A New Metric to Evaluate Law Firm Quality

Photo by Sean Svadilfari (Flickr/Creative Commons)

Editor’s Note: The author of this post is the founder and CEO of Legal Mosaic, a strategic consulting firm and a regular contributor to Big Law Business.

By Mark Cohen, Chief Executive Officer, Legalmosaic

Justice Potter Stewart’s celebrated “I know it when I see it” obscenity test also applies to law firm quality. No one can quite say what it is, but most attorneys and clients claim to know it when they see it. This is a very subjective standard in a metric driven world.

Law Firm Quality Measures: Hearsay and Brand

How can you tell a “quality” law firm? Simple answer: hearsay. And brand.

It’s remarkable that a huge global industry like legal service is so devoid of quality metrics. And it’s ironic that lawyers and clients substitute assumption for evidence when it comes to judging law firm quality.

Other businesses and professions, of course, have long utilized quality metrics. Take baseball. It has had performance metrics from its opening pitch. In the past few decades, a second generation of baseball metrics has come into play, measuring the impact of performance on outcome. The baseline performance metrics remain, but the focus is now on how that influences outcome. Call this the Palsgraf metric: but for a player’s contribution, would a different result have obtained?

Why do law firm metrics fail to reach first base? And how is law firm quality evaluated apart from brand and hearsay?

It depends because, to be technical, it’s squishy. Reputation, subjective lists (reminiscent of that famous line from Casablanca: “round up the usual suspects”), law schools attended, and financial success are common determinants. To the extent metrics are relied upon, they calibrate firm financial performance, not quality. The self-regulated legal industry measures success from the attorney- not client- perspective. Hmm.

Ken Grady, a former Fortune 500 company General Counsel and thoughtful commentator, has noted the legal industry tends “to do quality by proxy.” He cites law school and firm brands as proxies for quality, arguing that instead of metrics, lawyers make assumptions that are generally tied to brand. He’s right. And there’s rich irony in lawyers substituting assumptions for evidence.

PPP is a Financial Metric, Not a Measure of Quality

Profit-per-partner (PPP) has long been the holy grail of legal metrics. Its importance extends well beyond the equity partner compensation it measures. PPP enables law firms to retain equity partners (now synonymous with rainmakers), lure laterals, and burnish the firm brand. Clients also seem to view high PPP as a positive, although there is scant data linking PPP to client satisfaction or firm quality.

PPP measures a firm’s profit maximization. It is not a gauge of expertise, results, knowledge of clients’ business, efficiency, transparency, or value to clients. True, clients “vote with their feet,” but the decision to switch firms is often based upon cost factors rather than quality — or a combination of the two. While technology and expertise exist to fashion firm “quality scorecards,” most legal software tracks legal spend, not results or client satisfaction.

Size also matters in the quality discussion. It is tied to billing rates; large firms typically charge higher rates than smaller ones. And there is a general perception that larger firms charge more because they (presumptively) have “better” lawyers and deliver superior results. This is not necessarily so, of course, but it helps explain why, until recently, the AmLaw 200 had a virtual monopoly over the Fortune 500’s outsourced legal work.

Law firm quality is also tied to parochialism and brand. A disproportionately high percentage of large firm lawyers graduate elite law schools. They are presumed to be superior lawyers even when their academic excellence and pedigree do not mirror practice achievement.

Many in-house lawyers are products of big firms, so they tend to be more “comfortable” sourcing work to former colleagues or other brand name firms. And firm partners tend to regard colleagues as “top notch” because it burnishes the brand. But more importantly, there is a strong economic incentive to keep client work within a firm, even when doing so may not be in the best interest of the client.

Size Promotes Brand, Not Necessarily Quality

There is another aspect to size: quality control. The larger the firm — especially when its growth is from acquisition — the more difficult it is to maintain quality. Ditto for conflicts. Add to the list technology, practice, cultural, economic, and geographic challenges that become exponentially larger as a firm grows in headcount and geographic footprint. Brand and quality are not the same.

Take Dentons. There was no entity known as Dentons just four years ago. Today, it is the largest law firm — by headcount — in the world with offices around the globe. And while Dentons would no doubt point to its rigorous quality, due diligence, and conflict standards, is there any useful data to measure how it’s handling these critical challenges? The same questions could be asked about any large firm.

Dentons throws into high relief the distinction between brand and quality. The firm has certainly succeeded in creating a global brand. But how does the Dentons brand square with its quality of service? The question is not posed to imply a particular answer but to shine a spotlight on the brand/quality distinction.

Better Ways to Measure and Deliver Quality Legal Services

 So what are some better ways to measure law firm quality? A good place to start is from the client perspective. Some obvious criteria are: results; areas of law firm excellence; client business comprehension (think: competency based testing); client retention; attorney retention; firm succession plan; collaboration with clients and others in the legal supply chain; billing flexibility and alignment of financial interest with clients; diversity; innovation; and pro bono/community involvement.

Many lawyers might scoff and say, “some of these things are hard to measure — and why the need to justify when clients know we are an elite firm?” Answer: why is it that physicians and hospitals, to cite one of many examples, are routinely evaluated by many of these criteria? People don’t pick surgeons or hospitals based upon profit margins or income. They are influenced by expertise, experience, results, and other objective yardsticks- as well as financial considerations. Why should law firms be judged by different standards?

Conclusion

Metrics are only as valuable as the materiality of what they evaluate. So what counts here?

The seminal characteristic of a quality law firm is consistently effective client representation. The firm adheres to ethical standards, achieves positive outcomes, provides good value, instills confidence, and achieves a “trusted adviser” relationship with many clients. That’s the external component.

There is an internal element, too. The firm values all lawyers and staff, not just equity partners. It is diverse at all levels, gender blind with pay and promotion, and has a succession plan. It is building for the future. And it recognizes the importance of business process and technology — as well as legal expertise — in the delivery of legal services. It hires (or collaborates with) experts in those areas and gives them a meaningful seat at the firm’s management table.

It gives back to society and helps restore public confidence in lawyers.

And it forges relationships with law schools and legal service providers because it recognizes the importance of alignment in the legal ecosystem.

A law firm that achieves high marks in these areas would be a quality firm — even by Justice Stewart’s standard.