Tuesday, November 28, 2006

Satisfaction Guarantee Part 2: It Depends on What Your Definition of IS IS . . . RIGHT?

Ready for a lawyer joke? How about a practical joke on a lawyer. Tell your firm that you want them to back up their service with a satisfaction guarantee and see how terrified they will be. No need to say BOO! Demanding Satisfaction will DO! When I tell some attorneys that we offer a satisfaction guarantee, they all want to know the details like;

How do you define it?
How can you do that, clients are never satisfied?
Do you at least put in a disclaimer?
How do you qualify it? Blah blah blah blah .

It is like these people have not lived a life in normal society. Seriously . . use your brain. . . how many things have you bought in your life with a satisfaction guarantee? (yes, probably hundreds of things). How many times did you return something based on that guarantee? Yes, for most us it was not often at all (studies show only 2% of people return things on these grounds). How many times did you return something for a reason that was not legitimate (no defect or problem)? (If you did this several times, please never call us for services). For most of us the answer is NEVER! OK lawyers, so let me get this straight . . . you have lived your entire life buying hundreds and hundreds of products (and services) with a satisfaction guarantee (defining it on your terms and not the company's terms), have rarely used it, never for a non-legitimate reason, and yet you are scared to death to offer a satisfaction guarantee to your clients? Not only does your consuming behavior speak for itself, the studies also speak for themselves. One of two things must have happened to you:

1) Your skeptical attitude has clouded your judgment and perspective on life so much so that you wouldn't believe the sun was out unless 50 scientists ruled out the possibility that one a 100,000 other stars out there didn't cause the bright light you saw this morning that rose from the east and eventually set in the west. You do not trust anything. . . . nothing can be true in your eyes unless someone takes the time to prove it out to you (and you will challenge every assumption and make them miserable in the process even if they are right). Even if it is true you still may not agree.

Lesson #1: Skepticism is a TOOL you learn in law school to help advocate for and solve problems for clients, NOT a perspective on life, a way you deal with your spouse, or a way that you should interact with the world on a daily basis. You may have just forgotten that something can, in fact, be what it is. If you are looking at opposing counsel's brief, be skeptical. If you are looking at a $100 bill, stop looking at it funny to see if the watermark of Ben Franklin portrays his face properly and put the damn thing your wallet! Only 2% of millions and millions of consumers take advantage of a satisfaction guarantee, and of that nearly 80% do it for a legitimate reason (so you ought to be giving them something back). We have served over 100 clients and have not had a SINGLE CLIENT take advantage of our guarantee (because we go the distance to make sure they are happy). I just gave you a $100 bill. Stop looking at it. Stop intellectualizing it. IMPLEMENT IT! Your clients will thank you for it!


2) You know that you are not really satisfying your clients and you are scared to death of what will happen! You would rather be accountable to keeping a detailed timesheet than be accountable to your clients, and the thought of having the customer be the arbiter of your value seems just demeaning and demoralizing to you.

In the background: Your client's brains are still functioning while you are in denial, you know! While you are sheltering your fragile ego and your mountain-high pride, they are at every instance gauging the VALUE of your services and many are deeply disappointed. Your psychological barriers prevent you from asking them what they think. Theirs prevent them from telling you because they really have no incentive and it is just plain uncomfortable to do so. Even if you asked them they still have no incentive to tell you what is bothering them. It will fester and eventually they will just go to another firm. This happens all the time to you and you don't even realize it. For both them and you it is easier to leave than to face the issue. Here's your challenge: You cannot change human nature: your customers WILL leave for service related issues without telling you unless YOU are proactive and partner with them in being the best that you can be. This means that you have to (as David Maister so perfectly puts it) have the courage to care more about your clients needs than about your own psychology (you ego and pride). You are human. It is okay that you are not perfect. . . clients can understand that. If you backup your service with a satisfaction guarantee they take your "humanness" and work with you to make you the best service provider you can be. If not, you must be intelligent enough to know that your attitude of infallibility is not fooling anyone . . . denial is dangerous to your clients, and they will not consider it their problem to "train" you how to serve them better unless you give them a reason to care. You are faced with a difficult decision choice to make: Your Clients or Your Ego? What will you decide?

OK - I know that I am being hard on attorneys that fall into these categories. The fact is that the 2 issues above (skeptical SOB perspective on life, and psychologically defensive "ego and pride protection plan" behaviors) are both serious and pervasive. They are also hard behaviors to change. For those who are just plain skeptics, it is like they have been infected with the "prove it" virus and there is no cure. We all know people like that . . . they are annoying as hell. Then there are those who would rather protect their pride and ego than know if they really suck! Why? Because it is human nature too. . . plus. . . lawyers have among the highest egos of all . . . to fall from that height you are bound to break something! Most people are not self aware enough to open the safe to their own mind to understand it, let alone alter its contents.

For those of you for which there is hope, a Satisfaction Guarantee is sound from both a theory and a practice perspective. If you are truly curious about how it works and are considering it for your firm, I welcome you to contact me and I can show you how to do it! Satisfaction Guaranteed!

Monday, November 20, 2006

Are Corporate Firms Dizzy From Chasing Their Tails?

There is nothing more funny than watching a dog chase its tail. They go round and round as if they are thinking "I'm gonna get it . . . I'm gonna get that tail of mine!" all the while the rest of world is nearly rolling on the ground with laughter, smart enough to know what a futile effort looks like when we see one. The big corporate law firms are like dogs chasing their tales, so caught up in their own game of "I'm gonna get it" that they don't know how silly they look to the rest of us: How are they chasing their tales? Ahh, join me for a game. . . but remember to take your Dramamine!

Tens of thousands of lawyers work at the nation's largest firms. Law firms, in an effort to get the "smartest" candidates (or those who prefer white-collar slavery to a life), are all sucking from the same gene pool for candidates . . . dangling the financial carrot in front of them. Since the candidates all come from the same gene pool (tippy top of the class and top schools), it is no wonder that firms have a difficult time differentiating . . . this is a people business, and they all have the same "types" of people (thus, little diversity). Consequently, they have similar cultures. Therefore, they have very little to entice these candidates to their firms other than competing on price (higher and higher salaries). So, in true bidding fashion the biggest firms end up with the winners curse . . . sure, they got the candidates, but now they have to work them longer and harder for the money they are paying. If these associates actually used their critical thinking skills and took a second to think about where the heck the money comes from, they would realize that the offer letter really says "Welcome to Discovery Hell." So, the work hard, get burned out and quit. So let's try chasing our tails like a big firm: Try this

1) Be the highest bidder and get the "smartest" slaves
2) Make them work longer and harder for their money
3) Watch them burn out and quit faster than associates at your competition
4) Go see a Financial Consultant who will tell you that it costs you $250,000 each time an associate walks out the door
5) Don't learn a lesson from this. . .
6) Go back in the market and be the highest bidder again for laterals to fill the spot of those who just quit.
7) Make them work like dogs with no indication of how, if, or when they will ever make partner
8) See Spot Quit
9) Blame them for quitting, citing that they lack work ethic (if only they had a mirror handy)
10) Do the same thing over and over again because apparently the firms are so busy salivating whilst panting "I'm gonna get that tail of mine" that they cannot see how they really look to the rest of us!

Dizzy yet?

Here's a basic lesson for firms: Having a "highest bidder" recruiting policy will start you spinning like a dog chasing its tail. You will attract candidates who are primarily motivated by money. The very same people will leave your firm as soon as they can get more money elsewhere, and the ones who stick around will be terribly competitive against one another for the fewer and fewer spots available as they move up the pyramid scheme, creating a nasty working environment for those who don't live to work. Don't chase your tail! While it is terribly entertaining for the rest of us to watch, it is no way to run a business. It's just inhumane.

At Exemplar, we love what we do and we don't live to work. We recognize that the "smartest" candidates choose a firm for how rewarding their careers can be at the firm. . . for how much responsibility they can have. . . for the respect and trust they have amongst their colleagues. . . and for the reward of watching the clients they serve thrive with their support. We appreciate (and so do our clients) the diversity that comes from looking outside of the limited "gene pool" that big firms pull from. There are more than one million lawyers serving clients in this country . . . most are not at the big firms. . . 90% of the time you do not need a brain surgeon . . . so if you are using YOUR brain you will realize that you don't to pay 10x the price for a brain surgeon when you don't need one. But if you do it anyways tell the surgeon to take your brain out and give it to someone who will use it! :-)

Monday, November 13, 2006

Kids With Candy Bags and Financial Transparency

Children can teach us so much about human nature. . . . and a lot about how not to do business (yet so many never learn from childish mistakes). I was told a story about a teacher who sat a bunch of young children in a circle in the classroom. She asked the kids if they wanted a "surprise." Naturally, they all got excited exclaiming "yeah!!! we want a surprise. We love surprises." The teacher said to the children that she would give them each a surpise only on one condition . . . they must promise never to show anyone else what they got. "We Promise!" they exclaimed as their imaginiations ran wild with wonder. The teacher then handed out paper bags with candy inside to each student. Each on of them peered into the bags from above, and with mouths watering, they cheered with excitement. Ooohs and Aaahs filled the room. Minutes later, she then asked each of the children to pour out the contents of their bags onto the floor in front of them. As each one did so, it became clear that one child had 5 candies, another 7, and yet another 25. What do you think happened? Well, Naturally, what was a positive experience was turned to fightining, resentment, and jealousy. Some kids were arguing that it was not fair that some children got more than others, and they all started to fight. You and I both know that this is an important lesson in human nature . . . one that is no different when you are an adult. For those who are really keen, this is also an important lesson in how NOT to run a business:

So, What do kids with candy bags have to do with financial transparency? Well, it certainly answers the question of how much transparency in a partnership is too much. Lawyers in partnerships are like kids with candy bags. They sit around a table every once in awhile and pour out their spreadsheets filled with data on theirs and everyone elses billable hours and business originations, then they fight like all hell trying to justify who should get more, who should get less and why. They never learned a very simple lesson from childhood. Consequently, partners in law firms tend to endure the most challenging, negative, and nasty work environments of any profession. I was told by one partner for a big firm in crisis (it eventually dissolved) that "the compensation committee, which was (no surprise) comprised of the highest producers in the office, went into the board room, closed the door, and then accommodated themselves out of existence. The level of greed and nastiness was beyond belief." What is the lesson here? The lesson here is that you cannot beat human nature. If you want a culture of collaboration and teamwork, you simply cannot have 100% financial transparency with the partners in the firm. Everyone has a self-interest in the numbers, but not everyone is competent (99% of partners are not competent) to decide how to divide profits fairly. If you put a bunch of hungry children in a room with candy and asked them to divide it amongs themselves and 10 that are not present, what do you think will happen?

Now, let me draw a distinction. We are operating in a time where shareholders are pushing corporate America for greater financial transparency. How does that jive with what I am saying? Here is the distinction: Financial transparency in corporate America is about protecting the integrity of decision making through disclosure. In Partnerships, the opposite can often be true since the shareholders are employees of the firm (therefore subject to self-dealing). Here, protecting the integrity of decisions is accomplished by safeguarding against too much Financial Transparency (partners usually demand 100%). If law firm compensation committees set compensation criteria and policy in advance and made those policies clearly known to the people, then it would be unnecessary to distribute individual numbers to the committee for comparison because no subjective review and decisions need to be made on hard data. In other words, the application of sound policy can replace the comparative analysis with regard to hard data, leaving the subjective anaysis to the most important factors (additive rather than comparative) that are more difficult to calculate. This way the old white men in the boardroom spend less time whipping it out and comparing size and more time actually thinking about the qualitiative ways in which their fellow partners contributed to the firm. Waht a wonderful change that would be, right? Ignorance can, indeed, be bliss. After all, Great performance is not great beacuse everyone else sucks. Great performance is, well, simply Great! So, learn a lesson from childhood and stop spending your life making everyone else the benchmark of what you "deserve" in life. It is no way to live. . . and certainly NO WAY TO RUN A BUSINESS!

Monday, November 06, 2006

Apathy Abounds, Until The Walls Come Tumbling Down

I was inspired to write this blog after an interesting discussion with Jim Belshaw and other attorneys regarding the lack of succession planning at medium and large firms. We have all seen the walls come tumbling down at many large firms when certain partners (in the undiversified portfolio) leave, retire, or die. In this blog I offer a unique perspective on why this is happening and why good succession planning is not likely to occur in the near future at the large firms: APATHY!

If you think about it, being a partner in (and therefore owning a piece of) a law firm is like owning 100 shares on Intel Corp. stock. You own just enough to want it to go up in value, not enough to make a contribution to its success, and if the management is doing a poor job you are more likely to just sell your shares and buy something else then fly across the country to its annual meeting hoping to have a loud enough voice to make a difference. It is a crisis of apathy. You see, partnerships lack the checks and balances that exist in a regular corporation to ensure the long-term health of the organization. . . there is no oversight body (such as a board of directors) making sure that the partners are not acting in self-interest (taking out all of the profit for themselves leaving little or no working capital and putting the longevity of the organization at risk). What's worse, partnerships, by definition, incent the partners to take everything out and put it in their pockets, leaving little or nothing to continue running the business. It is no wonder that succession planning does is nearly non-existent at the big firms. Here is why our profession does not invest in the next generation and why it is unlikely that they will anytime soon:

1) Lacking Majority Owners: Unlike a corporation, there is no "majority shareholder(s)" who has a vested interest in maintaining the long-term health of the organization (through capital appreciation of the shares). Imagine if Intel Corp (how many billions of shares do they have?) were run by a million shareholders each owning only 100 shares? Not one person has a loud enough voice to make a difference. What's worse, NOBODY owns enough to be held accountable for poor management or poor results!!!!!!

2) No Outside Shareholders: In a normal company, there are manager shareholders and there are shareholders and stakeholders on the outside of the company. The outside shareholders work through the board of directors to hold management accountable for maximizing the return on investment to the shareholders of the company. In a law firm, all of the shareholders are partners (employees), so there is nobody outside of the firm keeping partners from acting in complete and utter self-interest with regard to the distribution of profits.

3) Buyback Rights Incent Short-Term View: Since law firms compel the buyback of shares when a partner leaves the firm, (thus, all shareholders work at the firm) there is simply no incentive to invest in the future of an organization that you are "prevented" from investing in long-term. Since you are not able to leave the firm (by quitting or being asked to leave) and maintain an interest in the firm, to invest your money into the firm is a "gamble." Under these circumstances, why wouldn't partners take all of their money out now rather than give the money away to the partners who will be there in the future?

4) The Corruption Trifecta: Owning 100 shares of Intel does not guarantee you a cash flow stream unless they declare a dividend. Even so, the cash flow stream is not locked to ownership percentage. What's more, owning 50,000 shares cannot buy you a position on the management team. Why do you care? Well, if you are an owner of a regular company you are happy that the board of directors is looking out for your interest and selecting the right people with the right skills regardless of who owns how many shares. In fact, they find the "right" people for the job first and then align their interest with the company by giving them shares rather than what law firms do (putting the richest partners in power by virtue of their ownership and regardless of their ability to manage a business . . . . most lawyers don't know how to manage people, let alone a whole business). The "Bundling' of rights of ownership, cash flow, and power is a Corruption Trifecta!! If you look at the incentives created here (with no accountability to anyone and no oversight) then it is blatantly clear who self-interest prevails at the partnership level of most large firms.

5) Tax Treatment Discourages Reinvestment: Don't just blame the partners. . . blame uncle Sam! Partnerships discourage long-term investment and longevity by design. Partnerships are technically designed to dissolve when a partner leaves - the incentives are BACKWARDS from a normal company with regard to business longevity. We may have to do some math here, so be patient.

Let's compare the corporation to the Partnership.

Corporation: Here, profits are taxed at the corporate level FIRST. Then, management decides how much money it wants to reinvest in growth of the enterprise and how much it wants to pay in a dividend (profit sharing). Whatever is paid out gets taxed at the individual shareholder level. Here is the psychology behind this if you can follow: FIRST, the profit belongs to the COMPANY. LASTLY, a decision is made on how much to give to shareholders. (** Note that there is no individual tax liability for owners who do not receive a dividend)

Partnership: In a partnership the opposite is true. Profits of a partnership are treated by the IRS AS IF they are paid out to all partners in proportion to their ownership share of the partnership and taxed at their individual tax rate. So, each partner has tax liability on every dollar of profit whether or not it is reinvested (each at different individual tax rates). Here, the psychology is the opposite: FIRST, it is the Partners' money, LASTLY, the partners would have to choose to part with their post-tax earnings to reinvest in their firm. Will that happen? With professional satisfaction at all time lows, partners selling their books from firm to firm, and a trust-free environment, I think not.

6) LOW RETURNS: Seriously, I can get a better return in my savings account. With a billing model that discourages innovation and efficiency, the legal industry is one of the most stayed and stagnant industries in the global economy. Law firms don't invest in themselves, why should anyone invest in them? Most people want to put their money somewhere they can watch it grow. . . . if you invest in your firm, you are more likely to die watching than you are to see it grow. This is a sad reality that I hope we can change.

Fortunately, we are beginning to see innovative models popping up (like Exemplar) in the marketplace that are adopting more corporate-like structures that put the incentives in the right place. Over time, we hope to create an ideal environment for our people, investors, customers, and our stakeholders!