Articles on Productivity

Baumol’s cost disease and why law departments keep paying higher and higher hourly rates

    The Economist, June 28, 2014 at 11, writes about higher education’s future and observes that with colleges, it “suffers from Baumol’s disease – the tendency of costs to soar in labour-intensive sectors with stagnant productivity.”

That effect could diagnosis the malady of corporate legal services: what big-firm lawyers do is labor-intensive, in the sense that a person not a machine has to do most of it and output per hour hasn’t budged much. It takes about as long to review a contract now as it did ten years ago. Maybe more given the new legal risks that have reared up. It takes about the same amount of time to talk to a client about the facts and ask questions that bear on the legal issues. It takes time to read a decision and understand its rationale and reach. Baumol’s disease would predict that hourly rates will tend to soar for top-flight legal work. Despite much talk about alternative structures for law firms, or pressure by general counsel to deliver greater value (increase productivity, in other words), or software plus the internet, the productivity of lawyers doing complicated work has barely changed. Fees rise inexorably.

A correlation between the size of city where a law department has much of its staff and its performance metrics

The Economist, Oct. 13, 2012 at 90, explains how the greater concentration of America’s largest metropolitan areas compared to those in the euro area confers big advantages.  Essentially, ideas appear and spread more quickly in larger urban areas, which economists referred to as “knowledge spillover.” Even though we have more methods of communication nowadays, the advantages of proximity to spillover seem to be increasing.  With growing complexity and size we need even more people and information swirling around us to make sense of it.  More densely populated cities attract people who want to share knowledge. This inter-relations between metropolitan size, skills, and productivity are complicated but they all feed on each other.

 

If we were to use this as a metaphor and apply it to the largest clump of lawyers in a law department – probably at home office or headquarters — we might find that this spillover effect benefits law departments also. Those with a preponderance of their lawyers in large cities or large clumps have more access to legal talent and legal service providers, and can draw on a larger talent pool for themselves, than law departments that are small, in off-the-beaten-track places or smaller cities.

 

Stated differently, on this reasoning, benchmark metrics of law departments that have a higher proportion of their lawyers based in larger cities should be better than those or rural or smaller-city departments.

Five impediments to delegation

It’s a cliché: delegate as much as you can.  The prerequisites for effective delegation, often unstated, are that there is someone to whom you can delegate and who is competent, less expensive, and has time to do the work well.

 

Stated in the negative, at least five reservations hold delegators back: control, risk, job security and ego, quality of the delegee, and severability of the work

 

  1. We all feel more in control of a task or responsibility if we do it.  Entrusting someone else when any blame will come back to you is fretful step.
  2. Lawyers worry about things going wrong; they are more prone than most people to be averse to risk, and there is inevitably more or different risks when you assign work to someone else.
  3. Some in-house lawyers may hoard work because they want to be busy and seem essential.
  4. Mistrust of the ability or motivation of the delegee clogs delegation.  If the available person just isn’t very good at the task and training time isn’t available, delegation is a non-starter.
  5. The work doesn’t lend itself to being broken into delegable chunks.  By the time you slog through explaining the work, parceling it out, and melding the pieces, it’s not worth it.

The cost per hour of meetings in law departments, and related comments

An article that criticizes the rigidity and wastefulness of forced hourlong sit-down meetings appears in Bloomberg BusinessWeek, June 11, 2012 at 51. Almost by definition, one hour allows too much time for the issue at hand or it cuts off discussion and deliberation – it is rigid. Often, much of the time what is being discussed has little value to one or more of the attendees, or the meeting is poorly structured, or the right people are neither present nor prepared – the meeting is wasteful. Regularly scheduled meetings exacerbate both drawbacks.

For law departments, some of the ideas in the article could be usefully implemented. Like cc’s on e-mails, limit how many people can be invited to a meeting. Pick a day where no one schedules meetings (like the e-mail free days). Use software that helps organize and supplement meetings. Flex the duration of meetings; have attendees stand for a portion. Always set agendas in proportion to the importance of a project and always end with specific to-do’s for attendees.

Finally, for the cost ticking away, project a small under the clock that shows the cost per hour to the company of the meeting. If a law department knows that its fully-loaded cost per lawyer hour is $210, it would not be hard to calculate the accumulated cost every 15 minutes based on who is in the room.

An initiative underway to resolve e-commerce disputes online without someone from the company being involved

Alternatives, published by of the International Institute for Conflict Prevention & Resolution, May, 2012 at 120, mentions ongoing work on a site that will enable certain kinds of disputes to be resolved on the internet. Specifically it explains that the Uncitral Working Group III Online Dispute Resolution initiative has enlisted Modria, a software company, into the working group to create an online dispute resolution platform.

The goal of the working group is to “develop tools to be applied to high-volume, low-value cases characteristic of E-commerce.” Law departments should welcome any aids that enable them to efficiently resolve cost-of-business disputes with consumers. This particular one may have an algorithmic basis for settling the disputes along the lines of a model that eBay uses. The CEO of Modria stated that eBay settles 90% of its disputes without human involvement (See my post of Dec. 31, 2006: online arbitration systems; and Oct. 20, 2009: online dispute resolution and two sites mentioned.).

A secular trend toward less regulation as governments try to increase national competitiveness

Observers of the law department scene incessantly complain about thickets of regulations that drive up legal complexity and costs and they bemoan even more burdens on legal departments as regulations metastasize. But wait, here is the Economist, May 19, 2012, flying in the face of that dire prospect: “Many businesses, particularly in Europe, face deregulation as lagging economies seek to boost competitiveness through structural reform.”

As much of the growth of U.S. companies will come from the not-yet-mature markets of other countries, including Europe, the longer-term trend may be for relatively less legal regulation (See my post of March 28, 2011: costs of regulation and value of law department with 7 references.).

Less or different work ahead for legal departments when companies can buy rights to use a patent on an exchange

A new financial exchange, called IPXI, will let companies buy, sell and hedge patent rights. On the exchange, companies will be able to buy and sell “unit license rights,” which is a one-time right to use a particular patented technology in a single product. This is explained in the Economist, May 12, 2012 at 72.

What an exchange like this might mean for law departments is that their lawyers will not have to negotiate so many licenses for intellectual property. That is expensive, time-consuming, and uncertain. Likewise, this alternative means to secure a patent right will lessen the need for outside counsel. To purchase a unit license right will therefore reduce demand for legal resources. Cutting against this forecast, however, it may be that companies will lean on their legal teams to monetize more of the company’s patent portfolios.

IPXI was set up in 2008 by Ocean Tomo. It will not be until later this year, however, that the exchange is open for business (See my post of Jan. 16, 2006: Ocean Tomo, patent auctioneer; and March 27, 2009: investor in patents.).

A third of your time on e-mail, and more ideas to be effective during that time

Research by a company, admittedly one with a stake in highlighting e-mail overload, “found that most employees spend at least a third of their time at work on e-mail.” Inside counsel may log something like that, or at least feel that consumed by e-mail. Therefore, It has been a frequent topic for this blog to pass on advice about e-mail productivity. A few more are at hand from the NY Times, April 21, 2012 at B8. (1) Make one point per e-mail. This discipline pushes you to think about what takeaway you want the reader to get, not to mention that many readers never even read to the second and third points. (2) “Don’t over-use the high priority flag. It is the tragedy of the commons: if every message shouts priority, none has it. (3) Don’t forward chain e-mails.

The piece makes two other points not previously addressed by this blog. Consider how quickly you should respond. You can calibrate your timing to the importance of the message or the rank of the e-mailer. Second, consider this simple rule of thumb: “If you had to spend the price of a stamp to send this e-mail, would you?”

Some more tips for the e-mail burdened corporate lawyer

A couple of suggestions not covered on this blog heretofore can help tame the unruly beast of e-mail. They appear in Law Practice, May/June 2012 at 63. The author leads into one practical suggestion – send fewer e-mails – with some data. “For every five emails you jettison into cyberspace, you will receive three responses.” Hence, she writes, for every message you don’t write, you will reduce the flow back by 10%. Simple, but effective.

The other tip, strengthen the subject line, has a new wrinkle. A clear subject line helps your reader, to be sure, but it can also help you make the body of your message more concise. Crystallize the gist of the e-mail in your header and you will have thought more clearly about what you write below it.

After the third e-mail on a given topic, pick up the phone or visit and talk

This humble, but practical bit of advice comes from the ACC Docket, March 2012 at 32. E-mail serves best to transmit information that doesn’t need discussion. Long threads of e-mails, especially if there are multiple people copied and they weigh in, become unwieldy quickly. It is much more effective to call someone and talk about the situation rather than take time to write possibilities and explanations.

It feels to me, as I indulge is some curmudgeonly kvetching, that many people nowadays hide behind e-mail. Real time talk scares them, or else they are so used to endless text messages and quick replies that they are not comfortable with the directness of facts exchanged and decisions made..

So, when it is clear that e-mail has bogged down, go to someone’s office or call them. Three’s the charm.