Make More Rain : firm culture, economic outlook

Heller in the Cellar

Admin — Wed, 05 Nov 2008 00:38:15 GMT

I read this article on the downfall of Heller Ehrman with great interest. What this doesn’t say is that Heller was a firm who last year had profits per partner in excess of $1,000,000, and in 2004 was ranked 2^nd on the American Lawyer’s A List. The key takeaways are that weak leadership, and the resulting lack of direction and ability to make key decisions, doomed the firm. The dissolution of the firm was brought to bear by lenders who called in loans when the firm’s partnership numbers dwindled below what was allowed in financial covenants. In essence, a “bank run” ensued with partners leaving, which caused the banks to act. (The current financial crisis likely did not help).

There are other firms who are similarly exposed, and while law firms generally don’t have a lot in the way of “retained earnings,” it does not mean that their financial health should not be scrutinized. Fixed costs, equity partner contributions, and debt financing are all things that can bring about the end of a firm in challenging times if managed inappropriately. As a managing partner at the conference I attended last week said, “lawyers often vote with their feet.” That’s what happened here. In my view, this shows the delicate balance firms must face in building consensus while still being able to make tough decisions. Increasing profits year over year certainly helps.

- Bo Yancey

Law Firm Talent Management Doesn't Stop with Recruiting

Admin — Thu, 30 Oct 2008 21:57:09 GMT

Without question, gaining an understanding of the characteristics of successful lawyers within individual firms can help firms to make wiser recruiting investments. The “Moneyball” project worked on by Kerma Partners and Lexis Nexis’ Redwood Think Tank focused on the characteristics of lawyers before they entered the law firm studied. Valuable information for the firm to have? Certainly, if thoughtfully incorporated into a recruiting strategy.

However, recruiting the best candidates for success within a firm’s culture is only part of the story. What’s the strategy to develop these associates after they are hired? The most qualified new lawyer can be mismanaged (or unmanaged), whittling away at the likelihood of success. The good news is that regardless of the candidate’s development before being hired, his/her development is largely within the control of the firm.

While the recent spotlight on analytics around recruiting efforts is very positive momentum, a firm really should not focus on a recruiting strategy without building a complementary development strategy. Over the past year, the Think Tank has been studying what differentiates successful lawyers once they begin their careers. In the handful of firms we’ve looked at, we have seen a (varying) correlation to success for attributes such as the type of exposure an associate receives, the clients they work with, and the volume of work they perform. Look for an article summarizing these results in the near future. As with the Moneyball conclusions, it will be important for firm managers to view information about the success of their own lawyers in the context of their own firm’s culture.

I welcome feedback and ideas for attributes to test as we continue to apply real analytics to the issues surrounding talent management in law firms.

-Kris Satkunas

Moneyball Indeed!

Admin — Wed, 29 Oct 2008 23:13:18 GMT

Buzz abounds concerning the recent “Moneyball” project completed by the Redwood Think Tank and Kerma Partners. A lot of the reaction seems to focus on trying to apply the results for a specific firm to the industry as whole. This misses the point entirely.

The basic premise of the study is that there is value in breaking away from recruitment as usual. Spending millions of dollars to recruit the same small pool of candidates everyone else is targeting is not efficient. Within the context of a broader set of talented, accomplished law students, traits should emerge from deeper study that allow firms a more focused approach. Firms who develop the sort of self-awareness a study of this type creates have an opportunity to create substantial competitive advantage in their ability to attract the candidate lawyers (entry-level and lateral) best suited to long term success in and for the firm. On the flip side, retention rates (and the cost of associate attrition) should be dramatically reduced.

With regard to the question about the application of these conclusions industry-wide, there are a number of important points to draw. First, a sample size of 1 is far from telling. In fact, I would expect to find a number of firms for whom the conclusions drawn would be exactly opposite of those for this first firm. Of course, this is not to say that interesting trends won’t emerge as the study is expanded; they will. Which ones, however, will only become clear with a greater sampling. Secondly, and I believe most importantly, the point of the exercise is to not really one of knowing which candidates will make the most successful lawyers generally but specifically, in the context of the firm’s culture, business and experience. This point cannot be overstressed. Yes, we may find that some traits can be correlated with expected success in the profession. That said, any particular firm may find this trait to be unimportant in its context or even negatively correlated. The power of the Moneyball study resides its law firm specificity.

-Norm Mullock

Another Word Of Caution Regarding Inflation

Admin — Thu, 13 Mar 2008 07:00:05 GMT

This morning I am off to Chicago to attend the ABA Techshow. I am speaking on benchmarking and the results of the 2007 Law Firm Economic Survey Friday at 2:30pm central. If you are attending the conference I encourage you to drop by. I plan to do some blogging at the event as well, including recording some interviews.

In the meantime, I did a little more research on inflation yesterday and learned some interesting things. I'm no conspiracy buff, but I have to admit that connecting dots is a fun exercise.

First, the Federal Reserve just two years ago decided to stop tracking what is called M3 transactions.

http://www.federalreserve.gov/releases/h6/discm3.htm

According to the fed, it isn’t necessary. According to others, it means the fed is hiding something.

http://www.inflationdata.com/inflation/Inflation_Articles/M3_Money_supply.asp (Interesting analysis related to the Chinese buying back our debt that is being devalued daily just so we can continue to buy their exports.)
http://www.investmentu.com/IUEL/2005/20051208.html
http://www.discursivemonologue.com/2008/02/10/the-federal-reserve-m3-and-inflation/
http://www.moneyweek.com/file/5138/m3-0212.html

A House Bill was introduced shortly thereafter requiring the Fed to reinstate the policy (introduced by ex-Presidential candidate Ron Paul) - http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.4892: - no legs sprouted from it.

Some are therefore calculating M3 themselves:

http://www.nowandfutures.com/key_stats.html
http://www.shadowstats.com/alternate_data

Another troubling sign is what the Fed has been doing lately to help weakened financial institutions increase their liquidity – ie, pumping money into the markets by buying up the possibly worthless mortgage notes so that banks continue to lend.

http://biz.yahoo.com/ap/080311/fed_credit_crisis.html?.v=6

The final worrying sign is the runaway bull market in oil. Oil is near $110 per barrel.

http://www.ft.com/cms/s/0/53123f5c-ef59-11dc-8a17-0000779fd2ac.html?nclick_check=1

How will this affect law firms? Well, as noted yesterday, you need to keep an eye on inflation and your margin. With high margins and low inflation, you are pretty well insulated to inflation's effects. If inflation spikes, though, all bets are off. Based on the above linked articles, however, are we (as Larry Bodine has stated several times) already in a recession? And is inflation already well above 4%?