Potential buyers got their first look at Facebook financials yesterday, which showed the company produced a $1 billion profit last year from $3.71 billion in revenues. The company derives 85% of those revenues from advertising, with the rest from social gaming and other fees. The initial public offering could value the social network between $75 billion and $100 billion, putting the company on track for one of the biggest U.S. stock-market debuts of all time.

Facebook’s membership growth has been staggering. The company said in its filing that it has 845 million users globally, up 39% from a year earlier.

Facebook takes pains to mention the importance of privacy, mentioning the word 35 times in the filing, and even listing its “privacy and sharing settings” as one of the ways the company creates value.

The number of ads delivered on the site grew 42% and the average price per ad grew 18% over 2011 from 2010, according to the filing.

The company attributed the improvement to a vast trove of information that allows marketers to “show their ads to a subset of our users based on demographic factors such as age, location, gender, education, work history, and specific interests that they have chosen to share with us on Facebook or by using the Like button around the web or on mobile devices.”

 (Wall Street Journal)

INVESTORS’ RISK

While all this is quite interesting data to me, there was one particular piece in the IPO filing that caught my attention:

As a matter of required disclosure, to caution investors against buying blindly, Facebook had to release a list of “risks” on the S-1 Registration Statement.

A quick review of those risks, which follows, made me think…this is a terrific exercise and one that law firms could benefit from—a REALLY HONEST assessment of their “risks.” 

SIDE BAR: A SWOT analysis completed during strategic planning—strengths, weaknesses, opportunities and threats—will likely get you to the answers, as I’m thinking threats could be substituted for “risks.” With one caveat: your list of threats cannot be unfounded nor cliché. I’ve seen many law firm SWOT reports, and I have to say that too many have made me wonder if they were just filling in the blanks or if they really knew or understood their actual market risks?

Now, if a law firm did plunge into a market risk assessment, what if instead of keeping risks hidden in the executive boardroom, what if that list was distributed among the firm’s stakeholders (not just partners but also employees whose careers are dependent upon the success of the law firm)? Couldn’t that help the firm’s best interest? After all, they are all investors at various levels and…they have ability and responsibility to protect the firm’s best interests from its risks. How can they do that if they don’t know what they are? Management? Do all your attorneys know? Is it practical to share that information with an associate who might be on his way out in another year and off to a competing law firm?

What do you think? Maybe not? Just saying…I think it would be of great benefit on several levels.

 Here is the list pulled from the Facebook SEC Form S-1 Registration Statement. Thanks to Brian Solis for pointing it out on his blog post of Feb 1, 2012.

FACEBOOK RISK FACTORS

Risks Related to Our Business and Industry

If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed.

The size of our user base and our users’ level of engagement are critical to our success. We had 845 million monthly active users (MAUs) as of December 31, 2011. Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users. We anticipate that our active user growth rate will decline over time as the size of our active user base increases, and as we achieve higher market penetration rates. To the extent our active user growth rate slows, our business performance will become increasingly dependent on our ability to increase levels of user engagement in current and new markets. If people do not perceive our products to be useful, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement. A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our active user base or engagement levels. A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations. Any number of factors could potentially negatively affect user retention, growth, and engagement, including if:

1. users increasingly engage with competing products;
2. we fail to introduce new and improved products or if we introduce new products or services that are not favorably received;
3. we are unable to successfully balance our efforts to provide a compelling user experience with the decisions we make with respect to the frequency, prominence, and size of ads and other commercial content that we display;
4. we are unable to continue to develop products for mobile devices that users find engaging, that work with a variety of mobile operating systems and networks, and that achieve a high level of market acceptance;
5. there are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and sharing, safety, security, or other factors;
6. we are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful, and relevant to them;
7. there are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlements or consent decrees;
8. technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience;
9. we adopt policies or procedures related to areas such as sharing or user data that are perceived negatively by our users or the general public;
10. we fail to provide adequate customer service to users, developers, or advertisers;
11. we, our Platform developers, or other companies in our industry are the subject of adverse media reports or other negative publicity; or
12. our current or future products, such as the Facebook Platform, reduce user activity on Facebook by making it easier for our users to interact and share on third-party websites.

______________________________________________________________

As a bonus, here’s the open letter from Mark Zuckerberg, CEO, included in the S-1 filing. The Facebook mission statement:

LETTER FROM MARK ZUCKERBERG

Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected.

We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do. I will try to outline our approach in this letter.

At Facebook, we’re inspired by technologies that have revolutionized how people spread and consume information. We often talk about inventions like the printing press and the television — by simply making communication more efficient, they led to a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. They changed the way society was organized. They brought us closer together.

Today, our society has reached another tipping point. We live at a moment when the majority of people in the world have access to the internet or mobile phones — the raw tools necessary to start sharing what they’re thinking, feeling and doing with whomever they want. Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries.

There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on.

We hope to strengthen how people relate to each other.

Even if our mission sounds big, it starts small — with the relationship between two people.

Personal relationships are the fundamental unit of our society. Relationships are how we discover new ideas, understand our world and ultimately derive long-term happiness

At Facebook, we build tools to help people connect with the people they want and share what they want, and by doing this we are extending people’s capacity to build and maintain relationships.

People sharing more — even if just with their close friends or families — creates a more open culture and leads to a better understanding of the lives and perspectives of others. We believe that this creates a greater number of stronger relationships between people, and that it helps people get exposed to a greater number of diverse perspectives.

By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date. We also believe that giving people control over what they share is a fundamental principle of this rewiring.

We have already helped more than 800 million people map out more than 100 billion connections so far, and our goal is to help this rewiring accelerate.

We hope to improve how people connect to businesses and the economy.

We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.

As people share more, they have access to more opinions from the people they trust about the products and services they use. This makes it easier to discover the best products and improve the quality and efficiency of their lives.

Listening to a law firm administrator explain how he handles internally sensitive issues at his law firm over a business dinner one evening, I remarked, “You’re a benevolent dictator! Sounds like it’s working for you! Management by consensus may be an easier path, but it is a sure path to confusion, or worse, inaction, right?” He agreed, but added that it wasn’t for the weak of heart because it did not come easy. A few days later I was contacted by book publicist Kevin Small, requesting a review of an advance copy of a new book, The Benevolent Dictator, by Michael Feuer, co-founder of OfficeMax and founder of Max-Wellness. What a coincidence! I eagerly agreed and dove into the book with relish, hoping to glean some nuggets to be passed along to my clients and colleagues in the legal profession. I was not disappointed. I hope you’ll too find lots of encouragement and ideas. Then, share them with the readers of the VMO blog.

This book is a gem. There are practical lessons that we already know but will benefit from re-visiting and others that were entirely new to me. Here’s the short list of what this book has to offer:

• Always be prepared to turn to Plan B…and sometimes C and D.
• Learn how to make every dollar last
• Manage by the three P’s: Persistence, Perspiration, and Performance
• Pot stirring 101: The key to continuous reinvention
• How to put lightning back in the bottle again and again

One of my favorite chapters.

Anyone who has a role in launching ideas in their law firm will totally relate to Chapter Six: “GOYA—The only way to really test an idea.”

“You should… begin by undertaking a process in which I’m a big believer: GOYA, or, Get Off Your Ass. …Take that idea and start testing it. …Go to places where people shop and buy. Walk around and watch how they do it. You envision how your idea would make it better, easier, and faster for people to do something that they’re currently doing poorly, with difficulty, or slowly. You see if your concept has legs.”

Now, you might argue that in the law firm it’s not about shopping and buying. And I would counter: It is! Nothing will get you to the table quicker than if you truly understand how your clients (i.e, partners, management, bosses, etc.) work in order to get them to buy into a new idea.

Have you ever been on the line for a client’s success, been responsible to bring in a million dollars in revenue, or felt the demands on the one commodity lawyers have to sell—time? If not, before you present that new idea walk a mile in a lawyer’s shoes—it ain’t easy. How busy lawyers juggle multiple clients, stay up to date on the law, and find time to develop new business can be a herculean task! (Not to mention family, philanthropy and oh yeah, personal time.) A CEO, COO or CMO (Director, Administrator or manager–whatever your title) with an idea and only a vague concept of the impact the idea will have on the practicing lawyer is certain to be less effective. The Benevolent Dictator will inspire you!

When Communicating, Cut to the Chase.

“One size never fits all, and events must dictate your tactics. This means that as the boss, you must instinctively understand when to be an observer and when you must get your hands very dirty, very quickly—in order to survive, succeed, or excel.”

Assertions that start with a negative followed by a litany of unpleasant consequences will be counter productive. (Avoid being forced to focus only on the risk factors!)

“It’s certainly true that you must tell your team members what they need to know, not just what they want to hear. Sprinkling perfume on a smelly problem doesn’t make the fragrance better. …But, starting with statements like, ‘If we don’t increase sales in the next month, we might have to let go of many of you,’ or, ‘We either save money on expenses, or we go down the tubes’ …is counter productive.”

It’s common sense, but we get into bad habits. Feuer suggests that you can jump start acceptance by explaining the issue and the anticipated fix by using a logical, positive tone and focusing on the good rather than the bad. However….

“If some of your people ignored this first sweet-laced mandate, then home in on those who might need a trip to the woodshed to understand what you really meant. Target your second message to the noncompliant laggards with the old school, stronger-style message, as in, “What part of ‘no’ didn’t you understand? If all else fails…a ton of bricks will get the job done, too.”

Ah…the Benevolent Dictator! I love Feuer’s writing style and I think you will too. There’s great advice on handling crisis, growing your company (i.e. law firm), and gaining trust and respect from your employees (and your own bosses!). Seriously, I know I recommend a number of business books from time to time, but this one is a must read. Truly practical, sensible advice that everyone in the legal profession needs to read—lawyers, managing partners, marketing partners, administrators, COOs, IT, Human Resources, and of course CMOs!  Do yourself a favor. READ THIS BOOK. Then come back and drop a note about a nugget you found and share the wealth!

Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” chronicles his step-by-step strategy to build business and create wealth. Published by John Wiley & Sons in late spring 2011.

ISBN: 978-1-1180-0391-6
Hardcover/US $24.95

Order from The Benevolent Dictator website @ $16.95.

How are you preparing to take your law firm into the “Social Business” era?  Perhaps this is the first time you’ve heard the term used?  Here’s a definition:

Social Businesses combine fully integrated sets of tools, channels, and processes with people that embrace and cultivate a spirit of collaboration and community throughout the organization—both internally and externally. It’s not B2C or B2B, it’s P2P – that’s People-to-People or Peer to Peer.

Wouldn’t it be great if you could fluently and seamlessly communicate and collaborate with people both inside and outside the law firm on your most important matters? Wouldn’t it be great to deliver such value to clients and in turn build even stronger internal relationships between every department, from HR to marketing, to time and billing and information technology? Then become a social business!

While you may already be accessing some of the more popular social media channels to reach out to the marketplace—maybe you’re using Facebook for employee and attorney recruiting, or you’re proactively managing your LinkedIn Company Page, have a “push” presence on Twitter and posted some educational videos on You Tube—there’s more involved in becoming a “social business.” You’re not a Social Business until all the moving parts integrate people, communications and work product to deliver a meaningful outcome. This is the one thing that truly distinguishes a social business model from a traditional business model—social integration for results.

Now, before you say “our law firm will never be a social business,” or start worrying that you’re already behind the curve, take a deep breath, relax, open your mind, and learn how you can become a social business.

Corporations Take the Lead.

As is usually the case, law firms aren’t going to be first. Corporations have already taken the lead in becoming social businesses—many have been in the social media space long before law firms even knew social media existed. They are integrating their social channels and moving human capital into place, getting closer to the mark. Granted, it’s a work in progress, or so it seems, as I’ve heard no report of anyone having perfected a formula yet, but they are getting close. And, I predict that it will be sooner rather than later that savvy clients will look for their service providers to join the revolution and become social businesses. Here are some case studies of social businesses from the IBM website.

Attributes of a Social Business

What are the attributes of a social business? An early adopter, IBM, weighs in about this topic on their website:

• A Social Business is engaged—deeply connecting people, including customers, employees, and partners, to be involved in productive, efficient ways.
• A Social Business is transparent—removing boundaries to information, experts and assets, helping people align every action to drive business results.
• A Social Business is nimble—speeding up business with information and insight to anticipate and address evolving opportunities.

I see glimpses of start-up law firms becoming social businesses. But wow! Can an established law firm become a social business? Maybe a better question is: What happens if they don’t? What happens when their best clients become social businesses and they are focused elsewhere?

Transitioning to Social Business

Michael Brito, Vice President of Social Media at Edelman Digital, believes that “…organizations cannot have effective, external conversations with consumers, unless they can have effective internal conversations first.” He prescribes “the three pillars of social business as the process and foundation with which businesses will transition into social businesses: People, Governance and Technology.

• Organizations begin humanizing business operations.
• Organizational models are formed to include social media.
• Organizational silos are torn down between internal teams.
• Governance models and social media policies are created.
• Social becomes an essential attribute of organizational cultural.”

More ideas from Michael’s forthcoming book, The Evolution of Social Business, can be found here. I especially like his diagram on slide #2.

Social Business Tool Box

Everything a social business does is focused on helping team members; business partners, colleagues and customers, solve business problems and be most effective. To do this, social businesses need tools that allow people to easily find and collaborate with colleagues, customers and partners, essentially increasing efficiency and efficacy. Those tools need to store, manage and deliver in real time all resources, people, information and channels so that work product can be easily accessed and shared from anywhere. [Hello cloud!]

To save you time, I did a little digging around to identify a few items a social [law firm] business might consider in setting up their social business toolbox.  Here are my top four.

1. Social CRM
2. White label, private social network (collaboration software or cloud computing)
3. Listening tool(s)
4. Web channels for distribution and brand exposure

Social CRM:

Traditional CRMs (Customer Relationship Management software) typically manage client details such as contact and marketing information.  For example, they track what newsletters and invitations go to whom, who knows who, and so forth. Much of what a social business does has a marketing play too—building the right human resources, gaining exposure for offerings, anticipating client needs, attending to important client details. But, a traditional CRM is not enough for a social business–they need social CRM. Social CRM moves beyond the straightforward, strategic tactics used to organize, automate and synchronize.  A social CRM provides innovative ways to interact with their customers and prospects by taking into account the new ways people communicate and interact via cloud, social media and social networking sites. Google+ is one new tool that is aiming for this market in a big way. Salesforce.com bought the social media monitoring service Radian6 last spring and is leaping ahead in social CRM strategy. Of course there are others. Read more here.

White Label Network:

A white label network is essentially an enterprise collaboration solution enabling personal and organizational effectiveness. One component of enterprise collaboration invokes social networking technology. This technology gives fast access to everyone in an individual’s professional network, including colleagues, clients and partners, enabling them to access and interact with the people, information and project materials they need to get their work done. These private networks facilitate communications among teams helping them work together and build stronger relationships across organizations. I’ve long been a proponent of private social networking technology for the law firm environment and do not believe enough firms are taking advantage of it.

No matter the size of your budget or size of the network you wish to create, there is something for everyone. If you’re looking for a software solution you might consider Microsoft Sharepoint or IBM Sametime.  For a more economical, web-based solution, one of my favorites right now is BloomFire. Follow this link to a description of nine other white label social networking solutions tested by TechCrunch. Or, for small firm or individual needs, check out Google’s Cloud Apps. It may be just the right fit when it comes to cloud collaboration. You might even opt to create a small, private discussion group on Facebook, which would meet the needs of certain lawyers who already have a presence and network on the site.

Listening Tools.

There is no substitution for a face-to-face client interview and I’m not even suggesting that social comes close to that kind of listening, however, social listening can provide insight into customer needs, competitive intelligence, and identification of prospective clients who have problems you can solve. Social listening will help you find and engage with customers. It will help you anticipate and meet their needs in ways that should differentiate you from the competition. At the very least, a simple social listening tool like Google Alerts can be used to track primary client names, companies, and issues. If you have a lot of listening to do and are willing to pay for this information, you could deploy a solution like Manzama. Manzama was created specifically for the listening needs of law firms. There are of course many others. Here is a wiki of 201 social media monitoring solutions.

Distribution and Exposure.

A social business needs a social public face. Luckily, we are in an era where content marketing is valued. There is no end to the types content law firms can create. But writing and distributing educational content to gain exposure is just one part of the equation. Social businesses go beyond pushing out press releases, white papers, and articles—they engage in the public dialogue. Dialogue in the social marketplace can build presence and alignment with valuable constituencies, including clients, prospects, referral sources, the media, politicians, and others—worldwide. Engagement in the social marketplace typically leads to greater business development opportunities and stronger relationships. Therefore, a social business will have a thoughtful and professional presence on websites like Facebook, Twitter, and LinkedIn. It will post useful content on blogs, SlideShare, and You Tube. And, I repeat, it will engage in the marketplace dialogue. This of course is the most time consuming and perhaps difficult piece of the social business model to integrate, but also the most necessary for proper exposure and positioning.

Social Media Integration.

There is no magic to setting up a social business system. There is, however, some magic involved in successfully removing organizational silos between internal teams and creating permission based governance models and policies that everyone can agree upon and live with. Ultimately, shifting the organizational culture to a distinctly social culture requires not only a bit of magic, but also leadership, consistency and an unwavering desire to use technology to create a stronger law firm.

Your turn; what do you think? Are we ready? How soon do you think we’ll see the first truly “social law firm”? Who will be first?  Is anyone even talking about social business in your firm? Is it too soon? Are any of your clients asking for a more social work model? If so, what are you going to do to make it happen?

If you’re looking for the latest “buzz” about social media ethics and professional responsibility for lawyers (and their employees), I highly recommend Jay Strother’s article, Just Being Social, published in the March/April edition of Legal Management, a publication of the Association of Legal Administrators.  In addition to offering an excellent primer on the issues, the article highlights the responses of legal marketing leaders and attorneys who share some terrific practical tips. This article would be of interest to anyone in law firm management, marketing, and human resources, as well as lawyers generally.

Download PDF ” Just Being Social”

[Disclaimer: I am quoted throughout the article]

Just Being Social | Article Excerpt

THE ABA ETHICS OPINION

As law firms’ use of the Internet evolves well into its second decade, websites’ inherent pitfalls and opportunities for legal organizations have crystallized. Late in 2010, the ABA Standing Committee on Ethics and Professional Responsibility addressed the problems law firm administrators, marketers and ethics attorneys had already wrestled. Formal Opinion 10-457 cites differences between Internet-based business development and its non-electronic predecessors:

• immediacy of access
• direct interaction with legal providers
• disclaimers
• depth of information available

Firm websites are much more than ads. They can be educational tools. They can house very real information. The opinion cites how problems can arise from website marketing and provides guidelines for how to avoid these issues. (Read the complete opinion on the ABA website. An additional resource is ABA’s Ethic SEARCH division. Search the ABA site for “Recent ethics opinion: Lawyer websites” by Peter Geraghty.)

“I can’t imagine why it took the ABA so long to issue this opinion,” [Ross] Fishman said. “The application of old-media ethics rules to the Internet and new media tools has been confounding law firm marketers for a long time. It allowed individual states to create their own conflicting rules and created more confusion than necessary.”

Indeed, some states are ahead of the bar – and their guidelines are even more restrictive, said the director of marketing and business development at Hunton & Williams in Washington, D.C., Kim A. Perret. “There’s a lot of frustration right now and it is going to take some discussion to get the right formula [for restrictions and policies],” said Perret, who is also a former president of the Legal Marketing Association. “Prospective clients want to get the information they need on the web, but protecting the firm from liability or ethical breeches may keep that from happening.” However, Perret thinks that – especially for corporate firms – there exists a sophisticated level of firm website user: They can discern among real information, marketing language and advertising.

But even if some states are more restrictive of web-based marketing and information, those state bar organizations may have the ability to more nimbly react to changes and new media. Many of these entities already had clear website guidelines. Now they are tackling the emerging tools that are causing legal administrators to fret: social media.

THE EXPOSURE

Regardless of their opinions about the timing and usefulness of the formal ABA Opinion, marketers and administrators agree that websites create a lot of gray ethical boundaries – and firms must be ready to address these issues. “This rule said to me that firms have to take every precaution,” said Navarre, who published the book Social.Lawyers: Transforming Business Development. “There is interaction and immediacy inherent in the web. Firm managers must ensure they are filtering the website through layers of protection.”

Websites themselves may be easier to keep under control. The real issues come from the new technologies. Practitioners are creating their own blogs. They are active on Twitter. They have LinkedIn and Facebook accounts that reflect their employer and profession. These media open up new challenges, ones that Navarre said require you to have really honest lawyers who tell the firm how they are using these tools. “Social media: That’s where the line gets a little fuzzy,” she said.

“When we interact online, are we providing legal advice? When someone reads an article online there is a disclaimer.” But Twitter posts and blogs are independent of the firm’s site. Navarre’s solution is to ensure that lawyers and staff know how to handle requests that come in via these media.

-end excerpt-

If you’re attending THE ALA ANNUAL CONFERENCE in Orlando Florida next month, I hope you’ll attend my SESSION, “IS THE MEDIUM THE MESSAGE? SOCIAL MEDIA AND MARKETING” (LI34) ON MAY 25.

Today a package of materials from a new client of mine arrived overnight, first AM delivery. The delivery surprised me and exceeded my expectation as our scheduled meeting is weeks away. There was nothing urgent about me receiving the materials, but it sure was nice to have them in hand so far in advance. Then I recalled how earlier communications with the managing partner and his staff had clued me in that I was dealing with a first class organization with great respect and value for everyone they do business with, even those outside the direct revenue stream. Their treatment of others goes beneath the surface and is the heart and soul of their success.

They are successful not only because the firm has excellent, experienced lawyers, though they do. Not because they discount services or offer alternate fee arrangements, they don’t. They are successful because they have a law firm culture that operates on mutual respect, consideration, and honesty. CLIENTS like that. A successful firm will not take for granted the impact their internal culture has upon its success.

Culture is a law firm’s DNA.

Truth be told, you can actually tell A LOT about a law firm’s culture by the way they treat their vendors. When someone told me this, years ago, I thought it was absurd. Now, after 15 years in the legal profession, both as an employee and a vendor, I can tell you its true. [Too bad more prospects don’t know this or they’d be interviewing a firm’s vendors, not their lawyers, to uncover what they might expect from the client/attorney/law firm relationship.]

I can now predict, with accuracy, client satisfaction levels in almost 100% of cases simply by my dealings with the firm as a vendor. I have found that there is a direct correlation between the degree to which I am treated respectfully and the degree of the law firm’s success.  Weird, I know….well, maybe not.

In a new book by Barry Libert of Mzinga, “Social Nation. How to harness the power of Social Media to attract customers, motivate employees and grow your business,” (Wiley, 2010), Libert posits that the power of culture is not to be underestimated where business and community intersect. (Yes, your clients are a community!) Among many golden nuggets the book has to offer (full review to follow shortly*), Libert proposes that clients can sense when your culture is a healthy one, and a healthy culture is a healthy company.

“If the DNA is healthy, the company is healthy. If it is not, the company, just like your family, will falter and eventually fail. In business, it means your customers will leave in pursuit of a competitor that will care more about them and better meet their needs.”

I couldn’t agree with Libert more. To wit, I’ve worked inside law firms that had a DNA of respect, honesty and action. They respected their employees and their vendors, i.e., valued their expertise, engaged in fair contracts, didn’t haggle, returned calls, and paid invoices promptly. Not surprisingly, they also had a lot of loyal and happy clients and are still going strong today. Conversely, I’ve also worked where it was exactly the opposite. Ironically, in once such instance, the law firm no longer exists!

Observations from the vendor trenches. [ Or, what shoppers can learn from vendors.]

It starts in the evaluation stage. When a prospective client law firm and I are getting to know one another I’ve noticed that the best firms have taken the time to prepare good questions. They might also have an idea for how they want to proceed, and they have determined a range of fees they’re willing to pay.  Some even have an idea of the specific results they are seeking. (They’ve done some homework or they tell me up front that they are clueless. Honesty is always a good start.) Though this often evolves as we talk, their preparedness is a sign that they take the project, my services, and me seriously. Following the logic, these law firms would also be those that are not afraid to tell one of their prospective clients the truth about the prospects for their case. They would reasonably estimate fees and, if necessary, refer them to another attorney or law firm that is better suited for the matter. In essence, they are prepared and preparation is a hallmark of great law firms and great cultures.

Alternately, I can immediately tell when an evaluation call is a fishing expedition for FREE expertise. In these cases I can fairly accurately assess that the firm is not successful enough to pay for expertise or that they believe their own expertise is the only kind worth paying for; both are bad. Avoid these firms and you avoid disappointment.

After the evaluation stage, I learn a lot about the firm by the length of time it takes to return phone calls or respond to emails. It is illuminating.

For example I am often asked to submit a proposal TOMORROW, i.e., “This is an urgent project for the firm. Can you get that to me tomorrow?  Our committee is meeting on Friday.” “Sure,” I say and work through the evening hours to deliver on my word only to hear silence for weeks. Now, I know that my proposal is not always at the top of the list, but is it too much to ask for a quick email response to say; got the proposal, the committee did not have time to discuss it on Friday, but it’s on the agenda for next month? Non-responsive behavior from a firm that has an URGENT need is likely to be a firm that communicates poorly (or even dishonestly) with their clients. (Note: a distinction should be made between lawyer and law firm, i.e. the law firm may be unresponsive but an individual lawyer can be very responsive. However, when you hire a lawyer you essentially hire their law firm. It’s a 360-degree relationship, and it takes both to make it work.)

The pricing stage is also often a very telling sequence. Being the Pollyanna that I am, I assume that once past the evaluation and the proposal there is sufficient understanding of the value of my services and respect for me as a business owner; that I’ve priced my services competitively and that I intend to deliver value along with the price tag. If I say my day rate is X, it is X. If there is variation in what you’re asking me to provide there may be room for a discount, but if the project is as quoted you can be sure that is what I believe the project will cost—and for me to remain in business to help you in the future. The law firm that doesn’t understand this equation distrusts me. And, not in all cases of course, but such a law firm could actually be over charging or under-delivering their services and they are projecting their behavior on me. [Note to shoppers: There are some firms that just can’t help themselves from negotiating everything! While that’s fair, beware; they will likely be tough negotiators when it comes to writing down your legal bill too!]

Finally, much can be read from the payment process. As a responsible contractor I always include terms of payment in my letter of agreement.  When a client signs that agreement I believe they, in good faith, intend to conform to the terms. (Lawyers must understand this, right?) But to my surprise, even when the situation is black and white, i.e. product or service delivered and approved, there are some law firms that purposely sit on the payment for months, ignoring the terms of our agreement. How this reflects a firm’s culture is crystal clear. In one example, I waited over a year to get paid! It was no surprise to me when I learned that the named partner of that firm was found guilty of fraud and his license suspended.

If clients aren’t raining from the sky…

Word of mouth marketing can be the life-blood of a law firm, i.e. referrals. It can also be what’s standing between success and failure. In today’s social marketplace,  people are talking. The insight we receive from social interactions and communications that take place among and between our clients, employees, vendors, and partners reveal a lot. Decisions about purchasing products and services are more frequently based on how the outside sees our “inside” culture. If clients aren’t raining from the sky for you or your law firm, you may want to step away from the sunshine and look inside at your culture.

“Everybody talks about the weather, but no one does anything about it.”– Mark Twain

Perhaps I could have saved a lot of words and simply said “actions speak louder than words.” Or, perhaps corporate culture, like the weather, is impossible to change for anyone but the Heavens. So, our only recourse is to talk about it and make us feel a little bit better-though totally not in control.

Whatever the case, weather happens. So does culture. Only difference is you can influence your law firm’s culture. Like it or not, how you do business with others outside your revenue stream will impact how you do business with your revenue stream, i.e. clients. And, as Libert suggests….”take good care of your personal values and you will energize your customers, partners and employees.”

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*Disclosure: I was given a complimentary copy of this book to review.

We’ve come a long way, baby! Three years ago, when I founded my company Law Gravity, I talked to a lot of law firms about their “plans” for using social media. Their response: “What plans?”

There were firms that had a blog or two, but few looked beyond into opportunities presented by other social media such as social networking, social buzz, bookmarking sites, podcasting, or multi-media sharing sites and services like You Tube and Slide Share. Why? “Too much risk.” In fact, many law firms chose to block social media sites on their corporate network.

Fast forward to 2011, and social media is taking on a life of its own with or without the risk averse. Lawyers and law firm employees are doing more than just talking about it these days–many have moved beyond setting up accounts; they’re successfully engaging. Business development and marketing coaches, consultants, public relations, and branding agencies that serve the legal industry have all added social media capabilities to their offerings, leaving one to conclude it’s not going away…

So, what’s next?

2011 Prediction.

Generally speaking, social media for business development requires a lot of one-to-one engagement and tends toward random and serendipitous opportunity. For busy attorneys this becomes a time management challenge (as marketing one’s practice has always been). On the other hand, the law firm entity is challenged to benefit from such activity when it is one-off or worse, misdirected. Social media needs integration and management.

Tracking who’s signed up for what networks, who’s blogging, or how many visitors, friends or fans a page has is not integration. Having a social media policy is not a surrogate for meaningful management.

Progressive law firms, sooner rather than later, will begin to see and understand that effective integration of social media will require a managed business process. Why? Because social media is about a fundamental shift in behavior and it is impacting many facets of both our personal and professional lives – can it get more important than that? It is impacting the way we go to market, make decisions, and communicate with distant clients, friends and colleagues.  The usefulness of the Internet will only increase as the semantic web (3.0) gains traction. The time is NOW for law firms to start developing a managed business process to build social media into the fabric of business plans and all communications (both external and internal), just as was required with email and other disruptive technologies in recent decades.

I predict that in 2011, everyone will begin asking, earnestly, “Hey, how do we take all this random energy and manage social media to our advantage?”

I intend to be on the cutting edge of that answer.

Here’s how I’m seeing it…

2006/07 –

• Maverick attorneys blog and/or open a LinkedIn account.
• Most of the legal industry has no clue what those “Join my professional network on LinkedIn” messages mean.
  • They delete them.

2008 –

• Facebook gets a bad rap as a time wasting activity, so it’s blocked.
• Legal centric social networks appear behind walled gardens removing some of the perceived risk factor.
• Most lawyers have no clue about Twitter
  • “who cares what you had for lunch?”

2009 –

• LinkedIn begins gaining mass – but not depth.
• More attorneys jump on Twitter, but still only a few “get it.”
• Law firms experiment with video.
  • They confuse talking head monologues “about the firm” posted on the firm website with short educational clips on You Tube that people might find really helpful.

2010 –

• Law firms attempt to “manage” social media via POLICY.
  • Half of the firm doesn’t understand what’s the big deal and the other half gets scared away from using social media out of fear.
• Marketing departments scurry to claim the firm’s name on Twitter, Facebook, LinkedIn, etc.
  • and post press releases and event announcements.

2011 –

• Progressive law firms begin to MANAGE social media by first aligning business goals.
• They seek business metrics, i.e. revenue, efficiencies (cost reductions), and brand equity.
• Beyond business metrics they use social media analytics, i.e. measuring centers of influence, share of voice, and sentiment.
• Marketing staff and individual participants continue to measure engagement data such as fans, friends and followers, clicks and views
  • but squarely the real money is on the ROI – how does this impact the top line revenue and enhance client relationships and perceived value.

(For more on how these 2011 ideas are shaping up in the corporate sector, see Jeremiah Oywang’s Framework for Social Media ROI here.)

It’s Elementary.

“Excellent!” I cried. “Elementary,” said he. “It is one of those instances where the reasoner can produce an effect which seems remarkable to his neighbour, because the latter has missed the one little point which is the basis of the deduction.” –Watson and Holmes in “The Crooked Man”

While I don’t claim Sherlock Holmes’ powers of deduction, I am a fan and want try my hand at looking for the one-little-point when unraveling a puzzle. So, while most of the early emphasis of social media among lawyers and marketers was placed on “should we be on Facebook,” “do all our attorneys need a profile on LinkedIn,” or “what should I post on Twitter,” I deduced that social media tools were not the point of social media –they exist, simply, to help people and organizations achieve marketing goals. And, I staked the success of the social media squarely on a “social media plan” informed by a Marketing Plan.

Okay, so I was a bit off track. In 2011 things are becoming clearer. I’m changing my tune.  The heavy lifting of social media starts with “what’s in our Business Plan?” You do have a Business Plan for your law firm, right?

Putting a Business Plan before any action is fundamental. Just because we have new tools, does not mean we have new rules.

(I hate to admit that in my past are far too many Marketing Plans without the fundamental Business Plan in place. One should never lose sight of the fact that the Marketing Plan is a separate document created to support the Business Plan. Also known in legal industry circles as the firm’s “Strategic Plan.”)

So I stand resolved; to deploy social media tools successfully in 2011, you must first have a Business Plan—with goals, objectives, strategies and tactics. A Marketing Plan is merely a strategy found in a Business Plan and social media is simply one of several types of strategies that can be used to execute either or both a Business Plan and Marketing Plan. Only after the social media strategy is chosen, can tactics be identified to execute the strategy, and tools be selected to execute tactics—Yes, Virginia, there is NO Social Media Plan. (Sorry to disappoint the social media consultants and marketers who are busy writing social media plans – your comments are welcome!)

You Need a Tight Ship.

Assuming social media is one of your Business and/or Marketing Plan strategies, in order to manage it successfully you need a tight ship. A tight ship doesn’t leak; it is, at its very core, well built and sea worthy. The captain and the crew trust it implicitly to take them wherever they need or want to sail. Furthermore, on a tight ship, the captain and crew have well-defined roles and an eager willingness to work together to arrive at their destination. If your firm has a well built and sea worthy Business Plan and a well-defined and respected organizational structure, chances are your social media tactics won’t sink.

That being said, launching the social media strategy takes time. It’s okay, and probably necessary, for marketers and lawyers to take some time to experiment with social media tools outside a managed business process. To use the boat analogy, think of it as being in a little dinghy on your way from the dock back to the ship anchored off shore. When a critical mass gets to the “I’m On LinkedIn, Now What?” vessel, it’s time for all hands on deck, check the charts, fine tune the gauges, and get sailing!

I’ll be writing more specifically about organization, management, and business process related to law firm integration of social media in 2011. After all, I’m looking for the same business metrics for Law Gravity that you are… Meanwhile, your thoughts?

Last week the National Labor Relations Board launched a legal case asserting that employees have a right to free speech on Facebook. It announced that it had filed a complaint against an ambulance service that fired an emergency medical technician, accusing her, among other things, of violating a policy that bars employees from depicting the company “in any way” on Facebook or other social media sites in which they post pictures of themselves.

According to the New York Times, Lafe Solomon, the board’s acting general counsel, said, “This is a fairly straightforward case under the National Labor Relations Act — whether it takes place on Facebook or at the water cooler, it was employees talking jointly about working conditions, in this case about their supervisor, and they have a right to do that.”

That act gives workers a federally protected right to form unions, and it prohibits employers from punishing workers — whether union or nonunion — for discussing working conditions or unionization. The labor board said the company’s Facebook rule was “overly broad” and improperly limited employees’ rights to discuss working conditions among themselves.

Moreover, the board faulted another company policy, one prohibiting employees from making “disparaging” or “discriminatory” “comments when discussing the company or the employee’s superiors” and “co-workers.”

The board’s complaint prompted Morgan, Lewis & Bockius, a law firm with a large labor and employment practice representing hundreds of companies, to send a “lawflash” advisory on Monday to its clients, saying, “All private sector employers should take note,” regardless “of whether their work force is represented by a union.”

The firm added, “Employers should review their Internet and social media policies to determine whether they are susceptible to an allegation that the policy would ‘reasonably tend to chill employees’ ” in the exercise of their rights to discuss wages, working conditions and unionization.

American Medical Response of Connecticut denied the labor board’s allegations, saying they were without merit. “The employee in question was discharged based on multiple, serious complaints about her behavior,” the company said in a statement. “The employee was also held accountable for negative personal attacks against a co-worker posted publicly on Facebook. The company believes that the offensive statements made against the co-workers were not concerted activity protected under federal law.”

Law Firm Social Media “Policy?”

So, folks, what does this mean for our law firm social media policies? It certainly raises some interesting questions. Is social media the watercooler or is it something else? And if so, what is it? A permanent record that has the potential to be scrutinized by millions? Is it publishing: Like old school media where libel is a real concern?

There are some typical conditions included in law firm social media policies that may be impacted by this case sending us all into a tizzy.

Will this send us back to GO?
Will we lock down all social media sites and services?
Ban Facebook?

If this case wins and even if it only directly affects union workplaces, I’m pretty sure law firms will also want to revisit several policy points — just to be on the safe side. As innocent and full of common sense as the following language may seem, I’ve used them or seen them in law firm social media policies. With this case, policy statements like these may tip the balance between protecting the law firm brand and permitting free speech.

1. Individuals are personally responsible for the content they publish. What is published will be public for a long time — protect the firm’s good reputation as well as your own.
2. If you choose to add your place of employment to any profile, you must use common sense in all postings and comply with our workplace policies, ethics, and other requirements.
3. Respect for others is mandatory. Do not use ethnic slurs, personal insults, obscenity, or engage in any conduct that would not be acceptable in the workplace.
4. Show proper respect for others’ privacy and for topics that may be considered objectionable or inflammatory. We take this very seriously and any act to the contrary will be subject to discipline or result in termination.
5. What you publish reflects not only on the law firm’s brand, but can also impact your professional advancement, the achievement of your goals and your success in the future.  Use common sense and judgment. Ask if you are uncertain.
6. For your protection, be aware that your associations with others in online social networks and other user generated content sites are a reflection on you. All is revealed in search results. How you represent yourself can be a slippery slope.
7. You must make it clear that you are speaking for yourself and not on behalf of the firm. Speech that appears to represent the firm, even remotely, takes on the appearance of an official stance and is not permitted in any circumstance.

Lawyers Please Share Your Comments.

I’m not a human resource professional nor a risk manager so I don’t claim any authority on this, but I have been an employee. Policies, in my mind, mean that there are consequences to the employee when they are violated. Guidelines on the other hand are simply strong suggestions. Something to consider – are your social media do’s and don’ts policy or guidelines? If they are policy, are they overly broad? Do you need to be very specific and keep in mind the issues now being vetted by the NLRB?

At the end of the day, is firing someone over poor choices, bad judgment and such protected? I’d like to hear from an employment lawyer on this issue. I would think that any post that impedes the good will of the law firm or company could be considered bad judgment and cause for dismissal, but then I could be wrong on that.

I’ll be watching this closely. Meanwhile, please share your comments!

There are several things law firms can learn from the recent publicity of the JetBlue incident, particularly in the context of the social Web and reputation management, but three stand out.

1. Your stakeholders want you to succeed. They want to believe that you, their law firm, do the right thing; that you’re a valuable asset to their team and that others believe as they do.
2. Align your law firm with stakeholders, via engagement on the social Web, BEFORE a crisis strikes to give you access to, and credibility with, your stakeholders if and when an incident needs to be addressed.
3. Transparency on the social web is critical for law firms, especially in times of high media interest, and so it must be handled with care, for both the law firm and all involved parties.

Address crisis or rumor with effectiveness and style via the social Web

The recent Steven Slater/Jet Blue “Beer Slide” saga has had everyone in a tizzy lately; especially the media, JetBlue fans, executives at JetBlue who are normally quite chatty on the social Web, and their lawyers.  It appears that their legal counsel prompted Jet Blue’s silence in the early aftermath of the incident. Three cheers for the step-away-from-the-microphone advice during the initial brouhaha. In this case it turned out to be great advice.

Despite the negative squawking that penetrated the net – Where are they? Why aren’t they telling us what’s going on? – JetBlue pulled away from business as usual on the social Web until they gathered the essence and then posted a brief, but highly effective, entry on their corporate blog, BlueTales. They presented a side of the story with a compassionate, yet lighthearted, persona addressing the issues they were facing. They asked their online stakeholders to hold on.

What JetBlue did right.

In a simple blog post, they covered the issue with transparency –at least as much as legal considerations would allow at this early stage of the investigation— and the blog tool was the perfect delivery channel. (Note: they had already established a loyal following – see Lesson Two)

Lesson One: We love you!

In response to the blog post (193 comments so far), here’s what a few readers had to say

• …i love you jet blue
• …this is your chance to rise above all the nasty comments left online, by being gracious and forgiving. Offer his job back; don’t worry, he won’t take it; give him a stern lecture; and remind all passengers they MUST obey, by federal law, the orders of flight attendents, who are NOT just glorified waitresses and waiters. Here’s your chance: don’t blow it!
• Thank you for acknowledging your fine employees at this time. My family and I have always been very true, loyal customers of JetBlue.
• I think JetBlue should show the world, yes the world, that there is a lot of abuse in the service industry. Please show the world that there is a company that has empathy for their loyal employees. I feel your company is in the best position to teach the world it needs to be polite to people in the service industry and people in general. The world needs this lesson. Show us your empathy.
• This is a goldmine opportunity. You should definitely hire this guy, and have him make a bunch of funny YouTube videos about the dos and don’ts of carryon luggage. Have him try to shove a size 10 carry-on into a size 9 over-head, sideways. At the end he could have a little sign off (think Dan Rather’s “Courage!”) and then take the chute out of the plane, like Batman. If you don’t somebody else will, why not get the credit for being fair to someone who is viewed by many as a hero, and at the same time turn some lemon-like bad publicity into some earned advertising lemonade.
• I’ve flown with Jet Blue and I have nothing but good stuff to say! I don’t think this story will tarnish ur reputation. Your a great little airline keep doing what your doing it works I really like that Google maps thing that says where the plane is that is so cool!
• Jet Blue…..the most polite officers and crew. I only fly Jet Blue. Only had one tiny set back on Blue….No TV for 3 hours of my flight. But I lived. Thank you Jet Blue for being the best Airline to fly with…

Okay, okay, so we don’t expect law firm clients to be in love with their law firms in the same way they might love their preferred airline. BUT, take for example today’s headline story on the National Law Journal site.

Hunton & Williams has been hit with a $150 million lawsuit in Wisconsin claiming that the law firm maliciously squeezed a broker out of a contract and should pay up for the company’s losses.

The Richmond, Va.-based law firm issued a statement through a spokeswoman in response to the action. “This suit was filed by an adversary of one of our clients,” it said. “These allegations have no merit, and we plan to vigorously defend against them.” [Emphasis added]

What if, in a circumstance like this, there was a social channel (blog, website, discussion board, Facebook page, whatever) where the law firm laid out, after careful examination and with some transparency, the situation to the extent allowed by ethics and privilege? What if loyal clients added their comments? How would that impact the reputation of the law firm? How would that impact the clients’ perception that their voices mattered? How would it give readers what they wanted to hear and give them understanding?

Before you say, “noooo way would we open up the pipes and let people trash us,” I say, why is that? Why do you think you’d get trashed? Don’t you know you have clients who really do depend on you? Sure there might be people who would use the opportunity to grind an ax, but I’m going to take a guess that, over all, sophisticated readers would see right through that. Especially if you were being transparent, i.e. human, rational, reasonable business professionals who practice law and deliver value to clients.

Lesson Two: Align with stakeholders before the crisis hits.

For JetBlue, their social Web presence started long before Steven Slater, a veteran flight attendant, had maxed out on his tolerance for rude passengers, chugged a few beers, opened the evacuation slide, exited his job in dramatic fashion and entered the Internet media spotlight. They were there, amidst their stakeholders before the crisis hit. They were active on Twitter, Facebook, and their blogs. They were not only posting news releases and canned messages, they were engaging.  They had positioned themselves positively in the minds of their stakeholders. They were a “human” entity. (Which is also why there was shock when they didn’t give an early response. A two edged sword that had a happy ending.)

Law firms that are still on the ledge or are not taking the social Web seriously may be in for a surprise the next time they need to communicate with a broad base of share stakeholders. (See also Toyota Recall) Best to be proactive and get a social media presence now.

Lesson three: Be transparent, but handle with care.

I am not suggesting that law firms or anyone should try cases in the media. We all know that strategy. Sometimes it works and other times it hurts. However, it doesn’t hurt to be prepared and the social Web needs your attention.

When something dramatic happens, the media is looking for a story. They’ll get it where ever and however they can. In the pre-Internet days they would pull quotes and sentiment from passersby. That hasn’t changed, only now they have access to those sources 24/7 without leaving their desks, thanks to user generated content. To make matters more intense, passersby are telling their stories without the filter of the media.

Prepared statements from public relations departments and executives are becoming passé where the social Web is involved. Canned statements are ineffective unless they are handled with transparency and human perspective. The social Web demands it. Woe to the law firm who ignores it. Eventually it WILL catch up to you. On the flip side, speaking too early or too loudly may come back to haunt you. It’s a new PR approach, best to be prepared to handle it carefully.

Bottom Line:

Maybe if we–law firms–were more transparent, within ethical boundaries, people could be educated in the subtleties of the profession and attitudes would shift. After all, aren’t most civil disputes and legal actions the result of misunderstandings? The law is immense and difficult to interpret. What is your law firm doing to engage with their constituencies on the social Web so that you will have ready access to manage your reputation proactively?

Following my post on Alternative Fee Agreements for law firms and their clients I had one of those days where I wished I had never heard of the phrase. I was sitting in the middle of a flat fee project. Had I priced by the billable hour, I would be rich and retired today. Instead, my hourly rate is clocking just above minimum wage and it’s not finished yet. That’s just how it goes sometimes, I guess.

Of course I was discouraged. Of course I started beating myself up for not having managed my time better. I kept thinking over and over wondering what went wrong and how could I have stopped the runaway train? There really was nothing unusual about the project, a pretty straightforward engagement that I’ve done successfully many times over, which is why I priced it the way I did. Still, things got out of hand. Some things that happened were out of my control but there were also things within my control and I was starting to get really angry…then I had the opportunity to speak on the telephone the next morning with Laura Colcord, the lead instructor for Legal Sales and Services Organization’s Legal Lean Six Sigma training program focused on process improvement for law firms. Yup, that was it…somewhere the LawGravity process broke down and the process needed improvement…

Laura is presenting a pre-conference workshop at Raindance next week. She told me that she and the team at LSSO has translated every six sigma concept, methodology and tool into an easy to understand and practical guide specific to the legal industry. I was pretty impressed. I thought Six Sigma was for car manufacturers…isn’t it that management strategy used to improve the quality of their products?

Indeed. She explained that essentially, Six Sigma process improvement identifies mistakes, defects, waste and seeks to reduce them as well as minimize variability in repetitive processes. When the automobile industry needed to reinvent itself they employed Six Sigma. Today these concepts, methodologies and tools are finding application in other businesses, including professional services firms; law firms, in particular, who in the past two years have been dealing with a lot of change. She was reminded of a quote that resonates:

“If the rate of external change exceeds the rate of internal change the end is in sight.” Jack Welch.

Well,  I think we have enough evidence to recognize that law firms can no longer just sit on their laurels, they need to keep ahead of the change. One place change is taking effect is in the pricing and delivery of services, thus the whole discussion of Alternative Fee Agreements. Laura suggested that by improving certain processes involved in doing repetitive tasks and managing certain types of cases, there is benefit for the client and for the law firm in light of these new fee agreements. It involves a combination of pulling together timing, knowledge and expertise into a repeatable process to maximize the probable outcome.

For example, if a law firm uses an alternative fee agreement and they spend too much time on it they are not going to make a profit. [Ask me, I know!] Therefore, they need to break down predictable tasks and allocate them to the correct level of talent. When you can staff the work appropriately, the high paid brain power will be engaged only for the high value portion of the work, making the whole arrangement satisfactory for the client and profitable for the law firm. Sigma methodologies focus on looking at how people work and finding ways to improve them–eliminating the need for a clean sheet of paper every time something needs to get done. The organization asks: what is the best way we know how to do this? This applies to more than just how a law firm structures case management.

Beth Cuzzone, a founding member of LSSO and Director of Marketing at Goulston Storrs, speaking on a panel at the 2010 Marketing Partner Forum gave a number of examples how process improvement can be applied to administrative tasks in accounting, IT and marketing, and other client facing experiences, such as the intake process or even what happens when they visit the law firm’s physical location. Almost anything that has a repetitive element can be improved through the concepts, methodologies, and tools of Legal Lean Six Sigma as long as the quality of the outcome is satisfactory to the client.

By the end of my conversation with Laura, things became clear….surely I need to improve some processes at LawGravity. We’re a young business, and growing. Just took off the training wheels, have a couple scrapped knees to show for it, but all the same, ready to get back on the bike, keep peddling forward and with some process improvement we’ll be better prepared to maximize the probable outcome, stay profitable and continue to make the quality of the outcome satisfactory to the client.

Legal Lean Six Sigma offers a private label training experience as well as a twice yearly open enrollment two day course and an annual introductory level training during the pre-conference session of Raindance. More information can be found here….

I’ll be reporting live from Raindance next Wednesday and Thursday here on VMO and Twitter (Follow #RD10). Hope you’ll check in on all the action….

Thinking about the best way to structure that Alternative Fee Agreement your client is requesting? Well, it may take some time up front and some serious understanding of the benefits for both client and law firm to strike the right balance. And, as in most things alternative, AFAs are situational, but when done properly can be a win-win for everyone.

For anyone new to the discussion, the best place to start may be to understand why the topic of AFAs has escalated in the past year or so. While the “economic downturn, everything is changing” scenario is a good start, according to Will Auther, a partner at Bowman and Brooke, sophisticated buyers of legal services have ALWAYS relied on fee ‘arrangements’ as opposed to the billable hour. It’s just lately that the rank and file client has challenged the commonly accepted billable hour.

When I spoke with Will last week, he shared with me some of the key issues that his panel will be addressing at the June 9-10 Raindance Conference presented by the Legal Sales and Services Association and West Legal Education.  Joining Will on the panel are David Susler, Associate General Counsel at National Material, L.P., Anita J. Wilson, VP and Chief Employment Counsel for TreeHouse Foods, Inc., Patrick J. Lamb, Founding Partner of Valorem Law Group.

If you’re short on time, I’ll tell you the punch line—your missing the boat if you think they can’t be used for almost every type of matter your law firm handles. If you want the whole story you’ll have to attend RainDance 2010. It’s sure to be enlightening. Meanwhile, here’s the sweet low down.

[VMO NOTE: This post reflects the notes I took during our conversation and are not verbatim. I have used the “interview” format to make for easier reading.]

VMO: Why are we talking about Alternative Fee Agreements? What’s the story?

WILL: Our firm has been using [alternative] fee agreements for as long as I can remember. Depending on whom you talk to, hourly billing didn’t become vogue until sometime in the 60’s, maybe 70’s. Before the billable hour it would work like this; a client came to your law firm with a legal need, a lawyer would deliver services, write out a bill for services based on the value he or she believed was delivered—rendered X DOLLARS—and the client would pay it. End of story.

As legal services became commoditized in the eyes of, for example, insurance companies who believed the amount of time spent on such and such type case was fairly predictable, there was a move to dictate what an hour of time was worth to them, thus, the billable hour. I don’t think you’ll find many lawyers had that mindset early on; it was driven by an industry clients that wanted to quantify the work. [See also new reader comment below for more insight on how the billable hour came about]

The billable hour then led to what we now know as the common business model for larger law firms; LEVERAGE. Leveraged pyramids didn’t exist in the old law firm business model, only value for services rendered which is essentially a Fee Agreement.

VMO: As they say, what’s old becomes new again. Why is the model now swinging back to Fee Agreements?

WILL: For the past twenty years or so law firms incrementally raised their hourly billing rates, annually. Clients were seeing their rates rise but they continued to receive the same value and same service. (VMO: obviously not a sustainable proposition and that’s why we’re talking about Alternate Fee Agreements today!) Even before the economic down turn general counsel began trying to figure out how to fix it. One big factor in the current discussions has been the Association of Corporate Counsel’s Value Challenge. The ACC Value Challenge has elevated the discussion to a different level. Sectors that had not previously been thinking about what sophisticated users of legal services were doing for a long time are now reaching into the business models of every firm. AFAs have become THE hot topic in past year. That’s why we’re hearing so much about it. Small, medium, large, sophisticated and non-sophisticated purchasers of legal services are waking up the discussion. If you think about it, law firms today are primarily comprised of attorneys and in-house counsel who literally grew up with the billable hour. So, this is a big departure for many and one that needs careful attention to do them well.

VMO: The Alternative Fee Agreements I’m seeing today are pretty sophisticated, more than an old-time agreement of X for services rendered. What’s working?

WILL: Yes, that’s right. There are many ways to skin a cat and it pretty much comes down to how you want to share the risk with your client. For example, you can approach an Alternative Fee Agreement with fixed fees, phased fees, milestone fees, bonus fees, volume arrangements, contingency fees, or disaggregation of services, i.e. bill or price on a commodity basis.

No matter what the approach one thing is true of all; an Alternative Fee Agreement is a move away from the billable hour. Discounts and blended rates are NOT an AFA, because they do not take the emphasis off the billable hour. Though some will still debate this, the fact is, discounts and blended rates do not drive down cost for the client nor improve the profit line for the law firm, two elemental reasons for instituting Alternative Fee Arrangements. This will be a topic that the panel will be going into with more detail.

VMO: What’s in it for the client and what’s in it for the law firm? Why does it work?

WILL: There is great benefit for the client. AFAs will drive down costs over a period of time and they offer predictability. Sophisticated clients know their metrics – when and how much they’re going to be sued – it’s typically a line item on an annual budget.

For law firms, using tools and processes to deliver value to the client while reducing their own internal cost can increase their profit margin over time. When done right and well, it’s a win-win situation. For example, law firms might use early case evaluations to help the client make a decision whether the case should be settled early on.

Further, depending on the structure of the agreement an AFA can be an annuity for the firm without the cost of administrative oversight, collections and such. In fact, for both client and law firm there are significant efficiencies. The law firm can reduce payment delays and both parties eliminate time consuming conflicts over billing issues.

Mutual trust is a cornerstone of alternative fees. So, although there may be a substantial investment of time and resources at the on-set in developing an acceptable framework, in the long run it is time well spent for the law firm and the client. Arrangements built on mutual trust and willingness to share the risk typically lead to a long-term relationships.

VMO: Who is typically involved in pricing this modern version of the Alternative Fee Agreement?

WILL: It probably goes without saying that the Alternative Fee Agreement is a business transaction that is separate and apart from the legal transaction. In its simplest form it is a business proposal for the client and the law firm to work out and “agree” upon.

Alternative Fee Agreements are essentially the evolution of what it takes to deliver value to clients. Sophisticated clients typically know what a matter is worth to them to a large degree depending on the type of case and they don’t need to be beholden to the firm to tell them what it’s going to cost. You’ll find that some clients are aggressive in fixed fee programs; they tell you how they want you to bid it—this way or that way. Others, those who don’t use legal services on a regular basis, don’t even know how to bring the discussion up let alone how they would implement. In those cases it may be for the lawyer to bring it up and explain to the client why it makes sense for everyone involved. IF you can demonstrate you know what you’re talking about, build the value proposition—assure the client that you are there for them—after that; it really just depends on the client’s circumstances and need.

VMO: I once heard a general counsel comment that law firms commonly include in services descriptions phrases such as “regularly handle this” or they “routinely do that,” yet when asked how much is this case going to cost, they can’t answer. Are there cases you have seen that are a better fit than others for AFAs?

WILL: There’s no reason an Alternative Fee Agreement can’t be used in every practice area. They can be very effective in labor and employment cases, intellectual property, finance, mergers and acquisitions and litigation. Again, there are many types of AFAs and some work better than others for certain types of work, for example; cases that are more routine may benefit from disaggregation of services as opposed to cases where you are doing something really different, then it probably makes sense to build in a contingency, phased or bonus arrangement.

Where a matter does not appear to be routine, stopgaps can be built into agreements to protect the law firm in the event of something really unusual. Our panel has a lot of experience to share in this regard.

VMO: Thanks, Will. I look forward to the panel’s discussion. See you at the Raindance!

[There are a number of good resources on Alternate Fee Agreement and some fairly hearty discussions have taken place on Martindale.com’s Connected community as well as Legal OnRamp.  And there are dozens of blog posts on the topic.

Two interesting reads on billable hours and predictability come from Tim Cororan "Don't Tell Me What You Think I Want to Hear, Tell Me What I Should Know and Heather Milligan  "How much does your hourly billing rate cost your client?" Recommended reading....and food for thought.]