News
Winter 2002
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News |
Winter 2002 |
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Contents |
Introduction
2002 Annual Induction Weekend
Notes from Chuck
What Business are you in?
Retirement Reflections
Lockstep v. Shockstep
2002 Sustaining Members
Passages
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Introduction
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Welcome to this HTML edition of the College of Law Practice Management "News" newsletter. This is an experiment! The Fall 2001 edition of the newsletter was sent as a PDF file. We’re trying the HTML format to make it easy for you to scan and read the newsletter without taking extra time to download or open Adobe Reader. Let us know how you like it by emailing Alice at aliceatkins@sprintmail.com.
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2002 Annual Induction
Weekend
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Join us in Dallas, TX, September 20-21, 2002, to welcome two classes of inductees. The Class of 2002 will be formally inducted at the meeting, and the Class of 2001 will also be introduced and recognized due to the cancellation of the September 2001 meeting. Watch for your invitation in late June or early July.
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Notes from Chuck
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As the College of Law Practice Management enters its ninth year, the Trustees of the College are trying to chart its course for future years.
The College honors those professionals whose sustained performance in the practice of their profession exemplify the highest standards of professionalism among law practice management specialists. To date, we have recognized nearly 200 professionals who have met that standard, and we continue to add new Fellows each year. The membership reflects the diversity of the legal services delivery team, and the membership continues to grow from around the world.
But what role should the College play beyond this recognition? At this time, we know that the annual meeting and induction ceremony is the primary benefit the College is providing because it brings together such a wealth of talent and experience and enables sharing and exchange of ideas. We continue to try to provide top-level educational programs at these meetings as well. Yet many are not able to attend the annual meeting each year, and we need to look beyond the annual meeting to see what additional value the College can provide to its members and to the profession.
This is a challenge because we are relatively small in number, as colleges go, and our induction fee and annual dues are relatively low. Consequently, we have limited funds with which to start other endeavors. The Trustees believe it is critical to explore other possibilities nonetheless, and we invite your creative ideas and suggestions as we do so.
As noted in the previous Notes from Chuck, the College can "be all that it can be" only with your ideas, your contributions, and your participation. Please share your thoughts and suggestions about how the College can best continue to develop and grow.
See you in Dallas next September 20-21!
Chuck
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What Business Are
You In?©
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by Wendy R London [1] (1996)
Walk up to any lawyer and ask him or her what business he or she is in, and you will get a strange, disbelieving stare. "Law!" is the predictable stern reply. But is that the correct answer? Very simply, no. It means that the respondent is almost totally product-oriented. It means that sadly, lawyers have something in common with the railroad barons in the early 1900s who replied "We operate trains" and then found that they were operating within the confines of the bankruptcy court. The correct answer is: "We are in business to make clients, keep clients and maximise client satisfaction, behaviour and profitability."
Law firm revenues don’t come from major class action suits or software licences for young technology companies or from drafting a lease but from only one source: the client. If you have just one client, you are in practice.
Think about it. What happens if you have one or more satisfied clients? It means that you are well on the road to success. It means that your clients will:
· Buy more from you, even if your fees are slightly higher than your competitors.
· Recommend you to colleagues, family and friends.
· Make your firm the standard for their organisation.
· Look to you for help on all sorts of matters _ e.g. business advice, training and even software development to ensure that their compliance systems work.
Getting, keeping and maximising the profitability of good clients is, clearly (and I hope obviously) essential for the continuity of your law practice.
The real issue is...how.
All-too-often, measuring client retention and satisfaction is an exercise in extracting conclusions from data that is invariably soft. Touchy-feely kind of stuff. Client surveys go a long way towards telling a firm what is happening, but how often have you been honest when interviewed for a survey or how many surveys are actually returned? Or do you really know how much money it is costing you to go out and interview your clients?
There is a far more accurate and graphic way of helping you assess what is happening among your client base, and you needn’t go any further than the data you should already have about your clients. In geek-speak, you should be able to extract the data from your data warehouse, or if you’re not a geek, from your practice management or accounting system.
Outputting that data to a graphical format will show you what is happening in a manner that is easy to grasp. It can be something quite as simple as the pyramid which we use which shows you your top (1%) clients in terms of revenue, your next tier of clients _ or "big" clients (4%), your "medium" clients (15%), your "small" clients (80%), and then the "inactives", "prospects", "suspects" and that great pool known as "the rest of the world". Put into pyramid form, these tiers look something like this:
Those of you who know our friend Signor Pareto will also notice that within the top four tiers of the pyramid _ i.e. the "important" ones, there is an eerie representation of the 80/20 rule _ the Pareto Principle. You might be thinking, "yeah, so?"
Once you can visualise where your clients sit in the revenue pecking order, you can figure out what contribution each of your clients makes to the firm’s revenues now, and what their potential is in terms of future revenues. You can even ascertain how even a small change (up or down) in any tier of the pyramid will impact on the firm’s revenues.
In fact, this simple pyramid holds 10 lessons within its three walls:
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Lesson 1: |
The top 20% of clients deliver 80% of revenues. If you are a niche/boutique firm with one or two key, top 20% clients, the defection of even one of them to another niche/boutique firm could spell the demise of your firm. |
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Lesson 2: |
The top 20% of clients deliver more than 100% of profits. Many firms actually lose money on the other 80% of their clients, particularly if they are wasting too many marketing dollars chasing speculative business ("it would be nice if we also did their mainstream corporate work _ not just their property work"). You may very well find that even if you show a net gain of $5,000 from doing a software licence for Modern Machine Tools, you may have spent twice that amount in partner time, fancy dinners, box seats at the Mets’ opener and other nice things chasing the opportunity to be main counsel for their impending IPO. If MMT falls within your "small" client tier, it just may not worth spending that sort of money _ unless you have a very real sense of a high probability of success of winning that work. |
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Lesson 3: |
Existing clients deliver up to 90% of revenues. Yup _ you can (probably) maintain your current practice profile, size and activity _ and even grow _ if you spend your marketing dollars on making sure that these clients remain your existing clients, and are made fully aware of what you do. For example, if you work under the assumption that that one, big construction or securitisation project comes along only once in a lifetime for your client, think again. Not only is your project managing client your client, but indirectly, so are all the suppliers or advisors which feed into your client’s project. Spend some marketing dollars learning about their requirements and plans, too! |
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Lesson 4: |
Even though about 90% of your revenues come from your existing clients, most firms spend between 60% and 80% of their marketing spend on non-client. Why? Because, quite bluntly, it takes more effort and money to make a sale to a non-client than an existing client. Why run a TV ad attached to an expensive cable TV business programme aired internationally when your services are targeted at a specific sector in a defined geographic market? This may be an exaggerated example, but think about it. It simply isn’t worth doing a mailshot to "all IT companies in the trade directory" when you are really targeting start-up e-commerce companies for their licensing business. Paying more attention to existing clients can deliver a dramatic growth in profits, and an upward climb on the pyramid _ a statement, and observation, which is at the core of customer relationship marketing. |
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Lesson 5: |
"Small" clients can become "top" customers. Despite the caution in Lesson 2 that you need to think twice about wholesale marketing to the Modern Machine Tools of the world, there is evidence that between 5% and 30% of all clients have the potential for upgrading in the client pyramid. Just think about it. You would much prefer that some targeted small clients become your top clients rather than the top clients of your competitor. For example, a trawl through your data warehouse may very well reveal that you have about 15 or 20 matters on file for some company called Microsoft, but with a little client satisfaction and cross marketing thrown in, you might _ just might _ get on the giant corporation’s list of most favourite law firms. Don’t assume that their property management department talks to their licensing department and tells their friends in licensing what a great firm you have or that you just happen to have a specialist in Austral-Asian licensing. |
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Lesson 6: |
Client satisfaction is a must _ I repeat a must _ for moving clients up the pyramid. We know that there is a strong correlation between upward migration in the pyramid and client satisfaction. But what happens if a client says that they are just plain satisfied rather than highly satisfied? Xerox can tell you. Xerox had a repeat sales rate six times higher for customers who were highly satisfied rather than just plain satisfied. Client satisfaction really does pay off. |
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Lesson 7: |
Extrapolation of Lesson 6: Reasonably satisfied clients may just plain defect to the competition. |
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Lesson 8: |
Marketing and sales (yes, sales) people _ be they marketing professionals in a separate department or every single individual (see Lesson 9) in your firm _ are responsible for influencing client behaviour. Marketing people typically tell you that they identify needs, that they sell products and services and that they develop and maintain relationships. Their real job, though, is to influence the behaviour of (potential) clients. Marketing people _ all individuals charged with any aspect of marketing _ are charged with: · identifying prospects from the "suspects" tier, eliminating _ where possible _ the "rest of the world"; How do they influence behaviour? Through designing and placing advertising, designing and making available brochures, publishing newsletters, organising seminars, developing the firm’s website, deciding who to invite to the Super Bowl, and so on.
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Lesson 9: |
Other departments and individuals within the firm _ no, every department and individual within the firm _ also influence client behaviour whether they do it well or frankly, muck it up. In fact, the non-marketing people may have a bigger influence on client behaviour. For example, your marketing department may have contact only four times a year with a top client (i.e. when they send out the firm’s newsletter) but your accounts clerks may have contact twelve times a year through a very important mailing: the invoices. If the invoices are not tallied properly or hard to understand or folded in a style reminiscent of origami, the client may very well be influenced _ negatively. They may decide that a messy accounts department is a front for messy advice and send their business to your competitor. Key to understanding and successfully influencing client behaviour is getting every one of your employees, fellow partners and everyone who is seen to be associated with your firm to: · believe in the importance of your clients to the continued success of your firm; This last point is my favourite. We’re in the Information Age, not the age of "Hands Off, It’s Mine." You need to trust your colleagues.
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Lesson 10: |
Yes _ there’s a pay-off to understanding client behaviour and how and why everything that everyone in the firm impacts on it. A mere 2% upward migration in the client pyramid can mean big gains in both revenues and profit - 10% more in revenues and 50% more in profits is not unusual. Sure, you can’t control normal attrition in clients _ some will disappear, some will simply change firms, some will die. Some will drop down in the pyramid and some will move up without any intervention from you. However, those clients whom you can manage _ upwardly _ will make your efforts very well justified. For example _ and take my word for it (a short article doesn’t give much space for elaboration), one company’s net upward migration of 17 customers (0.65%) in its client pyramid delivered increase in revenue and an impressive 61% jump in operational profit. What’s the strategy? · Get clients into your pyramid And spend more of your marketing resources in your existing clients. After all, that’s what you are in business for. How you do it is the subject for another article and involves: · making sure that you are collecting the right data and can analyse it in a meaningful way;· finding out how to press your clients’ (positive) buttons; · making your firm more client-centric (yes, some healthy change management is required); · undertaking some bottom-up client planning; · getting everyone involved; and · putting into place the metrics to measure it all. By the end of the process, there will be no doubt as to what business you are in. The Client Business. |
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Retirement Reflections
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By Robert M. Schack (1995)
(Editor's Note: Bob Schack retired from Kornish Lieb Weiner & Hellman LLP, New York on December 31, 2001.)
OK, who said retirement is scary, empty, fraught with emotional, physical, financial and other assorted horrors? Come on, get with it. I haven't been so happily busy for years.
You've worked like an animal for 35-45 years since law school and yet you can't figure out anything else to do? You can account for practically every waking hour since the bar exam (or later public or military service, as the case may be) and still not capable of seeing yourself leaving your box? Sure, you like what you're doing. But you can't seriously believe "that's it." Is that what you tell your spouse and (grand) kids that life is all about? Do you really think that working " 'til you drop" is what they want for you? Of you?
Just about every good lawyer I know (you) has a wonderfully creative and remarkably fertile intellect. Why has this blessing worked to preclude change? To stop the pursuit of alternate sources of long term enjoyment? To ignore the march of time? To give of yourself in far different but, (in many respects) far more important and enjoyable ways?
"Why bother," you say, "I'm happy now." Yes, and when you finally, suddenly, leave your practice, how will you feel then. Empty? Will your currently intended or desired future fall within your future abilities? Really? How can you possibly know? You'll be scared then, all right, having to create a new life previously unsampled, untested, unexamined at a time too late to make a mistake.
Oh, and is there no one else deserving better than having you disappear for 60+ hours every week until he or she (or they) (or you!) can no longer share in any meaningful, enjoyable long term joint pursuit?
Retirement isn't sleep. It is decompression, though. The change of perspective is staggering. It is one of the very few times in life you can start over with a clean slate, face an unexplored horizon. Forget the standard enticements of eternal sun and sand, golf, travel, restaurants, etc. An unlimited variety of additional options is available to those of practically every economic bracket.
Such options include, inter alia., the luxury of using your skills for your community, for the arts, for your family, and yes, even for the law. It brings the opportunity for self assessment and personal change, for patient sampling and selecting new pursuits, for acquiring new knowledge and skills, for designing then pursuing new and exciting productive lives for both you and yours.
And all this deep wisdom after only four weeks out of harness. More a year from now….
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Lockstep or Shockstep?
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By Michael Simmons (1996)
First published in the European Lawyer
How do we pay our partners? Remuneration can be the most powerful weapon for cultural change in the Managing Partner’s armoury. Stability cries out for the lockstep system, as there is no need to spend countless hours agonising on whether to award or not to award. Unfortunately, you cannot guarantee that the class of 93 will proceed forever in orderly merit. While the ugly duckling turns into the swan, so yesterday’s high flier is tomorrow’s burnt out case.
In truth, the proper exercise of lockstep requires ruthless pruning for the under-performers and shirkers in the Partnership. Merit-based compensation systems, on the other hand, can allow wide variations in performance under the same firm roof.
Work on the basis that any merit-based system has a short shelf-life, and you will not go far wrong. If your firm needs new clients, then award more cash for those partners who bring them in. If stability is the keynote, then give the money to those partners who keep your existing clients happy. See how you can mould your firm by the award of judicious dollops of cash? Your message will be readily learnt.
Avoid minor variations in compensation: they cause endless bickering and hurt the pride of your thin-skinned and status-conscious professionals. Try to reserve the big money for the exceptional performers, but beware the one-offs.
We can all have a terrific year by luck rather than by judgement, just as it is possible to have a stinker, when all your best clients die, dissolve, or simply fade away. Look at three to five year averages by way of performance, and watch closely for trends, either upwards or downwards.
Link Partnership remuneration with appraisal and know your people. The hyperactive over-performer will hit whatever targets you set, while the persistent pessimist needs constant cajoling and targets which are readily attainable, otherwise you risk de-motivating rather than encouraging your partners.
Set out your performance criteria clearly, so that none are in doubt. Who decides on the awards? It is important to maintain simplicity on the one hand and transparency on the other. Ideally, you provide a separate profit pot for management with its own criteria, which is administered by those outside management. This allows Managing Partners to preside over the distribution for line partners without the taint of conflict of interest.
Discuss your draft proposals with the subject partner at the appraisal. You can firm it up after you have heard their objections. Those who participate fully in the process are less likely to complain at what they receive.
Should you have an appeals procedure? Some suggest the Privy Council. Seriously though, if the system is open and relatively simple, you will receive fewer complaints. It allows you to reward, and therefore retain your high fliers, while keeping on board your relative under-performers, and at the same time giving them encouragement as to what the future could hold in store for them. You will of course jettison your complete under-performers, as they are slowing down the ship unduly.
While many firms find Lockstep too inflexible, equally they feel that a pure merit-based system, eat-what-you-kill, destroys collegiality and smacks too much of the market place. After all, are we not superior professionals? The answer is a compromise with part of the profits attributed to a Lockstep System, perhaps with "gates" added. The gate is more akin to a turnstile. You have to squeeze through subject to a performance appraisal. The problem is that certain partners, once through the gate, feel that they have nothing further to achieve and rest on their laurels, or rather the hard work of the hyper performers.
Added to partial lockstep is a bonus pool. This is administered exactly the same as pure merit-based compensation. The size of the bonus pool tells you a lot about the firm. Many progressively increase it as they move by evolution rather than revolution from Lockstep to a merit-based compensation system. Ten per cent of the available profits is conservative, while fifty per cent shows that you really mean business. At least, the annual percentage increase in the bonus pool gives partners the opportunity to adjust to the new system. The complete revolution may encourage the timorous to abandon ship.
The Managing Partner can rarely sit back in the knowledge that the perfect compensation plan has been created. What worked last year carries its own built-in obsolescence. Who says that managing a Law Firm is a dull occupation?
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2002 Sustaining Members
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The Board of Trustees extends its thanks and gratitude to the 49 individuals who have contributed to the 2002 Sustaining Membership campaign. These contributions supplement dues and Annual Induction Weekend registration fees in support of the program during the induction weekend, the newsletter, and the website.
Managing Partner
US$500 - US$1,000
Jeffrey M. Hertzfeld
Earle Yaffa
Philip Marcus Clark
Barrister's Circle
US $250 - US$499
William A. Bachman
Susan Benjamin
James E. Brill (In memory of Gene Cavin and in
honor of J. Harris Morgan)
John A. Cummens (In honor of David W.
Brezina)
Steven P. Daitch
Ronald W. Del Sesto (In honor of Gov. Christopher
Del Sesto (RI))
Leon Gary, Jr.
Robert Michael Greene
Michael J. Katos
Dianna Kempe
Sally Fiona King
Paul N. Luvera
Gerry S. Malone
Dr. Fernando Pelaez-Pier
Richard C. Reed (In honor of Darelyn A. Reed)
Lowell E. Rothschild
Mary M. Ruprecht (In honor of Hon. Clinton W.
Wyant)
Nancy J. Siegel (In honor of Donna Copeland
and Nelson Freed)
Michael David Simmons (In honor of those
who fight for the U.S.)
Robert B. Yegge
ADVOCATE
US$100 - US$249
Barbara S. Akins
Donald S. Akins
Joel P. Bennett (In honor of Sam Smith and Justice
Lewis Powell)
Robert P. Bigelow
William B. Boyd
Avery S. Cohen (In honor of Richard C. Reed)
John Cooperider
Edward O. Coultas (In honor of Gary Bird, Donna
Killoughey's late husband)
Charles R. Coulter
Steven W. Farber (In honor of David W. Brezina)
Jay G. Foonberg
D. James Lantonio
Kathryn S. Marshall (In honor of Robert Arndt)
Charles E. McCallum
J. Harris Morgan
Howard L. Mudrick (In memory of Michael Cripe,
CFO Haynes and Boone)
Gary A. Munneke
Richard W. Odgers
Theodore P. Orenstein
Edward R. Parker
Carol F. Phillips (In honor of Gary Bird, Donna
Killoughey's late husband)
Fernando Pombo
Joel A. Rose
Robert M. Schack
Sally J. Schmidt
S. Shepherd Tate (In honor of Francis H. Musselman)
Jeffrey L. Tolman (In honor of my friend
and mentor, Paul Luvera)
Warren L. Tomlinson
Peter Vogel
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Passages
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The College lost two members in 2001, Clinton R. (Tink) Ashford (1996), on September 5th; and Luther J. Avery (1994), a charter member, on December 18th. They will be missed.