The Toxic Ten Assumptions of the Legal Profession

WCCI WILLIAM C. COBB(1)

The ten most toxic assumptions in the legal profession that will eventually kill the profession:

THE TOXIC TEN

  1. Effort is equal to value. The number of billable hours is a primary driver of profitability.
  2. Consumers will always need lawyers to interpret the law. Lawyers have a monopoly on the interpretation of the law.
  3. The lawyer, as a supplier, determines what is value added service. Not the client.
  4. Leverage of other lawyers is the key to law firm profitability.
  5. Young lawyers want to work for law firms and become owners.
  6. The practice of law is a profession and not a business.
  7. The quality of legal services is based upon the experience and expertise of the lawyer.
  8. The needs of the market have nothing to do with the strategy and structure for the delivery of legal services. The lawyers define the structure for the delivery of legal services.
  9. What lawyers have done in the past is the practice of law.
  10. The practice of law will always be regulated by the courts.


DISCUSSION OF FALSE ASSUMPTIONS:   WHY THESE ASSUMPTIONS ARE TOXIC.

1.  Effort is equal to value. The number of billable hours is a primary driver of profitability. False Assumption!

The shift from producer to consumer power creates a new model for the determination of value added.

  • The Cobb Value Curve. See Figure 1.
  • The Quality versus Service Grid. See Figure 2.

Consumers will determine value added, not the producer law firm.


2.  Consumers will always need lawyers to interpret the law. Lawyers have a monopoly on the interpretation of the law. False Assumption!

  1. E-Commerce will give consumers access to any and all information currently controlled by the legal profession.
  2. Expert systems are being created every day to solve consumer problems by those outside of the legal profession.
  3. MDP organizations will do what lawyers thought was their purview. UPL will fail.

3.  The lawyer, as a supplier, determines what is value added service. Not the client. False Assumption!

  1. Clients and consumers are gaining power through sophistication and access to information through e-commerce and software programs.
  2. Value will be added by consultations, and not by the production of legal products. See Figure 2.

4.  Leverage of other lawyers is the key to law firm profitability. False Assumption!

  1. Effectiveness in determining what services to perform will eliminate leverage. Making correct choices based upon the needs of the client and the importance of the issue to the client will become key to client satisfaction.
  2. Efficiency in the delivery of legal services will eliminate leverage of other lawyers. Performing those tasks as chosen to be critical will be performed with the minimum of investment of time and other resources.
  3. Specialists and out-sourced services will replace lawyers within law firms.

5.  Young lawyers want to work for law firms and become owners. False Assumption!

  1. There is a war for talent. Young lawyers want to go where they can find exciting projects and brand themselves.
  2. Young lawyers' loyalty is to their careers, and not to their employer.
  3. Why become an owner of an institution that has no definitive position?
  4. Would young lawyers rather invest their livelihood and future fortunes in the law firm, or some "dot.com" company?

6.  The practice of law is a profession and not a business. False Assumption!

  1. If the practice of law is not moved to the understanding as a business, firms will not deal with the requirements to add value through effectiveness and efficiency.
  2. Law practices are a business employing many who depend on the future of the firm. Unless firms focus on the business of meeting client needs, and restructure to perform required activities, they will become irrelevant just as any normal business would.
  3. Law firms become client-driven, not capacity-driven. See the article "Creating the Client-Driven Firm" by William C. Cobb.

7.  The quality of legal services is based upon the experience and expertise of the lawyer. False Assumption!

  1. Quality of service will be judged and therefore based upon service and usefulness, not just experience and expertise. See Figure 2.
  2. Lawyers' value will be judged by their ability to solve problems, not their mere expertise.

8.  The needs of the market have nothing to do with the strategy and structure for the delivery of legal services. The lawyers define the structure for the delivery of legal services. False Assumption!

  1. Firms must face the market and structure the services they deliver to meet those needs.
  2. The old structural definitions determined by the product do not fit the market needs. Consumers do not buy the products law firms sell.
  3. Example of the loan transaction:  Some sophisticated consumers of legal services, such as banks, are interested in sitting down with their suppliers of legal and related services to determine the best method to handle the documentation of loans. By dividing the loan documentation function into discrete tasks, such as, application review and approval, underwriting review, communication to customer, document drafting, forms preparation, title examination, legal compliance review, loan closing and similar functions, the bank could break down the loan documentation function into small discrete tasks and either perform the tasks within its organization or out-source the discrete tasks to competent individual providers. Obviously, some tasks require the involvement of an attorney, but most of these tasks do not. If the bank follows best management practices, it may seek to out-source the entire loan documentation function to one or more providers, but to do so under terms that permit the bank to take advantage of the benefits flowing from Keiretsu-type relationships, such as strategic planning, coordination, cost control, and the other benefits.
  4. Clients buy solutions and not products.


9.  What lawyers have done in the past is the practice of law. False Assumption!

  1. Most of the work done by lawyers is not the practice of law. Membership of the bar is not a prerequisite to perform these services.
  2. Many of the services formerly provided by lawyers are being performed by CPA firms, financial institutions and advisors and insurance companies.

10.  The practice of law will always be regulated by the courts. False Assumption!

  1. The practice is so dense from past success that light (clients) will bend around it.
  2. The public will force legislators and governments to go around the court enforced leadership.

 

Figure 1

The Cobb Value Curve

 

The Purpose: Segmenting the same types of legal products based on the perceived value added to the market. The Curve was used as the basis for the task force that developed the two books on alternative billing; Beyond the Billable Hour and Win-Win Billing Strategies.

Definitions:

  1. Relative Value Added: The way a client would value services. For example, a $25 Million interim loan financing for a large developer of buildings would be less valuable than the same interim loan financing would be to a small builder with just one deal a year. Why? Because the small builder is buying a very different bundle of services, e.g., consultation, crisis management, reputation, leverage with the bank, and others.
  2. Volume of Work Available: This is the volume of work available in a particular market where the "market" may be a single client, an industry, a geographic region and so on. For example, insurance companies have:
    1. Large volumes of tort work and therefore classify it as a commodity. The work is very price sensitive.
    2. Smaller volumes of coverage work, classified as "Brand Name" work. They are willing to pay higher rates but still want a discount.
    3. Smaller volumes of huge disaster events where they are willing to pay some of the highest rates.

How the Model is used: From the listing of the various services provided by the firm to specific clients, each service, such as anti-trust litigation, initial public offerings, is placed on the curve.

  1. The service for the client is placed on the curve based upon the client's perception of value added.
  2. Once located on the curve, pricing may be determined. Much of the commodity work in the future will be priced on a fixed fee basis. For example, should the firm go with an hourly rate, a fixed blended rate, a fixed fee or a contingency for a task or group of tasks.
    1. If hours and the mix of timekeepers cannot be estimated, go to hourly.
    2. If hours cannot be estimated but the mix of timekeepers can be, go to the blend.
    3. If hours and the mix can be estimated, go to a fixed fee.
    4. If the firm can reasonably take the risk for the task, go to a contingency, reverse contingency or partial contingency.
  3. The location of the service (or task) on the curve also drives the staffing structure for the task. The same process is used to develop staffing strategies for particular service areas in the future through the argument:
    1. Where are we now?
    2. Where must we be in the future?

     

Figure 2

The Quality-Service Grid

 

The Purpose: Segmenting bundles of services to determine what adds value and therefore increases the price of the legal service or the return on the time of the law firm. Definitions:

  1. Technical Depth and Quality: The bundle of services has the technical depth of experience and expertise (timekeepers and systems) to meet the standards of quality demanded by the firm and the clients.
  2. Service Quality and usefulness to the client. The services of the firm are seen to add significant value to the client's business and personal goals such as promotion, seen to add value to the company, control, understanding or other value that is important to the client.

How the Model is used: From the listing of the various services provided by the lawyer, what really adds value to the client?

1.  First, the lawyer must answer the following questions about a client where the lawyer feels he or she has a strong relationship.

    1. What has happened to this person in the last 18 months that has changed their scope of responsibility or the way in which they are being evaluated? The lawyer has only10 seconds to answer the question. If he or she fails, he or she needs to drop their pencil.
    2. If he or she still has a pencil in their hand, then answer the following questions in less than 10 seconds. What must you do now for the client that you have not done before to become useful? What must you stop doing?
    3. If the lawyer can answer this question, then the questions becomes: What have you done about it? Excuses like: "I'm not paid to do that" or "I don't have time" do not compute in a client-driven environment.

    2.  Next, the lawyer must list those things that must be added to the bundle of services for the client to become useful. For example:

  1. Maybe the lawyer must add non-legal services such as organization of the client's files to help them become higher performers in the client's environment.
  2. Maybe the lawyer must provide more predictability to legal fees through budgeting and project management.
  3. Are these tasks the generation of legal product? No.

3.  Then, the lawyer must formulate and act on the plan to become more useful.


NOTES

1. William C. Cobb
is the managing partner of the WCCI Inc. (William Cobb Consultants) based in Houston, Texas. Since 1978, he has been a consultant in strategic issues affecting law firms and general counsel and helps them improve their competitive positions. That counseling includes the assessment of the impact of trends in the market; pricing services and alternative billing; practice management; firm governance and structure; partner review, evaluation, and compensation; and similar subjects of critical importance to law firm and legal department leadership. E-mail: cobbwc@msn.com

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For further information, please contact William C. Cobb at the address below.

WCCI, Inc. v Cobb Consulting Group
6207 Rodrigo Street, Suite A; Houston, Texas 77007
Tel. 713.227.2300; Fax 713.227.7081

Send E-mail to: CobbWC@msn.com