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Mile High Chapter - ALA Presented by Stephen M. “Pete” Peterson September 20, 2012
2 Pete Peterson Maxfield Peterson P.C. Law Firm Biz M
“Here’s a dime. Call your mother. Tell her there’s serious doubt about your becoming a lawyer.” “Somewhere, inside, in the dark, the firm is listening.” “Everything that guy just said is bullshit. Thank you.” “I hate lawyers; I just work for them.” “You don’t want to quit me. I’m your dream client. I’m the most fun, I’m rich, and I’m always in trouble.” © 2012 Maxfield Peterson P.C.3
Current and anticipated future trends affecting firm economics Budget considerations for 2013 Keys to better profitability © 2012 Maxfield Peterson P.C.4
5 Why is it called the New Normal? In most business cycles, many of the "old ways" may no longer work and firms need to become more entrepreneurial and flexible to take advantage of the new economy. Well, this line of thinking isn’t new.
Business model Firm economics Compensation structures Competition; disruptors Wag the Dog Succession issues War for market share/free agency partners Law firm failures © 2012 Maxfield Peterson P.C.6
Economic success (however defined) creates complacency “If it ain’t broke, don’t fix it.” “Our model has worked brilliantly for generations; why change”? © 2012 Maxfield Peterson P.C.7
8 Reprinted with permission.
Abe Lincoln 9
Too many: Law school graduates Associates-given what clients will pay for Of-counsel and non-equity partners, challenging the advancement of associates Equity partners, if judged on strict performance criteria or amount of profits to go around © 2012 Maxfield Peterson P.C.10
Clients forcing innovation
How we bill Legal project management Predictive coding © 2012 Maxfield Peterson P.C.12
Pfizer Inc., which spends more than $500 million a year on legal matters, says it expects to reduce its domestic law-firm spending by 15% to 20%, largely through flat-fee arrangements. "I have told firms you cannot make your historical profit margins" on Pfizer work, said the pharmaceutical giant's general counsel, Amy Schulman. © 2012 Maxfield Peterson P.C. 13
HBR article July-August 2012 Opportunities for other firms.
Under what circumstances might each of the following be the right choice ◦ Associates review docs at rack rate? ◦ Use staff associates with rates 50% less? ◦ Use temp-agency attorneys and pass along cost (or cost plus) as client disbursement at roughly 25% of associate rate? ◦ Offshore LPO at roughly half the temp agency cost? ◦ Rely entirely on software tools? Predictive coding, etc. © 2012 Maxfield Peterson P.C.15
17 The Economist; 50 ways to leave your lawyer
© 2012 Maxfield Peterson P.C.18 Industry disruptors; start of the New Normal? axiom law redefined Cometh The Hour by Riverview Law
19 Source: Michael E. Porter
The future has already happened.
© 2012 Maxfield Peterson P.C.21 ?
© 2012 Maxfield Peterson P.C.22 Firm Capital
What would happen if firms failed in Denver next year?
© 2012 Maxfield Peterson P.C.24 McDonough Holland & Allen
© 2012 Maxfield Peterson P.C.25
© 2012 Maxfield Peterson P.C.28
Source: Citi Law Watch 32
33© 2012 Maxfield Peterson P.C.
© 2012 Maxfield Peterson P.C.36
38 Source: ALM Survey
“We can't solve problems by using the same kind of thinking we used when we created them.” A. Einstein © 2012 Maxfield Peterson P.C.39
All of our partners are expected to be productive, both in terms of billable hours and origination of business. There are no unproductive partners dragging down profits, nor is it a concern that the retirement of any senior director will jeopardize profitability. © 2012 Maxfield Peterson P.C.40
Recent survey conducted by Wells Fargo’s Legal Specialty Group Results through June 30, 2012 ◦ Revenues increasing 3% YOY ◦ Expenses increasing 6.5% YOY ◦ Hourly rates up 3.7% Net 2.9% (erosion) © 2012 Maxfield Peterson P.C.41
Wells Fargo survey (cont.) Firms are strengthening balance sheets ◦ Partner capital increased 7% One in three firms have unfunded pension plans (primarily for partners) Survey group; 115 firms in AMLAW200 © 2012 Maxfield Peterson P.C.42
© 2012 Maxfield Peterson P.C.43
Scenario plans ◦ Further belt tightening ◦ Loss of rainmakers ◦ Loss of clients Impact from succession planning ◦ Reduced productivity ◦ Deferred income ◦ Return of capital Lateral hires Consider tools like Time Builder © 2012 Maxfield Peterson P.C.44
Zero based budgeting Increase budget for business development ◦ Including training, coaching, sales programs ◦ Track ROI Merger activity-many considerations Risk management Contingency line item What else can be outsourced Increase budget for internal controls © 2012 Maxfield Peterson P.C.46
Offsite service centers Bingham (Boston) to Lexington KY Pillsbury (NYC) to Nashville TN WilmerHale (Boston/WDC) to Dayton OH Orrick (SF) to Wheeling WV Overseas based outsourcers have centers in Fargo and Dallas © 2012 Maxfield Peterson P.C.47
© 2012 Maxfield Peterson P.C.48 Next-former Mayer Brown CIO charged with embezzlement.
1.Get the work 2.Do the work 3.Bill the fees 4.Collect the fees 5.Return to step 1 © 2012 Maxfield Peterson P.C.49 Somewhere out there, Dean, is the key to increased profits. I want you to find that key, Dean, and bring it to me.
Revenue Utilization Leverage Expenses Speed The New Normal? © 2012 Maxfield Peterson P.C.50
What law firms can Learn from organized crime. What Steve Jobs can teach law firms about marketing. What law firms can learn from my disappointing experience at Del Frisco's in New York. The 'Moneyball' lesson for firms. Risky Business: What law firms can learn from airlines and hospitals. © 2012 Maxfield Peterson P.C.51
We can help you... 1.Be among trend setting and state of the art service providers to small and midsize businesses. 2.Earn non-contingent plus contingent.
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