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(Ethically) Changing Law Firm Business Models

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Meet James R. Bailey, the Ave Tucker Professor of Leadership and director of the World Executive MBA at the George Washington University School of Business and a fellow in the London Business School Centre for Management Development.  His advice on reshaping law firm management and business practices has been generating a lot of buzz on the legal web, showing up on Vault, the ABA Journal, and AboveTheLaw.

Lately the legal profession has received a lot of flack for placing business interests over professionalism, especially from young attorneys who went into law school with dreams of becoming counselors and advocates, rather than line workers in billable hour factories.  But, Mr. Bailey, in an article published in the Washington Post, writes that lawyers need to take even more lessons from their business world counterparts.

In his article Changing law firm business models, Bailey provides advice on how law firms should restructure their billing models, work on becoming one-stop-shops for client needs, and do a better job of retaining top talent.  These are all worthwhile things to consider, but one bit of advice he gave didn't sit too well with us:

"For reasons of tradition and credibility, law firms are run by lawyers, despite the fact that lawyers are not trained in business and management. To be successful, law firms must create executive teams that include business-savvy non-lawyers. They have to think more strategically about the broader economic climate, industry trends, client needs and internal policies."

It's a little more than tradition and credibility.  The reason law firms are run by lawyers, and not by non-lawyer managers, is because it's required by our code of ethics.  Each state has their own rules, so we'll refer to the Model Code of Professional Conduct, section 5.4:

(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:

(1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;

(2) a nonlawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation ; or

(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.

No non-lawyer partners (1), no non-lawyer officers (2), and no non-lawyer managers (3).  Good luck retaining talented businessmen without being able to offer them any true responsibility or a shot at becoming partner.  Your clients thank you for training their future CEOs for them.

The Vault coverage of the article is rather ironic:

"Lawyers know the law, not how to run a business. So why not team up with some corporate experts to help you run your firm?"*

The advice could be flipped for business consultants:

Businessmen know business, not the law. So why not team up with some experienced attorneys to help you make sure your advice isn't going to get anyone disbarred?

It may seem ridiculous to force firms with hundreds of employees to be run by people with no business experience, but consider the alternative: non-lawyer businessmen deciding whether a motion is worth filing, or whether it is economical to pursue a certain line of research.  Practical and financial concerns should always enter consideration, especially when dealing with cost-conscious clients, but decisions about trial strategy or associate training should be left in the hands of attorneys, not number-crunching B-school grads.

And, if you think we're being overly romantic about the professional responsibilities of attorneys, then just consider the risk that attorney-client or work product privilege is blown because your non-lawyer manager looked at a case file.  Hope your malpractice insurance is up to date.  Well, it probably is, your non-lawyer manager is likely very good at handling those types of things.

*Following the publication of this article, Vault updated its post to reflect the potential ethical implications of joining forces with business-types.  The language we quoted is no longer part of the Vault article.  The relevant section now reads:

"Lawyers know the law, not how to run a business. Bailey suggests law firms work with corporate experts in developing business strategies. (Although Bailey doesn't mention ethics, attorneys and law firms should be sure to comply with all ethics rules when involving non-lawyers)."^


We do agree with Bailey that lawyers need more business savvy, but it's not a lack of businessmen in the mix that's the problem.  It's the law firm promotion and management model.

In large firms, the ones that present the most challenging management problems, lawyers become managers mostly through seniority.  Just like in grade school, you advance based on how many years you have been at the firm. And, at some point you are given the responsibility of delegating a portion of your work to someone in a younger grade.  Eventually after putting in enough years, and sufficient billable hours, you eventually rise to the rank of non-equity partner, and may even have an entire practice group under you.

Not only is this model of promotion based on seniority they very definition of non-management, it produces terrible managers.  How long you have been at the firm, and how well you know securities regulations or procedural rules for complex litigation has nothing to do with your ability to manage cases, clients, or fellow attorneys.

What law firms need are two separate tracks of advancement, a professional track and a management track.  The professional track would work very much like the current seniority system.  As you've been around longer, you develop more expertise, are given a bigger role on projects, your billable rate increases, as does your compensation.

The management track would exist for attorneys who show particularly good organization and leadership skills.  They would continue to devote a large amount of time to traditional billable legal work, otherwise they'd have no idea what they're managing.  But, they will also begin doing things like setting up meetings, reviewing bills, tracking expenses, coordinating CLEs, monitoring who has free time and who is overworked, and making sure everyone working on a case is on the same page and schedule.

Law firms will likely balk at the idea of having a highly-compensated senior associate dedicating half, or two-thirds of his time to non-billable work.  But, what they lose in billable hours, they will hopefully make up in client retention by providing better, more responsive service.  And, if that isn't enough, the firm's $1000/hr elite partners will be freed up to bill hours, rather than review bills.

Or, failing all this, let a couple senior associates go back to school to get an MBA.  No reason your savvy businessman has to be a non-lawyer.

[Washington Post]

[Model Rules of Professional Conduct]

[Vault Coverage]

[ABA Journal Coverage]

[ATL Coverage]

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