Why Lawyers Can’t Manage
I have read too many articles and commentaries which lament the extent to which law has become a “business”. The implicit assumption is that if a lawyer acts like a greedy, unprincipled, and insensitive pig, he is acting like a businessman. The truth is that a successful service business strives to provide useful and attractive services at reasonable prices, promote customer satisfaction, and earn a profit. Why are those concepts so offensive to the legal profession? (Also, why is the legal profession so quick to attribute to the business community those faults which the business community likes to attribute to lawyers?)
Fortunately, the practice of law will never become a business because lawyers will never learn to think or act like business managers. Lawyers will never think or act like business managers because law schools, law firms, and the legal system itself teaches them not to.
One of the biggest influences on lawyers is the training received in law school. This is not necessarily good for their attitudes and aptitudes for management.
If we assume that law schools are performing their proper function, and if we examine what it is that law schools do in order to work backwards and determine their function, we would have to conclude that the function of law schools is to take reasonably intelligent people and turn them into naive, academically proficient (but otherwise dysfunctional) idiots.
The average graduate from a law school understands the concept of a tort, the elements of negligence, and the social and legal policies underlying the tort system enforced by American courts. If pressed, he or she may even know what must be alleged in a complaint to initiate a lawsuit for negligence. However, the process of preparing a complaint, filing it with the proper fees, serving the complaint on the defendant, and conducting the case through to trial will probably be a complete mystery.
Even if a law school has a clinical program to acquaint students with the procedures of the real legal system, there will almost certainly be no instruction in how to dictate a letter, how to delegate work to secretaries or paralegals, how to maintain a file, how to record billable time, or any of the other practical office skills which go into practicing law.
From this perspective, a law school graduate most nearly resembles an idiot savant, able to perform impressive mental feats of calculation and memorization but unable to perform simple survival tasks or otherwise function in society.
Even the job which law schools supposedly do well, which is to indoctrinate impressionable youth in arcane legal reasoning, can actually get in the way of running a law firm, because law schools teach students how to identify issues or problems, but not how to solve them. Given a particular factual situation on a law school exam, the highest grade goes to the student who can spot the most issues and describe the most number of potential legal arguments, both pro and con. Similarly, the most valuable lawyer is supposedly the one who can spot the most potential tax problems in a proposed transaction or the most weaknesses in a pleading or complaint. Law schools (and law firms) therefore place a premium on the discovery and identification of problems.
These is a useful skill in academic circles, and even in preparing an appellate brief, but it can produce disasters while managing a law firm. At a partnership meeting, most lawyers will be better at raising issues than at resolving them. They will not be happy until they have dissected every aspect of the situation, raised every possible problem or consideration, and voiced every possible argument for and against every issue. Trained to identify problems, they do so at every opportunity, whether or not it is appropriate, often blocking any managerial action by the firm.
Because they raise (or create) so many problems in business transactions, lawyers have a reputation for being “deal killers”. What is often overlooked is that lawyers can also be “law firm killers”.
Law school training is inherently aristotelian, not scientific. The socratic method used in law schools encourages students to believe that, through discussion, analysis, and contemplation, the “right” result will emerge. This was the “scientific” method of Aristotle, who believed that the sun revolved around the earth. The modern scientific method requires that, after you have developed an idea, you must test it and prove that it is right. Lawyers are never taught this second step, which is not part of the legal process, and so lawyers tend to believe that a group of lawyers, sitting in a conference room, can solve firm management problems without any additional input, learning, or testing.
An anecdote may help to illustrate the tendency of lawyers to try to solve problems by examining their individual or collective navels. Several years ago, a bar association decided to establish guidelines for evaluating and recommending judicial candidates. A committee of lawyers was formed. It met, discussed, drafted, and finally published guidelines describing the qualities and experience which were most important for a judge, and which would be used by the bar association in evaluating and recommending judicial candidates. However, no lawyer on the committee ever talked to any judge about what it was like to be a judge. In the factual vacuum of their offices, the committee members had prepared guidelines for what they thought a judge needed to do without every talking to a judge to find out what judges really did. This violates a simple and basic management rule: When finding someone to do a job, you first interview the last person to do that job to find out what the job is.
Those who cannot learn from the past are doomed to repeat it. Not knowing how to learn from the past experiences of others, and not knowing how to test their own ideas and learn from their own experiences, each generation of lawyers will make the same management mistakes as their predecessors.
The ways in which law firms operate are self-perpetuating systems which discourage any attempt to manage effectively.
The partnership (or shareholder) structure of every law firm obstructs efficient management.
In any business enterprise, ultimate management authority lies with the owners, whether those owners are the stockholders of a corporation or the partners in a partnership. Law firms are unusual among business organizations in that the owners also constitute a significant portion of the work force. In a typical law firm, the owners are the partners (or shareholders if a professional corporation), and those partners (or shareholders) are also practicing lawyers, so they are affected (along with all other employees) by all management decisions.
When partners are inconvenienced by a management decision on file management, document formats, billing, or other internal procedures, they may simply ignore the decision, which will defeat the goal of uniformity within the firm and sabotage the original purpose of the decision. If the partners don’t ignore the decision, they may oppose it, in which case every management decision becomes a partnership decision, requiring debate and consensus among the partners and wasting valuable partner time.
It is therefore understandable that managing a law firm has been compared to herding cats.
The Billable Hour
Recording time spent of behalf of clients was originally supposed to help law firms bill clients and allocate resources more intelligently. The practice of law is labor intensive, so the profitability of different clients, practice areas, and lawyers should be measured in the ratio of time spent to income received. However, law firms today do not use recorded time as one factor to consider in billing clients, but use recorded time as the sole factor in billing clients. This has so many adverse effects that the “billable hour” has become a Frankenstein monster, now threatening to destroy the lawyers who have nourished it.
Using time spent as the sole basis for all billing is a complete disincentive to any practice organization or practice efficiency. Consider, for example, something as simple as a research retrieval system. If a law firm had no research retrieval system, then each client problem would have to be assigned to a lawyer (probably an associate) for analysis and research, and the client would be billed for the associate’s time. If the firm had a research retrieval system, the associate might first check that system and discover a recent opinion on the same subject for another client. The associate’s time would therefore be limited to checking and updating the prior opinion, with a considerable savings in time and, based on time alone, a considerable reduction in the fee to the client.
Expressed in that way, the research retrieval system does not sound that bad, because the fee was reduced for the second client but the level of profitability for the firm remained the same (assuming that the associate had other work to do and that the firm still collected the same hourly rate for the time spent). If there were no impact on profitability, a firm might still wish to have a research retrieval system in order to reduce errors (such as conflicting opinions on the same issue) and in order to serve more clients in greater volume, even at the same level of profitability. However, a research retrieval system is not without its costs. The research to be retrieved must be collected, indexed, stored, and maintained. This will require attorney time, staff time, and physical resources such as office supplies and office space, or even computer hardware and software. If the firm has no way to bill clients for these costs, the adoption of a research retrieval system will make the firm less profitable, not more profitable, or will cause the firm to increase its billing rates, which may make the firm less competitive with other firms.
More complex automation applications provide even clearer examples of the disincentives to efficiency. It is possible to create computer systems which will draft complex documents very accurately and very quickly. However, if the firm has no way to bill a client except through billable time and if automation reduces billable time, then the hardware, software, and configuration costs become net losses to the firm, with no increase in profitability.
These examples show that the dependence on the billable hour provides a disincentive to any automation or other management efforts to promote efficiency. The billable hour also promotes organizational inefficiencies.
Because firm revenues are based on billable time, associates are rewarded for recording large amounts of billable time and punished (subtly or overtly) for recording small amounts of billable time. Even without committing any misrepresentation or fraud, associates learn quickly how to maximize their billable time. More to the point, they have no incentive to adopt any time saving measures, and may actually strive for overly time-consuming (but legally justifiable) steps in order to record the largest possible amount of time.
The more clever among the partners may also recognize that law firms enjoy diseconomies of scale. As was observed in The Mythical Man-Month, by Frederick P. Brooks Jr. (Addison-Wesley Publishing, 1982), adding workers to a project will slow it down, not speed it up, because additional time will be needed to educate the new workers, communicate among all workers, and coordinate all of the tasks. In other words, if one associate can research and write a brief in fifty billable hours, it may take two associates a total of seventy billable hours to do the same research and write the same brief. This is partly due to duplication of effort and partly due to the time required by the two associates to coordinate their work. Partners therefore have an incentive to assign the largest justifiable number of associates to a case in order to create the largest possible number of billable hours.
Observation: Most clients are businessmen and already know all these things. That is why they often don’t like bills from lawyers, particularly bills with large amounts of time recorded by attorneys in the same firm talking to each other.
Law firms have spent large amounts of time and money on computer and administrative systems to record billable time and have trained many clients to accept billable time as the sole basis for fees, so changes are unlikely in the near future. However, lawyers interested in alternative billing methods should see Beyond the Billable Hour, edited by Richard C. Reed and published by the ABA Section of Law Practice Management (1989).
There is a joke among managers which is intended to show the problems which occur when a single business factor dominates decisions. The joke is that a business has been suffering from flat profits, and so the president decides to hire a new advertising agency. The new agency designs and carries out a new ad campaign, and sales increase. Unfortunately, profits go down, not up. The president therefore fires the ad agency and hires another ad agency.
More and more law firms now recognize the value of new business, and attorneys who can bring in new clients are important to a firm. Unfortunately, most of these legal “rainmakers” are not satisfied with increased compensation, but have demanded (and received) increasingly larger roles in the management of their law firms. The net effect is about the same you would expect if General Motors were run by the car salesmen. Disproportionate attention is focused on the things the rainmakers know and do best, such as bringing in new clients, and in things which serve the interests of the rainmakers, such as bringing in new clients which increase the attribution of the rainmakers. Relatively little time, attention, or firm resources may be allocated to things the rainmakers may do not do well, such as maintaining the quality of legal services, financing the practice, recruiting and training new lawyers, employee relations, automation, or any of the many other problems affecting law firms. This may weaken the long term (or even short term) profitability of the firm.
An attribution system can have two other adverse effects on a firm. The profitability of the firm may be adversely affected if the clients brought in by the major rainmakers are not in the practice, geographic, or economic areas most profitable to the firm. The attribution system might also become a self-perpetuating system in which the increasing importance of a lawyer provides the political leverage necessary to increase his importance, stifling or alienating other partners important to the firm.
The increased attention and importance attached to bringing in new business and “attribution” is, therefore, not necessarily business-like, and will not necessarily make a firm more profitable.
The increasing instability of law firms is a corollary of the dual roles of the partner as both an owner and an employee.
In a free market economy, employees will always come and go based on market value. If an employee is offered a better salary by another employer, the employee may leave and go to work for the other employer. There is, therefore, always some instability in business organizations. However, in most business organizations, the employees may change, and even the management (officers) of the organization may change, but ownership remains relatively constant.
Law firm partnership shares are based primarily on the value of the services of the partner, not capital contributions, so partners can “shop” their services (or clients) to the highest bidder, just like other employees. Therefore, all compensation disputes involve a risk of partial (or total) partnership dissolution, and the movement of partners from firm to firm is a change in the ownership of the firms, as well as the work force of the firms.
Good management requires an investment of time and money and the investment does not necessarily pay immediate dividends. Like a capital investment, the benefits of good management may be realized only over an extended period of time. The owners of a corporation or other business organization will expect to see the results of good management eventually. However, the partners who own law firms have come to see their positions as primarily those of employees terminable at will, rather than owners of a capital investment. This means that the partners will invest time and effort only in those things which are portable. Close contacts with clients and good legal skills can be taken to another law firm, but good employee training, efficient organizational operations, sound financial practices, and other types of good management cannot be picked up and carried away. (Whether substantive systems, such as legal forms or checklists, can be moved from firm to firm depends on issues of intellectual property rights beyond the scope of this article. However, it is possible that things which can be photocopied or copied onto a computer diskette are portable, at least as a practical matter.) There is, therefore, a disincentive for partners to invest in good law firm management.
Unless lawyers can develop partnerships which promote institutional stability and a sense of institutional loyalty, those partnerships will not be well managed.
The Legal System
The very nature of the legal system makes it difficult for lawyers to cooperate and work efficiently with each other, or with non-lawyers.
The Adversary System
Law is an adversary system, and the attitudes of the system affect the attitudes of the lawyers within it.
After a long day (or a long week) of arguing with opponents in court or negotiating with the other parties in a commercial transaction, a lawyer will return to the office to meet with his or her partners. Unable to psychologically “shift gears” or “shift roles”, the lawyer will continue to think and act like an adversary, and will proceed to argue with his or her partners or negotiate with them instead of cooperating with them.
While litigators who specialize in medical malpractice do not often try to perform surgery, the same sense of modesty is not shared by labor lawyers, commercial litigators, and other corporate lawyers, all of whom feel competent to make business decisions for which they have no training and, in most cases, no aptitude. There are several factors which may contribute to this attitude.
One factor is the attitude of law schools. In law school, lawyers are led to believe that what they are learning is very important, very difficult, and very special. The study of law goes back hundreds of years and has engaged some admittedly brilliant minds. The decisions of courts, and the constitutions and statutes framed by lawyers, have changed the course of nations, major corporations, and the rights and lives of most citizens. By contrast, therefore, every other profession or occupation becomes less important, less difficult, and less special. This makes it difficult for lawyers to have respect for, or consult with, professional managers.
As noted above, law school curriculums are also academic and devoid of any mention of the practicality of a legal practice. Having gone through their formative years in an environment in which the ability to add and subtract, or cooperate with their peers, were not particularly valuable skills, lawyers may be excused if they do not place a high value on those skills after graduating.
Another potential source of the “legal ego” lies in the nature of legal representation. In a lawsuit or a business negotiation, lawyers are often required to learn new facts and concepts, and learn them quickly. In order to cross-examine the defendant’s medical expert, a litigator may need to learn medical terminology and medical concepts. In order to negotiate reasonable work rules during strike talks, a labor attorney may need to learn enough about the client’s business to know what rules the client can live with and what rules will be unworkable. When a lawyer succeeds, the lawyer may become very impressed with his or her mental skills and perhaps feel a little superior to the so-called experts who have worked so long acquire the same knowledge the attorney acquired in a few hours.
For whatever reason, most lawyers have great respect for themselves and for other lawyers, and very little respect for other professions or vocations. It must therefore come as an insult to a partner with years of experience practicing law to suggest that he or she is not competent to manage his or her own law firm. Admittedly, the firm now has 40 partners, 60 associates, and 120 staff positions, annual gross income in eight figures, offices in three states, and $1.5 million in computer hardware and software, while the partner has never balanced a checkbook, but it simply can’t be that difficult. It’s all just a matter of common sense, right? There’s surely no need to hire some outsider who has only an undergraduate degree from a state school and who will earn more than any associate just to do what amounts to bookkeeping?
Lawyers will never be able to manage themselves, or allow anyone else to manage them, until they have learned that the law is not the source of all knowledge, that lawyers are not inherently able to solve all problems, that the problems of law firms are not unique and not beyond the scope of accepted management theory, and that professional managers have valuable skills and knowledge which deserve attention and respect.
The Crisis Addiction
Legal problems are often crisis problems, and the time demands of legal representation may lead lawyers to ignore management issues. In the eleventh hour of a trial, a settlement, or a negotiated settlement, there may be no room for any discussion, consideration, or distraction other than the matter at hand, and certainly no time for a decision on the adoption of a new office procedure.
More importantly, many lawyers, and in particular many important and therefore influential lawyers, actually thrive on that type of total concentration, and cherish their roles as auteurs as much as a skilled surgeon or a prima donna. In the courtroom, the client may be financially ruined or imprisoned by an adverse decision. In the negotiating room, fortunes may be won or lost on the outcome of negotiations. Can any lawyer who has experienced the heady thrill of that kind of brinkmanship ever again be satisfied with the boredom of a partnership committee meeting? Lawyers are therefore often unable or unwilling to tolerate the daily and petty distractions of routine office management.
Most attorneys are consulted only when something goes wrong, or a specific transaction is contemplated. For that reason, most attorneys see controversies or negotiations as something with a beginning, a middle, and an ultimate end. Whatever the resolution of a matter may be, whether it is a judgement, contract, or tax return, it is eventually completed, filed, and moved into storage. One way or another, all matters achieve some sort of closure.
Attorneys really see only small parts of the lives of individuals and businesses. An attorney may advise a client to change a part of the client’s written employment policies, and may advise the client on how to implement the change. In most cases, that will be the end of the matter for the attorney. For the client, however, the work has just begun. The new employment policy must be remembered and enforced day after day, week after week, month after month, and year after year until something happens to require a revision in the policy. Management is, therefore, not a decision or an event, but a constant process of planning, implementation, evaluation, revision, and replanning. Attorneys expect to make decisions and then move on to something else. They do not expect to take small steps or to monitor a situation over an extended period of time.
The desire for decisive solutions becomes particularly obvious, and particularly absurd, in the area of automation. A firm of litigators which has never progressed past electric typewriters may look to automate. However, they will not be content to begin installing some PC’s as word processors, planning to progress later on to a networked solution for other applications. No, they want it all. They want a fully-automated, state-of-the-art, turn-key, no-additional-software-will-ever-be-necessary solution. The result is often disappointing, if not a disaster.
Other business decisions of lawyers may become disasters due to a lack of attention to the process of management. A decision to open a branch office in another city, or begin a new practice area, may be a good decision on paper, and made with the best of intentions, but the office or practice area may fail unless someone monitors the day to day progress of the operation and does whatever is necessary every day to make the operation a success.
Attorneys will never understand or appreciate management until they can stop thinking of decisions and results and start thinking of long term goals and the step by step processes which will be needed to reach those goals.
The Good News
Not every lawyer or every law firm enjoys all of the character traits I have described, but there are enough lawyers in enough law firms with enough of these traits to assure me that law will not be practiced as a business any time soon.
What is the good news? The good news is that things have gotten worse. Competition among law firms for clients is greater than ever. Clients are more critical consumers, spending more time questioning law firms about their services and about the size and nature of their fees. Associates have also gotten to be more sensitive to qualitative issues such as quality of life and the psychological demands (and perhaps rewards) of a legal practice. Law firms are being squeezed as the economic and qualitative demands of clients, partners, associates, expanding technology, and increasing operating expenses place ever greater pressures on law firm profitability.
Sooner or later, something is going to give. Some lawyers, or some law firms, are going to start managing their practices in new ways, with new techniques and new attitudes, and will attract large numbers of clients and associates. Other law firms will either learn from them or dissolve.
Well, at least one can hope.