The Estrin Report

Why Paralegals in Traditional Law Firms Won't Stand a Chance in Hell

Paralegals: Listen up. Protect your career now, while you still can.

The Next Normal – Will the Traditional Law Firm Model Survive?

Guest Blogger
Susan Saltonstall Duncan

This article is the first in a series to look at the "Next Normal" for law firms. Part 1 focuses on the traditional law firm model and why it is unlikely to remain as it is, Part 2 focuses on lawyer skills and talent management in the future, and Part 3 will address whether and how traditional law firms can adapt to meet these challenges.

If " traditional" encompasses the status quo -- incentives that measure and reward billable hours, a pyramid structure where large numbers of associates are hired, weeded out and then promoted to the partnership by doing really good work and putting in excessive hours, where client matters are each approached in a bespoke manner -- the  answer to the title question is "no."  

Looking ten to twenty years into the future, law firms that adhere to (or stay mired in) traditional models of structure, service delivery, staffing and management, will be eclipsed by more nimble, adaptable organizations that deliver the services and solutions that clients need, more effectively.  While some firms may survive in the traditional mold, we will see many more implode, be acquired or simply close their doors.  Those that survive as "winners" will more aggressively and dramatically change the way they do business.

The Traditional/Current Model

Many aspects of this traditional model are breaking down.  What was once a "cash cow" for firms -- hiring large number of associates who work and bill 2000 hours per year and who in their third through eighth or tenth year contributed significantly to a firm's profits is no longer a viable model. Most clients today refuse to pay for first or second year associates and many of the lower level work done by associates is now being sent to alternative service providers.

It therefore makes little sense for firms to continue to hire large classes of associates, even if the assumption is that two thirds or more would volunatarily leave or be weeded out by their fifth year, which again, has been common practice until the last several years.

Traditional Partnerships are Elusive

In many firms, the value and meaning of partnership has changed, especially since it no longer carries with it the security of tenure it once did.  As partners are de-equitized or encouraged to leave their firms if they are not producing, and as lateral partners with books of business who command high compensation and guarantees continue to be the growth strategy of choice, loyal, collaborative partnerships are much more difficult to find, build or sustain.  The emphasis is on business generation and profitability; there is little tolerance for even a year or two of low billable hours and certainly of partners who don't or can't bring in new clients.

Because equity partner ranks are shrinking, most firms have seen their category of non-equity partner and counsel grow.  This is creating numerous problems. One is that firms now are still too top heavy – there are large numbers of senior lawyers not originating new business, serving as service lawyers, and often not significantly enhancing the revenue of the firms.  

Another outcome as evidenced in a recent Peer Monitor survey shows that equity partners billable hours exceeded hours of non-equity partners, counsel/of counsel/special counsel by 300 hours/year in 2013.  This reflects that there likely is not enough work to go around and some equity partners are hording work, most likely for compensation credit.  Finally, this bloated layer of senior lawyers between partners and associates creates a log jam for talented associates who aspire to partnership.

How Legal Work is Viewed and Valued has Changed

As evidenced by what clients are and are not willing to pay ever-higher rates for, much of the work traditionally done by law firms has diminished in value.  There will always be a need to justify to key stakeholders that as a GC, you have hired the best, but outside legal spend devoted to "bet-the-company" cases or deals typically represents only 3-5% of the work in-house counsel send out (although it typically represents a much higher proportion of the spend.) The remaining ninety-five percent most often falls into three or four other "buckets."

• Susskind defines the buckets as: Bespoke, Standardized, Systematized, Packaged and Commoditized.
  
  
• Jeff Carr, GC at FMC Technologies believes that "Not every legal problem requires a brain surgeon. A high percentage of needs are basic blocking and tackling, and many require just a form."  He puts legal work into four buckets:  Advocacy, Counseling, Content and Process and suggests that the value that lawyers bring to the table falls almost exclusively into buckets one and two, where the need for the application of judgment is highest (see prior post on Client Service and Innovation.)
  
  
• Bill Cobb of Cobb Consulting defines it as Bet the Company (4%,) Hired for Experience (16%,) Reputation and Expertise (20%,) Routine/Commoditized (60%.)
  
  
• Nabarro Report GC Value Pyramid (see Value Post 3: Like Law Firms, GCs Must Deliver More Value to Their Clients) includes a four level pyramid with Level 1 focusing on strategic business planning, change management and board influence; Level 2 focusing on complex problem solving, lead negotiater or trial lawyer on major deals/cases, crisis management; Level 3 focusing on risk mitigation, influencing business stakeholders and leading external advisers and Level 4 focusing on getting the job done well and correctly, providing legal solutions and management reporting.

Alternative service providers have proliferated to provide many content, routinized and commoditized services. These alternative service providers now offer many services that traditional firms have considered their bread and butter, e.g., research and discovery, contracts, NDAs, and patent prosecution.

Traditional Roles and Hierarchy are No Longer As Effective

There is less room at the top of the partnership and the criteria for being a profitable and successful partner have changed. The amount and type of work that clients now send out directly to alternative service providers has accelerated.  Technology and automation have disrupted and in some instances replaced work that was previously done manually.  This inevitably changes the roles and responsibilities of those employed by law firms.

In his most recent book, "Tomorrow's Lawyers," Richard Susskind suggests that lawyers will fill many different roles in the future including:

• Expert trusted adviser
• Enhanced practitioner
• Legal knowledge engineer
• Legal technologist
• Legal hybrid
• Legal process analyst
• Legal project manager
• Online Dispute Resolution practitioner
• Legal management consultant
• Legal risk manager
• Technical specialists: patent agents, economic analysts, etc.

In addition to new roles for lawyers, legal service providers of the future will employ many others types of professionals.  In addition to some of those included in the list above, like process improvement and project management, others becoming more commonplace today include pricing specialists, sales professionals and client service/account managers.

So back to the initial question: will the traditional model be viable in the future? Is it the best structure?  What might an organization that retains some of the traditional values and structure of a law firm partnership but adapts to the changing landscape look like going forward? Perhaps it will look something like this:

Law firms need to take a new look at what it is clients need from their firms, how they will modify or redesign their organizations to deliver those needs as effectively and efficiently as they can in order to meet their profitability goals, what type of organizational structure and culture they will need to balance their financial goals with the type of place in which they like and want to work, who and how they hire, train and reward, what business they are in or should be in, and what kind of leadership and governance structure they need to hold it all together.

About our guest blogger:

Prior to her position with Squire Sanders, Susan was the founder and president of RainMaking Oasis, LLC, a business development and management consulting firm that helped lawyers and law firms create, execute, and evaluate effective strategic and business development initiatives.  She has been working with law firms since 1980, providing consulting services for over twenty-three of those years and to more than 100 law firms, other professional service entities and thousands of individual lawyers. 

She became one of the first in-house law firm marketing directors in the country in 1984 and is a founding member of the Legal Marketing Association.  Prior to forming her consulting businesses, she worked in two national law firms – Pepper Hamilton and the Washington office of Cadwalader –  where she assisted in organizing efforts in client and practice development, communications and public relations, governance and planning, attorney recruitment, performance evaluation and training and paralegal management. 

Readers who read this Estrin Report also viewed:

The Paralegal Knowledge Institute - Creative training for experience paralegals

OLP - Organization of Legal Professionals - Legal technology training for lawyers, LitSupport and paralegals

The International Paralegal Association - Bringing paralegals from all over the world together.

 

 

 

 

U.S. Supreme Court to Hear Paralegal Fees Case

Paralegal fees are once again up for discussion in the U.S. Supreme Court with the Court's Nov. 12 decision to hear the Richlin v. Chertoff case.  This is an important case for law firms and paralegals in promoting the further utilization of paralegals.

The issue before the Supreme Court in the Richlin case is pretty straightforward:  Under the Equal Access to Justice Act, can a prevailing party be awarded fees for paralegal services at the market rate for such services or should such reimbursement be limited to the actual cost incurred by the attorney?

After prevailing on the merits, Richlin sought an award of attorneys fees and other expenses under the EAJA for time spent over nearly nine years by its lawyers and paralegals. The Board found that the government's position on the merits was not "substantially justified" and awarded Richlin about $50,000 for work done by its lawyers.

The Board did not, however, award Richlin fees at the $50 to $95 per hour market rates for paralegals charged to Richlin over the course of the proceedings.  The Board searched the Internet for paralegal salary information and decided to award Richlin $35 per hour as a reasonable cost to the law firm awarding approximately $10,600 for about 300 hours of compensable paralegal time.

This practice discourages law firms from utilizing paralegals thus additionally hampering clients to receive lower cost legal fees.  What law firm wants to take a loss in profits? What incentive does the law firm have in utilizing paralegals if it cannot push this profit center towards profit? For those Negative Nancys who claim that the increased use of paralegals might result in the less efficient performance of legal services, remember: the attorney is ultimately responsible for the performance of the paralegal.  Therfore, there is no incentive to delegate work to a paralegal that is beyond the paralegal's capability or to the extent that it would be inefficient.

Oral arguments in Richlin are set fro March 19th with a decision expected by the end of June.

"Commentary: A Career Not Measured in Billable Hours"

Author Debra Bruno (Special Reports Editor at Legal Times), ponders some interesting questions in this Law.com article:

"I grew up the child of teachers. Besides learning the obvious lack-of-privacy lessons ('Does your father know you left the house in that outfit?' my high school history teacher once muttered to me), I also internalized the idea that in the working world, people get home every day at 4 p.m. and have summers off. To this day, it feels to me as if spending a beautiful summer afternoon sitting in an air-conditioned office goes against the natural order.

"I'm getting a sense that more and more people are on the same page -- or a nearby one. Don't we all want more time away from work?

"Yet at the same time, the office seems to be increasing its demands on our hours. One of the stickiest elements of the traditional working world is the often intractable and sometimes irrational insistence that people put in plenty of face time. The problem is especially acute in law firms -- places where associates [& paralegals?] actually worry about taking a 10-minute bathroom break. (Is it billable?) It doesn't take a rocket scientist to see a link between attrition and the legal world's obsession with the clock.

[snip]

"'But are the law firms listening? They have done a brilliant job of creating initiatives with fancy-sounding names. More than one firm boasts that it offers flexible schedules, sabbatical time and varieties of telecommuting. Press releases tout all these wonderful programs. But try to find a lawyer who's made partner and worked a truly part-time schedule: It's about as rare as getting a seat on the bus at rush hour."

Using Technology (& a paralegal!) to Cut Legal Costs

Interesting profile of Mark Chandler, senior VP, general counsel, & secretary for Cisco Systems Inc. This technology company (based in San Jose, CA), produces Internet protocol-based networking services:

"Chandler is keenly focused on applying technology, some developed by Cisco and some that it has purchased, to lower in-house legal costs on repetitive but crucial work. 'If you are dealing with a compliance matter that will affect how the company is perceived, you have to get it perfect, but other times very good is good enough,' he said. 'There are areas where you want to make sure you are doing the best you can, but you also want to be very efficient at the way you do it.'

[snip]

"Outside counsel: TurboTax can replace the tax preparer and Travelocity allows anyone with a computer to become his or her own travel agent. The same forces are engulfing the legal profession. 'Fundamentally, service businesses like law are not dissimilar from any other industry,' Chandler said.

"For example, Fenwick & West of Mountain View, Calif., which does nearly all of Cisco's corporate, securities and mergers and acquisitions work, notified Chandler last year that its hourly rates were going up. He replied that he planned to pay Fenwick 5 percent less in 2007 than he had the year before.

"'To do that, I wanted them to figure out what was the 10 percent of their work that was the least value-added,' Chandler said. 'We found they had lawyers billing us $400 to $500 an hour doing fairly routine work filling out forms associated with some of our acquisitions.'

"Chandler and Fenwick came to an agreement. Cisco is adding a paralegal to fill out the forms and will save $400,000, but it is reducing its payments to Fenwick by just $250,000."

"Firms Predict More Work, Less Equity"

What does this news mean for paralegals? I'm guessing higher required billable hours & maybe higher salaries too:

"Although law firm leaders at a recent conference publicly pooh-poohed predictions that industry profitability would stumble, in a new survey they say increasing expenses will cut into their bottom line this year.

"Lawyers can expect to be pushed for more billable hours while facing a harder struggle to make equity partner. And the ranks of associates and nonequity partners will rise much faster than any increase in equity slots, law firm leaders said.

"The first managing partner confidence index [be sure to check the comments to this post!] -- a survey of more than 100 Am Law 200 firm leaders -- was released this week by Citigroup Private Bank, which serves as banker to 550 law firms, including many of the nation's largest.

[snip]

"Am Law 200 firms reported big growth last year. But while most respondents predict revenue will continue to climb, they also expect expenses -- led by lawyer salaries -- to do the same. More than 90 percent said lawyer salaries would be the primary rising cost this year -- and that was before the recent round of associate salary raises that brought first-years up to $160,000 in New York and $145,000 most everywhere else.

[snip]

"Non-lawyer staff salaries and real estate costs are also expected to grow at a faster clip [emphasis added] than last year, [Danilo DiPietro, client head of Citigroup's law firm group] said."

"Time and Billing: Be Trigger-Happy"

I love how "trigger" reminders work:

"Does your current time and billing software help you manage your law firm's workflow? Does it identify key 'events' that trigger paperwork? If not, it may be time to upgrade.

[snip]

"By simply defining certain conditions, or rules that must be met -- such as the payment of an invoice, the generation of a specific type of document or even billable time that does not meet minimum amounts -- event software integrates with your time and billing program.

[snip]

"Once rules are established and thresholds are set, these systems are designed to be self-maintaining and will run transparently to automatically trigger notification alerts. Common events which can act as triggers in event-driven software include new clients, cash receipts over or under limits, vendor payments, new matters, unbilled time and/or cost write-offs, missing time, check processing, aged open vouchers, delinquent accounts receivable and hours-worked budgets on matters."

And here's a handy list of vendors from the article:

Cronacle, Redwood Software Inc., www.redwood.com.
Elite Extend, and Elite 3E Business Monitoring, Thomson Elite, www.elite.com.
Expert Notifications, Aderant, www.aderant.com.
EDA Suite, Oracle Corp., www.oracle.com.
MyJuris, Juris Inc., www.juris.net.
Omega Legal, Omega Legal Systems Inc., www.omegalegal.com.
Rainmaker Platinum Suite, Rainmaker Software Inc., www.rainmakerlegal.com.
RollCall and DTE, Advanced Productivity Software Inc., www.aps-soft.com.
TABS3, Software Technology, Inc., www.tabs3.com.

"11 Time Management Tips"

Yes, the challenge of smart "time management"! How do you control work time?

"Do you feel the need to be more organized and/or more productive? Do you spend your day in a frenzy of activity and then wonder why you haven't accomplished much?

"Time management skills are especially important for small business people [& paralegals!], who often find themselves performing many different jobs during the course of a single day. These time management tips will help you increase your productivity and stay cool and collected.

[snip]

2) Find out where you're wasting time.

"Many of us are prey to time-wasters that steal time we could be using much more productively.

[snip]

6) Prioritize ruthlessly.

"You should start each day with a time management session prioritizing the tasks for that day and setting your performance benchmark."

"Compensation Survey Shows Lofty Rewards for Firms"

What do law firms bill their clients? You might be surprised; then again, maybe not:

"Miami attorney Eugene Stearns may prove true the old cliche about getting what you pay for.

"The plaintiffs attorney is credited with taking a teetering case against ExxonMobil and turning it around to win his clients a $1.1 billion judgment.

"After the verdict, Stearns and other firms who worked on the 15-year-old case brought against the oil company by gas station owners battled over what they should be paid.

"Stearns asserted his firm was instrumental [PDF link] in winning a case that was bogged down and going nowhere when his firm signed on 10 years ago.

"U.S. District Judge Alan S. Gold agreed. He threw out a fee agreement signed when Stearns first joined the case in 1996 and awarded his firm $249 million in fees, more than triple what the firm would have received under the agreement.

"In the July fee ruling [PDF link], Gold called Stearns' work in the case 'groundbreaking' and 'highly skilled.'

"But Stearns is a pricey lawyer to have on your side, billing $700 an hour, the highest fee found for a south Florida attorney in the Daily Business Review's first annual lawyer billing survey."

"Temporary Solution"

Must read this article!

"The $16 billion merger of SBC Communications Inc. and AT&T Corp. represented a high-water mark in the legal cattle call known as document production. Some 600 contract attorneys converged in Washington, D.C., to work on the SBC side of the deal, where the telecom giant's antitrust counsel, Crowell & Moring and Arnold & Porter, ran a massive antitrust regulatory review. A few hundred more in Chicago labored for Sidley Austin at AT&T's behest.

[snip]

"Crowell's use of an army of temps for document review is hardly unique. In an age when law firms spend huge amounts of money on marketing efforts to build their brands, they also increasingly rely on off-label, generic lawyers, most of whose resumes would never get a second glance for an associate-track job. Law firms do it because they have to: Clients are pressing counsel to trim costs, and labor-intensive document reviews are a natural target. Firms, for their part, increasingly find they can't handle the work alone anyway-even if they wanted to-as each new class action or securities fraud investigation brings on a landslide of electronic documents. As a bonus, firms can bill out at higher attorney rates the kind of work that a decade ago might have been assigned to paralegals."

OMG! Instead of firms hiring temp paralegals for document review work, they're now hiring temp attorneys -- at paralegal rates -- billing clients at higher attorney rates. This goes against what paralegals were brought in to do -- save the client money.

What's going on here?

Time Billing 'The Perfect Crime'?

Must-read post on the Wall Street Journal's Law Blog:

"William Ross, a professor at Samford University’s Cumberland School of Law in Birmingham, Ala., calls it 'the perfect crime.' NYU legal ethics guru Stephen Gillers says there’s a 'general consensus' that the practice is on the upswing. The practice? Law-firm billing fraud, and the WSJ’s Nathan Koppel takes a look [subscription req'd] at the issue through the lens of a series of incidents that allegedly took place in Holland & Knight’s Chicago office.

"After Matthew Farmer, a 42-year old junior partner with the firm, suspected that his own hours on a trial for home builder Pinnacle Corp. had been inflated by the partner in charge of billing, 62-year-old Edward Ryan, he blew the whistle on the firm."

Are paralegals also pressured like associates for billable hours? 

Many firms have 1800 minimums. That's billing 7.5 hours a day,  or 35 hours a week for 12 straight months. Is that possible? How much is overtime? What about those firms that don't approve OT? 

Do paralegals feel the need to pad time just to make the minimum?

While firms no longer call the quota "minimum" (using the word "suggested" instead), the underlying message is the minimum is the minimum just to hold your job.  With no partnership carrot dangling, how do paralegals feel about the pressure?

We need to hear from you!