Redwood Analytics

Although this will indicate a piece of my style of humor, one of my favorite movies happens to be Billy Madison with the great Adam Sandler.  Not to bore you with the details of the film, but if you are familiar with this piece of cinematic genius you know that Billy's acquisition of his father's hotel chain hinged on one event.  Up against the bad guy, Eric, both parties had to answer a question from a category that their opponent chose.  Billy chose the Business Ethics topic which caused Eric to erupt into a gun toting tantrum which subsequently resulted in his demise and painful bullet wound to his behind, due completely to the fact that he had no concept of ethics. 

Unfortunately many partners might have the same reaction as our antagonist from the movie if someone cornered them on the topic of business ethics.  There is padding of hours, unethical conflicts of interest, interesting billing methods, and much more.  With the increased usage of alternative arrangements, additional ethical concerns have come to the forefront of the business.  There are many external ethical considerations that I will address in a later blog, but for now I want to focus on a couple of internal issues.

Unfortunately, many of these issues stem from the partner compensation structure that is in place at firms.  As an example, we are seeing hoarding of hours by partners not only from a leverage standpoint but from a cross selling one as well.  This creates a glut of hours at the top of the pyramid and within specific groups when, for the benefit of the firm, the dispersion of hours should be the proper strategy.  Why does it happen?  Well if you have a compensation system that is based primarily on fee receipts and hours worked, what is the personal incentive of dispersing hours?  It is debatable whether that falls under the "ethical" argument as it is a self fulfilling prophecy set by the firm's compensation system.  Padding of hours to make your numbers absolutely falls under the ethical umbrella and with blended rates and fixed fee arrangements some attorneys out there are apt to do so in order to make their mark. 

Finally in the case of fixed fee arrangements, if there is an overage in hours from the original estimate the dispersal of realization loss can create an internal ethical consideration.  Even before the wave of alternative arrangements, some partners would discount work of lower level timekeepers while not touching their own rates in order to meet the clients specified fee arrangement.  Many firms have put in checks and balances to make sure this does not happen, but there always seems to be a way to game the system.  Now with fixed fees, when you know what you will be paid, if you have overages in hours there seems to be more of a temptation to push those losses to lower level timekeepers or conversely if there is an "underage," to keep the gains.

I can dive into other practices, but hopefully you get the picture that the more popular alternative arrangements become, the more it becomes imperative to have that process set up to track, monitor and check on them.

The way you do business has changed, and those attorneys with questionable ethics must be held accountable.   One way to do that is to make sure your compensation system does not encourage, but instead punishes such behavior.