In law firms, most lawyers typically get paid for two things: (1) billings; and (2) bringing in clients. Of course, there are a few lawyers here and there who get paid just for being brilliant, but then again, too few to mention.
Today I want to focus on lawyers who get paid for bringing in clients. Time and again during my tenure in law firm management, I saw lawyers who were billing and earning a lot of money, but who did not have a sophisticated understanding of the financial implications of their relationships with their clients. Usually this came up when they were thinking about leaving one firm and joining another firm. They would tell the new firm how much they were billing and give their best guess as to how many of their clients would follow them. More often than not their best guess was wrong, and not by a little bit, but by a whole lot. Rarely was the mistake that more clients than expected followed them to their new home.
The consequences were often bad. Sometimes very bad.
Perhaps their new firm guaranteed them a minimum salary or profit share. Their billings at the new firm were low. Their new employer or partners were unhappy.
Or perhaps they negotiated a formula based in part on the business that they would bring with them. Again, their billings at the new firm were low. Their new employers or partners were unhappy. They were downright miserable.
It is an interesting quirk of human nature than when you are at the top of something, you tend to think that being at the top is the natural order of things. For example, I saw an old white guy U.S. senator on television recently ranting about affirmative action programs and how the only criteria for advancement should be merit and nothing but merit. Perhaps he was right. Maybe he was wrong. But regardless, it seemed to be somewhat disingenuous for him to be so strident in his view when he was appointed (not elected) to his senate seat as a replacement for his father who had previously held the seat.
Similarly, I have observed that when a lawyer has been earning big dollars at a law firm because she has been getting credit for having a huge client base, she tends to think that she is entitled to keep doing so, and that occasionally colours her view of things. Sometimes she feels entitled to have that compensation continue even if someone else is now taking care of that client base. If lawyers such as this decide to leave for another firm, they are sometimes pre-disposed to think that their clients (and the compensation that comes with the client base) will follow them to their new firm. Occasionally they find out the hard way that they did not really understand the dynamics of this aspect of their practice.
What I am talking about is the difference between having a client base and having a portable client base. Having, and being compensated for having, a client base at your existing firm is one thing. Taking those clients with you may be a whole different kettle of fish.
Firms often have a ‘client lawyer’ or ‘originating lawyer’ classification which they use to track which lawyer gets credit for bringing in the client. They often attach compensation to the lawyer’s ‘originating credits.’ Here are my thoughts on the whole ‘client lawyer’ thing:
- Many compensation systems use a formula which pays lawyers a percentage of their originating credits. Lawyers get originating credits by bringing in new clients. Then they keep those credits for many years, sometimes regardless of who is actually doing the client’s work and who is maintaining the client relationship. Under some systems the credits may be transferred to another lawyer after a certain period of time if that other lawyer takes over managing the client relationship. Situations frequently arise where a lawyer is being compensated based on originating credits for clients who deal with a number of firm lawyers. The lawyer with the originating credits does not usually rush to management and tell them to take away their originating credits. They either passively or actively hold onto those credits as long as possible.
- As a result, it often comes to pass that lawyers are making a lot of money collecting compensation based on clients that they brought in years before but in respect of whom they are no longer seen by the client as being their primary contact at the firm. Client lawyers with a large number in the originating credits column can easily fool themselves into believing their own numbers.
- Suppose that there is a senior associate or junior partner who has worked her way up the ranks by taking care of firm clients for whom she is not the client lawyer. Having done a fantastic job, the loyalty of the clients has transferred from the client lawyer to this lawyer. Having asked for client credit for these clients and having been rebuffed, she leaves the firm and takes the clients. At her new firm, these very same clients are considered to be new clients who she brought in, and she now has the originating credits for them and the compensation that goes with them. Of course, her old firm could have shown some generosity and transferred client credits to this younger lawyer instead of forcing her to prove her point by leaving the firm and taking the clients with her. But they didn’t.
- If it is not clear already, I believe that there is only one true definition of a ‘client lawyer’ and that is the lawyer with whom the client goes when the lawyer leaves the firm. If you leave the firm and the client did not come with you, you were not the client lawyer, no matter how long you were being paid as if you were.
- I knew a senior lawyer who billed a great deal of money at a major downtown firm. He left to join a mid-sized firm and learned the hard way that if you are going to spend your whole career telling your clients that only the large firms have competent lawyers, they are going to have some reluctance about sending their business to a mid-sized firm. Both he and his new firm were disappointed about how much business he could actually bring with him. He did not stay at the new firm very long.
- I also knew a client lawyer who moved the other way. He left a mid-sized firm to join a national firm and found out the hard way that if you spend your career telling your clients that they get better value at a mid-sized firm, they are not impressed when your new address means a significant increase in your hourly rate. This particular lawyer said that he was moving because his clients and referral sources needed a ‘national platform.’ He discovered, at great cost, that his clients and referral sources liked the smaller platform and lower costs that they had and were more than happy to keep working with the lawyers who the client lawyer had introduced them to over the years.
- Another lesson that lawyers leaving downtown firms for smaller firms discover is that their clients sometimes expect them to charge less when they move. Sixteen hundred hours at $800.00 per hour is $1,280,000. At $600 an hour, it is only $960,000. If your deal is that you keep 40% of your billings, you just lost $128,000 of income by moving outside of the downtown core. You can’t make that up with the free parking.
In conclusion, it is not uncommon for some lawyers to have overdeveloped egos and competitive instincts and underdeveloped emotional intelligence and financial acumen. It is not difficult for them to fall into the trap of believing their own press and then being smacked in the head by reality.
Post-Script
Some lawyers guard their client lawyer status jealously and go so far as to sacrifice the interests of their clients, their partners, and their associates by trying to keep their clients loyal to themselves and not the firm or other firm lawyers.
Some lawyers go to the opposite extreme and involve other lawyers with their clients whenever it is in their client’s interest to do so. They may sacrifice their hold on their clients by doing so, but they engender loyalty from their partners and associates. They also serve the client better and engender trust with their clients.
I always liked the second type of lawyer more.