The ABA Doesn’t Understand Free Market Economics

Facing a severe decline in demand for legal services among moderate-income Americans who don’t believe they can afford legal representation, two years ago the American Bar Association convened the Commission on the Future of Legal Services. This august braintrust recently published the results of its deliberations. Its conclusion: Americans need to be educated that they need more legal services.

ABA-Greedy-DelusionalAs Christy Hoop of Hinshaw & Culbertson LLP summarized in a recent JD Supra post:

The Commission suggests that all individuals should have legal checkups “on a periodic basis, especially when major life events occur” such as a marriage, divorce, the birth of a child or those individuals who may be in a situation which may require a medical health directive or a will.

The preamble to the proposed ABA Guidelines for Legal Checkups declares that “The purpose of legal checkups is to empower people by helping them identify their unmet legal needs and make informed decisions about how best to address them.” What the ABA refuses to recognize or admit is that the legal profession is subject to the the invisible hand of free market economics, and Americans already are making informed, rational decisions about their use of legal services. Namely, lawyers aren’t worth what they think they are.

Let us quickly review the basic laws of supply and demand. As described by Investopedia,

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.

economics3.gif

A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C). [Emphasis added]

The ABA Economy

The ABA is essentially a failed cartel or medieval-style guild. While the ABA and state bar associations once controlled prices by controlling the supply of legal services (i.e. licensed lawyers), they essentially undermined their own self-interests by allowing the proliferation of law schools, and by allowing the cost of legal education to skyrocket.

As a result, law schools have become massively expensive diploma mills, resulting in a glut of supply (lawyers) with a cost basis that requires high prices for legal services in order to service law school debt (at best) and the law firm partnership Ponzi scheme model (at worst), which in turn drives down overall demand. In high-end corporate circles, alternative billing arrangements that might lower legal costs (or at least improve the ROI of legal services) have been experimented with for years, but the model has yet to show traction. Meanwhile, the only recourse at the lower end of the economic ladder is the nearly dry well of government-financed legal aid.

Is the ABA Commission on the Future of Legal Services Delusional?

Compounding the legal profession’s supply-and-demand problems is a collective belief that their services are intrinsically worth more than those of other professions. In legal profession navel-gazing blogs — and there are A LOT of them — there is a constant litany of laments about how lawyers can’t live in the style they deserve because non-lawyers don’t understand how much law school debt they have to pay off.

If that’s truly how one feels, be prepared to answer why someone so highly trained still doesn’t understand a basic principle of family budgeting: Don’t incur debt that you know you might not be able to repay (or not be able to live well while repaying it).

The executive summary of the Commission’s findings makes numerous obvious and naive observations, like:

“Many lawyers, especially recent law graduates, are unemployed or underemployed despite the significant unmet need for legal services;”

“The traditional law practice business model constrains innovations that would provide greater access to, and enhance the delivery of, legal services;” and

“The legal profession’s resistance to change hinders additional innovations.”

Yet while full-throatedly recommending impotent measures like the establishment of an ABA Center for Innovation, not one of the Commission’s 12 recommendations even contemplates measures directed specifically at lowering the cost of legal services to average Americans.

Six Sigma for Law Firms: Move Over Client Surveys, Make Way for Net Promoter Scores

As I’ve written about previously, I am proud of my GE pedigree, particularly the invaluable Six Sigma and “Lean” training in operational rigor, analysis, continuous improvement, measurement and repeatable processes. So I was interested and encouraged to see Lisa Damon of Seyfarth Shaw honored as one of the ABA’s 2011 Legal Rebels for her work championing SeyfarthLean, the firm’s Six Sigma-inflected initiative to drive strategy and operational effectiveness that delivers both cost reduction for clients and revenue growth for the firm.

And earlier this week I came across a post by Darryl Mountain on the SLAW blog that discussed how to apply a standard Six Sigma DMAIC tool — the fishbone diagram — to analyze legal problems.

It seems like the time might be right for innovative firms to consider importing another quality and customer engagement tool from the business sector into law practice management: the Net Promoter Score, a customer/client loyalty metric and a operational discipline for using customer feedback to fuel profitable growth. Adopted by companies like GE, P&G, Intuit and American Express, the NPS is derived from a single question posed to customers/clients: “How likely are you to recommend [Company X] to a friend or colleague?”

Survey participants respond on a 0-to-10 point rating scale divided into three groupings:

  • Promoters (score 9-10) are loyal enthusiasts who will continue buying and
    will refer others, fueling growth.
  • Passives (score 7-8) are satisfied but unenthusiastic customers who
    might be receptive to competitive offerings.
  • Detractors (score 0-6) are unhappy customers who can damage your
    brand and impede growth through negative word-of-mouth.

To calculate the Net Promoter Score (NPS), subtract the percentage of Detractors from the percentage of Promoters. In concert with the survey, NPS companies develop an operational model to drive improvements in customer loyalty and enable profitable growth. Key elements of the model include leadership commitment, effective business processes, and systems to deliver real-time information to employees so they can respond to customer feedback.

Studies examining the NPS “loyalty effect” have shown that companies with the highest customer loyalty typically increase revenues at more than twice the rate of competitors.

Know of any law firms that have tried NPS or a similar methodology with clients?

Law Practice Management: Legal Work vs. Work Lawyers Do

Last Friday Rachel Zahorsky at the ABA Journal filed a story from the ABA Annual Meeting headlined “As Nonlawyer Vendors, Would-Be Clients Take on More Legal Tasks, How Can Practitioners Get Ahead?”

Wait a minute…since the unauthorized practice of law is illegal, how can these brazen scofflaws get away with it? Because the work that is shifting is not intrinsically legal work, but rather non-legal work historically performed by lawyers. Granted, lawyers might be better at those tasks than non-lawyers, but economic, sociopolitical and technological factors are successfully breaking up those unofficial franchises nonetheless.

“It’s getting to be so hard to define what the practice of law is,” said Thomas C. Grella, chair of the management committee at the Asheville, N.C., firm McGuire, Wood & Bissette. “So it’s going to be even harder for state bars to regulate in the future.”

Grella was a participant on a panel entitled “The Once and Future Firm: Fact v. Fiction,” sponsored by the ABA Law Practice Management Section. According to Zahorsky’s post, the panel concluded that:

“For firms to succeed and flourish in the future, there needs to be strong leadership among law firm management, a willingness to innovate with regard to technology and billing methods, and concise plans of succession that address the compensation squabbles that plague many firms when it comes time for senior partners near retirement to transition high-revenue generating clients to junior lawyers.”

Mind-blowing, provocative stuff, right?

It might not have made it into the panel wrap-up, but at least one panelist clearly gets it:

“Lawyers need to ask: ‘Why are [clients] hiring me?’ said Mark Robertson of Robertson & Williams in Oklahoma City. ‘Can they hire someone else and not have a law firm do it? What is involved in putting together the paperwork of an M&A transaction that requires a lawyer, other than an opinion?'”

Ask not what the guild can do for you, but what you can do for your client.

3 Mandatories for a Successful, Sustainable Niche

The counsel to “develop a niche” is liberally dispensed in legal marketing discourse. On its face, its promise is very seductive: A lucrative pipeline of business from clients who seek very specific expertise. In practice, however, niche prominence is difficult to achieve — particularly for small and solo firms — and is more a function of inspiration and serendipity than of deliberate advance planning.

The most successful niche products and services emerge organically from identifying and leveraging a unique set of characteristics in work you’ve already performed. Mining your own experience ramps faster and is more sustainable over time than premeditated strategies.

An ABA Law Practice Today post summarizes it this way:

“Experience relevant to a particular niche market can be developed in many ways. Some practitioners may have generally relevant legal experience that they can couple with prior work experience in a particular market. Others may be able to apply generally relevant legal experience to a market with which they are familiar due to a personal interest such as a hobby. It is quite possible that you may have sufficient expertise to support a niche marketing effort without realizing it. Rethink the types of matters you have handled as an attorney. Viewed from a new perspective, they could well represent meaningful expertise in a particular niche.”

Characteristics of a sustainable niche include:

  1. Expertise in an industry or issue where potential clients are highly networked – Niche practices gain traction best when they tap into existing word-of-mouth infrastructure.
  2. Significant barriers to entry – Ownable, defensible niches leverage scarcity, which typically means a) deep technical, product or issue expertise, b) obscure  or arcane knowledge, c) high levels of complexity, or d) a singular service delivery model (i.e shared-risk/incentive-based compensation).
  3. Referral business unaided by niche marketing activities – Organic business development through word of mouth is the best predictor of sustainable success in niche markets. Without it, reaching prospective clients in a niche is cost-prohibitive.

Or you could try the “Gypsy” method:

[youtube=http://www.youtube.com/watch?v=8-FlkNKE3QM&fs=1&hl=en_US]

Legal Blogging Reality Check: Suspicious Minds

[youtube http://www.youtube.com/watch?v=SBmAPYkPeYU&w=480&h=390]

It is truly meet, right and salutary to regularly examine the marketing effectiveness of blogging by lawyers. Blogging is a not inconsiderable investment of time and mental energy, and it usually takes a long time to produce meaningful results, so it should not be initiated or continued unquestioningly.

Despite anecdotal evidence from some established legal bloggers and purveyors of lawyer blog services, there is not enough hard data on the effectiveness of blogging to support a general rule that all lawyers should have their own blog.

To its credit, the American Bar Association recently conducted a survey on the way individuals search for lawyers for personal legal matters. The survey found that only 15 percent of respondents indicated that they would consult lawyer blogs in making their decision. Most of the resulting commentary by legal blogging heavyweights focused on tearing down the survey methodology, and theorizing a case for blogging as an engine for positive word of mouth and its validation. But that discussion missed the much larger point.

As Adrian Dayton pointed out:

“The important piece of data here is that a significant percentage of of your average…clients are using Facebook, Twitter and blogs to find their lawyer.  Not to mention that fact that referrals are often requested and passed via these very same social networks.”

Words of Comfort and Support for Legal Blogging Pragmatists and Skeptics

  • Trust your gut. If you lack confidence, you will lack commitment; if you lack commitment, you will not succeed in blogging.
  • Focus on content first, then distribution channels. A well-designed, regularly updated website can be as, or more, effective than a blog. If you’re more proficient and comfortable with writing analytical long-form pieces — which are deadly in blogs — white papers and e-books available through your website or sites like JD Supra can be effective alternatives.
  • Twitter is turbo-blogging. Because it is a short-form, conversational medium, you can cultivate a meaningful following and form productive, reciprocal relationships faster and with less effort than blogging.
  • Make your mark in video. There are lots of blogs out there, but not so many video channels. If you are inclined to buy search terms, hot keywords are still plentifully available and affordable on YouTube.

How Do You Rate? How Much Should You Care?

Why do lawyers still invest time, money and attention in rating organizations like Martindale-Hubbell, Am Law, Avvo and Best Lawyers? I certainly don’t question the veracity of the satisfied customers featured on their sites, but I’ve yet to find persuasive affirmative evidence about their value to a broad base of practice types and firm sizes.

My working theory for their enduring pull on lawyer egos, attention and budgets is that it’s due to inertia and FUD (Fear, Uncertainty & Doubt). Fear that there’s inaccurate and/or unflattering information about them out on the Interwebs, uncertainty over what would happen if they stopped “claiming” their profiles and adding the rating badge to their website homepage, and doubt about alternatives. In other words, a defensive strategy with an unclear, uncertain chance of upside.

It’s not just me wondering. The ABA Commission on Ethics 20/20 also is looking into what makes them tick.

If the only time you pay attention to your profile on the various lawyer referral sites is when it’s time to renew a subscription, that should raise a red flag.

The hermetic secrets of their rating methodologies aside, lawyer “finder” sites just don’t seem on their face to add value in today’s social networking-driven marketplace. Unlike consumer ratings and reviews for simple purchases, professional services ratings and reviews are only credible if the seeker already knows, likes and trusts the reviewer. That’s why people looking for lawyers usually ask other lawyers or friends who know lawyers for recommendations. LinkedIn and state bar association sites are much more suited to that purpose.

When clients ask me whether it’s “worth it” to spend time and money on profiles, I walk them through some basic ROI questions:

  1. Have you gotten leads from ratings sites?
  2. How many, and over what period of time?
  3. What percentage of those leads turned into actual engagements (as opposed to tire-kickers, price shoppers or individuals unable to pay)?
  4. How much were the resulting engagements worth?
  5. Were they profitable?
  6. Do they generate more profitable business than other marketing activities/lead channels?
  7. Could you put that time and money to more productive use elsewhere?
  8. What do you think is likely to happen — not might, likely — if you did just the minimum to maintain basic profile information?

Even if you decide not to pay “finder” sites for the ability to embellish and/or actively manage your profile, it’s still wise to make sure that the information the site compiled on its own is current and accurate. Better safe than sorry.

The Interesting Parts of the ABA’s Legal Technology Survey Are What It DOESN’T Say

Annual surveys make good (read: popular) copy, but unless they have insightful scope and keen survey instruments, those reports frequently turn out to be incomplete social science of limited practical value. Survey formJudging from the ABA’s press materials and Adrian Dayton’s summary, the 2010 ABA Legal Technology Survey Report: Web and Communication Technology” unfortunately follows that pattern. It appears to tally surface-level indicators of social media participation, but does not drill down far enough into that data to reveal meaningful, useful information.

Isn’t it time that legal marketing got past the “gee whiz” bandwagon stage of social media participation and started seriously studying its application and effectiveness?

The ABA’s “Book Briefs” blurb cites the following top-line findings:

“When asked whether they personally maintain a presence in an online community/social network such as Facebook, LinkedIn, LawLink, or Legal OnRamp, 56% of respondents answered affirmatively, compared with 43% in the 2009 survey and 15% in the 2008 survey.”

What does “maintain a presence” mean? Does it still count if they signed up for an account but have not updated it for weeks or months? How frequently do they post to or update each profile? Also, what does “personally” mean?’ That they write and post the content themselves, or that the account pertains to them personally (as opposed to their firm) and their marketing staff helps?

“The highest percentage of respondents report maintaining a presence in LinkedIn (83%), followed by Facebook (68%) and Plaxo (18%).”

Again, how frequently do they visit these sites, what do they do while there and what specific results is that participation generating? Much has been made of data indicating lawyers spend more time on Facebook than on LinkedIn, but that in itself is a poor predictor of its efficacy as a marketing platform unless you have data on their primary activities and expected benefits from that participation. There’s a lot of non-business stuff to do on Facebook; not so much on LinkedIn. In marketing parlance, you have a more “intentional” (there for a specific purpose) and “qualified” (likelier to be receptive to what you’re selling) audience on LinkedIn than Facebook. Participate in Facebook if it works for you, not just because it has buzz momentum and all the cool kids are hanging out there.

“Respondents in the 30- to 39-year-old age group are the most likely to report that they maintain a presence in an online community/social network (77%, compared with 72% in the 2009 survey), followed by 68% of 40- to 49-year-olds (compared with 58% in the 2009 survey), and 50% of 50- to 59-year-olds (compared with 35% in the 2009 survey).”

What useful conclusions can be drawn from that? It appears to be a fairly typical adoption curve by age group. Either confirm that or identify unexpected findings and tease out their meaning.

“Large-firm respondents are the most likely to report personally maintaining a presence in an online community/social network (63%, compared with 57% in the 2009 survey and 13% in the 2008 survey); 52% of solo respondents (compared with 37% in the 2009 survey and 15% in the 2008 survey) maintain such a presence.”

Now that’s interesting! Did they bother to mine the data for reasons why that might be? Maybe because large firms have marketing staffs to help “maintain a presence,” while solos lack the time/resources OR don’t anticipate sufficient near-term ROI to justify that investment.

“The most common reason respondents report for maintaining a presence in online communities/social networks is for professional networking (76%), followed by socializing (62%), client development (42%), career development (17%), and case investigation (6%). Three percent chose the “other” category.”

Aren’t socializing, client development and career development just broad and overlapping aspects of professional networking? More concrete options like “speaking opportunities,” “reputation and awareness,” “client leads” and “new job opportunities” would have yielded cleaner data, and “professional networking” could have taken the place of “other.”

“Far from being a time waster, nascent efforts at social networking are yielding fruit. Ten percent of respondents report that they have had a client retain their legal services as a result of use of online communities/social networking.”
Actually, that conclusion irks me the most because the data to support such a conclusion clearly isn’t there. To make such a determination you’d have to know how much time respondents put into social networking, how many direct leads those activities have yielded, how much of total new business is attributable to leads from social networking and how much the resulting client engagements were worth. Even the credible and creditable Adrian Dayton fumbled this data point, saying “While 10% may seem small, it represents a dramatic shift in law firm attitudes towards social media.” No, it reflects client behavior, not law firm psychology.

What if a lawyer who responded affirmatively to that question spent 10 hours a week on social media last year and got only one matter, but it represented nearly half of his billings? Then yes, that’s certainly not a waste of time. Conversely, what if another respondent, this one working at a Big Law firm, spent the same amount of time on social media participation, also got one retainer out of it, but it only amounted to less than five percent of his total billings? He might have gotten more — and more lucrative — leads after doing a free CLE session at a bar event.

Here’s another way to look at it: How “dramatic” would it be to learn that 10 percent of respondents report that they have had a client retain their legal services as a result of use of Yellow Pages advertising?

Legal marketing has thrown its lot in with social media for many good reasons, but also for some bad ones — uncritical acceptance of and enthusiasm for generalized, anecdotal data chief among them.

I’m willing to allow that the additional data and analysis I’m looking for might be found in the full report, but at $350 per copy ($300 for members), I’m not going to take that gamble based on what’s been reported so far.

My Picks for Notable Posts of the Week 10/01/10

Mitch Joel at Six Pixels of Separation provided a fresh take on the generative powers of blogging in 7 Things That Blogging Does. Thank goodness he didn’t say “thought leadership”….

Carolyn Elefant at myShingle ripped the American Bar Association a new one for putting their website ethics guidelines behind a paywall in Lawyers Want to Be Good, So Why Does the ABA Make It So Darn Hard?

Jayne Navarre started teasing her new book, “social.lawyers: Transforming Business Development,” this week on her Virtual Marketing Officer blog. I’ll be particularly interested to read the case study section.

Could Social Media Expertise Help Law Grads Get a Job?: Four Student Bloggers to Watch

A story in yesterday’s Wall Street Journal  examined the less-than-rosey employment picture facing current and aspiring law students.

“The situation is so bleak that some students and industry experts are rethinking the value of a law degree, long considered a ticket to financial security. If students performed well, particularly at top-tier law schools, they could count on jobs at corporate firms where annual pay starts as high as $160,000 and can top out well north of $1 million. While plenty of graduates are still set to embark on that career path, many others have had their dreams upended.

Part of the problem is supply and demand. Law-school enrollment has held steady in recent years while law firms, judges, the government and other employers have drastically cut hiring in the economic downturn.

Allan Tanenbaum, chairman of the ABA Commission on the Impact of the Economic Crisis on the Profession and Legal Needs, who was interviewed for the story, noted that the average law-school debt for students is $100,000, and in the current job market, many “have no foreseeable way to pay that back.”

So while those stats might discourage potential law school applicants, current students are — as they say in poker circles — pot committed. Despite murky prospects, they’ve already invested too much to walk away.

Enter the law student bloggers.

Think about it: Law firms are just now wrapping their heads around online social networking and marketing, and grappling with how to develop those capabilities. In a crowded applicant pool, social media skills are going to be an important differentiator.

Probably the most famous student blawgger exemplar is Rex Gradeless of  the Social Media Law Student blog, who built a large a loyal following through advocacy of technology innovation in the practice of law. I thought it might be interesting and useful to start looking for other student voices and other approaches that exhibit aptitude and passion for the medium.

A few of my picks for “Law Student Blogs to Watch”:

Tax Docket (Joshua Landsman) – Congratulations are in order. According to a May 4 tweet, this week Landsman took his last exam and finished his J.D. at the University of Florida College of Law. A pop culture-inflected take on the dryest of topics. Tax info served up with music and celebrity gossip.

Law Student at Last (Anonymous) – An L1 “non-traditional” law student in Chicago. A candid, readable journal of what it’s like to balance work and family while pursuing a dream.

“Problem is, my husband is not on board.  He, in fact, believes my choices are harmful to our kids and our marriage!  I get that being away so much makes life harder for him and I appreciate all he’s taken on to make this work, but I also believe I am showing my kids that nothing is impossible and it is important to go for your dreams.  My daughter, especially, needs to see a woman succeeding at something that is really really hard!  I hope my marriage can make it, but if it doesn’t, it was going to fall apart without law school.

So, we shall see – it will be an interesting 3 years!!!”

Dennis Jansen (Eponymous) – University of Minnesota law student and urban explorer/commentator. Probably the most progressive blawg I’ve come across — Edgy/interesting graphics. Engaging. Irreverent  but smart. Urban/urbane. Lots of useful links, well organized.

Excerpt:

The problem with my international tax law class is that it is far more regulation dense than my corporate tax law or basic federal tax law courses. Things also tend to get “mathy.” Ick.

The Reasonably Prudent Law Student (Huma Rashid) – Blogs about law school experiences,  fashion and writing (legal writing, critical theory, essays and fiction). Pivots from a post on “Vintage Finds At Tulle for Under $50” to an illustrated pyromania-themed meditation on final exams.

So mad skills, right? (Do people still say that?)

For additional recommendations on student blawggers, check out the winners of Clear Admit’s first “Best of Blogging Awards,” announced earlier this week.

So Long, Blank Checks: Clients Saying Get with the Program, or Get Out of the Way

Over the past week there’s been a lot of social media discussion about the impact of lean, cost-effective, agile and highly capable non-traditional law firms and service providers on the business of law — particularly on traditional big firm, profits-per-partner models.

Last week Larry Bodine hosted an interesting and lively Martindale-Hubbell Twitter discussion about virtual law firms and alternative fee arrangements, and this week presenters at the Georgtown “Law Firm Evolution: Brave New World or Business as Usual” conference are hammering the point that disruptive innovations — and clients’ receptiveness to them — represent a fundamental shift in the industry.

As Rachel Zahorsky at ABA Journal writes today:

“If Susan Hackett, Association of Corporate Counsel vice president and general counsel, is correct, outside firms have only another 18 months before client patience runs out. ‘The window is open for another year to year and a half for firms before clients start walking and looking at firms they’ve never looked at before,’ Hackett says, citing legal service companies and nonlaw entities as viable alternatives to traditional firms.

‘Whenever a firm says [it] can’t hold to a budget number because of unpredictability, the GC still has a busted budget,” Hackett says. “It’s not unpredictable. It’s unforgiveable that they don’t know and unforgivable that we haven’t held them to that.'”

That’s a critical insight: It’s the clients who are changing, and the “winners” will be the firms who understand, respond to and anticipate that change, and who manage and market their firms innovatively.

A few thoughts on how clients are changing:

Tighter cost controls: Although it has been slower in coming to legal departments than other areas of business, aggressive cost containment is finally reaching the general counsel’s office. Overall budgets are constrained or dropping, and cost overruns for case management are not tolerated any more leniently than are higher component costs. No more blank checks.

Outcomes vs. outputs: Companies have successfully moved other professional services providers — mosted notably marketing — off hourly rate-based compensation models, reducing costs and improving productivity.

People Like Us 2.o: The new generation of general counsels (and the internal teams who work for them) are lean, virtual teams, and are continually pressed to do more with less. They value and seek out partners who understand and complement that dynamic. Good post by Timothy Corcoran on this topic.

The issue for clients is not structural — small/virtual law firm vs. traditional firm, or billable hours vs. alternative fee arrangementss. It is quite basic: How do I get the results I need with the resources I have? Help them answer that, and let those answers drive your business.