Managing Legal

The attorney’s definition of “productivity”? How many hours did I bill the client and get paid for?

It’s that simplistic. And it’s that one-sided — in favor of the lawyer — and against the client.

Consequently — according to conventional law firm metrics — the lawyer who bills and gets paid for ten hours to draft a contract is twice as “productive” as the one who bills and gets paid for five hours to draft the same contract.

In business, “productivity” means units of output divided by units of input. The enterprise sets out to produce a good or a service to defined specifications using the least inputs of capital, labor, and materials.

But the 2018 Report on the State of the Legal Market by Georgetown Law School and Thomson Reuters Peer Monitor defines “law firm productivity” as “the number of billable hours worked by lawyers divided by the total number of lawyers”.

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As a lawyer who became a general manager when a corporate client invited me to run one of its divisions, I learned that each corporate function — each individual — had to be accountable to someone else in the organization.

Everyone.

Almost everyone.

Everyone except the law and regulatory compliance function. For them the legal industry’s business model — not the company’s owners or executives — calls the shots on pay, work flows, and personnel. Of course owners and executives get to gripe about tactical details like individual bills and next year’s in-house head count.

But (otherwise) demanding leaders who require accountability from every other part of the business are remarkably docile when it comes to this function. They let outside and inside attorneys make decisions about compensation, organization, and assignment of people that no general manager would tolerate anywhere else in the business.

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A new app from Silicon Valley highlights a legal industry that resists innovation to the point of self-parody.

Zero, a 2015 start-up headquartered in Los Gatos, California, now enlists artificial intelligence in the retrograde practice of lawyers billing by the hour:

“ … Today, lawyers work everywhere and anywhere, on mobile devices, and until now, that time has been fiendishly hard to capture. It was typically just written off. Not anymore …

“ … The result? Time that used to be lost is now captured, and billable. A typical attorney using Zero recovers between half an hour and an hour per day. Multiply that by your hourly rate. Now multiply it by 20 billable days in the month. Zero delivers ROI on the first day you use it – and keeps on delivering, day after day.”

…

In light of the severe and volatile legal and regulatory demands on business in 2018 — this is kind of like MIT or Cal Tech studying laser power — to deploy in buggy whips.

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In the early 1980’s Fred Bartlit headed litigation at one of Chicago’s premier law firms.

He’d brought in a client whose big case was keeping 8 partners and 30 associates busy for months. Classic leverage (see “Leverage” Part I).

“My partners loved me”, he said.

But — as he recounted in a 2010 speech at the University of Tennessee Law School — he was doing some soul searching about client needs: “I’m no saint … but I started to think about the practice of law”.

Bartlit was concerned that the pursuit of leverage was yielding bloated teams loaded up with less experienced lawyers. He reasoned that lean and experienced teams would get more courtroom wins and better pretrial settlements — at less cost to clients.

Bartlit then went to his partners and recalled for them their firm’s experience in the 1960’s and 1970’s when their 2- and 3-lawyer trial teams went up against much larger New York firms — and won. Continue reading

A friend of mine – new to his job as chief financial officer – received a bill from a law firm for advice in an obscure area of federal income tax law. The law firm was nationally prominent – one of the 100 highest profit-per-partner practices in the country.

My CFO friend called the partner named in the bill:

“I’ve got your bill here. I see that you’re charging me for hours worked by associate tax lawyers Susan and Joe. I’ve worked with each. I respect them both. I’m fine with paying their charges.”

“But I see that I’m being charged for hours that you’ve worked. You and I have never met. I’ve never seen any of your work. I’ve never even heard of you until seeing your charges on this bill. Can you help me to understand how payment for your work relates to some actual benefit that my company’s received?”

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When the IRS changes a lease regulation, compliance protocol calls for review of every lease to which a company is a party. Until recently this always meant lots of professionals reading lots of pages for a long time – slow, costly, and error-prone.

Now – employing a tiny percentage of the professionals required for traditional manual review – EY, the Big 4 firm automates this review with an artificial intelligence-based system “three times more consistent and twice as efficient as previous humans-only teams” — and they do it for only a fraction of the cost.

Each of the other Big 4 firms has implemented its own artificial intelligence-based systems to complete faster, cheaper, and more accurately various labor-intensive tasks that have historically been staples of accounting practices: KPMG, Deloitte, and PwC.

But business lawyers are staying away in droves from this sort of labor-saving technology.

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In 2009 the Mayo Clinic’s cardiac surgeons asked for two more operating rooms to meet growing demand for open-heart surgery, according to a June 2017 story in the Wall Street Journal (subscription required)

“No” – replied the Mayo Clinic’s CEO.

Then he asked them to redesign every aspect of heart surgery to find at least 20% in cost cuts.

Externally, he saw a perfect storm of reduced revenue and increased costs driven by an aging population. Internally – responding to the CEO’s mandate – his chief of cardiovascular surgery found disparities of up to 2X in average cost per operation (from $55,000 to $110,000) — “too much variability”.

This sparked changes in surgeon scheduling, new physician-developed protocols that empowered nurses to streamline post-operative care, and a 50% reduction in average operating room turnover times between surgeries. The clinic cited “millions of dollars” in savings, though it declined to say if it met the 20% target.

The clinic did go on the record to claim $900 million in savings over the past five years from such re-engineering projects.

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