The New Whipping Boy?

Earlier this month, I wrote a column "about
wringing our hands" (its actual title was How High Quality Are Your
Lawyers?  And How Can You Tell?) and I’ve just received a most thoughtful
email from Alec Guettel, one of the co-founders of Axiom Legal, which is extensively
discussed in the earlier piece. 

I want to share it with you, but first permit me a few observations. 

Essentially, Alec recaps Axiom’s experience in measuring the quality
of lawyers–at least as perceived by clients–and provides some refreshingly
concrete suggestions, based on hard-earned experience, about how to secure
meaningful client feedback.  These valuable observations speak for themselves.

But Alec also takes a roundhouse swing at the famous profits per partner "success
metric," which he says "continues to amaze and entertain us.  Increasingly,
it seems to be the only metric that matters to firms [even though it] is almost
perfectly cross-aligned with the clients’ interests." 

Is this actually correct? 

Hasn’t PPP become, in some ways, everyone’s favorite new whipping boy?  Alec
argues that PPP can "basically" be increased by raising rates, raising hours
billed per attorney, raising leverage, or cutting costs (which, he says, "we
have yet to witness in a meaningful way from top firms").  Are those
the only, or the "basic," ways to raise PPP? 

More to the point, what’s so bad about PPP, anyway?  The poliltically
correct gang is warring with the economic gang, and I wonder whose side you
come out on.  Whichever side it is, thanks to Alec for lobbing in the
question.

Dear Bruce –

Thanks for what you’re doing with "Adam Smith, Esq." – really interesting
and really necessary. 

I was pleased to see your recent post on the failure among clients to measure
the quality of legal work they are receiving and the failure among law firms
to measure client satisfaction.  You could not be more right that this
is a. lacking and b. critical to the improved function of the legal services
market.

This is a topic we’ve invested a lot of time and energy thinking about at
Axiom so, for what it’s worth, I thought I’d share some of our views.  We’d
love to help you catalyze a broader discussion in this area.

After trying some less structured approaches with mixed results (read: abject
failure), we began to insist at the outset of our relationships with new
clients on a highly structured series of feedback sessions at specified points
in each engagement.  These meetings are always in person (otherwise they get cancelled)
and after some experimenting, we’ve begun to schedule them for only 10-15 minutes.  This
has increased our clients’ enthusiasm for the meetings and forced all the parties
into having very focused, prepared, surprisingly productive conversations.  In
specified meetings during the process, we have a quantitative review where
we walk the client through a survey about technical legal skills, business
counsel, responsiveness etc.  We don’t send these quantitative questionnaires
to the clients – again, because they’d never get around to filling them out
– we walk them through the questions and record the answers.

This process yields superb feedback for our individual attorneys and for
Axiom as a firm, and provides a relatively objective measure for performance
evaluation and compensation of our people.  As a next step, we’re looking
at ways to provide transparency to future clients about the performance of
individual Axiom attorneys on prior engagements and about the firm as a whole. 

These lines of thinking have also generated a separate internal discussion
about the whole notion of “profits per partner” as a success metric.  The
level of importance and pride assigned to the P3 metric by traditional law
firms continues to amaze and entertain us.  Increasingly, it seems to
be the only metric that matters to firms – a very  public, highly scrutinized
measure of success of firm management and overall status.  Even where
individual partners care about more than the size of their paycheck, they
have to manage toward that number because it’s become shorthand for the quality
of the firm.

The problem, of course, is that P3 is almost perfectly cross-aligned with
the clients’ interests.

There are four basic ways to increase profits per partner. Three of them put
the firm in direct conflict with their clients’ goals and the fourth has been
neglected:

• Firms can increase rates, which we have seen plenty of in recent years
  and is self-evidently a negative for clients.
• Firms can increase hours billed per person, which is bad for associates
  and bad for clients as they result in lawyers who are unhappy, overworked
  and moving between firms at an alarming rate.
• Firms can increase their leverage (number of associates per partner).
  This is destructive in countless ways, including deterioration of work
  quality and the quality of life of the partners themselves, which exacerbates
  rising attrition among associates (who wants to be a partner these days?).
• The fourth solution is to cut costs, which is a solution we have yet
  to witness in a meaningful way from top firms. In fact, costs have increased
  as lawyer salaries have escalated. Ironically, this is the only one of
  the four approaches that is, on balance, good for clients.

 

In contrast to profits per partner, we’ve been developing an alternative
metric based on the percentage of the client’s overall legal spend that Axiom
constitutes year-over-year.  This provides client-favorable motivation in both the
numerator and the denominator.  In the numerator, we are motivated to
win “market share” within existing clients.  In our view, this is the
most reliable expression of a client’s level of satisfaction (though we also
ask them to rate us, as outlined above).  In the denominator, we are motivated
to reduce our clients’ overall legal spend, which has resulted in our doing
free consulting on best practices and recommending a range of solutions that
have nothing to do with Axiom.   (Note: one could argue that the
numerator provides an incentive for us to raise rates, but we think that’s
outweighed by the primary focus on winning “market share” within the client.)

Finally, I wanted to draw readers’ attention to the comments you quoted
from Jeff Carr, GC of EMC.  The system he reports combining performance feedback
and performance compensation is in our view close to ideal.  We’ve proposed
a similar approach to a few clients but have never succeeded in getting a performance
compensation system adopted.  Carr’s comments are inspiration to try
again, and I encourage other legal service providers to do the same.

We all appreciate the work you’re doing to highlight this issue via your
publication and look forward to continuing the discussion. Thanks for being
a catalyst for these conversations!

Best regards,
Alec
_____________________________
axiom
law redefined

alec guettel
23 austin friars
london EC2N 2QP UK