Larry Bodine Law Marketing Blog : Law firm marketing, legal editor, legal marketing, attorney marketing, business development, marketing consultant, legal consultant, business development

Creating a potential gold mine for law firms, an ethics ruling in New Jersey now allows a law firm to own another law firm as a wholly-owned subsidiary.  This is groundbreaking news, because up to now, a law firm could only own another business, like a consulting firm, as an ancillary business.

"We...conclude that a professional corporation covered by Rule 1:21-1A may form a subsidiary to provide legal services and that such a subsidiary may be organized as either a professional corporation or a limited liability company," the opinion states.

This means:

* Law firms can buy and sell other law firms as investments.
* Law firms can hire a pinpoint boutique to handle a spike in client demand, and then sell it off or shut it down when the demand falls off.  The owner firm wouldn't have to fire any of its own staff, as happened when the technology bubble burst.
* The owner law firm can acquire a smaller firm without having to charge big-firm rates or pay big-firm salaries.  A large firm could own, for example, an insurance defense firm, pay the lawyers bottom dollar, and be able to bill out at $100 an hour.  This means big law firms won't leave money on the table.
* Owner law firms can acquire less glamorous practices, like collection law firms (which are very profitable and make a 40% commission on debts collected) without having to sully its own reputation.  This can be very handy when the big firm has a bank as a client, and is happy to do its securities and acquisition work, but doesn't want to foreclose on mortgages.  It makes the owner law firm a full-service firm.
* Big firms can get into profitable areas they won't touch now - like matrimonial law and plaintiff's personal injury law - without having to have their own lawyers do the work.  Of course, the subsidiary PI firm would be conflicted out of suing clients of its owner.
* Law firms can market themselves like General Motors, and have separately branded divisions, like Cadillac, Chevrolet, Pontiac and Buick.
* Or, law firms can market themselves like General Mills, with individual brands like Betty Crocker, Pillsbury, Green Giant and Häagen-Dazs.

The ruling came down April 27, 2006 as a joint opinion: Opinion 704 of the Advisory Committee on Professional Ethics and Opinion 37 of the Committee on Attorney Advertising of the Supreme Court of New Jersey.

The opinion states that the parent law firm can reap the net profits of its subsidiary, but "the ownership/subsidiary relationship be disclosed in all subsidiary advertising and marketing materials." 

One or more of the parent law firm's shareholders and associates must direct and handle the operations of the subsidiary; this is a role that cannot be served by a non-lawyer.  "The central goal of that prohibition is to keep the rendition of legal services from being under the control and direction of nonlawyers," the opinion states.

"The Subsidiary must include the names of one or more of the attorneys who are principally responsible for the legal services provided by the Subsidiary.  Nevertheless, we conclude that to ensure clear disclosure, the name of the Subsidiary also must contain the following phrase beneath or next to the Subsidiary's name "a subsidiary of X law firm."

This opinion illustrates the trend among law firms to behave more like business corporations. Of course, it's an ethics opinion that applies to only one state.  However,

New Jersey

To read the ethics opinion, click http://www.lawmarketing.com/ACPE_JointOpinion704_CAAOpinion37_final_4.27.06.doc

I picked up intelligence today that law firm administrators are getting upset about the salaries that some law firm marketers are getting.  They're ticked off that the CMO is making as much or more money that they are, as well as more than the IT or HR director.

According to a 2005 survey by Abbott, Langer & Associates, Inc., Legal Administrators earn a median total income of $73,758, with a mean total income of $81,037; 10% of this group makes under $38,440, and 10% make over $141,744.  The Wall Street Journal reports that the Administrator/Office manager is paid the following:

It's an interesting sore spot, because in many occasions, the administrator is the boss of the marketing director.  The CMO, however, reports to the partners or the management committee.

Compare the administrator salaries with some of the marketing job openings advertised so far this year:

• Director of Marketing -- Cleveland-- $100,000 - $125,000
• Director of Marketing/Client Services - Baton Rouge, Louisiana - $100,000 to $150,000
• Director of Business Development and Marketing -- Miami, FL -- $100,000 - 120,000
• Director of Business Development and Marketing -- Minneapolis, MN --  $120,000 - 140,000
• Marketing Director --  Tampa Office  -  $80,000 - $100,000

This, of course, is NOTHING compared to the 1,600-lawyer Chicago law firm that paid its ex-Texas CMO $400,000 per year, or the 1,000-lawyer New York firm that also paid its CMO $400,000.

The administrators are beefing that the marketing salaries are knocking their firm salary structures out of whack, because of the high demand for law firm marketers with 5 years of experience or more.

"Its a real difficult problem.  In some positions we can't advertise the compensation because it's outside of the firm salary structure," said legal recruiter Sally Schmidt of St. Paul, MN, in a phone call with me today.

Firm administrators are at a disadvantage.  "They can find ways to save a firm money and look like heroes the first year, but you can only cut firm costs so much," she said.  "Meanwhile, the marketing department just keeps building and building."

This is GREAT news for the marketers, because it means they've worked their way out of the "overhead" category in law firms.  The marketers are able to say, "If you invest $5 with my plan, you'll get $20 back.  I can prove return on investment." 

It's a simple case of supply and demand, in my view -- you hire a marketer, your firm earns more revenue.

Law firms will be sorry if they jump on the trend to offshore legal services.  I just went through a customer service nightmare with Hewlett-Packard ordering a $4 power supply cord for my printer.  It took more than an hour, dealing with people who barely spoke English.

No store carried the part.  It could not be ordered online. I was doomed: I had no choice but to telephone the HP phone number for support.  After a long wait, listening to blaring hold music, I finally reached a man in India.  His headset was badly adjusted that I could barely hear him.  I told him to speak up, and noticed he could barely speak English. 

Because I had never called HP before, he had to set up an account for me.  In a trans-Pacific call, the consonants B, C, D, M, N, P, S, T and V are unintelligible.  He kept putting me on hold and asking me to repeat my address. After going through this, he tried to sell me a warranty on the printer, which would cost more than $50.  When I said I just wanted the part, not a warranty he kept putting me on hold.  After about 30 minutes on the phone he said I had to call another number for parts.

I was ready to throttle him.

So I called the second number and reached a woman in Costa Rica.  English was also her second language.  I had to repeat every word -- my name, street, city, the printer name -- several times.  She would say them back to me, very very slowly, often mixing up N and M, and T and P.  Then she discovered the shipping address was different from the cardholder address, so I had to give her my address on East Camino Pimeria Alta, Tucson, Arizona.  It took forever, even though I presumed she spoke Spanish.  She kept asking me why there was no "road" or "street" as part of the street address.  The city "Tucson" completely confused her, because it is not pronounced as it is spelled. 

I was grieving that fact that customer support has been sent offshore to incompetent, substandard workers who don't have the language skills to do their jobs.  Next I had to call Citibank to change my credit card address.  I was dreading it.

Lo and behold, I reached an American who spoke English!  The address change took 2 minutes, including the confusing fact that my home town is two words (Glen Ellyn) and one word is spelled unconventioinally.

Perhaps if enough of us have these horrendous customer service experiences, these customer service jobs will come ack to America, where they belong. I am not xenophobic, but when I'm doing business, I want the vendor on the line to be from the USA and speak high school English.

There is no question that women attorneys clearly face some unique and daunting challenges in business development. Quoting from Lauren Rikleen's new book Ending the Gauntlet: Removing Barriers to Women's Success in the Law, marketer Michael Cummings outlines 10 Best Practices In Personal Marketing Suggested By Women Rainmakers on the LawMarketing Portal.

So says the Financial Times, that pink English newspaper.  Back in the 1990s, video conferencing was supposed to change the business world by eliminating travel, but the idea never caught on.  The equipment was very expensive and nobody liked the jerky images and unsettling time lapses.  Also, your firm needed to lease an insanely expensive T-1 phone line to use videoconferencing.

So enter the PC-conferencing companies like Webex, a San Jose company that offers web meetings, where people can share documents online, view each other's computer desktops live, and talk about them via a conference call.  The idea is to replicate a normal meeting, where people pass notes around and examine documents. Once people are trained to use it "nobody complains that it is complicated or boring," one executive from a company that avidly uses desktop meetings told the FT.

A webcam option may be added, but seeing another individual is not the real benefit of PC-based conferencing, says the FT in its April 12 Digital Business Special Report.  Meeting attendees use the mainly use the camera only to say "hello" and "goodbye."

In use since 2002, Webex has proven valuable for technical experts who need to confer over vast distances.  A lawyer in New York, for example, could use it to discuss a case with an expert witness in San Francisco.

And PC conferencing is waaay cheaper than video conferencing.  Masergy, a networking business catering largely to major corporations, will provide web conferencing for up to 100 users at any one time for a monthly fee of $1,500.

So here's the marketing angle: professional firms can use desktop meetings to confer with remote clients, without either party having to buy any expensive equipment.  The same time and airfare cost savings are gained as with old-time video conferencing.  Law firms that market their online meeting capability will be more attractive to clients and be able to distinguish themselves from competitors.

What's not to like?

In a threat to big law firms, lawyers in India are carrying out the due diligence work for an upcoming corporate acquisition financed by the major UK bank.  We all knew this day was coming and the book The World is Flat predicted it: legal services are being sent offshore just like telephone call services and being performed by cheap foreign labor.

According to the April 12 Financial Times (see the LawMarketing Portal for the full story), this essential M&A work is being handled by New Galexy, a Mumbai, India, company with lawyers in India who are qualified to UK law practice standards and who are paid only $12,200 to $21,000 per year.

Typically this due diligence work is handled by junior lawyers at giant mega law firms who have a starting pay of $125,000.  I think their jobs are in big danger now.  Robert Glennie, New Galexy's founder, says the Indian company offers the same quality of legal support work for half the cost charged by top firms in London's legal establishment.

Offshore companies like New Galexy are also taking over other from law firms:

• E-discovery services, where lawyers scrutinize voluminous quantities of e-mail to find evidence or embarrassing disclosures for use in litigation.
• Sarbanes -Oxley compliance work.

Corporations find it too expensive to assign the work to traditional law firms, the FT said.  "US and UK corporations therefore regard the India option with relief."  Financial Times also quotes Liam Brown, CEO of Integreon, an offshore legal service provider with a staff of 900 in India.  Brown says that mega firms are under pressure to cut costs and face the reversal of the trend to farm out litigation support to costly private law firms.

Here's the silver lining in all this bad news: the smart US law firms will link up with the Indian-based legal providers and pass along the savings to their corporate customers.  The will be able to use to market and differentiate themselves.  They also won't have to hire so many $125,000 associates.

Getting professionals to actually carry out their personal marketing plans is a perennial problem. But in talking with the managing partner of a Chicago law firm, I heard a solution his firm is actually implementing: market or lose your job.  Listen to or downoad this 2-minute podcast to hear how his firm holds partners accountable for business development.

MP3 File