Article

Administration Matters

The New Law Firm Paradigm

Work Smarter, Better, and More Profitable

Bob Badger

When I graduated from West Point, I remembered something the Secretary of the Army said at graduation. We live in a changing world. If we try to stand still, we will be passed by those who innovate.@ That was a long time ago, but it is as true today as it was fifty years ago.

When I look at the traditional practice of law, I see many firms trying to stand still. They still believe in the classical pyramid structure for the of the firm. The concept is that a large number of productive associates will keep the firm profitable. The old pyramid consists of a few partners at the top followed be many associates and paralegals generating many billable hours, and then a large staff to support the partners, associates and paralegals.

Let us examine some big Chicago firms and their associate-driven profits. Let us assume the average salary of an associate is $150,000.00. Let us further assume that these associates bill at $140.00 per hour and develop 2500 billable hours. This would generate revenue of $350,000.00 per year with a gross profit $200,000.00 per associate per year. Of course overhead would have to be deducted before the partners could see the benefit.

This sounds really great! Just add lots of associates and you can really make a lot of money. What is the down side? Well, you do have to have sufficient client work to keep these associates busy. Assuming there is sufficient work for the associates in these big Chicago firms, what are the other problems. Since not all associates make partners, these firms have to keep adding associates. In 1998 Latham added 150 new associates. This meant that 20% of their attorneys were inexperienced. Similarly Cravath added 76 (or 22% of the firm) and Sullivan & Cromwell added 99 (or 21% of the firm). It is also a fact that 90% of all associates are terminated between 3 - 9 years. This means that one fifth of the associates in these firms have no legal experience.

The result of the big firm pyramid structure is poorer quality work because of the inexperience of the associates. The important work of the firm is given to inexperienced associates. The larger staffs resulting from the profit motive fragment the knowledge of the case. There are so many handling the work that often one associate team won=t know what the other teams are doing. The experienced senior trial lawyers are insulated from the case by inexperienced associates. Because profits are generated by hours billed, there is little incentive to use advance technology to increase efficiency.

To correct this problem, there needs to be a new paradigm law firm. It should be structured as an up-side-down pyramid with there being many more partners than associates and much fewer staff. This is accomplished with the use of advance technology. To improve the quality of the law practiced at the new paradigm law firm important work must be assigned to experienced partners, create incentives for advanced training for associates, and create incentives for extensive use of advanced technology.

These incentives are created by results oriented, non-hourly billing. In the past law firm had a pipe line to the treasury of large corporations with hourly billing and no one knew what final cost of a case might be. I had an attorney friend of mine ask me, Would you sign a contract with a builder to build your home at $250 per hour with no limit as to what the final costs would be? We would want the builder to give us a fixed price to build the home. My friend has built a new paradigm law firm which operates in Chicago and Denver. He delivers a fixed price for the proposed litigation. If the firm wins the case, it gets a bonus. This firm is Bartlit-Beck. Fred Bartlit was a Partner with Kirkland & Ellis for over 33 years. He was my roommate from West Point. He became frustrated with the bureaucracy and inefficiency of a large firm. He concluded that he could make more money with a firm that was heavy with partners a few associates learning to be partners and minimum staff. He started his firm with 17 attorneys, vowing never to be larger than 50-60 attorneys.

This required the partners to be very competent in technology, including the ability to type their own pleading, briefs and correspondence. Since they type at 70-80 wpm, it takes about the same time to type it right the first time than to dictate it and go through editing process. They almost never use the mail. Almost all correspondence is done with e-mail. They have a time keeper to secretary ratio of 4 or 5 to 1. They are heavy on IT support. Fred Bartlit recommended the new paradigm law firm use existing software. His firm uses MS ACCESS for most of his litigation work. He has modified it to meet his needs. His firm uses a time and billing software call DTE, many other firms use software such as JURIS, TABS, or PC LAW which can be just as effective as DTE. While Bartlit Beck requires all time keepers to record their time daily, it is not used for billing purposes. Their managing partner uses it the see who is busy and who can take on more work. There is other existing software which can help existing firm become new paradigm firms. Best Case Solutions@ is an outstanding software for bankruptcy cases. For litigation there is a software package call Summation. Summation allows for the management of thousand of documents. Notes can be added to the margins of the documents and sorted to meet the needs of the case. All the documents of a large litigation case can be brought to the trial on a notebook computer.

There are several case management software packages available. They are Practice Master and Amicus Attorney. For those firm that do not use e-mail, they can use Hot Docks to send quickly and efficiently prepare letters to clients and also prepare pleadings.

Another aspect of the new paradigm law firm is that there are no committee meetings on administration matters. All these matters are handled by the administrator and/or the managing partner.

Technology should be used in the court room too. Microsoft Power Point or Corel Presentation should be used in court to better present their case to the judge or jury. Fred Bartlit was giving a technology seminar that the recent Legal Tech Show in Chicago and ask the attendees (200) how many the those present were using Power Point in the court room. Less than a dozen held up their hands. The old adage a picture is worth a thousand words is really true. The New Paradigm law firm should invest in a Power Point projector for court room use.

One of the key aspects for the new paradigm law firm is that all incoming mail is scanned into the computer. All e-mail can be sorted by other software and stored in the file folder for that case. The responsible attorney will open his/her scanned incoming mail and move the important documents to the file for the case that it is pertinent. All documents scanned into the computer in the normal course of business can be reproduces as originals for the court. There would be no longer calls to the file room for documents. Retrieval would be almost instant. This means that the originals can remain in the file room until the case is closed. Then the originals can be sent back to the client when the case is closed. For each case all scanned documents, e-mails and internally generated documents would be saved on CD-ROM thus saving thousands of dollars in hard file storage. Large litigation cases would save their documents on same CD-ROM in the Summation format.

While technology is important to the new Law Firm Paradigm, the most important factor is that the experienced partner do all of the work for the client. This saves many hours that are billed to the client by inexperienced associated or paralegals that have to be redone when the partners find the errors. With partners doing the work the first time, it is done correctly. With the aide of technology, they can do it correct and quickly saving the client thousands of dollars.

The New Paradigm law firm can do something the large corporate clients will greatly appreciate. They can offer fixed price for large litigation. Bartlit-Beck usually breaks a large case down into manageable portions, such as discovery, trials and appeals. This means that the in-house counsel knows what to budget for each portion of the case. Bartlit-Becks managing partner determines the cost of each portion of the trial by estimating hour many hours each portion will take for attorneys and paralegals. He then multiplies those hours by their billable rates and come up with the fixed price. The client is expected to pay 80% of the fixed price of that portion of the case on a monthly basis. If the case is lost, the client pays no more. If the case in won, the client is expected to pay 3 to 5 times the amount of the 20% the client has withheld. Normally, when the client wins, they are happy to pay the five times of the 20% withheld. This concept highly motivates the law firm to perform at their highest level.

With the extensive use of technology and high caliber of attorneys, their success ratio is extremely high. Since their conception the 1993, they have won 36 major cases, tied three and lost three. This is a fantastic record. Obviously large corporations with difficult legal problems seek the services of Bartlit-Beck. I asked how they distributed the profits and was told that it was done by the partners percentage. This makes the entire firm work as a team. This brings the firm close together.