Creating, communicating and managing billing expectations of lawyers

The catchphrase ‘new normal’ often describes life in the post-recession legal market. Firms are dealing with reduced rates, pressure for alternative fee arrangements and new client attitudes towards legal services in general and law firm staffing in particular. Some law firms have experienced another by-product of the new normal: slower demand has created less productivity. In many cases, lawyers who had routinely worked more than 2,000 billable hours have become 1,500 to 1,600 hour regulars.

Even though the economy has improved, many lawyers’ productivity remains at below pre-recession levels. Lawyers have responded to reduced workloads in two fashions: one knowingly, the other perhaps unknowingly.

As work has picked up, lawyers, in many cases unknowingly, have adopted a new definition of ‘busy’. The demands on their time has lagged that of pre-recession years, but exceeded the past few years. Happily, they have adjusted their production to fit their new workloads and describe themselves as ‘busy’, even though they only function at 80 to 90 per cent of their pre-recession workloads. At the same time, they knowingly succumb to aggressive fee negotiations by clients. They accept discounted work, most of which they themselves negotiate.

These two phenomena significantly affect law firm profitability. The business side of law consists of logging hours, billing them at a certain rate and collecting for that work. Alternative fee arrangements account for a small part of a law firm’s revenues. If lawyers work fewer hours or give greater discounts, profitability suffers. But, many new associates know only a post-recession life. Firms are struggling with this new definition of ‘busy’ and need to find a way to re-engage their lawyers.

Back to basics

In the late 1970s, country singer Willie Nelson recorded the smash hit Lukenbach, Texas. The key message is “maybe it’s
time we got back to the basics of life”.
Law firms need to follow that advice. Getting back to the basics involves creating expectations for lawyers, communicating those expectations
and ensuring they are met.

Many years ago, I used the terms ‘goals’ and ‘controls’ to define a method used to energise my firm. The plan involves setting realistic goals for all lawyers and helping them to achieve those goals. Controls require the firm’s approval of write-offs of time and write-downs of accounts receivable. Combining these two concepts increases hours and creates bills that are collected. In other words, success.

So how does a firm go about establishing goals and controls? This column deals with goals; my next one
will talk about controls.

Realistic goals create a level of accountability for each lawyer and a firmwide definition of ‘busy’. The process is simple, but effective. It involves setting hourly goals for all partners and associates. In order to set these goals and make them meaningful, management should meet with each lawyer for input on what can be achieved. That agreed-on number should become the lawyer’s goal. The process takes a long time and involves real leadership skills on the part of management, which makes it difficult and time consuming. Like most things in life though, it is worth the effort.

The goal becomes a quasi-contract that each side works hard to fulfil. The firm’s effort requires monitoring progress towards the goal and helping people who fall short. That means face-to-face meetings, preferably held monthly, to measure progress against goals and determine why people are lagging.
The firm and the lawyers should identify problems early on and take steps to correct them. The meetings allow
the firm to encourage success and identify, particularly with young lawyers, reasons beyond work ethic that may
be contributing to low output. They
also give management a built-in
agenda every month and a reason
to talk and discuss progress. That
leads to better communication and
a more successful firm.

In most firms, the third prong of the process creates the problem. Setting goals is not difficult, but monitoring them requires sustained effort. Firms usually fail at creating and enforcing consequences for lawyers who fall short of their goals. No doubt it’s hard, but a toothless tiger doesn’t survive long. Setting a goal, monitoring it for a year and then simply moving on to a new goal without any consequences for failure quickly neuters the system. Not meeting a goal must trigger an adverse consequence to make everyone understand the importance of making goals.

Firm profitability

The ‘new normal’ for law firms can have a dramatic impact on the firm’s profitability. Some of these consequences cannot be avoided. Others can be ameliorated by the use of sound management fundamentals. These fundamentals involve creating expectations for all lawyers, monitoring progress against those expectations and having consequences for failing to meet them.

Julious P. Smith Jr is chair emeritus
at US law firm Williams Mullen
(www.williamsmullen.com)