Law Department Management

Human Capital Management Part VI – Workforce Optimization

The Harv. Bus. Rev., Vol. 85, March 2007 at 115, article on human capital management practices has spawned several posts (See my posts of May 11, 2007 with the first 9 practices and May 28, 2007 with the final 14; as well as June 10, 2007 on Leadership; June 11, 2007 on Employee Engagement; and June 14, 2007 on Knowledge Accessibility.). Here are my references and comments on the practices under category four, “Workforce Optimization”:

1. Processes: “Work processes are well-defined, and training is effective" (See my posts of Feb. 6, 2007 with references cited about processes; and March 11, 2007 on initiatives compared to processes.).
2. Conditions: "Working conditions support high performance" (See my post of June 5, 2007 on architectural layout and references cited.).
3. Accountability: "High performance is expected and rewarded" (See my posts of Jan. 15, 2007 on three pernicious effects of bonuses; April 8, 2007 for three determinants of bonuses; May 23, 2007 on bonuses determined by business unit performance; Feb. 24, 2007 which questions whether more money leads to more work; April 27, 2007 on the mix of compensation elements; Nov. 24, 2005 weighting the various determinants of bonuses; as well as Feb. 19, 2006 and Jan. 15, 2007 for some weaknesses of bonus awards.).
4. Hiring: “Hires are chosen on the basis of skill; new hires complete a thorough orientation.” (See my post of April 27, 2006 about on-boarding a new general counsel.).
5. Systems: "Employee performance management systems are effective" (See my posts of Feb. 15, 2006 on the shift from mere evaluations to performance management; and Sept. 25, 2006 which distinguishes performance management from training, coaching, mentoring and organizational development.).

The omissions from “workforce optimization” that struck me are that (1) there is no mention of technology as an aid for the workers, (2) nothing suggests that the structure and organization of a law department affects productivity, and (3) demand management – how you can influence what comes to the workforce – has no mention.

Narcissism and the arrival of younger lawyers who are unhumble gifts to their departments

According to some research, the youth of America exhibit higher levels of narcissism, “a positive and inflated view of the self,” than do their elders. Younger lawyers joining law departments may well be more self-centered than lawyers of previous generations, if we extrapolate from comments in Atlantic, Vol. 300, July/Aug. 2007 at 30. A 40-question survey called the Narcissistic Personality Inventory places those who take it on a scale of narcissism.

Full-of-themselves lawyers may demand more training, greater responsibility, and faster development (See my post of June 24, 2007 on high-potential lawyer programs.). They may bluster about titles, complain about bonuses, and demand the best office space. It’s hard to manage overweening egos.

In-house counsel who are too-hard-at workaholics

Workaholism is not the same as just working hard. Many in-house attorneys routinely log far more than 50 hours a week at their desk or traveling (See my post of Dec. 12, 2006 on “extreme jobs.”). Yet just because someone doesn’t leave until late or doesn’t take full vacation time does not brand him or her an addicted or compulsive slave to work.

A piece in IEEE Spectrum, Vol. 44, June 2007 at 72, offers six prescriptions on what to do to resist the poison of incessant labor. “Manage your time better” (See my post of Oct. 16, 2006 and references cited.). “Don’t be a perfectionist.” It may be that good old Pareto gives chronic worker bees some guidance (See my post of June 27, 2007 on other manifestations of Pareto’s Law.).

“Don’t eat lunch at your desk every day.” The author writes that this “sure sign of a workaholic” just tires you out. “Learn how to say ‘No’.” Rather than take on the assignment to be completed right away, set a realistic deadline, or ask the client to rearrange its priorities on other needs (See my post of June 25, 2007 on status reports.).

“Work at home more.” This advice sounds paradoxical, because at least away from the office the workaholic may have some respite and you don’t want to further blur work with non-work time. But perhaps the author suggests it to save commuting time, break out of a vicious cycle, or because even a bad day at home is better than a great day at work (See my post of May 30, 2006 on telecommuting and references cited.). “Take vacations” without laptops, cell phones, Blackberries, Red-Welds, advance sheets, and other umbilical cords to the office (See my post of May 18, 2007 on vacation days and references on stress.).

Sound advice and we should all work extremely hard on following it.

Further reflections on obstacles to improving outside counsel management

A previous post discusses my concurrence with and dissent from some obstacles within law departments to improving outside counsel management (See my post of June 30, 2007.). Some reasons were not mentioned at all by that compilation.

Law firms, to put it bluntly, are flush. If they have as much work as they can handle, why should they care about pleadings by their clients for cost restraint. A second obstacle is the fear of inside lawyers to try something new, especially if there is a risk (See my posts of April 12, 2006 on risk aversion and personality styles; Oct. 18, 2005 generally on lawyer on risk aversion; Dec. 17, 2006 on Type I and II errors; and Aug. 27, 2005 on mutual blame as to why alternative fee arrangements not succeeding.). A third brake is the lack of palpable incentives for individual lawyers to reduce costs.

One other hurdle that should be recognized is a manifestation of the principal-agent problem (See my posts of Jan. 16, 2006 on the principal-agent split; May 16, 2006 on why individual lawyers don’t reduce costs; and Jan. 28, 2007 on agency theory.). Finally, the reality is that many law departments have needs for outside counsel that are sporadic and spread out, so there is difficulty having a critical mass of services need and thus gaining traction on cost control.

Obstacles to improving outside counsel management: agreement and disagreement

A document of the Corporate Executive Board lays out 13 obstacles within law departments to improving outside counsel management. They include several that I agree with. "Pressure to use expensive law firms as an ‘insurance policy’ for important matters" (See my post of May 23, 2007 on CYA.). "Reluctance to push on costs as it may alienate law firms" (See my post of July 30, 2005 on the fear of driving away good firms with cost niggling.). Three other obstacles have to do with insufficient internal headcount or budget to invest in cost-saving technology, and they are unobjectionable.

Three of the obstacles I question. "Difficulty switching firms due to long-standing relationships and loss of institutional knowledge" may be exaggerated (See my post of July 21, 2006 disputing the putative losses from transition to a new firm.). "Law firms lacking commercial understanding of the business" may have several interpretations. "Lack of small firms in the market capable of handling large or complex matters" the limitation for large matters that require many staff may have some validity but complexity is not beyond the scope of experienced partners in specialty boutiques (See my post of June 30, 2007 for comments on obstacles not on the list.).

Managers and problems – four steps to solutions

A manager in a law department first has to recognize that there is any problem (See my posts of Jan. 13, 2006 on a trio of consequences of managerial incompetence; and March 18, 2007 on general counsel who are bad managers.).

Then the manager has to decide that the identified problem justifies some action. After all, no good deed goes unpunished, every action has unintended consequences, and some things correct themselves (See my post of Aug. 22, 2006 on the economics of error.).

Thereafter, the manager has to choose what to do; there is no guarantee that the person chooses the best option (See my post of Sept. 22, 2006 on obstacles to choosing a law firm objectively; Jan. 17, 2006 on decision analysis tools; and March 18, 2005 on intuition and rationality.).

In the end, competent execution can trip up a law department manager. Managers have to follow through on whatever the general counsel decides to pursue (See my posts of March 17, 2006 on strategic plans; Jan. 4, 2006 on alternative fee arrangements; Jan. 27, 2006 on technology; and Dec. 5, 2005 on budgets.). Where problems crop up, all the recognition, decisions to act, and smart choices fritter away unless the manager carries out the plan.

Formal training rolls off the back (or out of the mind)

You have to wonder about the cost-benefit ratio of CLE programs for in-house lawyers. Research has shown that information and knowledge gained from formal training programs is often not effectively applied. According to Cal. Mgt Rev., Vol. 49, Winter 2007 at 44, "Some researchers have estimated that from the approximately one hundred billion dollars spent annually on all forms of corporate training (from technical training to leadership and executive development), only about 10% is actually applied on the job."

This makes me wonder how many in-housers would attend CLE courses if if were not for mandatory bar requirements (See my post of Jan. 20, 2006 about CLE not being useful because the in-house attendees are too sophisticated; and June 20, 2007 on the specialization of in-house lawyers.). To be sure, nothing much is known about training taken by in-house lawyers on topics other than substantive legal learning (See my posts of April 12, 2006 on substantive vs. management training; and Sept. 21, 2005 on writing as an example.).

A test to see whether discounts on billing rates have saved money

One way to test whether discounted billing rates actually translate into savings is to compare the post-discount effective rate of a law firm to its pre-discount effective rate (See my post of June 13, 2006 for the definition of “effective billing rate.”). To do so take a representative selection of invoices from the law firm that has granted you a discount. Divide the total professional fees by the total professional hours as billed and you will know the effective billing rate.

If you then do the same calculation for a large sample of invoices after the discount has been granted, you will know or at least have an inkling whether the discount has lowered the firm’s effective rate.

Yes, all the matters are not the same in the pre- and post-discount bundles but if the billings are large enough, the figures should be representative, especially if the types of matters are fairly similar. Yes, billing rate increases may have taken effect, but you can reduce any invoices subject to higher rates by the higher rate percentage and then make the comparison (See my post of May 26, 2006 that derides discounts.).

Pareto’s law as applied to timekeepers on a matter or for a client

A commonplace holds that, roughly speaking, 25 percent or fewer of a law department’s law firm’s account for 75 percent or more of all its billings. Likewise, 25 percent or fewer of a department’s matters account for 75 percent or more of its spending on external counsel during a year.

A third manifestation of Pareto’s venerable generalization (See my post of Sept. 4, 2005.) is that it may well be that 25 percent of fewer of the timekeepers on the matters of a particular client are responsible for 75 percent or more of the billable hours or the dollar value billed or both. This should hold true because to some degree the same lawyers are assigned to service the same client (See my post of Dec. 8, 2006 about core teams in law firms.).

To refine the ratio a bit more, I suspect that each of the above ratios are more like 20 percent to 80 percent, but the point is the same.

Timekeepers other than partners, associates and paralegals

Any law department with electronic billing can break down its invoices by timekeeper level. The proliferation of timekeeping levels is remarkable.

The bare minimums of levels are in law firms that have partners, associates, and paralegals (or legal assistants) (See my post of June 7, 2006 on the difference between paralegal and legal assistant.). More elaborate gradations of timekeeper levels include senior associates, non-equity partners, and litigation support personnel.

Even beyond those additional timekeeper distinctions are summer associates, docketing clerks, senior partners, and several other mutations such as project managers (See my post of Aug. 22, 2006 for more on this role.).

Should this spread of timekeeper categories matter to law departments? Absolutely, if a person moves to a higher level and for that reason alone their billing rate jumps more than some annual adjustment amount, then law departments care if there are many rungs on the ladder. Rungs costs them more.

Law departments also care because the finer gradations tell them how the law firm views the importance of matters. Look at the level of professionals they assign to the department’s matters. Fine distinctions between levels tell more about staffing than if only the original three categories are used (See my post of Sept. 5, 2005 about non-equity partners.).