Make More Rain : operations, ethics

Sarbanes/Oxley - How It Affects Global Competition And Privately Held Law Firms

Admin — Mon, 03 Dec 2007 14:00:00 GMT

Bruce MacEwen (Adam Smith, Esq.) in a recent post notes the negative effects of the Sarbanes/Oxley Act of 2002 (SOX) on the global competitiveness of America (specifically New York City). Some of the complaints regarding SOX:

It encourages highly risk-averse management, the antithesis of American entrepreneurialism and innovation.
Ironically enough—along with Regulation FD—it discourages corporate disclosure and communication with analysts and other commentators and observers since the statement not made cannot later be labeled misleading.
The requirements for independent directors operate to disqualify anyone with actual experience in the industry and, perhaps, judgment, perspective, or insight.
Worst of all, of course, the potential criminalization of accounting judgments—touching not just the corporation but senior executives—operates, as one managing partner put it to me, to make every publicly US-listed company long for the day when all they had to worry about were the quarterly earnings expectations of Wall Street: "Today, it's not the stock analysts you've got potentially looking over your shoulder, it's the US Attorney."
Finally, there is universal consensus that had SOX been in place before the parade of the Enron, Tyco, and Worldcom horribles, they still would have happened. Why? Because one cannot legislate common sense or integrity. More than one person pointedly observed that fraud and misrepresentation have always been illegal and we've always known quite well how to deal with them. Piling SOX on top had the same practical effect as "making it illegal to break the law" (that would be zero).

MacEwen argues that the above have created unintended consequences that may "help dislodge New York from its pre-eminent role as a center of global capital formation". There is little question that SOX has reduced the number of firms filing for an Initial Public Offering. The risks involved in going public are worry enough - with SOX, the added costs for compliance plus the potential criminalization of executives is a tipping point in favor of staying closely-held.

It isn't just MacEwen who questions the benefits Sarbanes/Oxley. The negative effects of SOX certainly merit consideration, and perhaps "knee-capping its provisions" might be in order. However, let's go in the other direction for a moment: Could SOX be expanded to include privately-held corporations and find its way into the management of law firms?

Currently, only two provisions apply to closely held corporations: whistleblower protections and prohibition against destroying, altering, or falsifying documents that could be used in a legal proceeding.

As law firms start to restructure and operate more like corporations (ie, hiring C level management, moving from partnerships to limited liability companies or professional corporations, etc) some argue that best practices dictate that companies begin to implement at least the basic mandates of SOX (particularly when revenues approach $50 million). An interesting discussion of this by Stephen Bainbridge (with an alternative view by Jennifer Johnson) can be read here on the Business Associations Blog.

As ridiculous as it sounds on its face, lawyers know that the expansion of Congressional Acts knows no boundaries. Congress has a habit of creating short-sighted Acts that have long-term unintended negative consequences; the application of RICO to abortion protesters - though short-lived - comes to mind. This could be a new area of law - defending law firm managing partners from causes of action brought by non-managing equity partners over the mismanagement of their books! Lawyers suing lawyers requiring lawyers to represent the lawyers sued. A self-sustaining marketplace!

All kidding aside, the purposes of SOX shouldn't be lost to law firm managers. A large purpose of SOX is to ensure fiduciaries are properly overseeing the management of their corporation's books. Managing partners (or their equivalent) are the fiduciaries of their firm and are responsible for the accounting of their firm's finances. Embezzlement is a real concern for law firms. The accounting of the law firm should not be without oversight.

That said, do you think SOX should be cut at the knees? Or, since the purpose overlaps existing law (relative to fraud and misrepresentation), is SOX just reactive bad law that should be repealed altogether? What would be a better way to address the purposes of SOX?

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com .

A New Host for morepartnerincome.com

Admin — Fri, 30 Nov 2007 19:37:12 GMT

An Attorney, a prolific writer and an experienced advisor to law firms, Brian Ritchey was selected to succeed the retiring Tom Collins as the host and Chief Contributing Editor for morepartnerincome.com. He also takes over as the Editor in Chief of the Managing Partner Advocate, a bi-monthly publication focused on issues affecting law firm managers.

Brian Ritchey, previously a Regional Vice President for Juris, Inc., became part of the Practice Management Division of LexisNexis upon the purchase of Juris by LexisNexis in July 2007. He actively practiced law for 7 years in a firm in Birmingham Alabama. Brian was recruited away from his practice early in his career to join a leading case management company and spent a year working as a liaison between attorneys and software developers to provide customized case management solutions to clients. He went back to private practice in 2000, but was lured away again to join the Juris team in 2005 where Brian used his knowledge of law firm dynamics to help partners, directors, shareholders and legal administrators manage their firms’ practice through the utilization of technology, strategy and process.

Brian obtained his J.D. from Cumberland School of Law after attending the University of Alabama for his undergraduate degree in English. He was admitted to the Alabama Bar in 1997, is licensed and in good standing with the Alabama Bar, the U.S. District Courts of Alabama for the Northern, Middle and Southern Districts as well as the 11th Circuit Court of Appeals.

Brian will transition into his new role over the next six weeks. Readers can expect to continue to see posts of Tom Collins and other authors as well as those of its new host. The blog’s mission continues to be providing information to law firm leaders that will enhance partner income. That objective is achieved by doing the right things right. When you do everyone wins including clients and non-partner members of the firm.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center: 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Ethics in Billing

Admin — Tue, 05 Jul 2005 17:54:00 GMT

I spoke to a group of managing partners last week on the subject of ethics in billing, particularly as it relates to mobile technology.

Most of us know the ABA pronouncements regarding reasonableness, etc. But, did you know there is a growing body of decisions and rulings that indicate that time worked must be measured and recorded contemporaneously to meet the ethical test?

Consider the Washington State Supreme Court's decision: In re Discipline of Dann, 136 Wn.2nd 67 (1998). Barrie Althoff, WSBA Chief Disciplinary Counsel writes “The Court's opinion in Dann also makes it clear that if you bill on a time-spent basis, you must keep contemporaneous and accurate time records. It is not acceptable to attempt to reconstruct your actual time by relying on memory, on miscellaneous unorganized scraps of paper, on comparisons to the time expended by others working on the project, or by evaluating the complexity or extent of the work-product ("I usually take one-half hour to write a letter," or "This is an excellent brief, it must have taken me at least eight hours to write.") to jog your memory.

This need for accurate and contemporaneous records may be most important to lawyers who traditionally bill on a time-spent basis, but it can also be important to others. For example, lawyers who enter a contingent-fee agreement with clients may find that, for whatever reason, they do not complete the representation, yet believe they are entitled to some compensation. If they seek compensation, it will likely be on a quantum merit basis and they will likely need to be able to prove the time they actually spent on the matter. Unless they have kept accurate contemporaneous time records, they are unlikely to be able to do so.