Poor Leverage Means Poor Service

Law departments must be rigorous in reviewing matter plans and budgets
Poor Leverage Means Poor Service

A DETAILED ANALYSIS of law firm staffing patterns over the years reveals variations in the ratios of partner, associate and paralegal time that cannot be explained except by a partner’s preference for how to staff different matters for different clients.

These idiosyncrasies should be of significant interest to both law firm leadership and to corporate and institutional consumers of legal services. Law firm leadership should understand the extent to which partners under-leverage the time of associates at all levels of experience, of paralegals, and even of less senior partners. Proper leverage on each file is central to law firm profitability.

More often than not, everyone in the legal food chain can readily delegate 20% of the work to the next band of experience. In most instances, this means delegating certain tasks rather than entire files. But this requires planning and teamwork. Associates must do more than meet formal and informal billing targets, and firms should be more explicit in setting leverage objectives for individual partners. A core business responsibility of practice group leaders should be to ensure that partners delegate enough tasks to associates and paralegals, appropriate to the complexity of the work.

General counsel should take a keen interest in the staffing patterns of the law firms they retain both for individual matters and for portfolios of legal work over time. Some of the reasons for doing so are the same as the ones that preoccupy law firm managing partners: turnaround time, knowledge transfer and stable legal teams.

However, the financial imperatives differ for the law firm’s clients. The cost of a matter can be as much as 15% less, depending on the extent of delegation. In recent years, law departments have been asking for detailed matter budgets for complex work beginning with files requiring at least 50 hours. The distribution of work by phase and task and by fee earner is now an established process in most firms. Yet, too few clients are rigorous in requesting and diligently reviewing matter plans and budgets.

Negotiating a blended hourly rate for all fee earners on the file helps the law firm to focus its resources on the tasks at hand, thus properly overseeing the distribution of who does what by when. The firm and the client should ensure that matter plans and blended rates reflect the relative complexity of the files. However, a discounted blended rate will not control for the number of hours. Better to agree on a capped number of hours, or on an annual fee that generates a productivity dividend fewer hours from the firm.

It is easier to do this when the file is large enough or with a collection of matters over time. More eggs in fewer legal baskets.

Failure to delegate tasks is a much more widespread challenge for law departments. The law firm leverage model is simply not available in-house. Counsel will work collegially enough, but individually will then do more than 90% of the work on a file, no matter how complex or simple the tasks may be. To the extent that there is any delegation by inside counsel, it will be by co-counselling with a law firm to use its associates or because the law firm has paralegals available.

I recently spent time looking at file allocation patterns and service delivery in a 38-lawyer law department. About 85% of the department’s lawyers were litigators, supported by a legal assistant for each three lawyers. Amazingly, there were no paralegals. Workloads were measured by file count without regard to any complexity levels or the mix of file types allocated to each lawyer. There appeared to be no distinction made in file allocation to entry level and senior lawyers. No targets were set for file cycle durations. All in all, this was a collection of hard-working solo practitioners.

Demographics suggest that most inside counsel have at least 10 years of practice experience.

What is the solution when there are no juniors or paralegals on board? Twinning a lawyer with another lawyer and encouraging them to divide the work that is to say, the tasks of any given file between them will drive productivity, with two provisos. The first proviso is that work intake and allocation must be centralized with group leaders in the law department such that workflow and deadlines are more explicit and capped. The second is that law department leadership has a system to monitor file count, file complexity, and cycle times against objectives.

General counsel and law firm leadership have much to gain by addressing the poor team-based lawyering.

Richard G. Stock, M.A., FCIS, CMC is a partner with Catalyst Consulting. For law department management advice that works, Richard can be contacted
at (416) 367-4447 or at [email protected].