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By Ryan Hanley
The new U.S. economy has created more lawyers professional liability insurance exposures than would be commonly assumed.
According to the Bureau of Labor Statistics, more than 25,000 legal services jobs have been lost since August of 2008. A displacement of this magnitude has created an employment ripple throughout the legal industry, felt from the largest international firms down to small-town practices.
When insurance carriers are underwriting a lawyers professional liability insurance policy, recent hiring and firing of lawyers is taken into account. A law firm may let a lawyer go for many different reasons, but the actions leading up to release can potentially lead to professional liability insurance exposures.
The new U.S. economy hasn’t only affected employment. With revenue falling across industry practices, competition between law firms has become very aggressive. Law firms are starting to take on new practices in which they have little to no expertise, in an effort to increase revenue. Organizational inexperience within a law firm can lead to mishandled and/or misfiled paperwork, which is a leading concern in cases involving lawyers professional liability insurance.
Technology has also played a role in the recent spike of professional liability claims. Law firms have taken to the Internet to market their business. Electronic communication, filing, mobile technology and social media advertising have all generated another new form of liability, cyber liability.
Lawyers Professional Liability Insurance
What Can Law Firms Do To Protect Themselves?
Be prudent when purchasing lawyers professional liability insurance coverage. Cheaper is NOT better when it comes to procuring professional liability for a law firm. The exposures that law firms face are vast, and the language within legal industry insurance contracts can often be vague.
Make sure you work with an insurance professional with experience in both the legal industry and in writing professional liability insurance. Additionally, be upfront and honest with everything that your firm does. Things you must disclose to your insurance professional are:
The worst thing that you could do when purchasing lawyers professional liability insurance is withhold activities for the sake of saving money on insurance premiums. In many cases, additional activities of law practices do not come with an increase in premium but the addition of policy forms to cover the risk.
So, by opening up and properly disclosing all activities within the law firm, the result is many times more coverage, not more cost.
The Insurance Take-Away
Lawyers beware, professional liability insurance claims can arise from any action in which you act in a professional capacity.
How often do lawyers act in a professional capacity? I’d say it’s pretty much what they do all day long. Every phone call taken, every document processed, every piece of advice given can lead to a lawyer’s professional liability insurance claim.
The increase in lawsuits associated with the depressed U.S. Economy expands the professional risk lawyers take on two fronts: More work for less lawyers and higher propensity of clients to sue their lawyer.
The first line of defense for all law firms is lawyers professional liability insurance, a coverage that should not be taken lightly.
Source: Small Business Trends, May 5, 2013 (http://smallbiztrends.com)
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By Christine Simmons
While succession planning can be a sensitive topic in mid-size and small firms where senior partners have held the reins for generations, several New York firms are confronting the issue head on, laying the groundwork for an orderly transition of business development and leadership.
About 30 percent to 40 percent of practicing lawyers are beginning to retire or contemplate slowing down, according to an analysis of U.S. and Canadian bar demographics by Altman Weil.
Alan Olson, an Altman Weil consultant, said in his experience only a minority of the firms who need succession planning engage in it. He and others said the main goal of succession is to retain and transition sources of revenue, expertise and business contacts, as well as secure leadership and management responsibilities.
In smaller firms, senior lawyers who brought in the business can find it challenging to hand over clients to younger lawyers, said Mark Zauderer, a partner at 25-attorney Flemming Zulack Williamson Zauderer.
The business tends to be very personal to senior lawyers, who often founded the firm and have the reputation that draws business, Zauderer said. “In the larger firms,” he said, “the business tends to more institutional, which lends itself to transition to younger lawyers.”
Zauderer, whose practice includes representing law firms and lawyers in dispute, predicts that transition issues will come into sharper focus over the next few years.
“In the 1970s and 1980s, there was an explosion of smaller prominent boutique law firms, and many of those lawyers” are reaching retirement age, said Zauderer, who added that he has no plans to retire anytime soon.
In small firms and boutiques, he noted, there is no mandatory retirement age so partners often stay active longer compared with their counterparts at large firms.
Retirements are only one factor that can upset the balance of smaller firms. In the past 2 1/2 years, 40-attorney Morvillo Abramowitz Grand Iason & Anello experienced the death of founding partner Robert Morvillo, the departure of Morvillo’s three sons, who left to form Morvillo LLP, and the departure of Barry Bohrer, who left with Washington, D.C., partner Lisa Prager and former counsel Lara Covington to join Schulte Roth & Zabel along with two associates.
The Morvillo firm is an example of one where the senior partners originated the majority of the business, said one attorney familiar with the firm who did not want to be identified.
“Given the nature of the work, the attraction there historically was the headlined partners,” he said.
But the lawyer said he believed the firm would stay healthy past the retirement of the founding partners because of the strength of its next generation of leaders.
In an interview, name partner Robert Anello said he was not concerned about succession.
“We have a deep bench of partners,” ranging from those in their 30s, 40s, 50s and 60s, he said, and ensuring the next generation of firm leaders “is something we have done for many years.” All partners are equity shareholders, he said.
“We have many partners with very active practices,” and young partners are involved in management, Anello added.
He said a small firm’s succession plan is effective when the firm makes sure “everyone has a voice in how the firm runs, that you treat everyone fairly.”
Zauderer said at his firm, compensation for associates and partners is not directly tied to billable hours.
“That’s very important,” he said. “Large firms tend to have very high billable hour quotas for younger lawyers. We find that by being less rigid about that, we can encourage lawyers to expand their contacts in the community.”
Another boutique founder, Andrew Celli of 20-lawyer Emery Celli Brinckerhoff & Abady, said his firm seeks to introduce clients to all partners, “not to be jealous or proprietary about clients.”
“In our firm, it’s not an eat-what-you-kill culture,” he said. “There’s a real incentive for everyone to share their contacts, the relationship and the work.”
Some firms do well with one rainmaker who leads the firm, Celli said, but “it’s dangerous for partners to just sit back and say I’m going to let [another lawyer] generate all the business. You will end up having a problem when that person retires or just goes away. It concentrates too much power.”
At Emery Celli, four of the five founding partners are in their 40s and early 50s; Emery is in his 60s.
“We’ve got a very, very long way to go,” he said.
Vincent Syracuse of 60-lawyer Tannenbaum Helpern Syracuse & Hirschtritt said the firm’s named partners are around the same age, in their 60s, but “we want the firm to continue. We’ve worked all our lives in the hope this firm will continue.”
Syracuse, chair of his firm’s litigation and dispute resolution practice, said partners of all generations are involved in operations of the firm and the firm seeks to introduce clients to all partners.
“That’s an important strategy for succession,” he said.
The firm’s executive committee consists of senior and younger partners, he said. All partners have a responsibility to develop the firm’s reputation, which is one reason the firm is active in the New York State Bar Association, Syracuse said.
Equitizing Partners
With the four equity partners in Davidoff Hutcher & Citron in their 60s and 70s, the firm is thinking about what happens next.
“We are mindful of our limited good years,” said Larry Hutcher, the co-managing partner of the 51-lawyer firm.
As part of its succession plans, the firm is looking into equitizing 10 to 15 partners this year, Hutcher said. For better or worse, the move will strengthen the ties between younger partners and the firm. If the firm didn’t equitize, “the younger people would not have the same degree of commitment,” he said. “The idea is to let them know there is a future here.”
But law firm consultant Peter Zeughauser of Zeughauser Group warned that transitioning lawyers to equity status does not completely solve a firm’s succession issues. The transition should not be “form over substance,” he said.
“What you call the partner doesn’t matter,” Zeughauser said. “The issue is whether the partner can generate business from new and existing clients.”
Firms that fail to develop a succession strategy can wind up in litigation.
Ex-partners of Arkin Kaplan Rice are embroiled in a dispute over the break up last year of their boutique. Howard Rice and Michelle Kaplan say in court papers that when founding partner Stanley Arkin was 70, he initiated transition discussions but “refused to give up any control.”
Meanwhile, Arkin and Lisa Solbakken allege the other two launched their new firm using assets belonging to Arkin Kaplan Rice.
The Davidoff firm also wound up in litigation over a leadership shift. Robert Malito, a longtime partner and cofounder of the lobbying and litigation firm, sued other partners in May 2012 claiming they reneged on a deal for Malito’s semi-retirement and barred him from entering the office.
Malito sued seeking an accounting of his 20 percent partnership interest and $2 million in damages. The firm’s revenue in 2011 was more than $21 million and its net income was more than $4 million, the suit said.
Malito alleged other partners initially agreed that he would get the same semi-retirement deal given to founding partner Sid Davidoff—a reduced salary of $225,000 per year for two years, after which Malito would fully retire and discuss a buy-out of his partnership interest. Malito alleged Hutcher and Jeffrey Citron refused to honor the deal.
Hutcher said in an interview that the firm and Malito settled for a confidential amount and resolved the case amicably.
Zeughauser said firms also should be concerned if the majority of revenue comes from one or two partners, even at small firms where it’s more common. In large firms, managing partners are often appropriately nervous when 20 percent or 25 percent of revenue comes from one client, Zeughauser said.
Some law firms seek a merger with another when no business-getting lawyers are in place to succeed departing rainmakers, said Zeughauser.
“The firm will come to us and say we need to be acquired, or we need to make an acquisition,” he said.
Firms should transfer and share important client relationships and avoid relying too heavily on service partners who only do the legal work instead of generating new business, Zeughauser said.
“You need to early on start identifying people who can develop business and nurture and encourage them. Those are the people you definitely want to make equity partner,” he said.
Olson, the consultant at Altman Weil, said the key is to get started early and be as specific in plans as possible, “even though the subject matter might be uncomfortable.
“I have often seen law firms just expect that transitions will occur somehow automatically and if you wait until six months before a retirement to try to plan the next generation, and for serving clients, it can often be to those firms’ detriments,” Olson said.
Source: New York Law Journal, April 22, 2013 (http://www.newyorklawjournal.com)
By Jackie Jones
Sometimes it pays to read beyond the headlines.
I was watching my goddaughter participate in a high school moot court competition over the weekend and during a break, I picked up the March issue of “The National Jurist,” a magazine for law students. A headline in the table of contents caught my attention: “Why Asian- Americans Make More Money.”
On the face of it, Asian-American associates have higher starting salaries than whites and other people of color entering law firms. On average, an Asian-American law school graduate can expect to make about $15,000 more a year than his white counterpart, followed by Hispanics and African-Americans.
Asian-American associates are also more likely to be hired at the nation’s largest law firms. Many have high GPAs and good academic records and the stereotype of Asians having a superior work ethic seems to play in their favor.
Unfortunately, according to the article, that’s about as good as it gets.
The salaries are higher because more Asian-Americans are hired in more expensive cities where the cost of living, as well as the pay, is higher. And while they may come in at a higher salary, they are less likely to be promoted or make partner at those firms.
So while it appears that an Asian-American lawyer fits the stereotype of the model minority who stands above all comers, the details suggest it ain’t necessarily so.
According to a study published in January 2012 by the National Association for Law Placement, the presence of black and Hispanic partners generally increases with firm size, while Asian partners are found at both the smallest and the largest firms, but not in large numbers. The percentage of female minority partners is higher in the largest firms, although Asian women are represented nearly identically at small and large firms.
Geography also plays a major role in the distribution of minority partners.
Atlanta has the highest level of black partners overall, followed distantly by Richmond and Detroit. Black female partners exceed 1 percent in just nine cities: Atlanta, Detroit, Ft. Lauderdale/West Palm Beach, Miami, Nashville, Raleigh, Tampa, Washington, D.C., and Wilmington, according to the report.
More than half of minority partners in Austin, Miami, Minneapolis, Orlando, Phoenix, and Tampa are Hispanic. Asian-Americans find the most success in Los Angeles, San Francisco, the Pacific Northwest and the Rocky Mountain region.
The leading cities for Asian associates — both overall and for women specifically — are San Jose, followed by San Francisco, the Los Angeles and Orange County areas, New York City, and Seattle. Every city reported at least some Asian associates.
More disturbingly, however, a study by the Institute for Inclusion in the Legal Profession, found that “Structurally, law firms as a group are following an unremarkable strategy of diversity efforts with little impetus to attempt anything that might be considered particularly dramatic or innovative, until one firm or another is able to demonstrate that a new approach might merit consideration.”
In essence, the report said, many corporate law firms have not set up a rubric to determine what diversity means to them in terms of added business, how to go about getting and encouraging the growth of that business, or how to measure the interest of clients who don’t initiate or express concern about having a diverse team.
So the firms hire people of color just to have them on the books. They then don’t quite know how to best use that diversity once it’s in the building. The clients aren’t always sure, either, except they seem to have a feeling that it is the right thing to do.
“Corporate clients express a commitment to greater diversity and, intentionally or not, imply to outside counsel that continued or additional business will flow as law firms manifest support for and commitment to greater diversity,” the report said.
“However, corporate clients, at best, use diversity as one of many criteria in selecting outside counsel and rarely implement strategies to reward in-house counsel for choosing diverse outside counsel or bestow more business upon those firms that are succeeding in their diversity endeavors.”
So while it appears that one group may be benefiting at the expense of another, research shows that no one minority group is gaining—at least not in the legal profession or, it could be argued by extension, in many other areas.
And that’s the real story.
Source: AtlantaBlackStar.com, April 9, 2013 (http://atlantablackstar.com)
By Tom Wallerstein
A long-distance friend of mine recently emailed me this question:
“I’m interviewing with a small boutique firm that just opened. They actually have a lot in common with your firm in that they have two partners who were at a big firm and left so they could do their own thing. I was wondering if there’s anything that jumps out at you as something you look for in job candidates for your firm that might not have been as important if you were interviewing them for a position in Biglaw?”
I thought that was a great question, and insightful, because there are indeed some very important differences between interviewing with a small firm or boutique and interviewing for an associate position in Biglaw.
This is what I told her.
When interviewing with a very small firm or solo practitioner, you should emphasize that you aren’t above doing whatever is necessary to help the firm, including licking envelopes or helping with the filing or whatever other administrative tasks are necessary. Small firms don’t have the back end support of a big firm so it is often important that everyone is willing to do everything. Especially for a new firm, cash may be scarce and the firm benefits by having its attorneys do whatever is necessary, even routine, non-billable administrative work.
(Incidentally, once the firm has sufficient cash flow, the firm should reallocate attorney efforts to billable work and business development. I constantly try to emphasize that firms are penny wise but pound foolish if they decline to delegate work to less expensive employees.)
You should let the partners of a new firm know that you appreciate the risk they took in starting their own firm. With a new firm, nothing’s for certain; it could always go wrong. This appreciation goes a long way and helps separate you from naive candidates who purport to run the numbers and impliedly question why the salary they are offered is a fraction of their billable rate.
It also behooves you to express your confidence that the risk will pay off and that the firm will be successful, and that you want to do whatever you can to help play a role in ensuring the firm’s success. Inherent in risk is the prospect of failure. Any new firm lives with that potential outcome. At a big firm, saying you want to help it succeed is pompous and ridiculous: it just needs you to do the work you’re given. But with a new, small firm, trying to help them succeed will resonate. As I put it once before, “candidates for small law firm jobs should make sure they express their interest in terms of how they think they can help the firm thrive.”
A lot of candidates don’t seem to fully appreciate that partners of a new firm consider it to be almost like their baby, and that bringing someone else in is a momentous decision. When you interview with a small firm, you want to convey that you appreciate the personal nature of what they are doing. At a big firm, few if any people who interview you truly loves the firm and owns it like the partners of a small firm do. Showing you understand that goes a long way.
Our ideal candidate has worked in Biglaw, and could again, but chooses not to. We have seen plenty of candidates who make it obvious that they would rather have a Biglaw job if they could, but they are interviewing with us as a second-best alternative. We think that is misguided for a number of reasons, but in any event it is also offensive. When you interview with a firm, you should try to convince them that your being hired by them would be a superior option for you when compared to working in a traditional Biglaw firm. They want to believe that, as the years pass and you look back, you never had doubts or thoughts of regret.
One of the most important attributes to have when interviewing with a solo or small firm, especially a newer one, is to evidence an “ownership mentality.” That means that I want every employee to consider himself or herself to be a “partner” in the firm’s success, regardless of their title or compensation. In a very small firm, there is often no room for a mere “employee.” Because every employee of a small firm is critical, it needs to hire people who share a belief and desire for the firm’s success; it doesn’t want to hire someone who just wants a “job.” This can be especially challenging for Biglaw associates who interview with the mindset that their value is defined by their ability to bill a lot of hours. Unfortunately, in small law especially, you are not your hours. And, well, you can never tell; you just might end up with an equity position someday anyway.
Accordingly, when I interview candidates, I want them to appreciate that they are getting in on the ground floor of an enterprise that is poised to become ever more successful over time. A new law firm is a startup like any other, and working for a startup should be exciting because of the infinite potential. Silicon Valley is all about excitement and enthusiasm and potential, and we look for candidates who share our enthusiasm for our firm and what we are building. We hire a secretary with the hope, or at least the possibility, that she will one day be a highly-compensated office manager. We hire a junior associate with the possibility that he or she will one day become a partner.
My friend just told me this week that my interview advice apparently paid off, as she was just hired to be the first associate of the two-partner firm. I’m looking forward to hearing about her continuing success, and eager for our first opportunity to work together.
Source: Above the Law, March 21, 2013 (http://abovethelaw.com)
Contract work and legal outsourcing are growing as salaries in private practice fall sharply.
By Christopher J. Gearon
Eye-popping salaries for first-year associates at big law firms were the norm when Regina Brooks enrolled at Howard University’s School of Law in 2005.
“I thought I’d have a law firm job for four to five years, then go in-house and make the kind of money to live a comfortable lifestyle,” says Brooks, who got laid off from that law firm job in 2009, a year after graduation.
That’s when Vikram Arneja, a mergers and acquisitions associate, started at New York Law School, having noticed that attorneys were “very instrumental” in debt, equity, and foreign exchange deals. “We didn’t understand the full picture that was unfolding,” he says now.
Today, both find themselves in unexpected places. Brooks, of Merrillville, Ind., is doing temporary work for Robert Half Legal, a large Menlo Park, Calif.-based legal staffing firm. Arneja is now in Chicago, serving as a manager of corporate and litigation services at Mindcrest Inc., a legal process outsourcing (LPO) firm, where he had interned as a student.
Mindcrest helps companies and big law firms reduce the cost of document review and other basic legal needs. Harnessing technology and cheaper domestic and foreign lawyers, LPOs have become a rising force as law firm clients and corporations have begun demanding a break from pricey billable hours. Firms like Mindcrest boast saving clients as much as 70 percent on legal support work, says Arneja.
The LPO industry’s revenues are projected to double between 2011 and 2014, according to consulting firm Deloitte. “You’re seeing movement” in both LPO and temp positions, says Mark Medice, senior director of the Thomson Reuters Peer Monitor service, which tracks the legal industry.
Brooks, who estimates that she makes “the same as a mid-level associate at a small or medium firm,” does document review, oversees other contract attorneys, helps manage projects, and deals with clients. “I’ve had only one week of downtime since last September,” she says.
Contract work “has become much more of an accepted norm,” says Charles Volkert, executive director of Robert Half Legal. On average, members of the class of 2011 who pursued legal temp work made $52,000, says James Leipold, executive director of NALP—the Association for Legal Career Professionals.
“We grew from 300-plus lawyers three years ago to 550 to 600 now,” says Ganesh Natarajan, Mindcrest’s CEO. Besides Chicago, the firm has U.S. offices in Los Angeles, New York, and Salt Lake City. Arneja scopes out client projects, develops a workflow process, manages attorney teams, and provides legal research and drafting services.
As for the bigger picture, there’s no beating around the bush: The job market for young attorneys remains a tough one. Medice notes that industry revenue growth in 2012 was a paltry 0.5 percent, and “2013 looks about the same.”
Only about 10 percent of the employed grads in the class of 2011 landed at a big firm with 251 or more attorneys, about half the number in 2009. Just 49 percent went into private practice, and 43 percent of those to firms with 2 to 10 lawyers, says Leipold.
The migration from big to small (and temp and outsourced) law is a big reason why average starting salaries in private practice fell sharply—from $130,000 to $85,000—between 2009 and 2011. Half of all new attorneys made less than $60,000 in 2011.
Arneja and Brooks both think their detours will put them in good standing to someday work at law firms or in other legal positions. Indeed, says Volkert, lawyers with five-plus years of experience, business development skills, and client contacts in hot areas such as litigation, general business, and healthcare law are actually in demand.
Source: U.S. News, March 12, 2013 (http://www.usnews.com)
By Aimee Groth
Most law firms bill clients by the hour. It’s been this way for decades. But the system is fundamentally flawed: It rewards employees for being unproductive.
Social enterprise attorney Kyle Westaway is trying to change that. He works out of his Brooklyn loft and has found some of his young startup clients via social media. He uses virtually no paper and bills on a by-project basis.
“There is a new model of the practice of law, and it’s about applying lean startup principles and challenging the old norms of the billable hour, command-and-control structure at a price that’s more approachable, lacking all the extra added bloat,” he tells us.
We met Westaway at Tony Hsieh’s Catalyst Week in Las Vegas, where he spoke about the future of work. His philosophy is that because of the dramatic societal and economic shifts, we’ll soon be in a workforce that’s one-third dominated by robots, one-third offshore, and one-third high-skilled labor. And even the skilled professions will lose jobs, he says. The legal industry, for example, will increasingly look “like Turbo-Tax for law.”
That perspective, along with serving clients who are mostly cash-strapped, forced him to come up with a new way of operating. He’s done work for eyewear company Warby Parker and the Adventure Project, which funds enterprises in developing countries using a VC model. “For me, innovation bred from necessity,” he says. “I’m really passionate about working with a certain subset of clients, startups and social entrepreneurs, and I had to figure out a way to do things differently. Whenever you’re launching any company you want to know if the product fits the market it’s trying to serve.
“There were really no models I could look to. So I looked at clients to see what their needs were. I think the beauty of doing things your own way is that you can reconsider the question, ‘What works best for the client?’ I found that there was no need for a fancy office on Park Avenue. And there was no particular need for any size of staff.” He uses a virtual assistant and outsources work to a network of lawyers around the country when needed.
When he launched his firm five years ago he used to stay awake at night wondering if revenue would come through the door. “It’s less of a concern now,” he says, “but there’s very little I can do about it, other than deliver the best experience I can. … People come to lawyers with a given challenge. Our job is to provide a solution. All they want is that solution.” At the end of the day, being a lawyer is about building trust with clients, “and there are no shortcuts to building trust.”
But there are advantages to being an early player in a nascent industry. “I was in the right place at the right time,” says Westaway. “Not too many people were talking about [social enterprise law]. I got to own and lead the conversation,” on Twitter and in other ways. This spring he’s teaching a social entrepreneurship course at Harvard Law School.
“If I didn’t feel absolutely certain that this was a part of my calling, there are many times I would have given up,” he says. “I felt very passionate that this is a big part of the legacy I can leave on this world: to partner with innovative, game-changing organizations to achieve success. … I would rather fail going after this than fly doing something mediocre.”
Source: Business Insider, February 5, 2013 (http://www.businessinsider.com)
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