Law Firm Rates Going Up - III (Talent)
December 14, 2006 | Filed Under Law Firm Trends, Managing
We return for another look at this topic; yesterday, we looked at inflation as a rationale for rate increases. Today, we probe the other: the cost of securing good, new laywers.
To frame the issue, let’s return to an expert:
The increase is partly due to inflation and supply and demand, said Joseph Altonji of the management consulting firm Hildebrandt International.
“It’s the demand for a really good lawyer, and it costs to hire really good people,” he said. “Since these costs are going up, the firms have to pass that cost on.”
This is a bit remarkable since it exposes one client-relations problem about raising rates that has been out there for years. Nearly every time law firms raise starting salaries for new associates, a spokes-partner says something like “this is our way to attract the best lawyers to our firm; we do not pass these costs along to clients.” The law firm community nods, and the GC community collectively says, “huh?”
As I have looked at the relationship of starting salaries and rates before, I won’t repeat myself here. And as tempting as it is, we’ll leave the annual bonus drumbeat to others (but I guess it shows current rates are highly profitable).
Suffice it to say that any notion of scarcity is rather specious; there are plenty of smart law grads out there. You can even look outside the Top Ten schools! And we know that new lawyers know virtually nothing about the practice of law; most new associates spend the first few years learning on the job (or is it on someone else’s dime?). If only a few make partner, did you really need to pay so much (and charge so much) for new associates?
What really is scarce is not talent. What is scarce at the larger firms is this: equity partner slots. And the equity partners set the rates.
And here we have the real reason for billing rate increases. Equity partners want to make more. And if their share of the pie is either fixed (no more partners) or shrinking (a few more, if they must), you can only be more profitable (per-capita) by raising hours or raising rates. Most of these firms are at or above the threshold of humanly-achievable billable hour targets. So it’s really about raising rates; profits-per-partner is a bragging-rights metric that is simple, comparable and widely published.
So I submit my brief as to the proximate cause of increased billing rates. No to inflation and cost of human capital. Yes to partners making more money (or at least staying level for a while longer…?).
But enough of this game; who is really responsible and what can be done about it? Check back tomorrow…
Law Firm Rates Going Up - II (Inflation)
December 13, 2006 | Filed Under Law Firm Trends, Managing
We return to this great perennial topic. To set the stage: law firm rates are going up. A GC cares because it means the 2007 budget locked down months ago may now be out of whack.
Two of the main reasons given for rate increases were inflation and the cost of talent. The short answers are bah and humbug.
I’ll take on inflation today, and try to thump talent tomorrow.
As to inflation, I’d be a buyer of that argument if law firms were prodigious users of energy or other price-spiking commodities. But since they sell something other than consumer durables, the simple “inflation” explanation doesn’t scan. In fact, since law firms sell something akin to knowledge you’d think they could use technology and process improvement to do what most service companies strive to do today: deliver better services at lower costs.
When a law firm raises its rates and mumbles “inflation,” that isn’t the end of the story. Clients of the law firm operate in the same economy and know how costs tend to increase. What they also know is that they cannot unilaterally pass these costs on to their customers. There may be competitors waiting to take market share and grab the price-conscious buyer. Or they may have long-term pricing arrangements in place that simply don’t allow increases.
What a solid GC then does: starts thinking about using less of what the law firms offer. What a great price-signal to send to your market in the holiday season! (Partner’s note to self: send bigger fruit cake this year.)
When a law firm (or its favorite consultants) uses a term like inflation from Econ 101 to justify the annual ritual of rate increases, it really insults the intelligence of its clients. Clients see it for what it really is: validation of the essential truth that law firms have no incentive to control costs. They may feel an ethical urge to do so. Believing in that requires no small level of trust. Or is it a leap of faith, Virginia?
No, what the upward trend of billing rates tells clients is that law firms operate on a different planet. It seems like a nice place, a happy place, but not one most other people will ever visit.
Google Splits…
December 4, 2006 | Filed Under Managing, In the News
… GC and CLO positions, that is.
Law.com reports that Google has hired a new general counsel and made current GC David Drummond chief legal officer.
Filling this new stand-alone GC position is John Kent Walker Jr., who was deputy GC of eBay.
While not common, this arrangement may be considered by larger, growing companies as they realize that legal is bigger than just the law. In addition, since Google pushes the envelope in certain emerging areas of the law, corporate and legal strategy are very much intertwined.
You can bet legal headhunters are taking note…
Google and its Lawyers
October 23, 2006 | Filed Under Managing, In the News
The New York Times had an interesting article today on Google and the use of its legal group to advance key strategic objectives.
What’s rare about this article is the access that Google granted to many inside counsel. The headline “We’re Google, So Sue Us” is not really borne out with the tone of these responses. An example:
Michael Kwun, a senior litigation counsel at Google, agreed that “the Geico case was very important.” Mr. Kwun said that establishing a body of precedent was a priority for Google, especially as legal interpretations continued to evolve. “If we don’t at least litigate to the point where we get rulings on the issues that matter to us, we’re left with less clarity in the law,” he said.
Google is a prime example of a company on the cutting edge of technology and commerce that relies heavily on its own lawyers. While outside counsel are no doubt heavily involved, no company should completely outsource its legal function when it comes to principles of law that drive top-line revenue and protect intellectual property.
And given the hiring binge Google is on, this approach seems attractive to potential new employees, as the Wall Street Journal reported today.
Email Pink Slips: A Best Practice?
August 30, 2006 | Filed Under Managing, In the News
Radio Shack finds itself in the press for allegedly notifying employees of termination by email.
This was not unanticipated in the Radio Shack workforce, as looming job cuts were announced publicly earlier this month.
Ask anyone who has been involved in the unpleasant subject of workforce reductions (on either side of the table): how you tell someone is what’s remembered most. There is no perfect way, only the best of a number of challenging options. Face-to-face with a direct supervisor is not easy, but I think it is necessary.
Radio Shack may have been motivated by a desire to notify everyone at the same time to avoid a long day of agony as employees waited nervously for a phone call. Or they may have wanted those not on the list to know quickly that they were spared in this round.
But instead of getting business press focus for streamlining their business, Radio Shack is getting mainstream press focus on the method used.
One thing is certain: Radio Shack must be very confident in their IT department. Can you imagine how many times people reviewed that email distribution list before someone clicked the mouse?
Update (31 Aug 06): The AP report via the New York Times.
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