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Post #351 - Monday, October 27, 2008
Responses To Managing Through A Prolonged Downturn
The past few days I’ve received numerous confirming comments from law firm leaders on my warning of a prolonged downturn:
• Hello Patrick, Thank you for sharing this info. I have (obviously) been giving these issues serious thought. (100+ lawyer DC firm)
• Thanks. Interesting. This is useful. We are still hanging on here in Ohio. Best regards, (250+ lawyer Cleveland firm)
• Thanks for this. We are already having meetings discussing direction and impact and I hosted a practice group meeting last week, which was heavily focused on the economy, our practice in particular and where the work might come from. I'll touch base and pass on any additional thoughts that may have come out of our processes. (150+ lawyer Los Angeles firm)
• Would it be O.K. with you to use your questions for an exercise with my management group? I am trying to push them into being more proactive as I think this is not a short-term downturn. If I can get this group to do it, I think it will go well. It has been too hard to get them to take the time to focus but I think major changes are needed to the way we have traditionally done business. (300+ lawyer Dallas firm)
• Thanks, Patrick. We are going through the exercise of trying to make sense of the turmoil so your piece comes at an opportune time. I will pass it on to our Executive Committee. (650+lawyer Chicago firm)
• Patrick --- thank you so much for this timely information. After I review the material I may need to give you a call and pick your brain. I hope you are doing great. (200+ lawyer Kansas firm)
Two items of additional advice I heard this weekend that bear repeating:
• As in-house counsel will likely be pressured to cut expenses and renegotiate their preferred counsel lists, this is an excellent time to be scheduling visits with clients to be proactively discussing their budget constraints and to be reviewing effective techniques for responding to RFP’s.
• Rather than layoff some associates, would it not be more productive to arrange a secondment with some of your larger clients?
One view would be that rather than discount fees, paying the salary of a secondee could be more cost effective for your firm. It could result in having an associate returning to the fold with enhanced knowledge of the client’s operations, closer relationships to decision-makers, and improved awareness of the industry issues.
Another view might be to borrow a page from the business model currently being proffered by Axiom. Become a placement service for redundant associates by securing temporary assignments for them with major companies. Axiom provide services at rates in the range of about $150 to $225 an hour with the average attorney receiving a salary of $200,000. This may be a very viable alternative to losing the talent through necessary layoffs.
Post #350 - Wednesday, October 22, 2008
Managing Through A Prolonged Downturn
 There is a rather tasteless joke that claims that a recession is when your neighbor loses his job, but a depression is when you lose yours. The curious irony is that economists have no specific point of reference to distinguish when an economy moves from one state of malaise to the other. That said, I think most people would agree that this economy is definitely in a recession. The question then becomes: how long will this last?
Conventional wisdom, publicly espoused by a number of market watchers and legal consultants is that: “The recession will be intense, but short. Everyone wants to get back to normal. Short term, the backlog of real estate will be sold as owners accept losses; banks will end the credit crunch; layoffs will make companies more efficient.”
My view is far little less confident. I believe that unlike past experiences, this recession isn’t being caused by a downward spiral in a few isolated industries. It started with the burst of a protracted housing bubble and then metastasized into a full-blown credit crunch, eventually destabilizing the entire financial system. Therefore, I submit that for the next five years, every time you think it's safe to get up and dust yourself off from this downturn, every time you feel like you've endured the worst of it, another piece of news is going to come along to freshly bludgeon you. This time the economic slowdown is going to be a lot different and, in many ways, a hell of a lot tougher.
Whether I’m right or wrong is probably immaterial. What is relevant is whether your firm is prepared for a worst-case scenario. What is worth acknowledging is that this economic downturn could present an opportunity to introduce meaningful change, when change is not normally an easy subject to discuss among partners.
To that end, I had the opportunity in meeting with the Executive Committee of a 650-attorney firm to include as part of our agenda, a specific exercise designed to engaged the group in creatively exploring what their world might look like, and what specific strategies and direction the firm might pursue, if this really was a recession of some magnitude and duration. The exercise consisted of presenting the group with a summary of 12 danger signs that I’ve been tracking and that collectively would suggest that this is likely to be a severe recession – followed by a questionnaire for each of the partners to share their candid views and suggestions. At the meeting itself I engaged the group in a meaningful discussion on what specifically they might do in anticipation of this economic downturn really lasting as long as 5 years. The discussions were spirited and the resulting action plans thoughtfully conceived.
When it is business as usual and the fees are rolling in, there's no real sense of urgency about actually changing anything. Think about incorporating the possibility of a long recession into your strategic thinking. Instead of merrily assuming that everything will turn back up in a few months and healthy growth will again be the norm, build assumptions around how to manage in a prolonged recession as part of your immediate planning. Most firms show a startling lack of forward planning for changing economic cycles.
Here is the exercise I conducted and would recommend for your next internal meeting
Post #349 - Monday, October 20, 2008
Managing Troubled Law Firms
 Banks are emerging as key players in reshaping the legal market, monitoring the working capital of firms very closely, and stepping in if there is any potential for default. These banks are bringing in external consultants to assess how the firm is managing its work-in-progress, whether it should be outsourcing work, cutting costs in some areas, or even whether there is a need to divest.
In the UK, Banks are forcing troubled law firms to rethink their structures. Firms in financial ‘intensive care’ are being told to merge, divest or restructure as the cash dwindles from their accounts. Apparently 21 of the UK’s top 150 firms are being treated in Barclays’ intensive care unit (ICU), which is known as ‘business banking support,’ although the bank refused to confirm this number.
HSBC head of professional propositions Piyali Williams said the legal profession will see its banks taking a more interventionist stance and advising on an increasing number of consolidations. It is likely that demergers will also occur for some firms. Williams confirmed that her bank had seen a marked increase in the amount of financial restructuring advice it was giving to its law firm clients due to the economic climate.
Meanwhile, Nick Anthony, head of Barclays’ professional and public sector services team, claims, “Law firms are falling short of their budgets, so we’re trying to advise where they can cut costs and improve performance.”
Post #348 - Monday, October 20, 2008
Having A Carbon Trading Practice - Revisited
Further to my Post#330 on September 8th warning law firms that developing a practice in Carbon Trading may be the next Y2K, I’ve had a couple of e-mails inquiring if I was serious.
Integral to helping firms with their strategy is staying alert to new trends and developments. Some months back, I began noticing a string of stories about scientists rejecting the orthodoxy on global warming. Upon further investigation I noticed that the number of climate change skeptics was growing rapidly. Why? Because a funny thing is happening to global temperatures – they are actually going down, not up!
• Brazilian meteorologist Eugenio Hackbart points out that periods of solar inactivity known as "solar minimums" magnify cold spells on his continent. So, given that August was the first month since 1913 in which no sunspot activity was recorded - - none - - and during which solar winds were at a 50-year low, he was not surprised that Brazilians were suffering (for them) a brutal cold snap. "This is no coincidence," he said as he scoffed at the notion that manmade carbon emissions had more impact than the sun and oceans on global climate.
• Don Easterbrook, a geologist at Western Washington University, says, "It's practically a slam dunk that we are in for about 30 years of global cooling," as the sun enters a particularly inactive phase. His examination of warming and cooling trends over the past four centuries shows an "almost exact correlation" between climate fluctuations and solar energy received on Earth, while showing almost "no correlation at all with CO2."
• An analytical chemist who works in spectroscopy and atmospheric sensing, Michael J. Myers of Hilton Head, S. C., declared, "Man-made global warming is junk science," explaining that worldwide manmade CO2 emission each year "equals about 0.0168% of the atmosphere's CO2 concentration. This results in a 0.00064% increase in the absorption of the sun's radiation – a rather insignificantly small number."
• Meanwhile, weather-satellite scientists David Douglass of the University of Rochester and John Christy of the University of Alabama at Huntsville dealt any global warming believer a devastating blow in September. For nearly 30 years, Professor Christy has been in charge of NASA's eight weather satellites that take more than 300,000 temperature readings daily around the globe. In a paper co-written with Dr. Douglass, he concludes that while manmade emissions may be having a slight impact, "variations in global temperatures since 1978 . . . cannot be attributed to carbon dioxide."
It may be that more global warming doubters are surfacing because there just isn't any global warming.
Post #347 - Monday, October 6, 2008
Reflecting Upon Economic Adversity
Here is the newest question posed to the Managing Partner Leadership Advisory Board (the LAB) that I have the honor of Co-Chairing:
 "Managing a sophisticated law firm is not a quarter-by-quarter exercise, but here is what we know after three quarters into 2008: revenue growth has reversed; there is immense profit margin compression (largely due to associate costs); and this slowdown is hitting the most profitable firms the hardest.
Will this economic trough alter the long-term demand for legal services? Some claim that the players may be re-shuffled, but the intrinsic demand will remain the same no matter what happens electorally in November. I’m not so sure!
And will this economic adversity accelerate the consolidation of our profession? Faced with making severe talent cuts, some firms may find their attractiveness to laterals and law students compromised, and their viability as independent going concerns in question.
I would be interested in hearing from your group on what strategic decisions law firms should be considering in light of the challenges in the U.S. and international economies."
Read the entire question and response: Reflections Upon The Impacts Of Economic Adversity [PDF Version]
The LAB was formed as a resource to provide pragmatic advice to assist new managing partners with their critical burning issues and help them succeed. The LAB is comprised of the following distinguished current and former law firm leaders: Angelo Arcadipane (Dickstein Shapiro LLP); John Bouma (Snell & Wilmer LLP); Brian K. Burke (Baker & Daniels LLP); Ben F. Johnson, III (Alston & Bird LLP); John R. Sapp (Michael Best & Friedrich LLP); Keith B. Simmons (Bass Berry & Sims PLC); William J. Strickland (McGuire Woods LLP); Harry P. Trueheart, III (Nixon Peabody LLP); together with Patrick J. McKenna.
Post #346 - Thursday, October 2, 2008
Will The Big Four Survive?
 While on a client assignment in London, I noted a rather interesting question posed by Rob Lewis, Editor of AccountingWEB.co.uk on the fate of the Big Four Accounting Firms. Here is what Rob had to say:
Ever since Arthur Andersen left the market after its scandalous role in the fall of Enron, people have been asking how long it will be before another big firm follows suit. This summer the U.S. Treasury's Advisory Committee of the Auditing Profession met in Washington and heard that between them the six largest firms had 27 outstanding litigation proceedings against them with damage exposure above $1 billion, seven of which exceed $10 billion. It is impossible to buy insurance that will cover such catastrophic liability and any one of them, if successful, could prove a fatal blow.
That U.S. Treasury committee met again last week to discuss the viability of limited liability for auditors in the U.S., but the 21-strong panel decided against it. With that, the hope of some silver bullet solution to the Big Four's problems expired.
Consider some of the recent and outstanding claims against the biggest firms.
• In Miami last August a jury ordered BDO Seidman to pay $521 million in damages for its negligence in a Portuguese bank audit; almost as much as the firm's estimated revenue for that year. In the U.S., banks and the shareholders of banks are perfectly prepared to go after auditors, and when they win they tend to win big.
• KPMG provides a clear example of how the credit crunch might cull the Big Four. A U.S. Justice Department report has concluded that KPMG either helped perpetrate the fraud at the mortgager New Century, or deliberately ignored it. Class-action lawsuits are already pending. Of course, New Century might not be KPMG's biggest problem. That's probably the Federal National Mortgage Association, or Fannie Mae. Fannie Mae initiated litigation way back in 2006, and is trying to reclaim more than $2 billion from its old auditors. That's on top of the $400 million KPMG agreed to pay the SEC to settle the regulator's fraud allegations. Its defense so far has been one of complete innocence, asserting that Fannie Mae successfully hid all evidence of anything untoward.
• Ernst and Young will almost inevitably see itself in court over the demise of its audit client Lehman Brothers.
• Similarly, PricewaterhouseCoopers is surely going to feel some heat for its auditing of what was once the world's largest insurance company, AIG, assuming the Northern Rock Shareholders Group doesn't take a pop at it first.
"It's not that the Big Four are 'too big to fail'," as International Herald Tribune columnist Jim Petersen put it. "They can fail, and there is nothing on the table to save them."
Post #345 - Wednesday, October 1, 2008
What An Economic Mess
Thank God for the bureaucrats. The economists. The Wall Street pros. Now, with the Bailout package back, repackaged and going to the Senate tonight for approval, they’re determined that they are going to “rescue” us. But wait a minute . . .
wasn’t it the US government that set up Fannie and Freddie with an implied guarantee?
wasn’t it the SEC that was set up to regulate Wall Street and prohibit the sale of slimy “investments?”
weren’t these same economists the ones who thought the U.S. financial system was the best in the world - because it was so “dynamic, inventive, and flexible?”
isn’t it the Fed itself that has been lending money below the inflation rate since 2002? And wasn’t that the major source of “liquidity” that created such a huge credit bubble?
and wasn’t Hank Paulson the head man at Wall Street’s most go-go firm when all this stuff was going on? Do you remember hearing him warn lawmakers or anyone that the whole Vesuvius of hyper-credit was going to blow up? I don’t.
Paulson had been the CEO of Goldman Sachs until he accepted the call to become Secretary of the Treasury. Maybe you did not know the following. When you become Secretary of the Treasury, you must divest yourself of stock holdings. Not to do so would be a conflict of interest. But how could anyone be lured into this office who is a big player? Think of the capital gains taxes. The government passed a law that exempts Federal appointees from taxes if they sell their holdings before they take office. So, Paulson sold his shares. Because he had a reason for selling, the sale did not depress the share price. He owned half a billion dollars in Goldman Sachs shares. Given the events that unfolded afterwards, I'd call this a very timely move on his part.
Nice work if you can get it. And, if you can get it, tell me how.
Post #344 - Tuesday, September 16, 2008
Lawdragon Ranks Top Consultants
 I guess it was inevitable. It was just a matter of time. First we saw clients rating individual lawyers that ultimately resulted in listings of the best attorneys by practice area. Then we witnessed even the ABA getting into the act with it’s soliciting votes and rendering a critical assessment of legal blogs (a number of which received a pretty pathetic few votes!) And apparently now we have the managing partners of significant law firms evaluating and voting on the merits of individual law firm consultants.
Now I remember a time when I began consulting to law firms in the early 80”s when I knew every consultant that served the profession and could name the various consulting firms on one hand (no exaggeration). So imagine my surprise when I learned that Lawdragon was preparing a listing of the "100 Legal Consultants You Need to Know."
How did I find out about this listing?
A short while ago I received a very flattering note from Katrina Dewey, the CEO and Publisher of Lawdragon stating: “Congratulations! Lawdragon has selected you for inclusion in its upcoming feature: ‘100 Legal Consultants You Need to Know.’ Hundreds of consultants for the legal industry were nominated from throughout the country. We will be posting this issue online and will also include your recognition in our annual print publication released this fall.”
100 Legal Consultants? I couldn’t believe that they were serious. A Hundred??? That must include every possible consultant who professes to serve the profession. My immediate response to Katrina (in addition to being highly flattered) was to inquire of her – “come on now, were there really hundreds of consultants nominated?”
What I learned was that Lawdragon’s researchers surveyed managing partners from all across the country. Katrina was very gracious in her feedback: “I have to say that I think you received more glowing recommendations than any other ‘consultant’ on the list. You have quite a legion of supporters. Extraordinarily impressive. For the consultants, in addition to the high-level strategic ‘consultants’ of which you are an outstanding example, we include legal recruiters, marketing consultants, generational change advisors, technology advisors and a hodgepodge of others.”
As you might imagine I was extraordinarily keen to see the final list . . . and today the online version was made public.
Looking at the list you may likely conclude that there are no big surprises here. It contains all of the usual suspects: David Maister, Ward Bower, Brad Hildebrandt, and Tony Williams join me among the high-level strategic consultants; while Sally Schmidt, Burkey Belser, and Bill Flannery populated the marketing category; together with a number of notable consultants in other categories – ALL names you would just naturally expect to see on a list of the top consultants.
That said, HUGE KUDOS to the researchers and staff at Lawdragon for all of their work in compiling this list. It is definitely a first and will likely be distributed widely amongst the major law firms and closely scrutinized by those managing partners requiring solid advisory counsel.
And my sincere thanks to those clients, whoever they are, who voted for and graciously commented on my capabilities.
Post #343 - Tuesday, September 16, 2008
What Are Your Assumptions Going Forward?
 The demise of Lehman Brothers, one of Wall Street’s biggest investment banks, has special sentiment to me as it was one of the client teams that I first worked with when assisting a law firm in the New York area to get it’s client teams formally organized. You might imagine what the loss of a client of this stature could mean to some law firms.
Meanwhile, in an article today entitled Corporate Law Firms See Dark Days Ahead, one anonymous New York managing partner is quoted to say, “There’s not a firm in the city that is not terrified about what is going on right now. There is a tremendous amount of instability.” This managing partner went on to say that the issue stretched beyond the firms that regularly represent Merrill or Lehman, “You don’t know what it’s going to look like tomorrow.”
This is clearly a time for every firm to be re-examining it’s strategies and directions going forward. And inherent in that re-examination is recognizing that every strategy you have likely rests on specific assumptions about what is going on in the world.
There is an old story about two shoe salesmen sent to different parts of a remote area in Africa to study sales potential. The first reported back that since no one wore shoes, there was zero potential. The second reported that since no one wore shoes, the potential was infinite. Both analyses were made from having the same underlying facts, but obviously resulted in diametrically opposed interpretations.
This phenomenon also occurs during strategic planning. So, critically important to you now are the assumptions you are making in your most immediate planning. Ask yourself, “What are we assuming?”
Here are three simple steps:
Identify
Get your team together and ask these questions about each of your current assumptions and strategic initiatives:
(Example: Investment banks and financial institutions are the primary reason New York firms dominate the profession in profitability. These clients have generally been willing to pay ‘full-rate’ or premium fees to their favored firms.)
• What conditions must exist, and what factors must be true, for our effort to prove fruitful?
• What else should we assume?
Test
Analyze each assumption:
(Example: What happens if further waves of forced consolidation in the financial sector together with new government regulation generates a cost-cutting mentality on Wall Street?)
• How valid or probable is this assumption? What are the odds? How do we know?
• If the assumptions fail, what is the impact? Does it diminish the level of accomplishment? Delay it? Destroy it?
Act
Now subject each assumption to the following:
(Example: Do we beef-up and more aggressively market our Bankruptcy Practice to handle the most complex cases as our contingency plan for dealing with a slowdown that may not lift for a good long while?)
• Is this a reasonable risk?
• To what extent is this amenable to control? Can we manage it? Influence it? Or only monitor it?
Acting on your strategic assumptions requires making contingency plans and putting preventive solutions in place.
Post #342 - Tuesday, September 16, 2008
Make Sure You Are On Our Mailing Lists
 I got a call today from Jerry Stauffer’s secretary asking if he could please subscribe to our Edge International Review magazine. After heartily apologizing and confessing to her to please tell him that I didn’t know how in the world he was not on our mailing list, but would rectify the situation immediately, I received the following e-mail:
You should take some solace in knowing that Ben Adams (the Firm Chair) loaned me his copy of your Fall 2008 issue because he thought there were so many great articles in it. I look forward to seeing future issues.
Jerry Stauffer, President and Chief Operating Officer
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Thanks Jerry.
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