How to make less money

Written by
Jordan Furlong
Law21

Published
Apr 29, 2019

Apr 29, 2019 • by Jordan Furlong

I can’t tell you how many times a law firm leader has said to me recently, “Jordan, we’re simply making too much money. We’ve got a profit epidemic on our hands, and frankly, it’s causing some serious damage to the fabric of our firm. Something has to be done about it.”

Just the other day, in fact, there I was in my local fair-trade coffee shop, sipping organically roasted java with the powerful leaders of three immensely profitable BigLaw firms. They clutched their artisanal ceramic mugs tensely, lines of worry creasing their brows.

“I’m really concerned about how much money my firm is making,” confessed the managing partner. “We broke into the AmLaw 50 a couple of years ago, and I just learned to my dismay that we moved a few spots higher this year. Half the partners in my firm — including me! — made more than $1.6 million last year. Can you believe it? I’ve got a B.Comm. and a J.D. from a top-14 law school, yet despite that flimsy track record of intellect and success, I’m going to make insane amounts of money again this year. I can’t offer any excuse — it just happened. But I need to find a way to staunch the fountain of dollars.”

“I know exactly what you mean,” said the chief administrative officer. “Even lower in the AmLaw 200, we’re in the same boat, and it’s having some serious negative effects. The partners have become obsessed with nonsensical metrics like PPP and look jealously at lawyers in higher-ranked firms. I’m reluctant to admit it, but some of them are even putting their own financial interests ahead of their clients’, pushing their juniors to stay late on evenings and weekends, billing every client-related thought. It really saddens me to see it, and there’s no denying that it all flows from these geysers of revenue.”

“It’s worse than you think,” said the AmLaw 100 senior rainmaker. “You should see the caliber of people who are applying to join our firm these days. Rapacious partners from other firms who want to be guaranteed higher profits than they’re making now. Mercenary law school graduates prepared to sacrifice their health and well-being for six-figure starting salaries. And every day, it seems, another lawyer comes skulking around my office wanting me to share my secrets. I have no secrets! My law school roommate became the GC of a pharmaceutical company; that’s why I own three Porsches. I’m an ordinary schmuck who was in the right place at the right time. But can I convince them of that? Not a chance.”

I held up my hands. “Ladies and gentleman, I understand completely,” I said. “And honestly, I have to shoulder some blame. I’ve spent the last ten years advising law firms how to be more innovative, productive, and client-focused. Of course I meant well. But how could I have failed to see that many firms would focus solely on how much more profitable my advice could make them? I’m as guilty as anyone of recklessly encouraging this mania. And it’s high time I made amends.”

But if you ask for a rise, it’s no surprise they’re giving none away.

So that’s why I’m writing this post, offering law firms my best advice on how to make less money and be less profitable. I recognize that it might be too little, too late for the current generation of senior lawyers, clutched inescapably in the claws of six- and seven-figure annual incomes. But maybe this advice will do some good for future lawyers who, against all expectations, somehow form the notion that law firms exist for some purpose other than generating truckloads of cash for their owners. In hopes that such a future might materialize, here are my suggestions.

1. Stop billing your junior associates’ time. For some of you, this will seem redundant: Your biggest corporate clients have already told you not to bother billing anything performed by first-or second-year associates, because they won’t pay for on-the-job training of unskilled workers. But many other clients haven’t written that memo yet, allowing their outside counsel to generate millions of dollars in low-quality revenue from youngsters who don’t know what they’re doing half the time. Those firms could easily reduce their revenue just by turning off those taps.

Some partners will object, of course. But you can point out that giving these lawyers real skills training, supervised non-billable client access, and one-on-one mentoring opportunities (all of which could helpfully reduce revenue from other lawyers) will not only remove brutal billing pressures on these associates, but will also accelerate their development, improve their morale and well-being, and increase their retainability. “Revenue-neutral associates” could pay for themselves, assuming you stopped overpaying for academic high-achievers from famous law schools and instead started recruiting future star lawyers from law schools all over the map.

First- and second-year lawyer billings are the empty calories of law firms: They give you a temporary high, but leave you feeling bloated and regretful afterwards while compromising your long-term health. Start cutting revenue right here.

2. Place limits on your lawyers’ annual billing totals. This goes for all your fee-earners, not just the rookies. Most firms institute minimum expectations for how many hours they expect lawyers to bill, and that’s fair. But they don’t institute maximums: there’s no limit to the number of hours lawyers can churn out, leaving a dangerous outlet through which lawyers’ workaholism and competitiveness can spiral up into an eruption of revenue. (And, for firms concerned about that kind of thing, widespread lawyer burnout.) Before you know it, industry commentators are mocking your firm for employing a lawyer who bills 4,200 hours a year.

A simple solution to this problem would be to effectively cap lawyers’ billable hours. Most firms can’t actually order partners to stop working past a certain number of hours, of course. But you can tell your lawyers that they will not receive any compensation for hours worked past a given number. “Feel free to bill 3,000 hours if you like, but we stop counting your hours at 1,800 when calculating your annual income.” Deprived of financial rewards for non-stop billing, many lawyers will ease off the gas pedal, planting an elegant disincentive at the root of your runaway revenue problem.

Well, really now, who doesn’t?

Revenue caps are difficult to impose from the outside, but with the right planning and execution, you can incentivize performers to install them from the inside. The end result for your firm: Not just less revenue, but also more predictable levels of revenue. Oh, and I guess healthier lawyers, too.

3. Increase your pro bonocommitments. I admit, it’s difficult to keep lawyers from working. Like small children, they need something to occupy them; if you don’t watch them like hawks, they’ll wander off somewhere and start making money for you. So give them a way to do lawyer work without getting paid. Sounds like some crazy magical thinking? Not at all. That’s the beauty of pro bono publico work: Lawyers get to practise law and sharpen their skills while working for the public good, but without any of the attendant risks of unwanted revenue.

I’m sure your law firm already encourages its lawyers to perform pro bonolegal work; but let’s be honest, we both know that the billable work always takes priority, financially and culturally. So you need to do more than just double your hourly pro bono expectations: you need to develop a culture in which lawyers genuinely feel that paid and unpaid hours are worth the same. That’s a long-term project, absolutely; but the sooner you start, the sooner you’ll see the benefits, and the likelier that you’ll bring about a permanent shift in how lawyers view the value and purpose of their time and efforts.

You might be thinking, “But we already provide legal support to the local opera house and the junior yacht club! What more can we do?” Here’s one suggestion: Have every litigator in your firm spend one day a month in their local family court, representing pro se parties who’ll lose child access or support if they go into court alone. Do good for people who will never be able to pay you back. You’ll make the world a better place, but far more importantly, you’ll make less money.

4. Give all your staff members a 15% raise. Despite your best efforts, the fact remains that it’s hard for law firms not to make money. Even in a highly competitive market and with increasingly cost-conscious clients, large law firms remain cash-printing machines. So in order to really take a bite out of profitability, you’ll also have to find ways to increase your costs. No, not by reverting to rampant inefficiency and the daily reinvention of wheels: Encouraging procedural sloppiness will kneecap your competitive strategy. You need to spend more money usefully.

An easy place to start is with your “non-lawyer” staff. I don’t know how much you’re paying your secretaries, law clerks, librarians, paralegals, marketers, IT people, etc. to labour inside your cash factories while having to deal with your lawyers day in and day out, but it’s almost certainly not enough. Give them all a 15% raise across the board; but don’t stop there. Cover daycare costs for employees with preschool kids. Extend medical, dental, and vision care benefits to their families. Find creative ways to spend money on your staff.

Brewster’s Millions: Under-appreciated comedy and blog post inspiration.

I grant that this will create unintended consequences, including happier employees, rising retention rates, higher-quality performance, and more qualified job applicants. Also, you’ll inadvertently pressure your competitors to match your raises while enjoying a PR bonus from adoring media coverage. But let’s keep our eye on the ball here. The point is to make less money, and this will help your firm move towards that goal.

5. Fund 100 full law school scholarships for underprivileged students every year. I know what you’re thinking: That’s not really going to make much of a dent in our revenue. And you’re right. Even at the highest-ranked law schools in the United States, the total cost of law school attendance is around $80,000 a year, or $240,000 for three years. Underwriting that cost for 100 students would generate an annual bill of $24 million.

That might sound significant to the casual observer. But let’s look at how much money law firms actually make. The entire AmLaw 100 generated $98,748,110,245 in revenue last year. (Yes, that’s $98 billion). I don’t have access to median revenue figures, but if you divide that total by 100, you’ll get an average revenue of $987,481,102 per firm. Subtracting $24 million from that total would lower revenue to $963,481,102 — a decrease of 2.4%. Firms would still retain 97.6% of their earnings, so no, this isn’t going to move the needle that much by itself.

But it’s a good start. And at least you can take solace that 100 deserving young people who’d never otherwise even dream of becoming lawyers will be able to attend law school every year, lifting up their communities and enhancing the legal profession in ways we can’t begin to imagine.

So there you have it: Five simple steps towards corralling your big law firm’s runaway revenue. But these steps can also be followed in proportion by smaller or regional law firms whose leaders are equally concerned that the single-minded pursuit of ever-more money and ever-more profit has transformed their firms from proud bastions of professional service into brutalizing pyramid schemes that enrich a small few at the expense of too many. Not that they’d necessarily put it in those exact terms.

As for my BigLaw friends, they rinsed out their mugs, tipped the barista, and trundled wearily out the door, already thinking of the burdens awaiting them in Accounts Receivable. I only hope their successors can use this advice to pull their firms back from the brink of death-by-revenue and to plot a course towards a future where law firms aren’t focused on profits above everything. We can but dream.

 

Law21