Make More Rain : policies/ procedures, compensation

Partner Cost and Client Profitability (Part II)

Admin — Tue, 06 May 2008 07:00:21 GMT

This is the second in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis. The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability. This article is focused on pitfalls of some firms' methodology in allocating costs to partners.

Some firms have chosen to exclude costs all together from billable hours worked by partners. Generally it has been requested for one of two reasons: the firm would like to keep actual partner compensation out of the profitability model (a closed compensation system), or the firm is thinking about a P&L model where partner compensation is simply a distribution of firm profits. While this methodology does accomplish those goals, from a client profitability perspective, it introduces its own set of issues.

What results is a model where client profitability is maximized by only using partners to perform the billable time. In the example below, there is a timekeeper with a 66% profit margin and two partners, both with 100% margins. Any hour that the Associate performs for a client will in essence drag down that client’s profitability and a matter manager might be tempted to use a Partner where an Associate would suffice in an effort to ‘game’ his clients profitability. This is contrary to the proper use of leverage and economic theory which would have the partners working on tasks for which lower level timekeepers are not qualified such as originations and the management of matters and attorneys. For this reason alone, there needs to be some cost associated with each billable hour of a Partner’s time, if not for any other purpose than to represent the opportunity cost of them not performing these other tasks. Besides, every firm that we have encountered expects their partners to perform a certain quantity of billable hours for their clients which would imply that some of their compensation should in fact be allocated to the client.

Role	Compensation	Std Rate	Cost Rate	Profit Margin
Rainmaker	$1MM	$250	$0	100%
Dept. Manager	$500M	$200	$0	100%
Associate	$80M	$100	($44)	66%

Another methodology that has been requested in an effort to support a closed compensation is what we call a fixed (or capped) partner cost. In this scenario, every partner is given the same direct costs. Aside from the privacy of actual compensation, firms make their case by stating that above a certain point, all partner compensation is for contributions besides the billable hour. However, since billable rates vary significantly even in the upper echelons of partners, it is hard to justify those hours having the same cost rate. Regardless, like the methodologies we have already examined, this too creates some unfortunate outcomes.

The biggest concern with this methodology is the reversed leverage that it creates (similar to having no costs at all). In the example illustrated below, we see a firm that has chosen $270,000 as the partner direct costs. Any partner whose compensation exceeds this threshold has their compensation limited and as a result, all have a $150 cost rate for their time. The result is that the highest rate timekeepers have the highest profit margin, 40% in the case of the Rainmaker, while those with lower compensation, like the Jr. Partner, have minimal (or zero) profit margin for their work. Certainly, the cost to the firm for these 3 timekeepers is not the same.

The alternate version (and preferable to the former) is to use the dollar amount as a limit to partner compensation and not a flat amount for every partner. In the example below, we see the Jr. Partner whose actual compensation is below the $270,000 mark. In the fixed methodology his profit margin is 0% but if it were capped, his direct costs would be his actual compensation and therefore would have a more favorable profit margin of 44%. This still does not relieve the cost similarity between the Dept. Manager and the Rainmaker but it is a slight improvement over having all partners at one cost rate. Of course this methodology does not meet the requirements of a closed compensation system (unless the firm is primarily interested in the privacy of Sr. Partner compensation).

Role	Compensation	Std Rate	Fixed Cost	Cost Rate	Profit Margin
Rainmaker	$1MM	$250	$270M	($150)	40%
Dept. Manager	$500M	$200	$270M	($150)	25%
Jr. Partner (Fixed)	$150M	$150	$270M	($150)	0%
Jr. Partner (Capped)	$150M	$150	$270M	($83)	44%

The next installment will focus on better ways to calculate partner cost in measuring client profitability.

How To Compensate A Rainmaking/Investor "Muted" Partner?

Admin — Tue, 15 Apr 2008 07:00:49 GMT

A reader emailed me with a question related to the compensation of a non-practicing equity partner whose responsibilities include only the investment of capital in the firm and bringing in new clients. The firm has a niche practice and is looking to expand. Their plans require more capital than the existing partnership can manage. They are in a position to bring in another partner who will be responsible for infusing additional capital in the firm. The partner will also do some rainmaking. The new partner will not be responsible for any management or production and will not be expected to manage any of the clients in which he brings.

Because of the rainmaking responsibilities, I wouldn't classify the partner as a "silent partner". However, since the partner won't participate in the day to day management of the firm nor will be responsible for any production, it may be better to classify him as "muted".

I asked several attorneys I knew and didn't get very good answers. Thus I am taking the question to More Partner Income readers. What ways would you suggest this firm compensate an equity partner whose responsibilities are only investment in the firm and rainmaking?

Cotterman: In Defense of "Lockstep" Compensation System

Admin — Mon, 14 Jan 2008 08:00:18 GMT

Many, including myself, have for several reasons (in my case, personal experience), railed against lockstep compensation as a debilitating agent to per partner income and the ability to keep top attorneys. I have seen the internal griping, the uncomfortable situations, and the inevitable loss of talent because of the appearance of unfair distribution of compensation based on a lockstep system.

James Cotterman, however, in an January 3rd post, argues "[t]he success or failure of any compensation system is not simply inherent within the structure of the program." He defends the lockstep compensation system - with a caveat:

[A] pure lock-step program largely requires the firm to assess a senior associate’s ability to progress as a partner over the remainder of his/her career. Essentially you are making some thirty or more years of future compensation decisions at one time. Such an assessment requires much more careful attention to the qualities of being a partner. And such attention is rare.

Among the benefits of lockstep compensation plans:

1. It supports a single firm philosophy.
2. There is little internal competition.
3. Leadership has more time to lead without the annual compensation ritual.
4. Non-traditional roles and new postings are more easily undertaken.

1. It supports a single firm philosophy.
I agree and disagree. It should support the single firm philosophy in that it treats all partners more or less the same. However, I don't assume a single-firm philosophy requires socialistic tendencies. In fact, such tendencies in a market system don't work well and can lead to a split up of the single firm. Also, the system in many ways requires trust within the firm that everyone will do their part. As David Maister has aptly noted, attorneys aren't big on trusting each other. In declaring that law firms are unmanageable professional entities, Maister wrote:

Recently, I was advising a firm on its compensation system. They didn’t like my recommendations. Finally, one of the partners said, “David, all your recommendations are based on the assumption that we trust each other and trust our executive or compensation committees. We don’t. Give us a system that doesn’t require us to trust each other!”

2. There is little internal competition.
Little internal competition should help foster trust and teamwork. Experience tells me that little internal competition fosters laziness. Distrust is a problem but competition is not. Measurement improves performance. However, if you don't care that you are being measured, then you won't excel. Incentives to reach goals fosters competition and that isn't a bad thing. If you incent properly (ie factor "firm citizenship" into your compensation system), teamwork will be rewarded.

3. Leadership has more time to lead without the annual compensation ritual.
There is no question that compensation discussions are a large source of discontent and delay in implementing strategic plans. If all partners agree to a compensation plan that is not going to change, that would be a great thing. Do I believe that is possible? Perhaps, if, as Cotterman notes, firms give more attention to the qualities of being a partner - ie, they are consensus-builders in the Henry Clay mold and can make "some thirty or more years of future compensation decisions at one time".

4. Non-traditional roles and new postings are more easily undertaken.
If compensation isn't affected, attorneys should be more willing to take on roles that otherwise would affect their ability to maintain their income.

Cotterman discusses two main arguments against lockstep compensation:

1. There is no accountability.
2. Stars are not specifically recognized monetarily (at least not instantly).

I made both of those arguments above in disagreeing in part to the arguments for lockstep compensation. Without measurement, there is no accountability. Without accountability, internal strife erupts and your star attorneys walk. So I don't disagree a bit to either argument.

Cotterman notes that some of the most prestigious and profitable firms in New York and the UK use lockstep compensation. This is proof enough that the system can work. However, I would argue (as he does) that a commitment to the mangement of the firm and a single-firm philosophy is critical to it success. The challenge for small and mid-size law firms is to create an environment that fosters teamwork and manageability. For the lockstep compensation to work, firms need their own Henry Clay who can effectively communicate the philosophy that supports the system and the consensus-building qualities to bring others to agreement.

That said, even Clay couldn't ultimately prevent the Civil War. I'm still against lockstep compensation. However, for those who want a guide on how to make it work (as it certainly can work, I am just not a proponent of it), read his article here.

Reflections on the 2007 ALM Billing Rates & Practices Survey

Admin — Fri, 11 Jan 2008 08:00:58 GMT

"Is the billable hour dead, as many like to proclaim (whether wistfully or presciently?)" So starts the Executive Summary for the 2007 ALM Billing Rates & Practices Survey. The relentless assault against the hapless billable hour continues. Here is yet another blog post arguing against hourly billing. Yet if you look at billing rates, they continue to increase. The 2007 ALM Billing Rates & Practices confirms this, but also drills down into respondent's use of alternative fee arrangements.

According to the ALM survey, the average billing rate nationally is $240. This is in line with the 2007 Law Firm Economic Survey from LexisNexis, where nationally, attorney rates were at $249 (broken down: equity partner rates were at $263 and non-equity partners billed at $235 on average). In the ALM survey, "[a]ll but a small percentage were the leader, managing partner, shareholder or owner of their firm", so I didn't include the firm effective rate that includes associate and paralegal rates in calculating the $249 (for those of you thumbing through the LexisNexis survey). Only 8% of the ALM respondents were associates, so it may very well be that average rates were lowered to $240 in the ALM survey by the associates (who in the LexisNexis survey billed at $175 per hour).

The survey is heavily weighted to small firms, with about a third of respondents being solo practitioners and 58% from "small firms" defined as between 2 and 39 attorneys. Why ALM decided to include mid-sized firms (Juris defines mid-size to include firms with attorneys with over 10 attorneys) in the small firm category, I don't know, but it might be due to a small amount of respondents in that 11-39 range.

As further comparison, the average national billing rate for equity and non-equity partners in the 2007 Altman Weil survey was $315. The National Law Journal Billing Survey partner average was $427. Both the Altman Weil and NLJ surveys target larger firms.

One of the observations of the survey was that size of the law firm matters and the above figures certainly indicate this. However, in the LexisNexis survey, the observation was different: it isn't the size that matters, but "that law firms that outperform with regard to per-partner income do so because they excel in performance on the key law firm profit drivers." The ALM Billing survey doesn't profile the firms for per-partner income and thus only looks at part of the picture.

In the chart above, each quartile was ranked for the following key profit drivers: productivity (billable hours), leverage, billing realization, effective rate, and operating margin. The highest performing firms ranked the lowest in all of the indicators.

Size, on the other hand, didn't make as much of a difference. For example, the per partner income of the top performing firms with 25 or more attorneys in the LexisNexis survey was $609,548. Income per partner for firms with 11 to 24 in the top quartile was $548,557 and with 10 or fewer attorneys, $512,896. However, the difference between quartile 1 and 2 across all sizes is substantial: $325,986, $322,876, and $294,871 respectively. While there is less than $100,000 that separates the smallest surveyed firms from the largest ones, there is nearly $300,000 difference between quartile 1 and 2 across firms of all sizes.

Which brings us back to the ALM Billing & Practices Survey. 88% of respondents to the 2007 ALM Billing Rates & Practices Survey reported that they offer "alternatives" to the billable hour and it made up an average of 37% of their revenues. That is a pretty substantial number. Given that the survey is made up of smaller firms, you may be tempted to conclude that smaller firms are moving away from the billable hour in order to compete better with larger firms.

That may well be the case, but it is just as likely that some small firms that continue to not operate like a business could be getting caught up in a trend that in the long run will drop their profits even lower while the solo practitioners next door is making half a million. If you don't measure performance, you won't know.

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.

What's Wrong With Billing By The Hour?

Admin — Mon, 07 Jan 2008 14:00:00 GMT

Many in the legal industry are often found complaining of the reliance on the "billable hour" (see here, here, here, here, and even the venerable Scott Turow gets in on it here). Value-based billing and other fixed-fee type arrangements are offered as a better guide.

That begs the question: What has the billable hour ever done to deserve such lament? The answer, in part, may be due to attorney discipline. Again and again I work with attorneys who consider recording their time as an administrative chore, something to be done by others if at all possible. With this attitude, attorneys are likely backtracking to remember what work they did and inevitably are either billing too much or too little. No amount of discussion or proof by the numbers will convince the attorney who is unwilling to record their time as work is being performed.

Attorneys tell me about their clients wanting cost certainty, client questioning the time it takes to perform a task, and clients feeling overcharged for work. This leads many to discount their time through markdowns or taking a percentage or some subjective dollar amount off the bill. This tells me that the client has trust issues with the attorney (or the attorney is worried about it) and the attorney is making it worse by discounting (tacitly acknowledging the client's suspicions).

On the other hand, I know of attorneys who don't have this problem at all. They never write time down, they never discount, and they never have a client question their bills. The client trusts that what they are being billed is the actual work that the attorneys performed. What are they doing differently? Are they value-billing? No. They enter time as work is performed. They use timers. And they are disciplined. Here is the process:

A client calls. A time entry is opened. A timer starts. As the attorney talks, he/she writes in the narrative. If the call requires a letter or other task, the attorney does it, then comes back to the entry and types it in. Once finished, they stop the timer and mark the entry to be billed. Done.

What happens if another client calls? You pause the timer; open a new one. If you want to go back, you pause the second entry and go back to the first. You can do this on a piece of paper and a standard kitchen timer, but why would you want to do that? That only delays the billing of the work and duplicates the process of time entry. Utilize the technology that is out there to help you manage your practice. Do it yourself. Make sure your system has an easy way to access timers within a time entry and can manage multiple timers.

Working in this way can be learned. The difference between the attorneys above is that one looks at the matter first, then the time entry. The second attorney looks at the time entry first, then the matter. By wrapping the tasks you perform inside of a time entry and utilizing timers, you won't over charge and you won't need to discount your time. Better, you won't need to reconstruct your time entries later, wasting billable time and invariably leaving billable work unrecorded (and unbillable).

If you want to stop billing by the hour, that is fine. But I don't think that is the problem for clients. I think it is a matter of trust. Don't allow your relationship with your client to get this way - utilize timers and don't bill any more than the time you work in a matter. And record your time as you work!

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.

Concentration Pays Off For Law Firms

Admin — Fri, 04 Jan 2008 14:00:00 GMT

Now that he is retired, Tom Collins is working on improving his golf game. Rather that working on all aspects of the sport at the same time he is concentrating on his short game starting with chip shots. With the importance of concentration of his mind he sent me the following post.

Time passes remarkably fast and any business, including a law firm, has momentum all its own. In other words, things are happing to fill available time. So if you want to accomplish something new or better, pick just a few things to concentrate on. Pick a lot of things and you are likely to accomplish none of them

For example, don’t plan to cross-sell everything; plan to cross-sell one thing to one category of clients. Now decide how you are going to cross-sell that one thing to that one category of clients.

What is your value proposition—lowest price, proven track record, political contacts, higher responsiveness (quality service), advanced technology, delivering cost predictability, etc?

How are we going to win the business? What key strategy or tactic is likely to produce the best result—one-on-one attorney visits, a team approach, group selling sessions, recommendations by third party, etc.?

What marketing materials or tools do you need to support the strategy?

What is the goal? Who is going to make it happen? What do they have to do to make it happen? What are the milestones for those involved? How are you going to measure results and communicate them? How are those involved going to be held accountable for their milestones and individual goals?

You can repeat the above process two to three (or even five) more times depending on the size and organization of your law firm, but concentrating your resources is the key to success. Keep in mind the Rule of the Fewest. The Rule of the Fewest is an important business concept. It arises out of the understanding that resources are always limited. “Things” not only represent a direct allocation of resources, they also indirectly impact unassigned resources. In business, concentration means the fewest of everything at any point in time—customers, products, distribution channels, transactions, etc. Concentration is “Management Candy” at work, doing the Main (fewest) things with the Minimum (fewest) necessary resources to achieve the objective.

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.

Marketing Tip for Law Firm Managing Partners: Require Non-Billable Hours

Admin — Wed, 12 Dec 2007 14:03:00 GMT

Last week I wrote about some responses to the 2007 Remsen Group Managing Partner Survey (part of the Juris 2007 Law Firm Economic Survey by LexisNexis (the Survey)) related to managing partners' strategic perceptions of profitability. I wrote about two of the strategies: increasing fees and cutting costs. However, 25% of managing partners felt marketing and business development was their firm's best way to achieve higher profitability, second only to increasing fees. That is a substantial number, especially since those same respondents reported that only 3% considered marketing and business development when determining partner compensation. It appears there is a disconnect here. If you believe that marketing and business development is an effective strategy to achieve higher profitability, it is in your firm's best interest to provide a financial incentive to increase marketing and business development activities. So, how would you compensate for marketing activities? Utilize your accounting system to record non-billable work that is targeted to specific marketing activities. Some Juris clients create specific codes representing marketing activities and require a certain amount of time be allocated to these activities each month. Just as the firm budgets for billable hours, they budget for marketing hours. And your compensation formula, to the extent you use them (63% of those surveyed were using either a strict or mostly formula-driven compensation system), should include non-billable business development and marketing hours. Only 4% of those surveyed placed considerable weight to non-billable hours in their compensation formula. Requiring non-billable time as part of your compensation formula is an incentive to focus on marketing activities. It doesn't, per se, achieve higher profitability. Marketing efforts must also be targeted and measured, just like any other performance metric. However, it is a lot easier to determine whether your business is being generated by word-of-mouth or by marketing efforts if you are tracking the hours you spend marketing and have a paper trail of activity that leads to new business. Michelle Golden has a great post on developing a marketing plan here - she even includes a downloadable sample marketing plan spreadsheet. John Remsen also has a good article on marketing plans here. Look here, here, and of course here for other ideas on how to integrate marketing into your practice.

Morepartnerincome.com is sponsored by JurisÂ®. 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.

The ABA Journal Blawg 100

Admin — Tue, 11 Dec 2007 19:34:44 GMT

I would like your vote.

The ABA has published a list of legal community related blogs that its editors have judged the best. Morepartnerincome is one of those 100 and is listed under the category of Lawyer’s Toolkit along with such greats as Adam Smith, Esq., Dennis Kennedy blog, Larry Bodine Law Marketing Blog.

Now you can cast your vote! You can vote for all of your favorates without having to chose, for example, among such blogs as What about Clients, morepartnerincome or Adam Smith, Esq. You can vote for all of your favorite blogs that appear on the ABA list.

Why should you take the time to cast your vote? You frequent certain blogs because of their benefit to you and your law firm. What is remarkable is that the ideas, the how to’s, the check lists, the short cuts and the heads up have all been a free service. Casting your vote is fair turn around, a little payback or compensation. It is a way of saying thank you for the time you have taken, as a blogger, to share your experience and expertise.

Please cast your vote for morepartnerincome and the other blogs that are contributing to your success and/or the success for your law 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.

Law Firms With Strategic Plans More Profitable

Admin — Mon, 10 Dec 2007 14:00:00 GMT

74% of respondents to the 2007 Remsen Group Managing Partner Survey (part of the 2007 Juris Law Firm Economic Survey from LexisNexis) stated their firm did not have a strategic plan. 89% of those that did believed that a strategic plan had either some connection or a strong connection to improving profitability.

So managing partners understand that planning helps to improve profitability. Why is it that more firms don't have strategic plans?

Ed Wesemann with Kerma Partners has an answer. In an article published by The Law Marketing Portal (can also be read at the Kerma Partners website after free registration), Wesemann gives 10 "inescapable truths about law firms' approach to strategic planning that make the process harder and less rewarding than it should be":

1. Law firms often have trouble agreeing on their core business objectives.

2. Strategic planning is not a democratic process.

3. Mission statements are a waste of energy and enthusiasm.

4. Strategies and tactics are confused.

5. Planning involves precluding options.

6. Too much planning effort is spent worrying about compensation.

7. The obvious is often overlooked.

8. No one is accountable for implementing the plan.

9. Plans are too aggressive.

10. Objectives are not measurable.

1. Law firms often have trouble agreeing on their core business objectives.

The problem of agreement on core business objectives found its way into a MPIE (Managing Partner Idea Exchange) breakout session in the Midwest Managing Partner Forum held in October. A partner wanted to increase the profitability of the firm but also wanted a better work/life balance. Failure to reconcile the two left the partner indecisive on how to proceed on objectives for her firm. Wesemann simplifies the objective: "[i]n any business the primary objective is to increase shareholder value." How you define value will determine what objectives you set.

2. Strategic planning is not a democratic process.

Strategic planning is about vision. Vision requires leadership. Leadership is a function of management. In the business world, a small group of leaders gain input from others, make a decision, then ask others how they should implement the process. With law firms, it is the opposite: the leaders want to work as a democracy, all want to have a say in the decision, and afterward assign a single person to be responsible for implementing the process. Assigning accountability to one individual defeats the purpose - the entire firm must be accountable for the implementation of the plan once adopted.

3. Mission statements are a waste of energy and enthusiasm.

Wesemann argues that firms spend too many hours trying to create a concise mission statement that ends up sapping the energy of the participants and turning the process into a "meaningless exercise". Wesemann suggests picking 5 or 6 statements that represent the core values of the firm. Look here for a good article on writing a mission statement by Joel Rose.

4. Strategies and tactics are confused.

Wesemann found that attorneys want to skip discussions of strategy and go straight to tactics. Strategy dictates direction. Tactics are the types of activities needed to achieve the objectives (look here for a higher level discussion of strategy and tactics). He suggests that attorneys clarify the strategy before embarking on tact.

5. Planning involves precluding options.

Planning involves precluding options, which are counter-intuitive to how attorneys think. Attorneys are taught to maintain options and they tend to bring this mindset into strategic planning discussions. Wesemann argues that each option requires resources and the more options maintained lessens the probability of successful implementation.

6. Too much planning effort is spent worrying about compensation.

Compensation discussions end up derailing strategic plans. Wesemann's suggestion? Focus on increasing the size of the pie, not what portion a person gets. James Cotterman wrote a nice article for Altman Weil's Report to Legal Management examining compensation that can be read here.

7. The obvious is often overlooked.

Firms tend to neglect the basics while focusing on the sexier issues (read: compensation discussions). Issues such as providing good service, having good work habits, charging appropriate fees, etc., should be appraised to see where the firm's strengths and weaknesses lie.

8. No one is accountable for implementing the plan.

Law firms are the best at "voluntary requirements". Wesemann argues that the success of strategic plans rely upon accountability by everyone, which means no opting out if you disagree.

9. Plans are too aggressive.

When firms finally get around to planning, they over-reach and set overly aggressive goals inevitably leading to failure. Keep the goals in line with available resources.

10. Objectives are not measurable.

One of the constant mantras of this blog is that measurement improves performance. Law firms must define what their objectives are and measure their progress towards their goal. Make sure your accounting system has the ability to measure performance in real-time via dashboards with drill-down reporting. Creating the strategic plan is only the beginning. Success of your strategic plan requires benchmarking and continuous measurement so that if your financial objectives are not being achieved, you can adjust your tactics - and stay on track with your strategy.

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

Behind Every Successful Law Firm is a Storyteller

Admin — Fri, 07 Dec 2007 19:13:35 GMT

We call them plans, brochures, beauty contests, sales pitches, ads, web sites, blogs, presentations, speeches, court appearances, briefs, letters, etc. They are stories! The greats in every field and every endeavor are great storytellers. Stories sell products, move the populace, rally the troops, win games, sway juries and accomplish shared business goals.

When recruiting, you are telling a compelling story, one that helps the candidate visualize becoming a part of your law firm team. When you talk to a prospective client, winning their business will depend on the story you tell. It is the story you tell that wins or loses your client’s case. Your business plan will only succeed if it is a story that unifies your organization behind shared ambitions in pursuit of a common goal.

Peter Guber is a successful executive and a storyteller par excellence. He also produced such movies as Rain Man, Batman and The Color Purple. He understands the power of story and what it takes for a story to move and captivate people. Writing for the December 2007 edition of the Harvard Business Review, he shares the “Four Truths of the Storyteller”--“The stories that move and captivate people are those that are true to the teller, the audience, the moment and the mission.”

The storyteller has to be the authentic thing or, as Guber puts it, “their tongue, feet, and wallet must move in the same direction.” The effective storyteller knows his or her own deepest values (what I call core beliefs) and reveals them in his story with honesty and candor. As the leader of Juris, I never tired of the opportunity to explain what the original nine members of the Juris team did when we got together that first time to agree on what we wanted Juris to become. We agreed that we wanted to be those nice people from Juris. We wanted to be known for doing what we said we would do. We wanted to be a company that liked its customers and was liked by its customers. I love to explain how we came to realize that we weren’t in the computer business or even the software business. Our business was about increasing the income and wealth of law firm owner—partners. Understanding the business issues of a law firm became everyone’s mission. Regardless of their role in Juris, each member of the team gained an expert understanding of law firm performance metrics. Each knew what drove financial performance and each understood the friction points that lower partner wealth. These things are all part of the Juris story. They are the Juris brand. Without a story, you have no brand!

Guber notes that there is an implicit contract between the storyteller and his or her audience. One aspect of that contract is that the teller has to tailor the story to the expectations of those listening. That same story of that first company-wide planning meeting of the Juris team can be told different ways as the interest of and implication to the listeners are considered in its telling. What does the story mean to the listener? There are different inferences to be drawn by the prospect employee, a potential business partner, or the prospect we want to add as a client. The storyteller shapes the story to emphasize and enhance its value for the audience. It is the same story, but the audience changes and the storyteller has an obligation to make the audience a part of the story by shaping how it is told—to deliver its best value as seen through their eyes and as heard through their ears. Tailoring the story considering their interest and concerns makes the story true to that audience.

Compelling stories are true to the moment. They are told to prove a point, to overcome an objective, to defuse a situation, to resolve a conflict, to clarify, to rally, to frighten and even to threaten. The artful storyteller shapes the story to fit the moment. I’ve told the first meeting story many times. It is the same story, but every time it is told differently—to fit the moment. The moment can come in the middle of a heated discussion, before an audience of 300 managing partners, or during a dinner conversation with a client. The moment is different and the storyteller fits the story to the moment.

The story must be worth telling--from the point of view of the person being told. It must have value to the listener. To put it in Guber’s words, “A great storyteller is devoted to a cause beyond self. That mission is embodied in his stories, which capture and express values that he believes in and wants others to adopt as their own. Thus, the story itself must offer a value proposition that is worthy of its audience.”

What is most important here is to understand that they are not just plans, brochures, beauty contests, sales pitches, ads, web sites, blogs, presentations, speeches, court appearances, briefs, letters, etc. They are stories! How well those things serve you depend on how good you are as a storyteller. It is an art to be practiced.

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.

Surveyed Law Firms Report Growth Strategies

Admin — Thu, 06 Dec 2007 20:04:16 GMT

Altman Weil’s Michael C. Ross wrote, “Many successful businesses have learned that the first place to look for achievable top-line sales growth is to their existing customers. They understand that because they already have relationships with these customers, there is a greater likelihood of generating additional sales with them and the cost of doing so will be less, compared to obtaining new customers. These lessons especially apply to law firms and their clients.” Ross isn’t the only Altman Weil spokesman to beat this drum. Charles Maddock, an Altman Weil principal, has said, “It is nine times more difficult to get a new client or new practice than to retain or grow your existing business."

Given the shared insight of experts like those above, it is striking that growth from existing clients is so undervalued as a growth strategy by midrange law firms. In the most recent Juris Law Firm Economic Survey, only 5.8 percent of responding midrange law firms reported existing client growth as a specific strategy for expanding law firm revenues. Similarly, only 13.5 percent of firms have a specific strategy for new client acquisition through marketing programs.

If new client sales and expansion of services to existing clients are not key strategies, what are the top growth strategies? Lateral partner hires came in as the top strategy among surveyed firms! Starting a new practice area comes in at number two. The anecdotal evidence certainly supports the survey findings. Participate in a partner retreat or a law firm planning session and both lateral hires and practice area additions are usually the first thing voiced by participants in the opportunities portion of SWOT exercises.

New revenue from a lateral partner addition seldom trickles down to increase the income of the firm’s existing partners. Laterals tend to increase the pie but not the size of the individual slices. Laterals frequently produce disappointing results and can be highly disruptive to the culture of an established law firm. When firms were asked to indicate their most successful source of new hires, laterals with five or more years in practice rank at the bottom while new graduates come out on top.

The addition of new practice areas can be a meaningful strategy for firms faced with changing market conditions or where needed to support new emerging needs of existing clients in response to changes in laws, regulations or industry conditions. On the other hand, growth through diversity of practice runs counter to the advice of leading consultants and business experts. Their advice is to define your market and your service scope narrowly and then dominate that market for your service segment.

Lateral hires and new practice areas may appear to be the easy way to grow your law firm, but there is far greater reward in doing it the old-fashioned way.

Hang on to your existing clients
- Grow with your clients
- Grow by expanding the value of your services to those clients
- Grow by showing your client where you can add value through legal services for which no need previously existed
- Grow by expanding your services to fill new emerging needs of your client
- Grow by expanding your targeted share of a client’s business
Expand your clients through deliberate marketing and “sales” efforts
- Clearly and narrowly define your market and identify your prospects
- Understand your prospects’ needs and their issues
- Understand your firm’s value proposition
- Tout it through marketing
- Make contact, talk client talk vs. legal talk, build relationships, communicate value and ask for the business

The current addition of Law Firm Economic Survey from LexisNexis is provided to participating law firms without charge. Others may purchase the 80-page report for $495.00 by calling 877.377.3740. Additional copies for the same law firm are $50.00 each.

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.

Law Firm Partners Link Profitability to Rate Increases/ Cost Cutting

Admin — Wed, 05 Dec 2007 14:06:12 GMT

One of the interesting questions posed in the Remsen Group Managing Partner Survey (part of the Juris 2007 Law Firm Economic Survey by LexisNexis (the Survey)) related to managing partners' strategic perceptions of profitability. When asked "What strategy has your firm found to be most effective in its efforts to achieve higher profitability?", 26% of the managing partners responded that increasing fees was their firm's most effective strategy. Coming in second was marketing and business development (25%), then cost cutting/ expense reduction ( 18%), improved efficiency (14%), higher billable hour requirements and divesting of low profit work (both under 10%).

Though it isn't surprising that firms list rate as the top strategy to achieve higher profitability, most firms only increase rates at or just above the pace of inflation. According to the Survey, standard billing rates increased an average of 5% to 7% between 2005 and 2006. Adjusted for inflation (currently around 3.5%) this increases rates by 1.5% to 3.5% before other costs of doing business are calculated into the rate (such as the continual decline in client willingness to pay for costs such as online research). Increasing rates in such a way may achieve higher profitability but at 1.5%-3.5% is it the most effective strategy?

What is more surprising and at odds with other Survey findings are the respondents that claimed that cost cutting/ expense reduction was their most effective strategy to achieve higher profitability. Survey numbers do not show any correlation to increased partner income and low expenses. In fact, according to the Survey, the firms with the highest per-partner draws spent the most - but also had the highest margins.

Most Survey respondents gave low priority to improved efficiency, divesting of low profit work and (surprisingly) increasing billable hour requirements. Yet survey numbers from both 2005 and 2006 consistently show that those firms who had the highest partner income performed well across all five of the key performance metrics (rate, utilization, realization, operating margin and leverage).

The New York Lawyer posted on December 4th that some firms have been cutting staff in a bid to lower operating costs. Said Southern California legal recruiter Larry Watanabe, "They want to retain rainmakers, and to do that, you have to maintain a meaningful level of profitability." So they must. However, again, based on this year's Survey, the firms in the 1st Quartile (representing the highest per partner income) also had the highest operating expenses. If you are cutting costs to maintain profitability, then the firm isn't growing and this is no achievement. This may indicate that for those 18% of firms who used cost cutting as a strategy to increase profits, times aren't so good.

What factors are more likely to achieve higher profitability?

• Better efficiency in workflow – lower the days to bill and days to collect fees;
• Discontinue “lock-step” compensation increases to the extent your firm uses this to compete;
• Adopt and adhere to a written, achievable strategic plan;
• Measure your key performance metrics:
o Effective rate upon collection of fees;
o Realization both at billing and collection;
o Productivity (billable hours or equivalent);
o Operating Margin;
o Leverage – either by headcount or billable hours;
• Market to your strengths – don’t be afraid to ask for business.

What strategy has your firm found to be most effective in its efforts to achieve higher profitability?

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 .

Law Firms Need More Face Time

Admin — Mon, 08 May 2006 17:23:11 GMT

In lamenting about the loss of face time between lawyers and their clients due to the increased use of e-mail, the Law Practice Management blog concluded its post with this:

“Today’s attorneys and legal managers need to concentrate on selecting the most appropriate communication tool, rather than the most convenient. Sometimes there is no substitute for a more collaborative exchange. And sometimes the topic is too sensitive to remove inflection and facial expression from the exchange. And partners in particular need to work harder than ever to arrange more “face time” opportunities with one another. It creates the glue which can bind partners together through the difficult times.”

There is no question about it. E-mail is the most efficient business communication tool to date. However, it is not always the best tool.

Recently we declared an e-mail-free week to reinforce the importance of face time. Team members were asked to limit use of e-mail to those needed to deliver attachments. For everything else, they were to pick up the phone or walk down the hall.

It worked. E-mail dropped drastically and folks were reminded about the value of face-to-face communications.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Horsehair Wigs and Warning Labels on law Firm E-mails

Admin — Mon, 01 May 2006 17:44:28 GMT

Don’t laugh at the horsehair wigs worn by London barristers. They are about to get rid of them. In the mean time the U. S. has its own version of horsehair wigs in the form of rules that cobble the profession’s attempts to become more efficient and business like.

The example below illustrates how easy it is for good intentions to become just another form of horsehair wig for the profession.

Ed Poll reports the latest example in the legal community in E-Mail slides to the depths. It seems that the Missouri Bar requires lawyers to notify all recipients of e-mail as follows:

(1) e-mail communication is not a secure method of communication, (2) any e-mail that is sent to you or by you may be copied and held by various computers it passes through as it goes from sender to recipient, (3) persons not participating in our communication may intercept our communications by improperly accessing your computer or my computer or even some computer unconnected to either of us which the e-mail passes through. I am communicating to you via e-mail because you have consented to receive communications via this medium. If you change your mind and want future communications to be sent in a different fashion, please advise me at once.

The above new warning is in addition to the following confidentially warning that firms already append to their e-mail.

The information contained in this e-mail message is intended only for the personal and confidential use of the recipient(s) named above. This message may be an attorney-client communication and/or work product and as such is privileged and confidential. If the reader of this message is not the intended recipient or an agent responsible for delivering it to the intended recipient, you are hereby notified that you have received this document in error and that any review, dissemination, distribution, or copying of this message is strictly prohibited. If you have received this communication in error, please notify us immediately by e-mail, and delete the original message.

The combined warnings consist of 215 words or 1331 characters. The warnings are longer that the body of most e-mails. What about the law firm and client who are communicating using encrypted e-mail? Is the warning still required?

A few months back, November 17, 2005, I posted an article titled Cobbled by Rules Rooted in the Past. I suppose I should shorten that title to “Cobbled by Rules.” It is important to note that while US firms are being cobbled with new rules, the U.K. is progressively moving to liberate firms so that they may better compete in our modern global environment.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Moving Beyond Eat-What-You-Kill Compensation Plans

Admin — Mon, 13 Mar 2006 18:32:00 GMT

I received the following e-mail from one of the morepartnerincome.com readers:

“I find many of your comments informative and thought-provoking. In your recent discourse on ways to Increase Partner Income you made two suggestions which involved a firm's compensation plan: ‘Change the firm's compensation plan to favor supervision over working credit,’ and ’Modify compensation plans to increase rainmaking and handing off work.’ Both of these suggestions seem excellent, but I am not aware of any compensation plans which foster these goals, and I would greatly appreciate some examples.”

Some mature law firms have shifted away from purely objective compensation plans to subjective models. The advantage is increased flexibility and a compensation plan that can focus on individual performance in relation to the current goals and objectives of the firm. More weight, for example, can be given to rainmaking if a firm is in a growth mode or recovering from client losses. The following table illustrates a subjective plan based on a compensation committee’s judgment. In the example illustrated, partners are evaluated in a number of areas other than their own personal production. The example firm believes that partners should achieve a hygienic production level but not exhaust their available capacity as working attorneys. Partners need to reserve some time for business and talent development. After all the scores are tallied, points are adjusted for personal production. In this example, a partner gives up 20 percent of their “share” of income distribution if they fall below 1500 hours. Partners who go above 1700 hours only increase their share of income by 10 percent. This is just one of many possible flexible scoring approaches that can be adopted when a firm moves away from a purely number-driven compensation approach.

Evaluation Scores for Income Distribution
		Evaluation Score for each Partner
Performance Area	Maximum Score	AAA	BBB	CCC	DDD	EEE	TOTAL
Rainmaking	20	20	18	5	8	15	66
Cross-selling	20	18	18	0	8	15	59
Client Satisfaction	20	18	15	18	15	18	84
Community visibility	10	8	10	0	3	8	29
Billing and Collection-WIP and AR Performance	20	12	10	10	10	15	57
Work Hand-off: Delegation and Utilization	20	18	20	5	5	18	66
Self-development	15	10	5	10	10	10	45
Staff Development	20	10	5	0	10	15	40
Policy Adherence	10	1	5	10	8	5	29
Technical Skills	10	10	3	10	6	5	34
Knowledge Sharing	10	8	5	8	6	5	32
Total	175	133	114	76	89	129	541
Productivity Adjustment		100%	80%	110%	110%	100%
Adjusted Points		133.0	91.2	83.6	97.9	129.0	534.7
Percent of Distribution		24.9%	17.1%	15.6%	18.3%	24.1%	100.0%

Productivity Adjustment:
Less than 1500 hours	80%
1500 hours to 1700 hours	100%
Above 1700 hours	110%

For the firm that prefers a number-driven objective system, some of the weight can still be shifted away from personal production to rainmaking, cross-selling, work hand-off and mentoring, if desired. Another method is to combine the objective and subjective approach by introducing a bonus mechanism tied to individually assigned goals, including business development and work hand-off. For example, consider the following approach:

Sample Compensation Formula

Under the compensation formula, each partner earns points and 80 percent of profits of the firm after all expenses other than partner composition are distributed pro-rata based on each partner’s percentage of the aggregate points. The remaining 20 percent is distributed based on the compensation committee’s evaluation of partner performance against goals and objectives assigned to each partner. There is no guarantee that a particular partner will receive a distribution under the bonus portion of the plan, and to keep distributions meaningful, distributions are to be made in amounts of $5,000 or more. In order to fund the required distributions, additional capital contributions may be required from the partners as determined by a vote of the partners. Points would be accumulated as follows:

· Origination points equal 20 percent of the dollars collected where the partner is the originating attorney.

· Billing Attorney points equal to 30 percent of the dollars collected where the partner is the billing attorney.

· Working Attorney points equal 50 percent of the fees collected for the personal production of the partner as working attorney on any client/matter, regardless of who is the originating or billing attorney.

o The partners may vote to provide certain partners with a firm account which they can charge for work spent on firm management responsibilities (subject to a maximum number of hours) for which the partner receives working attorney credit.

· The remaining 20 percent of firm income shall be distributed as a bonus based on subjective evaluation of individual performance against assigned personal goals as determined by the compensation committee. Goals may include such factors as:

o Rainmaking and Cross-selling

o Client Satisfaction

o Community and professional visibility

o WIP and AR management

o Delegation, utilization, work hand-off and knowledge sharing

o Staff Development and mentoring

o Self-development

o Use of technology

o Policy and procedure support and adherence

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.