
- Percentage of all legal spend from top 10 (20/50/100) clients
On the qualitative side:
- Client satisfaction
- Lawyer morale
- Commitment to and investment in professional development
- Commitment to and investment in such things as diversity and pro bono
- The quality of firms the firm takes lateral talent from and the quality of firms they lose lateral talent to
- The quality of firms the firm wins assignments from and the quality of firms they lose assignments to
- Quality and morale of professional and support staff.

Most importantly, however, I believe we as a profession and as a management class need to stop genuflecting to the one-size-fits-all model of law firm performance.

What do I mean by that?

Simply that firms are increasingly segmenting themselves into different market positionings, and that applying one, or even a few, unitary metrics across firms pursuing avowedly different strategies is guaranteed to produce misleading--and downright odd--results.

For example, much as I respect Simon Davis, I think being part of the Magic Circle means that you are, among other things, judged on overall size, that is to say, on annual revenue. Who would claim that a firm with half, or one-quarter, of the revenue of Allen & Overy, Clifford Chance, Freshfields, or Linklaters would seriously be viewed as on a par with those? In this league, size does matter. (Which, among other things, is why Slaughter & May is not "really" a Magic Circle firm, or at best is one with an enormous bold asterisk after its name.)

Another set of firms--and yes, folks, we can name names--including Cravath, Slaughters, Wachtell, Weil Gothsal, and perhaps some relative newcomers such as Boies Schiller or Quinn Emanuel, positively invites us to compare them on the basis of PPEP.

Yet another set would like us to find them strong in global coverage: Say, for example, Baker & McKenzie, DLA, Jones Day, Latham, Sidley, and White & Case, with a slightly newer orientation to the "global" value proposition represented by K&L/Gates, Orrick, and Reed Smith. (Caveat, folks: The trouble with naming names is you've named some people and you haven't named other people. That's why letters to the editor are available; and I urge you all to exercise your right to add, subtract, and in general dissent.)

Another, separate, problem with cross-firm metrics has to do with averages. Averages mislead. Yes, seriously. (In my original piece on this I used the familiar example of "Bill Gates walks into a bar....", and the average net worth in the place goes up to $5-billion.)

Here's a fairly trivial example of how averages can mislead: Imagine a firm with the vast majority of its lawyers in New York, or New York and London. Now compare that firm's PPEP to another firm with relatively few lawyers in those high-margin markets. Surprise! Same would happen with Revenue per Lawyer, and, on the unflattering side (unflattering to the capital markets-centric firm, that is), with cost per lawyer. The headline news would be if the capital markets firm had lower PPEP.

When stated baldly this way, none of us is the least surprised that "averages" across firms with completely different business models, strategies, and geographic footprints mislead at least as much as they reveal. To abstract from our industry, what does the average fuel economy of Toyota's models tell you compared to the average fuel economy of Ferraris? To say that Toyotas have "better" fuel economy is to focus on facts at the expense of the truth. (Focusing on facts at the expense of the truth is at the heart of many a cross-examination technique.)

Not to go metaphysical on you, but to do justice to the concept of what metrics are appropriate for measuring law firm performance, we need to delve for a moment into the difference between facts and truth.

Facts are convenient, tough, hard, unyielding little pebbles. Not just facts like water freezes at 32�F or Oxygen is the 8th element in the periodic table, but facts like "during your deposition you said you'd seen this email and now you say you can't remember?" Or, facts like today's announcement that "Clifford Chance boosted its average PPEP by 25% in the past fiscal year." It's very hard to argue that facts don't stand for irreducible little nuggets of reality. But facts can also tempt us into sloppy, lazy, and unreflective "analysis." Such as: "If CC boosted its PPEP by 25% and Linklaters and A&O didn't do as well, then that's bad news for Links and A&O." Well, not so fast.

The difference between facts and truth brings to mind Oscar Wilde's famous definition of a cynic as someone who "knows the price of everything and the value of nothing." As an economist, I'd be the last to tell you that price doesn't contain a lot of information. But at times, as with the recent housing bubble, or the tech stock bubble of ca. 2000, prices can't really be trusted. What you really need to know is what's the value of the asset?

And thus with law firm performance metrics.

Before you conclude that any particular firm is doing well, doing poorly, or hanging out in the middle of the pack, you first need to figure out what that law firm is setting out to do. What is their strategy? Is it to be a "category killer" in employment law like Littler Mendelson or Jackson Lewis? Then a high PPEP is probably not something they're striving for and it's unfair (and worse, irrelevant, and sloppy thinking, as noted above) to pretend that metric has much of anything to do with them.

Then what am I suggesting?

Not just that there is no "one size fits all" metric, which should be obvious if you're a student of almost any industry (autos, apparel retailing, wine and beer, cellphones), but that to gauge how any law firm is doing you first have to do the hard work of analyzing what they are trying to do.

Are they trying to be a global, but non-headquarters dependent, powerhouse? Then you might want to know what percentage of their revenue comes from matters using substantial amounts of lawyers' time from multiple offices; or what percentage of revenue is "earned" by offices other than the originating one. A little tougher to figure out than the Big Hard Rock of PPEP, isn't it?

Sorry to break this to you.

Happy 4th! The 234th, if You're Counting

2010-07-04T11:17:11Z

Among the things we are definitively not into here at Adam Smith, Esq., is the question of ethnic or cultural identity, relative ethnic or cultural advantage or disadvantage, and historical prejudice for or against same.� Frankly, we don't give a ____.

Nevertheless.

Every once in awhile a couple of stories come our way that deserve a bit of unpacking.� Today we have The New York Times' Op-Ed piece by Noah Feldman, Harvard Law Professor, "The Triumphant Decline of the WASP,"� and also The New Republic's review off The Enlightened Economy:� An Economic History of Britain 1700-1850.�The book review is by Edward Glaeser, Glimp Professor of Economics at Harvard.�

What these two pieces bring into the spotlight is the historically astonishing, and also over a period of time, self-erasing, power of Protestant-driven Enlightenment era thinking.� (Yes, Dear Reader, you should know that I am a WASP, and, if that be offensive to you, I will compound it by noting that the MacEwen's in my lineage came to the New World from Scotland nearly 250 years ago.� If one is going to write a piece such as this, full disclosure is not optional.)� But, to the facts.� Feldman's column opens with, and states its thesis, thus:

Five years ago, the Supreme Court, like the United States, had a plurality of white Protestants. If Elena Kagan -- whose confirmation hearings begin today [the column was published June 25, 2010]-- is confirmed, that number will be reduced to zero, and the court will consist of six Catholics and three Jews.

It is cause for celbration that no one much cares about the nominee's religion. We are fortunate to have left behind the days when there was a so-called "Catholic seat" on the court, or when prominent Jews (including the publisher of this newspaper) urged President Franklin D. Roosevelt in 1939 not to nominate Felix Frankfurter because they worried that having "too many" Jews on the court might fuel anti-Semitism.

But satisfaction with our national progress should not make us forget its authors: the very Protestant elite that founded and long dominated our nation's institutions of higher education and government, including the Supreme Court. Unlike almost every other dominant ethnic, racial or religious group in world history, white Protestants have ceded their socioeconomic power by hewing voluntarily to the values of merit and inclusion, values now shared broadly by Americans of different backgrounds. The decline of the Protestant elite is actually its greatest triumph.

Feldman clarifies that, while the white Protestant cohort is quite internally diverse, he's actually "talking about a subgroup, mostly of English or Scots-Irish origin, whose ancestors came to this land in the 17th and 18th centuries. Their forebears fought the American Revolution and wrote the Constitution, embedding in it a distinctive set of beliefs of Protestant origin, including inalienable rights and the separation of church and state."

He offers a specific example of the meritocracy triumphing, drawn from the history of my own alma mater:

Take Princeton University, a longtime bastion of the Southern Protestant elite in particular. The Princeton of F. Scott Fitzgerald was segregated and exclusive. When Hemingway described Robert Cohn in the opening of "The Sun Also Rises" as a Jew who had been "the middleweight boxing champion of Princeton," he was using shorthand for a character at once isolated, insecure and pugnacious. As late as 1958, the year of the "dirty bicker" in which Jews were conspicuously excluded from its eating clubs, Princeton could fairly have been seen as a redoubt of all-male Protestant privilege.

In the 1960s, however, Princeton made a conscious decision to change, eventually opening its admissions to urban ethnic minorities and women. That decision has now borne fruit. Astonishingly, the last three Supreme Court nominees -- Samuel Alito, Sonia Sotomayor and Elena Kagan -- are Princeton graduates, from the Classes of 1972, '76, and '81, respectively. The appointments of these three justices to replace Protestant predecessors turned the demographic balance of the court.

Before this seems altogether too triumphalist, let me offer a personal note:� I attended Princeton in the wake of the changes he describes, but, perhaps as first-generation Ivy League, in retrospect I was obtusely oblivious to the magnitude of what had changed.� Coming from New York, "urban ethnic minorities and women" were not exactly strangers on my landscape.� Nor was the principle of a meritocracy. I took these as intrinsic to a vibrant culture.

But it was not always thus. Let's step back historically and see what else might lay behind the notion that the best ideas and the best thinkers should come to the fore.

In The Enlightened Economy (see above), the premise is that the Industrial Revolution is "the inflection point of economic history." Before, incomes were static and people were poor (even the rich were impoverished by today's standards). Yet somehow, in the 250 years since mass production entered the scene, everyday life has been revolutionized: "A modern Wal-Mart would have been a place of incalculable riches to Charlemagne."

What happened to make the Industrial Revolution possible? What weird confluence of forces, that had (by hypothesis) never quite come together in the same way before, aligned in Britain during those years?

Why not medieval China? Why not France? Perhaps to the disappointment of those seeking sound-bites, Mokyr doesn't a single explanation, but a panoply. Here are a few:

As an island nation, Britain was difficiult to invade.
It had a nice supply of coal and iron in reasonably vicinity of each other.
The economy was relatively open to trade.
Property rights, for the time, were strong.
Human capital, at least in the areas of practical experience in such trades as blacksmithing, mining, clock-making (read: fine mechanical work), and shipbuilding were strong and widespread. Universal education could wait.
And perhaps most important? The Enlightenment.

"What is new here," he writes, "is not an argument that the Enlightenment changed history for better and/or worse, but that its economic effects on the wealth-creating capabilities of the affected societies have been overlooked." Mokyr has long emphasized the economic value of new ideas and he thus emphasizes that "Britain's intellectual sphere had turned into a competitive market for ideas, in which logic and evidence were becoming more important and 'authority' as such was on the defensive."

Intriguingly, Mokyr notes that James Watt, of steam engine fame, was at the University of Glasgow at the same time as Adam Smith, but there's no evidence they ever met. (The probability of their meeting in such close quarters, if you ask me, asymptotically approaches certitude.)

Ultimately, of course, the jury must remain perpetually out on the causes of such a sui generis event. One cannot, as has oft been observed, re-run history in a double-blind experiment. We shall therefore give the last word to our reviewer:

It is easy to envision the massive mills of Manchester and think that the Industrial Revolution was all about scale and machines. But there was more. At its core, this economic and technological revolution was created by connected groups of smart people who stole each others' ideas and implemented them. I tend to think that the chain of interrelated insights that brought us industrialization could have happened in other countries and at other times, but there is every reason to think that the Enlightenment had readied England's intellectual soil for industrial innovation. Not least because it persuades readers of the plausibility of such an unlikely and colorful causation, Mokyr's book is a splendid achievement.

And the tie, then, back to the Protestants' ceding their power to the call of the meritocracy?

Ideas have power.

If you truly believe them, they can not only fine-tune the course of your own individual life, they can, over time, alter societies and cultures. And count me naive or optimistic enough to believe that, as history marches on, the best ideas triumph. Ingrained elites and primogeniture were not powerful ideas, it turns out, when faced with competition from the concept of a meritocracy and no-holds-barred openness. The custom of doing things as our father, and our father's father, and our father's father's father, had always done them, was finished when "connected groups of smart people stole each others' ideas," creating the Industrial Revolution, child of the Enlightenment.

Not only do ideas have power, but certain cultures (warning; your author is about to venture into the politically incorrect) �experience periods when they seem to have a comparative advantage in generating enduring ideas.

And we Americans, on this Independence Day Weekend, celebrating our separation from Britain 234 years ago, should look back, for a moment, with thanks for our intellectual inheritance from that culture.

In Thomas Jefferson's original draft of the Declaration of Independence, he enumerated the depredations of King George III in nearly vitriolic terms (many of these clauses were prudently edited out in Philadelphia in early July 1776), but even those surviving help give color to his outrage: "He has plundered our seas, ravaged our coasts, burnt our towns. . . . He is at this time transporting large Armies of foreign Mercenaries to compete the work of death, desolation and tyranny . . ."

Yet after all that, there's one line the Philadelphia conventioneers took out, which I have always thought should have stayed in, for its simple human truth--and its expression of our connection to what remains in many respects a proud tradition:

"We might have been a free and great people together."

Results of New Survey on Timekeeping

2010-06-28T14:24:11Z

Last month we made an online survey available on the topic of timekeeping practices sponsored by Adam Smith, Esq., and Smart WebParts. The survey was also publicized through other venues, and ran for three weeks from mid-May through early June. 155 of 211 respondents (73%) completed the survey, which professional researchers deem a "robust" completion rate. Of the respondents, 86 were partners, 72 were associates, and 51 were senior staff at firms with titles such as CFO, CIO, Executive Director, Head of IT, Head of KM, and many Director-level positions.

Besides looking at the aggregated results, we also analyzed subsets of (a) all partners; and (b) partners with an hourly billing rate in excess of $500.

The results were not only fascinating, but a eye-opening in terms of the amount of "leakage" as well as sheer overhead involved in tracking time.

Here are some more details on the results. Please feel free to contact us if you'd like more information.

The average "leakage," that is, lawyers and other timekeepers failing to report all billable time, ranges from $20,000 to nearly $40,000 annually, per individual.
The "overhead" costs of keeping time are very heavy, with a mean 3.1 hours/month per individual devoted to filling out timesheets. The mean billing rate of respondents was $438/hour, indicating an imputed cost of $16,294 per person per year.
- Clearly, significant efficiencies could be gained if streamlined time entry systems were available.
Surprisingly (not!), lawyers hate timekeeping--"the bane of my existence" and "the worst part of law firm life" were representative comments.
Given these premises, and lawyers' recognition of the need for accurate timekeeping, they would be eager to explore alternatives that invite greater accuracy and, most importantly, would be easier to use.
Even if you think AFAs (alternative fee arrangements) are the wave of the future, the need for accurate timekeeping doesn't disappear. Indeed, the more critical and complex it becomes to be able to project profitability of a matter under AFAs, the more important accurate and "real time" hours tracking becomes.
- The billable hour is, at root, a "cost-plus" system, meaning that any amount billed (and collected) embeds a built-in profit. AFAs, by contrast, carry no such guarantee; that's why knowing the firm's costs, in as close to real-time as possible, is even more important under the AFA model.
A chronic source of mistrust between clients and law firms is skepticism (openly expressed by clients and tacitly acknowledged by lawyers) about the accuracy of timekeeping. Any tool that served to convincingly increase the accuracy of this very fundamental metric could only be welcome as a step towards closing that gap and reducing challenges to firms' bills based on posited inaccuracy.

For those of you, like us, who care about survey methodology and data integrity, here's some additional information and more detailed findings.

By number of lawyers, responding firms ranged from fewer than 100 to more than 1,000. The mean number of lawyers at respondents' firms was 494, or approximately equivalent to #82 in the AmLaw 100.
Hourly billing rates for respondents ranged from less than $250/hour to more than $750. The mean hourly billing rate among respondents willing to report their rates was $438.
Not surprisingly, the plurality of respondents reported being in Litigation/Dispute Resolution (64 respondents). Other practice areas included Corporate/Transactional (53), Intellectual Property (21), M&A (9), Real Estate (12), Tax (7) and General (37).
Among all respondents, 60% reported "reconstructive" timekeeping practice. That is, they entered their time at the end of the day or days later by looking at emails, phone logs and appointments. 38% reported that they enter their time contemporaneously as it happens. Less the 2% reported that they worked with their assistant to prepare time records.
A majority (54%) reported preparing their timesheets daily. A third (34%) of respondents reported preparing timesheets twice a week or weekly. The remainder (21%) reported doing so twice a month or monthly.
- When looking at the subset of all partners, responses were similar to the total respondent base.
- Partners with hourly billing rates in excess of $501 evinced less prompt preparation of timesheets: 45% doing so daily, 40% twice a week or weekly and 12% twice a month or monthly.
One-third of respondents reported that their firms request timesheets daily. 44% do so twice a week or weekly. 22% expect timesheets monthly or twice a month.
The mean time to prepare timesheets each month among all respondents was 3.1 hours, though this ranged from 0 - 2 hours (40%), 3 - 6 hours (39%), 5+ hours (37%).
- These percentages largely held for all partner responders.
- For those partners with billing rates in excess of $501/hour, there were variations from the total respondent base and total partners: 0 - 2 hours 25%, 3 - 5 hours 50%, and 5+ hours 25%.
Nearly half (47%) of all respondents reported that their timesheets are "accurate over time - it all evens out." 18% reported that ther timesheets are "somewhat accurate - I guess a little [inaccurate]." 2% reported that their timesheets are "not very accurate - I guess a lot [inaccurate]." A third reported their time sheets are "100% accurate by day." (One has to wonder whether the reported degree of accuracy might be greater than reality.)
When asked how much time they leaked (that is, time they failed to report) in a week, the mean response for all respondents was 85 minutes, or 1.4 hours. Total responses ranged from 0 hours to 5+ hours. 6% reported that they were "unsure."
- Projected annually this could total between 50 - 70 hours, depending on the number of days worked in a year. (As with the questions about accuracy, it's more likely than not that leakage is underreported.)
- With a reported mean hourly rate of $438 among all respondents, annual leakage could conservatively cost a firm between $21,900 to $30,660 per individual.
- Results from both the "all partners" subset and the subset of partners with billing rates in excess of $500 were generally similar to all respondents. For this latter group, annual leakage could conservatively total between $25,000 to $35,000 per individual.

We hope you find these results interesting; we certainly did, and we are happy to share them in that spirit.

If you haven't done such a study at your firm--or haven't done it recently--we suspect it could be equally eye-opening to get a rough estimate of the combined costs of (a) leakage; and (b) imputed overhead absorbed by timekeeping, across all timekeepers in your organization. Remember that samples are fine; you don't need an exhaustive canvassing when you're just trying to come up with an order-of-magnitude number.

If these expenses are sizable, and we'd be surprised if they're not, you might want to see what measures you could take to cut them down. It may seem mundane stuff, but the revenue from additional time properly captured falls straight to the bottom-line: And nobody has to work harder to get there.

Again, if you'd like to follow up or have questions, please contact us.