UNDERSTANDING THE LEGAL LANDSCAPE:

HOW ALL USLAW FIRMS CAN MAKE THE TRANSITION TO MORE

PROFITABLE WORK

An Overview of the Strategy and Tactics to Facilitate This Transition

Neil A. Goldberg, Goldberg Segalla LLP

THE MACRO ANALYSIS

• THE DIFFERENCE BETWEEN SURVIVAL AND SUCCESS

THE MACRO ANALYSIS

• CLIENTS RETAIN GOOD LAWYERS FROM GOOD FIRMS

• WHAT IS A GOOD FIRM?

BRANDING

• A “GOOD FIRM” IS WELL BRANDED

• BRANDING OCCURS THROUGH THE COLLECTIVE REPUTATION OF THE PERFORMANCE OF THE FIRM’S ATTORNEYS

BRANDING

• THE MORE ATTORNEYS WITH GREAT REPUTATIONS IN A FIRM – THE BETTER THE FIRMS’ BRAND

BRANDING OCCURS OVER TIME

• IT IS AN EVOLUTIONARY PROCESS

• THE KEY: CONTINUALLY MARKET THE COLLECTIVE REPUTATION OF A FIRMS’ ATTORNEYS

• THE EMPHASIS ON BRANDING MUST BE RELENTLESS

THE ECONOMIC PARADIGM:THE FIRM’S BILLING STRUCTURE

HIGHEST RATES

LOWER RATES

FIRM’S IDEAL BILLING STRUCTURE

HIGHEST RATES

LOWER RATES

THE GOAL OF THE BRANDING EFFORT

THE GOAL OF THE COLLECTIVE EFFORT

ADVANCE

Cross Selling

TO ACHIEVE THE STRATEGIC GOAL THE FOCUSMUST FIRST BE ON THE BEST CLIENTS AND REFERRAL SOURCES

• CROSS-SELLING• OBTAIN NEW SUBSTANTIVE WORK FROM EXISTING

CLIENTS

• CROSS-SELL WORK FROM EXISTING CLIENTS TO OTHER FIRM OFFICES

FIRM VALUES

• YOUR COMMITMENT TO EACH OTHER:

• WE ARE PREPARED TO EFFECTIVELY ENGAGE IN JOINT MARKETING ACTIVITIES

• THIS IS ALL ABOUT OUR CLIENTS: CUSTOMER/CLIENT SATISFACTION IS THE TOP PRIORITY AT OUR FIRM

• DON’T BUILD PEOPLE’S VALUES; FIND PEOPLE WHO SHARE VALUES

• SUCCESS COMES FROM DETERMINATION OVER TIME – NOT ONE DRAMATIC STROKE

The Impact of the Firm’s Compensation System

Distinguishing Client Service in a Changing

Legal Environment

DYNAMOS KNOW TO:

• SHOW A GENUINE INTEREST IN PEOPLE

• ADDRESS PEOPLE BY NAME

• ENCOURAGE THEM TO TALK ABOUT THEMSELVES

• LEARN WHAT THEY ARE INTERESTED IN AND GET INTERESTED

• LET PEOPLE UNDERSTAND HOW IMPORTANT THEY ARE TO YOU

DYNAMOS ALSO KNOW THE KEYS TO BUILDING RELATIONSHIPS THAT LEAD TO BUSINESS

• BE DISCIPLINED AND PERSISTENT IN FOLLOWING UP

• BE A GIVER AND VOLUNTEER TO HELP

• FREQUENT CONTACT INCREASES THE LEVEL OF COOPERATION BETWEEN MOST PEOPLE

• COMBINE DEVELOPING THE RELATIONSHIP WITH OTHER ACTIVITIES SO THAT THERE IS A PERSONAL COMPONENT

• UNDERSTAND THE CONTACTS’ BUSINESS AS EARLY AS POSSIBLE

A Step by Step Transition Path from Low to High Rate Work

Sheryl J. Willert, Williams Kastner

There is no one right way to get there

• You can start with external efforts – RFP/Beauty Contests

• Go the relationship route – mine existing clients

• You can seek to increase profits by re-evaluating your existing client base

• Use all three

Attracting New and Different Clients

• The RFP/Beauty Contest Route:• Review the RFP carefully

• Be selective• Does this work fit within our strategic plan

• What is our competitive advantage

• Do we have the skills and abilities to provide the service/alternatives

• What are the risks attendant to going after and landing this business

• Don’t procrastinate – start early• Have a point person to respond to the proposal

• Review the proposal in its entirety and identify issues

• Be sure that the right people are involved in the process

• Evaluate whether this request to provide services if best for the firm• Value and Pricing are Important but..

• Start with the premise that price is not everything and if it is, this is probably not an RFP that you want to pursue

• Remember that you may be pigeonholed based on the work you perform for the client

Understanding the Prospect

• Understand the specific niche of the client and be prepared to demonstrate to the client that you have the knowledge, skills and abilities to provide solutions to that businesses problems• Generalized knowledge of industry rarely enough

• Be prepared to demonstrate that you are aware of the specific challenges

• Research is key to ability to accomplish – use multiple sources• Company website

• Articles about the company and the industry in general

• Review of company financial statement if available

• Review sites such as the Glassdoor, CafePharma and the TheBreakroom

• Run a Dunn and Bradstreet or Lexis Nexis search on the company for red flags

Demonstrate that you can become a trusted advisor

• Demonstrate that you understand the client’s objectives• Know who the real decision makers are

• Articulate a clear legal strategy

• Articulate a real staffing plan – not just an abstract concept with categories

• Offer real solutions to problems

• Provide real value to the client – this may entail such things as suggesting utilization of other firms with local knowledge (the USLAW model)

• Use knowledge garnered from other engagements to provide service and advice outside of the arena for which the client is currently seeking representation

Understand what in-house counsel values

• Focus on expertise and specialty requirements that in-house do not have

• Focus on the high quality of work provided

• Focus on ability to share technology

• Be sensitive to “outsourcing” and internalizing cycles of work by in-house counsel

• Provision of knowledge management services

• The potential for secondments

• Provision of in-house training

• Flexible pricing models

• Provision of risk management concepts and services

• If you don’t get the engagement, debrief with the potential client • Ask in advance for this as an option

• Use a third party to get objective information

If you were not selected in the beauty contest

• Time now to turn to the tried and true –• Mine for more work among your existing clients

Better the Client you Know

• Existing clients are an effective source for development of new business• Relationships are key

• Make it clear to client that you are interested in them

• Inquire about biggest legal issues facing in the near and distant future

• Be responsive and timely

• Conduct client surveys (at conclusion of assignment or on regular basis)

• Cross sell for other business from the existing client

• Don’t be afraid to ask them to refer you to others

If you have gotten the profitability of work up yet, then…

• Look at some other internal measures to change the dynamic

Have a Plan

• Set Expectations and Gather data before you act• Condition your clients to the necessity for rate increases on a periodic basis

• Seek information about competitive pricing (don’t violate anti-trust laws)

• Don’t sell yourself or your colleagues short – there is value in what we do

• Make a request for fee increases in writing

• Give client reasonable explanation for request

Know the Actual Cost per timekeeper

• Know the elements necessary to arrive at actual timekeeper costs

• Decide if all levels of timekeepers will be allocated the same overhead or some proportion of overhead

• Determine whether the total amounts billed to client, in comparison to the amounts paid by clients, results in profit

KNOW YOUR ACTUAL OVERHEAD

• No “right” way to allocate overhead

• Keep in mind both direct and indirect benefits of services to all in the firm

• Uniformity is the key

So, you didn’t get the requested rate increase

• Go back to basics and increase your profitability through execution on the plan:• Review firm’s strategic plan and where client fits in that plan

• Evaluate both positives and negatives of client relationship

• Determine if there if profit in work for client or whether there are other benefits without profit

• Involve your practice group head, relationship attorney and firm management in “disengaging.”

• Set a time line

• Complete current work

• Exit gracefully

So, now some of the attorneys in your office have time on their hands

• Use this as an opportunity to pursue new work through the first two methods

Maximizing Profitability of Insurance Defense Work

Nicholas E. Christin, Wicker Smith O’Hara McCoy & Ford P.A.

C. Erik Gustafson, LeClairRyan

I "CAN'T MAKE MONEY" AT THAT RATE

• A. What Rate?

• B. What is your cost per hour?

• C. How do you want to be "branded"?

• D. Does volume matter in rate analysis?

• E. Does work lead to other more profitable work?

• F. Hidden costs of insurance defense work.

• G. Do you consider marginal cost of new work?

HYPOTHETICAL LAW FIRM

• A. Timekeeper Mix

• 1. Sr. Partners - 31

• 2. Jr. Partners - 37

• 3. Associates - 90

• 4. Paralegals/Nurses - 58

HYPOTHETICAL LAW FIRM

• B. Expense Information

• 1. Total Expenses - $43,250,000.00

• 2. Timekeeper Salaries

• 3. Net Overhead• W/O Timekeeper Compensation 20,800,000.00

Jr. Partners $6,700,000.00Associates 9,000,000.00Paralegals 3,000,000.00Benefits 3,750,000.00 (22,450,000.00)

HYPOTHETICAL LAW FIRM

• C. Cost Per Timekeeper

• 1. Lawyers – 158

• 2. Paralegals/Nurses - 58• (Weighted 1/3)

• 3. $20,800,000.00 ÷ 178 = $116,854.00 (rounded to $120,000.00)

HYPOTHETICAL LAW FIRM

• D. Basic Pricing Analysis

• 1. Paralegals excluded from analysis

• a. Cost - $39,000.00

• b. Paralegals - Over $100,000 +/-

• c. Break even in most cases

HYPOTHETICAL LAW FIRM

• Hypothetical Insurance Defense Client Rates

• 1. Partners - $175.00• Associates - $155.00

• Paralegals - $90.00

• 2. Approximately $1,000,000.00 of work

• 3. Staffing• a. Originating partner needs work and decides on staff

HYPOTHETICAL LAW FIRM

• 4. No Leverage

• a. Fees:

Sr. Partners 1,800 @ 175 $315,000.00Jr. Partners 1,800 @ 175 315,000.00Sr. Associates 1,800 @ 155 279,000.00Jr. Associates 1,800 @ 155 279,000.00

7,200 1,188,000.00

HYPOTHETICAL LAW FIRM

• b. Cost:

Sr. Partners $500,000.00Jr. Partners 175,000.00Sr. Associates 100,000.00Jr. Associates 100,000.00Overhead 480,000.00

1,355,000.00

HYPOTHETICAL LAW FIRM

• 5. Leverage Example

• a. Fees:

Sr. Partners (20%) 360 x 175 $63,000.00Jr. Partners (50%) 900 x 175 157,500.00Sr. Associate 1,800 x 155 279,000.00Jr. Associate 1,650 x 155 255,750.00Jr. Associate 1,650 x 155 255,750.00Jr. Associate (50%) 805 x 155 127,875.00

7,185 1,138,875.00

HYPOTHETICAL LAW FIRM

• b. Cost:

• Overhead:

Sr. Partners (20%) $24,000.00Jr. Partners (50%) 60,000.003 Associates 360,000.00Associate (50%) 60,000.00

504,000.00

HYPOTHETICAL LAW FIRM

Sr. Partners (20%) 500,000.00 100,000.00Jr. Partners (50%) 175,000.00 87,500.00Sr. Associates 100,000.00 100,000.00Jr. Associates 80,000.00 80,000.00Jr. Associates 80,000.00 80,000.00Jr. Associates (50%) 40,000.00 40,000.00

487,500.00+504,000.00$991,500.00

HYPOTHETICAL LAW FIRM

•F. Cost Analysis of New Associate

• 1. No secretary is hired• a. Associate does own typing

• 2. Net Overhead 20,800,000.00• Reduced by• Staff/Secretarial Cost 8,000,000.00

12,800,000.00

• 3. Overhead Cost• (12,800,000 ÷ 178) 72,000.00

HYPOTHETICAL LAW FIRM

• 4. New Associate Cost• Salary 75,000.00

• Overhead (w/o secretary) 72,000.00

147,000.00

• 5. Minimum Production• 1,500 @ 155 232,500.00

HYPOTHETICAL LAW FIRM

•Marginal Cost Analysis

• 1. Fixed v. Variable Cost

• 2. What does "next" billable hour cost?

• 3. What does reduction of fees cost the firm?• a.Contribution to overhead of "unproductive work"

• 4. Net Overhead w/o staff - 80%-90% Fixed• 12,800,00• 10,880,000 Fixed

• 5. What is cost of next billable hour as low as?

RIGHT KIND OF INSURANCE DEFENSE WORK

• A. Big cases

• B. Big volume

• C. Avoid "low end" cases that affect firm's "brand“

• D. Multi-Party cases• 1. Marketing opportunity

ANALYZING INVESTMENT (HIDDEN) COSTS OF INSURANCE DEFENSE CLIENTS

• A. Billing Guidelines• 1. Restrictions on attorney/paralegal tasks

• 2. Limit on billing for travel

• 3. Write Downs by audit companies

• B. Demands of Partner Involvement• 1. Reduction of leverage

Successful Marketing Initiatives to Transition Your Firm

Larry A. Schechtman and Paulette Yanow, SmithAmundsen LLC

Aggressive Marketing and Business Development Strategies

• Building strong practice & industry groups

• Ongoing rebranding

• Focus on higher value services

• Cross selling

• Strategic lateral acquisition

• Changing our reputation externally & internally

Building and Supporting Strong Practice & Industry Groups

Practice Groups• Class Action

• Commercial Litigation

• Corporate

• Intellectual Property

• Labor & Employment

• Professional Liability

• Real Estate

Industry Groups• Agribusiness

• Aerospace

• Commercial Transport

• Construction

• Data Security & Breach

• Financial Services

• Healthcare

• Hospitality

• Insurance Services

• Municipal

• Nonprofit

• Retail

• Toxic & Environmental Tort

Productive Groups and Group Meetings

• Awareness of all firm service offerings (presentations)

• Skills gap identification

• Professional development

• Group & individual business development plans and budgets

• Practice Group Leader Training

• Business development skills training

Business Development Skills Training

• How to Keep Track Of and In Touch With Your Contacts and Staying Abreast of Clients’ Business and Industry Needs

• Providing Value Adds to your Clients

• Creating your 2015 Individual Business Development Plan

• The Importance of Relationship Reviews and Client Feedback

• How to Prepare for a Pitch Meeting

• Networking and Working A Room

• Preparing For An Event; The Keys to Follow Up

• Maximizing Social Networking for Business Development: LinkedIn, etc.

• InterAction and You

• Cross Selling: The Top 5 Things People Need to Know to Send You Great Referrals

• How to Pivot Connections Made through an Insurance Introduction to Commercial Work

• Community/Bar/Industry Involvement - What to Join/Get Involved in and How to Make the Most of It

• Closing the Deal

Supporting Niche Areas: Developing Lawyers With Broader Capabilities

• Agribusiness

• Cybersecurity

• OSHA

• Drones

• Craft Beer

• Medical Cannabis

• Sustainable/Green Building

• Fashion

• Nonprofit

Rebranding

Internal

• Monthly SA Business Development Update

• Presentations by Practice Group Leaders to

other practice groups

External

• Website

• Marketing collateral

Focus on Higher Value Services

• Expanded service offerings

• More sophisticated work

• Higher rates

Cross Selling

• Team approach to marketing (hunt in packs)

• Encourage and reward cross selling (compensation)

Strategic Lateral Acquisition

Analyze Prepare Support Connect

Lateral Acquisition – Our Experience

• Labor & Employment• Real Estate• Intellectual Property

• Corporate

The New and Improving SmithAmundsen

• Consistently reinforcing a culture of teamwork and cross selling with a single mission to build a great corporate law firm

• Dealing effectively with growing pains at the leadership level and lower

• Losing good lawyers (and long-time colleagues) while the firm transitions

• Failures with laterals – avoid placing blame and move on

• Business development training and mind set

• Teaching lawyers how to leverage their connections through insurance work to obtain work from self-insured companies and general corporate representation

Conclusion – The Key to Success

• Strategic plan that defines the marketplace position the firm wants to achieve

• Clearly and consistently communicated game plan within the firm (secret strategies don’t work)

• Partner buy-in of the implementation plan

• Strong leadership empowered with the authority and resources to implement and make the plan work

Questions?

How to Manage the Underperforming Partner

Catherine M. Larson, Strong & Hanni, PC

Define the Underperforming Partner

• Lack of sufficient economic value added to his/her firm, expressed either in billable hours or collected revenue;

• An unacceptably low work ethic;

• A dislike, aversion, or resistance to meaningful business development efforts; and

• A lack of participation in and support for essential firm building activities.

Level of Partner Performers

•High performers (5-10%)

• Performers

•Underperformers (5-10%)

• Per David Maister – “dynamos, cruisers, and losers”

External Causes of Underperformance

• Selection process – admitting to partner level someone who does not yet possess the qualities needed to be successful

• Lack of defined expectations of performance and not communicating or enforcing them

• Lack of firm management to consistent long and short term actions necessary to minimize chronic underperformance

• Lack of decentralized management structure to ensure acceptable level of performance

Induced Causes of Underperformance

• Inability to recognize the problem

• Victimhood expressed in terms of “they do not give me enough work”

• Lack of skills necessary to solve the problem

• Lack of will to put in time and effort to solve the problem

• Keep head down and don’t make waves

Impact of Underperforming Partner

• Consume overhead and support resources without producing expected return

• Risk to firm – are they simply “not busy enough” or a professional weak link

• Time taken by managing partners, practice leaders and others

• Loss of good young talent due to inability of management to deal with the problem

• Loss of credibility to the management team

• Block firm development

Short Term Suggestions

• Reduce compensation?

• Reduce stock ownership?

• Intervention by firm management• Set expectations (billable hours, marketing, client relationships, etc.)

• Set milestones with clear consequences (e.g. non-equity role, separation from firm)

• Peer pressure (each member of the team is responsible for the team’s success)

Long Term Suggestions

• Streamline process to ask partner to leave if that is the decision; should be handled quietly and efficiently

• Review partner selection process to ensure attorney has the skills necessary to be successful

• Have clear expectations and consequences for becoming and maintaining partner position

• Expect that partner behave as “owner” of the firm

• Partner development may be part of firm’s expectation of professional development

• Practice teams should have clear expectations

Law Firm Management Hot Topics

Successful Recruitment of Lateral Attorneys

Trends in Law Firm Office Space Design

Major Law Firm Expenses

Insurance Rate Disparity by Geographic Location