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The management of progressive law firms are now studying the management and control of the quality and cost-effectiveness of legal services more carefully.

In a private law firm, the cost-effective performance of the principals and employed lawyers needs to be evaluated in light of the following:

The quality and timeliness of legal services provided;

The actual value of the client work performed (by law firm standards);

The client’s perception of the value of the legal services; and

The cost of the services provided.

The success that a private firm will have in controlling the quality and cost-effectiveness of providing legal services will be indirect proportion to the organization’s ability to manage its personnel, facilities and economics.

Implicit in this is the extent to which the organization and its members understand the organization’s role, i.e., satisfying clients and enabling the lawyers’ organization to achieve its ultimate objectives; establish performance standards or bench marks, i.e., economics, a client case load, quality, timeliness of services, etc.; and measure the actual performance in light of the established standards.

Standards To Be Set

Standards can be set for virtually every aspect of an organization’s performance. Quality and cost-effective legal services are but two benchmarks that can be integrated into the lawyer/client relationship through properly developed management techniques. To implement a high standard, the legal organization must be able to recruit high-quality lawyers.

In addition, these lawyers must be provided with opportunities to mature professionally and personally through well-defined career development programs. These organizations must also recognize the importance of establishing appropriate compensation plans that consider the competitiveness of the current legal marketplace and provide the opportunity to reward those especially talented and more highly motivated lawyers.

It is incumbent upon senior attorneys in a legal organization to provide an appropriate environment in which newer lawyers can increase their intellectual and practice skills. This environment includes appropriate office facilities, library, support staff, equipment and management processes.

It is the cumulative effect of the myriad factors comprising this “environment” that determines the effectiveness of a legal organization and the extent to which that organization will provide quality legal services in a timely and economic manner.

There are “accepted” principles of good management. The extent to which these principles may be implemented depends upon the historical evolution of the legal organization, the personalities and objectives of the members, the size and geographic dispersion of the organization’s members, the nature and scope of legal work to be performed, and the method of assigning and controlling legal work among and between attorneys.

Firm Comes First

The extent to which the principles of good management can be implemented in a professional organization is also a function of the willingness of the members of the organization to subordinate their professional and personal goals for the benefit of the organization.

This “acquiescence” on the part of individual lawyers is dependent upon two factors, namely how the legal organization’s clients and the public perceive it and its members; and how the individual lawyers perceive the legal organization, its role in achieving overall objectives, its established standards, and themselves within the legal organization.

Unless lawyers perceive that senior attorneys possess the prerequisite management skills to provide the cohesion to enable the organization to function effectively and that their peers are equal to, or exceed, their professional abilities (at relatively similar stages of development), there will be “no organization.”

In order to determine the cost-effectiveness of specific legal services, the recipient of the services must be able to measure the benefits of these services in terms of economics and value received. In other words, “How much do I have to pay for these legal services, and how will these services enable me to achieve my objectives?”

In his book, Managing in Turbulent Times, Peter F. Drucker, an influential author and analyst of modern organization and management, wrote: “It is reasonable to assume that professional work can at least be capable of being judged. In measurement, the result one person obtains should be obtainable by anybody else who uses the same measuring stick. In judgment, the result an informed and qualified person obtains is supposedly going to be reached by any other qualified and informed person. Judgment presupposes information and some expertise, but it is otherwise as ‘objective’ as is measurement.”

Example of Standards

In light of Drucker’s observation, many examples can be provided for establishing standards and measuring the performance of lawyers. In some private law firms, workload standards may be set for measuring the more routine work that is performed for nonbusiness client matters; for example, real estate closings, bankruptcies, personal injury matters and preparation of simple estate plans. These standards may apply to the number of cases handled, hourly rates, revenue produced and the number of fee-producing hours that may be devoted to client work.

In more complex legal matters, the performance of a lawyer may be measured on the basis of time devoted to the client problem, effort, responsibility of the attorney, expertise and results achieved. However, as management consultants to the legal profession, it is our opinion that in many legal organizations, the problem is not the hourly rate or expense of the lawyer. Rather, the problem is twofold: how lawyer time and costs are applied to specific client work; and whether the lawyer’s time and related costs are converted into a bill for services that are perceived by the client as fair and, therefore, paid.

For example, a business matter that an experienced specialty lawyer could solve in eight hours at $250 or more per hour may properly be billed at $2,000. If the matter was handled by a general practitioner 10 years at the bar, but with no experience in that area of law, he may require 30 hours, including research and many redrafts. If the general practitioner’s rate is $150 per hour, he may conclude that his time-dollar value is $4,500 and bill accordingly.

Clients Know Problems

The business client of today is generally intelligent and well educated, possessing an astute idea of the dimension of the legal problem. This client has often had similar matters and may have a good idea of what the billing should have been.

Assume that the client requesting this service now receives the $4,500 bill. If the bill is questioned, the lawyer would be hard put to justify a bill of $4,500 based on time spent on a learning situation at an hourly rate that called for a certain skill and experience level.

Again, the basic principles of law office management and economics are important from the viewpoint of individual and corporate clients dealing with lawyers in private practice for the judgment of court and for the economics of the legal organization in maintaining a staff of qualified attorneys.

Whether the client relationship exists between an individual or corporation, there are certain basic arrangements which require understanding by the client and the lawyer. These are: the role of the legal organization in serving the client’s needs; the specific assignment undertaken by the lawyer; and who, or what level of a person employed by the legal organization will work on the matter, including a proper division of skills (senior attorney, specialist, newly employed associate, or paralegal).

To ensure the cost-effective delivery of legal services, a lawyer in private practice needs to do the following:

Operate in a skilled and efficient manner;

Keep accurate records of time and costs;

Maintain communication with the client as the matter progresses;

Inform the client if there is a need for change in the arrangements concerning the scope of the work or fees and expenses;

Bill clients monthly or quarterly, or as arranged, but promptly in accordance with the arrangement; and

Maintain an internal rate schedule justifiable to the consumer, and review it at least annually.

Private-practice firms need to provide economically justifiable billings for clients and for their own profitability. They must set total fees that derive from a well-managed office, providing prompt service, thereby holding the line on billings so that they do not exceed the inflation rate on a given level of skill.

Lawyers Face Competition

Today’s lawyer exists in a period of increased competition from colleagues at the bar and other firms. Potential, current and past clients have the option of using any of an increasing number of exceedingly well-trained, very bright attorneys.

If a client is unhappy about lack of prompt handling, cost or legal ineffectiveness, that person or enterprise may well go elsewhere for the next need for legal representation. The client may regard any possible benefit as not having been equal to the cost and indeed perhaps more costly than any benefit.

The legal profession is doing a great deal to provide a more cost-effective service. Paralegals are being used to a great extent at one-third the cost of a lawyer, while 10 years ago the term “paralegal” was virtually unknown. Automated research and the retrieval of prior efforts have reduced costs significantly. The certification of specialists and compulsory attendance at CLE programs in certain states has contributed to improving the quality of legal services.

The final billing for a given service – consisting of the pricing for lawyers, paralegals and improved automation of document processing – is now considered more carefully in terms of the client engagement. In many cases, the bill is economically less to the consumer in terms of real dollars.

Lawyers’ hourly rates have risen with inflation and costs that are relatively higher today than 10 years ago. Associate compensation has paralleled economics trends. By contrast, senior partner compensation has not kept pace with inflation and the tax burden at their higher brackets.

Rather, this group has tended to give up real economic dollars of income in favor of the need to compensate younger and middle-aged partners competitively in the marketplace for lawyers.

Fee Setting

Economic influences provide the general guidelines for fee setting in private law firms. The four main influences are:

The pay provided to new law school graduates;

The economics marketplace for experienced lawyers;

The cost of operation, consisting of overhead expenses, and the built-in cost of maintaining a legal staff and adequate facilities; and

Public responsiveness to cost-effectiveness

Customs of various specialties or uniqueness of reputation affect the charges of some lawyers, and some may not bill in terms of hourly rates.

But the assumption must be made that the hour charged for may have to be justified as cost-effective in the eyes of the consumer and possibly the courts. As this interaction between consumer, courts and lawyer becomes more apparent, law firms are growing more and more conscious of the need to oversee quality, how time is spent, results and billing, the ingredients of cost-effectiveness. Communication with the client at the start and during the course of the service is important to ensure understanding through the flow of information to and from the client.

In an effort to deliver legal services to corporations more effectively, legal expense budgets and results against the budgets are being watched with increasing interest. Lawyers’ bills are being analyzed for what they did, what they charged for the service and how well they performed. In this respect, larger and medium-size corporations are increasing their internal legal capabilities and services performed by employed lawyers, paralegals, secretaries and automation, in combination.

In conclusion, private-practice firms need to provide economically justifiable results for clients. They must provide billings that are acceptable for their clients and for their own needed profitability. They must set total fees that derive from a well-managed, cost-effective, prompt service, thereby holding the line on bills of the firm so that they do not exceed the inflation rate for a given level of skill.

The public wants results and good treatment. They want the legal organization to do its best. A mismanaged legal office will not provide a cost-effective service and will leave a negative image for the legal profession.

JOEL A. ROSE is a certified management consultant and president of Joel A. Rose & Associates, Cherry Hill, N.J., which consults to the legal profession. He can be reached via e-mail at [email protected] .

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