Wednesday, October 01, 2008

Flawed Business Models?

In the last week or so, we discovered that an entire banking model, the investment bank was a flawed business model. The last of the two investment banks, Goldman Sachs and Morgan Stanley reconstituted themselves into regulated bank holding companies.

In my last blog I suggested ,based on what was happening in the financial community, that traditional surrogates for competence, fees and office location, may not be particularly good indicators of competence in the practice of law as well.

The traditional law firm model has been subjected to scrutiny for many years, and it has persisted. But there has been a significant change, at least since WWII, and that is the growth of law firms that do not have intimate relationships with their clients. They look more like detached business organizations, whose success is not intimately tied to the fortunes of their individual clients.

Perhaps one of the biggest recent reformations in legal practice was the emergence of in-house practice, of which ACC is a direct reflection, but there has remained beneath the surface a continuing concern about the law firm model. NEO ACCA is sponsoring a session, which I hope to attend which is reexamining the validity of hourly billing. The notion is not new. Prior attempts to address this issue of which I am familiar have not been successful. Nor have any of the modifications to hourly rates revealed any model that seems clearly superior.

I read a summary of ACC’s Value Challenge in Legal BIZNOW in which the author noted that this issue of hourly billing had been raised before but “something felt different at the Reagan Building ….” Excuse me for being skeptical, but I have been there, done that.

I will let you know what I think over the next few blogs, but my gut tells me that the issue of cost control, hourly rate notwithstanding, is well within the control house counsel if they really wanted to control it. This is one big reason why as a guest lecturer at the University of Akron Graduate School of Business in October I will be describing how and why businessmen must assume control in managing lawyers and legal issues, because lawyers have not demonstrated a capability of managing either themselves or legal issues very efficiently.

- Larry Salibra
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