June 2007

1. A Matter of Trust in Using Accounts
2. Do You Provide a Commodity?
3. What Is "Fair" Compensation?
4. Blogging Revisited - A Note of Caution on the Tail Wagging the Dog

Articles

1. A Matter of Trust in Using Accounts

   Commingling funds in clients' trust accounts is an important issue for lawyers -- an issue that refuses to go away because handling the money of others must comply with the very strict trust account rules in every state.

   The American Bar Association's Model Code of Professional Responsibility, Disciplinary Rule DR 9-102, specifically addresses the issue of trust accounts and commingling of funds. The clear conclusion to be drawn from the ABA requirement is that money earned by a lawyer for provision of services belongs to the lawyer and must be removed from the clients' trust account when earned. Generally, this must be done immediately, with the earned money being placed in the lawyer's general account.

   Some jurisdictions may place additional requirements on the withdrawal of funds from a trust account. In Wisconsin, as one example, the requirement is that before any funds can be withdrawn from the client trust account, the client must be given five days notice. This is the case even when the funds are earned, and even if the engagement agreement provides for immediate withdrawal or withdrawal on a date certain. Thus, as with all other advice, it is essential to review and verify the rules in your jurisdiction in handling trust funds.

   One generally knowledgeable "blawger" recently suggested that he escaped an ethical problem because he had a few extra dollars in his clients' trust account. Those few ($100) dollars assured him that his bank wouldn't invade clients' funds if they charged an expense item against the account. However, a number of States prohibit, or least frown on, the lawyer keeping his/her funds (even only $100) in a clients' trust account. Technically, this is commingling (like being a "little bid pregnant"), which is illegal. Second, the lawyer should negotiate with her/his bank to take any charge or expense from the general account, not the trust account.

   Despite urgent client needs and requests, and no matter how "important" the client is to the lawyer, no check should be drawn from the clients' trust account until AFTER the deposit is confirmed to have been presented and the draft or check is honored. Until then, payment to one client of money in accord with a settlement that is either dishonored or rejected, despite delivery of a check or draft, is actually payment (borrowing) from the funds of another client without the second client's consent. This violates the rules of professional conduct of every State! And it does not matter that the money is repaid, even if quickly. In the lawyer's mind, this may be a technical violation, but still a violation nevertheless!

   These issues illustrate the complexities that lawyers often face in their bank account management. Our new Special Report, Successful Lawyer-Banker Relationships, will offer guidelines on how lawyers with sole practices, small firms or mid-size firms can manage these and other banking issues. Howard Putnam, former CEO of Southwest Airlines and author of Winds of Turbulence, introduces this Special Report and says, "...A key to responsible management is a financial plan and a strong banking relationship..."

   This report will come out in about a month. Watch out next ezine for more information.

2. Do You Provide a Commodity?

   As noted before, we must provide value to clients. There's no better way to understand the importance of that than to take a broader look at how legal services are provided in this country.

   The large corporate law firms that dominate the legal landscape today primarily emphasize the practice areas of business and litigation. Because they primarily serve multinational, cost-conscious corporations, these firms are expected to provide certain kinds of work with relatively steady volume (such as securities filings or employment litigation) at fixed rates over a certain period of time, turning these matters into the legal equivalent of a commodity.

   The hard truth is that commoditization is also increasingly becoming an issue for solos and small firms. Spend any time on the Internet and you'll see a whole host of legal services used by individuals (such as wills, bankruptcy filings, even divorces) being offered by law firms at low fixed prices. Software programs even claim to make the purchaser their own lawyer in these practice areas. Such pitches are successful because we as lawyers have done a poor job of communicating the value and benefits of what we do.

   Let's apply a value-added approach to one area of practice, family law. Frequently viewed as a commoditized service, family law is actually one of the last vestiges of consumer / personal / human legal counsel. There should always be room for the family law practitioner who is both sensitive to the needs of the human condition and knowledgeable about the business environment. Such a lawyer is ideal for the client who does not make choices on price alone. To provide value-added services you need a client:

   • who we believe we can help.
   • who realizes that the previous marital relationship has "died," and who will accept our assistance to advance to the birth of a new life and its relationships.
   • who understands that the attorney / client relationship is a two-way street.
   • who is in harmony with us on the philosophical approach on handling the termination of the marital relationship.

   When value is at the center of the engagement, low cost can never outweigh the personal relationship, personal integrity and rapport lawyers establish with their clients. It's up to the lawyer to educate the prospective client that value, not price, is the ultimate criterion for selecting the lawyer.

3. What Is "Fair" Compensation?

   As our story last month on big firm profits might suggest, averaging $1 million in profits per partner raises a host of questions on how those profits are realized in terms of partner compensation. There are of course various formulae for determining compensation among partners. One might suggest that it's not important what formula is used so long as all involved perceive that the process of determining that number is fair -- recognizing that people respond to what they're rewarded for.

   I believe it's also worth suggesting that people will accept a great deal less than the top compensation as long as they like the colleagues with whom they work. This has a far greater impact than money. While money must be competitive (it need not be on the high end), "firm culture" is first and foremost. People must like the work they do and those with whom they do it. Lawyers who are together physically in an office environment should share a camaraderie that shapes the development of a firm culture. Many factors come into play: the exchange of ideas, the guidance, the learning, the education of one lawyer by another. These are vital to a successful law firm

   Apply this concept to firm compensation. Typically there are considered to be two general compensation models: lockstep, in which the firm's overall success each year is averaged out to determine a standard rate of compensation increase for most lawyers, certainly for all those lawyers at the same age level, and "eat what you kill," in which all attorneys are rewarded on how much business/dollars for which they are personally responsible. Bruce MacEwen, who writes about law firm economics in his "Adam Smith, Esq." blog (www.bmacewen.com/blog), has contrasted the two systems this way:

   "There is a genuine intangible value in a sense of collegiality in the workplace, in team-building, in delivering top-notch service untainted by self interest, in contributing to an institution - "The Firm" - over an extended period of one's career, and not least in avoiding the infighting, neck-biting and generally deplorable "Lord of the Flies" behavior associated with arguing over such nasty details as origination credits."

   Any firm that encourages lawyers to maximize their individual compensation may have fast near-term growth. But a willingness to approach compensation as an institution (lockstep compensation) makes for firm longevity. Perhaps it takes the entrepreneurial spirit to get going. Then the challenge is to change that into a managerial spirit, something that proves too difficult for most. Only a few really successful firms find a way to do it.

4. Blogging Revisited - A Note of Caution on the Tail Wagging the Dog

   Regular readers of this publication know that I am a dedicated blogger, and that blogging has been a highly effective marketing tool for the services I provide. The premise of effective blogging is easily stated: Target your market, be specific in your blog postings, be frequent and your market will learn what your value to them can be and why they need you and your services.

   It's easy, however, to get enamored of blogging's potential and to ignore the practical side of what a blog should do. The real key to marketing is the creation of one-on-one personal relationships in order to increase business. Blogs are best used in a marketing sense when they support the creation of these relationships. If your target audience is more the consumer type, and typically not so sophisticated that they are searching the web on a regular basis, then blogging is not so meaningful to them and may not be a worthwhile marketing strategy for you. Speaking to a local civic group may bring you more potential clients than blogging on the worldwide web.

   Making frequent posts and answering dozens, or hundreds, of email comments, can take time. As I observed in this newsletter a year ago, a minimal amount of necessary time might be 2 hours per workweek. If we assume 50 workweeks per year for ease of calculation, and 2 hours per week (a rather low number once you get started) and $200 per hour billable value for an attorney (most lawyers charge more today), the calculation is $20,000 of billable time used to maintain a blog.

   The logical way to control such a major expense is hire someone to manage the physical aspects of maintaining your blog. The cost is far less than the time spent updating (no matter how easy with TypePad or other tools), which will take you away from other marketing activities or even from your practice. Remember, however, that delegating the work does not mean abdicating the responsibility. To be effective, posts must be your personal and frequent input.

   Blogging is certainly not "easy" in the sense that it takes commitment to be consistent and meaningful in the posting. I suspect it's a commitment worth making for many lawyers, but a commitment nevertheless, as is any marketing effort. Measuring the return on investment - ROI - of blogging is difficult. But never forget that there should be a return in order to make your blog work for you, and not the other way around.