Tuesday, October 8, 2013

Guarding Your Clients and Firm Against Cyber Crime

As technology continues to evolve at alarming speed, the ability of attorneys and law firms to manage transactions and business information has improved dramatically. More and more functions have become streamlined - with greater ability to monitor and analyze heavy loads of corporate data. However, even as we appreciate each new advance, it is important to recognize the sobering reality that the cyber-criminal community also continues to grow in size, sophistication and channels to ply their trade. Today, more than ever, critical and sensitive information of our clients and firms are exposed – and firm management must plan ahead to limit that exposure. 

Here are a few steps to take to proactively reduce your clients’ and firms’ exposure to the growing cyber-criminal threat. 

Safeguard Your Systems.

  • Have technology professionals run the most current versions of antivirus software on all firm computers and install firewalls and encryption software as necessary.
  • Take the time to sit with your banking team and learn about all the processes your bank already has in place to protect your firm and your clients. Make sure your firm is currently benefitting from each security measure available. For instance, some banks offer ‘reverse positive pay’ which shields against bank fraud by sending email notifications for approval each time a check is presented for payment.
  • Get a network key fob, a small device that provides two-factor account authentication. It automatically refreshes your online security passcode every 30-60 seconds which greatly reduces (but does not eliminate) your chances of being victimized.
  • Protect your myriad passwords for personal, business, and other accounts. Change them periodically, differentiate them across accounts, store them securely, and provide very limited access to them, only as needed.

Track Firm Accounts Daily.

Transactions (and fraud) happen so quickly today that it’s imperative for real estate attorneys to take on the responsibility to monitor all firm accounts daily (both trust and operating) to review for any questionable account activity. It is not enough to delegate this responsibility to a firm controller or CFO who is not directly involved in the daily transaction flow. Although the firm’s controller or CFO must reconcile and close all firm accounts on a monthly basis, only the attorneys at a firm have a real-time understanding of all the various closings, bulk sale escrows, contract signings and their associated large deposits, and retainers. Checking your accounts every day will reveal any discrepancies sooner and give you time to call your bank or firm’s controller to understand any reasons for such discrepancies and to take immediate action if necessary.

Continually Educate Yourself and Your Team.

Being aware of how cyber thieves operate and common ways they gain access to secure data can prevent many inadvertent security lapses. For example, every employee at your firm should understand common fraud practices, such as “phishing.” By now we have all been “phished”-- receiving an email that appears to come from a known or legitimate entity but that is fraudulent. This bait lures an unsuspecting user into clicking on a link to the hook, a web page that looks like a trusted source page. If the phishing expedition is successful, the victim will believe they are on a familiar trusted site and enter sensitive data that will be stolen by cyber thieves. Learn to recognize the sure signs of fraudulent emails. Poorly written sentences or odd spelling, strange email addresses for the sender and unusual requests are sure signs of phishing. It’s worthwhile to visit the FBI’s website to learn more about cyber security and fraud at http://www.fbi.gov/scams-safety/be_crime_smart/.

Implement a Plan.

Developing an incident response plan is crucial. Team members must know in advance what specific steps to take and who to contact when they suspect fraud has occurred. Since fraud can occur so quickly, time is of the essence to limit your firm’s and clients’ exposure and advance planning reduces response time. To ensure successful implementation of such a plan, practice with your staff and hold a “fire drill” to make sure the steps are easy for everyone to follow.  Key steps to include are: notifying your bank’s fraud department, your firm management, and the client - working with your bank to shut down an online session, quickly attempting to reverse a payment order, and invalidating your online credentials that have become compromised.

Aaron Y. Strauss is the founder and a partner at A.Y. Strauss (www.aystrauss.com), a leading commercial real estate law firm, with offices in Roseland, NJ, and New York City. David DePietto is CEO of NexFirm (www.nexfirm.com), a provider of back office outsourcing solutions to smalaw firms, based in New York City.

Forming a Law Partnership – The Partnership Agreement

A law partnership can be very much like a marriage.  My law firm partner and I bought a place together (our office in San Jose, California), furnished it and acquired dependents (a.k.a. employees).  We also share a bank account and plan for retirement together (through 401(k) and profit sharing accounts).  And, we often spend more time talking to each other than we do with our spouses.  When you get married young, there is often little need for a pre-nuptial agreement.  This was the case for our law firm partnership – we both brought very little, except our books of business, to the partnership, and therefore a very simple limited liability partnership (“LLP”) agreement sufficed.  However, almost ten years later we have built up significant assets and goodwill in our law firm, the dollars we split up at year-end got much more substantial, we had more attorneys involved, and we felt the need for a more detailed LLP agreement.  Similarly, experienced lawyers leaving established firms to start new law firm partnerships often have a lot to risk, and have strong ideas as to how the partnership should be managed and the money divided.  A well thought-out partnership agreement is a must.

In my experience representing law firms in drafting and negotiating their partnership agreements, if you are considering forming a firm with other attorneys, there are a few major items the partners should agree to before starting to draft an agreement:

  •    The Name.  Will you use the names of the partners (and in what order?), or will you use a name different from the names of the partners?  I have seen firms go through significant expense to change their website, letterhead, branding, etc. when a partner leaves or a new partner joins.  
  •    The Money.  This is probably the biggest area of contention amongst partners, and the terms you agree on in your partnership agreement can often have unintended consequences as to how the partners interact going forward.  For instance, be careful about creating a purely formula-driven system that could result in partners fighting over origination credit for each new matter brought into the firm.  On the other hand, it is very rare for a partnership to survive more than a couple of years with an agreement that says the partners share everything equally. Also, make sure the partners are all in agreement up front about what the partnership will do if it needs additional capital.  Will each partner have to put in funds to cover low periods?  Are you willing to borrow money to fund a contingency case?  Are you willing to borrow money to fund partner draws?  What happens if a partner is not pulling her weight with revenue?  Discussing these concerns in advance and drafting for them can result in better clarity and less disagreement when such situations arise.  In larger firms, a compensation committee is often created to address some of these issues as they arise.
  •   Management.  The management terms vary greatly depending on the size of the partnership.  Smaller partnerships can give all partners a voice in management, while larger partnerships must have clear rules for choosing the manager(s) and their levels of authority.  Think carefully about what the management committee in your partnership can and cannot do without the vote of the partners.  For instance, does the management committee have the authority to approve or disapprove new clients/matters?  Create policies/procedures?  Amend the partnership agreement?  Add new partners?  Expel a partner?  Does the management committee need to create and stick to a budget?

Once you and your potential partners can come to an agreement on these three items, you can move on to the more detailed specifics of the partnership operation.  If you cannot come to an agreement on these preliminary matters… think carefully about whether you might be better off with solo practices and an expense sharing arrangement.  It could save you an expensive and time-consuming business ‘divorce’ later. Of course, if partnership law is not in your areas of practice, it may be helpful for you and your potential partners to engage a partnership attorney to help form the law firm and provide suggested terms for the partnership agreement.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.

Tamara B. Pow is a founding partner of Structure Law Group, LLP in San Jose, California. (408) 441-7500, www.structurelaw.com

Wednesday, August 7, 2013

Grow Your Small Firm

91% of practicing US attorneys own or work for firms with 4 or fewer lawyers, according to Zap Data (a division of Dunn & Bradstreet).  Many are “solo by choice,” as Carolyn Elefant likes to call them.  From my perspective, there seem to be many small firms that would like to grow, and would enjoy financial and operational benefits by doing so, but don’t feel they know how to successfully execute a growth plan.

Trying to grow your practice can be scary, particularly if you don’t have a good handle on your firm’s financials.  The first and most important step is to gain a concrete grasp of your firm’s financial position and outlook, and to run some “what-if” scenarios to account for ups and downs that can occur.  This will allow you to identify the resources that will be available to finance the addition and define the objectives that need to be met to have a successful outcome.

The next step is to create a compensation framework for potential partners, of counsels and associates.  Consider what is needed to attract and maintain the caliber of talent that you seek, as well as the expected return to your firm.  For an experienced, business generating partner you will derive less financial benefit (on a percentage of billings basis) than a more junior attorney who is not a self sufficient rain maker.  Be mindful to establish simple arrangements that incentivize the behavior you want and don’t create conflicting interests within your staff.  Once you have created compensation frameworks, you may occasionally choose to sweeten a deal to attract a unique person, but you want to be careful not to stray too far or too often.

You will want to target candidates that add to the firm’s capabilities, not just those who increase billings.  If you have a significant level of stable billings, you will probably look to hire an associate to maximize your return.  If you are looking to grow your firm’s scale, expand capabilities or add to management capabilities, a partner level addition is the right path.  If you have a very up and down caseload which at times requires experienced staff and at other times does not, you might look to add of counsels that can generate some work to keep themselves busy, but who are also available to service your clients. 

Attracting the people you want is very similar to a sales process.  To be successful, you need to identify and define the factors that differentiate the job opportunity you are providing from the others that are available in the market.  Consider creating a slide deck to communicate your selling points, such as a more competitive bill rate structure, better service capabilities, fewer conflicts, a better technology platform or a better compensation structure.  You will want to define what it means to work for your firm and why it is a better platform for them on a personal level; explain how you help them develop their business developing skills, show how you help them develop new legal skills, demonstrate a better work life balance with work-from-home capabilities and let them know their voice will be heard.

When you work for BigLaw, the career path that your employer has placed you on is clear.  Make sure that the career path you provide to your prospective employees is equally clear.  People need to understand how they can move up in your organization, what moving up can mean in terms of income, and how they will develop professionally in your organization. 

Lastly, share with prospective employees the lifestyle benefits they will enjoy when working for your small firm.  Potential employees want to feel empowered; let them know that they will be brought into the firm’s process if they join your team.  While this does include the personal touch of knowing everyone’s name and having direct communication with the people who have their names on the door, the participation in your management process will inevitably attract interest.  Sharing information about the performance of the firm, staffing decisions and planning, client development strategy or even operational issues like IT and benefits selection are unheard of in BigLaw; in your firm your employee will be part of a team with a purpose.
A little financial planning, along with a bit of “sales” strategy can go a long way to finding and attracting the resources that will take your firm to the next level.  It’s a process that takes time and doesn’t typically come together on the first go round, so get started today!

David DePietto is the founder and CEO of NexFirm. He can be reached at dd@nexfirm.com.

Wednesday, May 1, 2013

You are Wrong, I am Right.

Quite often I converse with attorneys who start their sentences with the phrase "The right answer is...”  It's absolute and it feels reassuring and neat; for every problem, for every question, there is a perfectly right answer.  This phrase always gets me wondering: who are they trying to convince, me or themselves?  Are they giving me the right answer, or are they just forcefully making the case that it is not the wrong answer?  Or more to the point, that they are not wrong. 

I got to thinking about being wrong, and the fear that we all have about being wrong after watching an interesting TED Talk.  Kathryn Schulz lays out what we all know and see every day; we have been trained not to be wrong.  As an attorney, you are indoctrinated even deeper into a code of always being right.  It is generally a good instinct to possess as an attorney; clients do not like to work with lawyers who provide incorrect advice or work product that contains mistakes.
As a small law firm owner, or an aspiring one, you need to wear another hat that is critical to your success: that of an entrepreneur.  Successful entrepreneurs take risks, try new things that are uncertain and yes, they make mistakes.  Successful entrepreneurs make lots of mistakes.  Often, doing it wrong is the only way to figure out how to do it right.
How can you start taking calculated risks when it feels so uncomfortable?  The answer is planning.  By leveraging the best available information to determine possible outcomes, comparing risks of action against no action and establishing ways to measure success, you will feel empowered to take smart calculated risks and make good decisions. 

To get started, focus on the following:
-You are never going to have perfect clarity.  At NexFirm I spend my days helping aspiring founders and managing partners of small firms launch and grow their businesses.  We look at critical decisions from every angle and bring to bear all of the information we can put our hands on.  In the end, we determine the probability of potential outcomes and make the best decision we can.  Often it comes down to one simple point, can we live with this decision if the worse (not worst) case scenario plays out.  You will never have perfect information or the “right” answer; if you wait until you do you will never affect change.
-You are likely to overestimate the risk of the unknown, and underestimate the risk of no action.  If you are working at a BigLaw firm and you think that you will “probably” make partner, the odds are against you.  If you think you can’t do better for yourself as a small firm founder than as an associate, you are again playing against the odds.  Staying with the status quo always seems more comfortable, and the unknown feels risky.  Planning levels the field, allows you to measure the risk of no action fairly against proactive decisions and move ahead.
-In the small law firm business, the odds favor those who pursue growth.  Many small law firms tend to suffer from the same problem; when they are busy they don’t have the time to engage in business development, when the work ends they starve while they feverishly work on bringing in billable hours.  Growth brings diversification and richer financial resources, and it is a key to longevity.
Try to step out of your comfort zone and seek out some calculated career risks, investigate and quantify all that you can to make the best decision possible and don’t focus so much on not being wrong.  You may not get the right answer, just the best answer.

David DePietto is the founder and CEO of NexFirm. He can be reached at dd@nexfirm.com.

Wednesday, February 6, 2013

Clarity Versus Certainty: How to Hire the Best

For many, a great thing about working at a BigLaw firm is the certainty around compensation.  With each passing year you and your peers advance up the ranks with an associated compensation increase.  There aren't many other jobs out there where you know what you can expect to earn each year for the next eight years on your first day of work. 

Small firms cannot provide this sort of certainty, which can make recruiting top talent a challenge.  So, how do you compete with the big guys for great talent?  Fight certainty with clarity.

BigLaw attorneys have no clarity.  None.  They don't know how their firm makes money (or does not make money) off of their efforts, how the firm is faring financially, what the partnership objectives are and most importantly, what is expected from them so they may succeed and make partner.  Some don't even know what their bill rate is.

This secrecy was tolerable when the certainty of advancement seemed guaranteed.  Lately, it is harder to count on the certainty that BigLaw offers.  Layoffs, compensation cuts and other career disenfranchising has made it difficult to believe the way that BigLaw lawyers used to.  For many, the secrecy of BigLaw has become intolerable.

How can small firm partners leverage BigLaw's newfound uncertainty to recruit the top performers in the field?

  • Share the firm’s objectives.  Provide some background knowledge on the firm's growth and future expectations for business development.  Where do you see the firm in 15 years, and what does your hire's position look like in your vision?  Knowing there's a plan for growth and that they play an important role in achieving that goal gives your recruits the stability they need to stick with your firm over BigLaw offers.
  • Create a clear path for attorneys.  This means more than a list of titles. It should include the objectives and an understanding of the overall firm development.  You should also give your attorneys an understanding of how their contributions effect the firm's reputation and bottom line.  Above all, your team will benefit from a strong understanding of how they provide excess value to the firm and how they get paid for it.
  • Provide professional development tools.  Make sure your attorneys know that they will become better attorneys by working with you.  BigLaw attorneys can fall through the cracks, but small firm attorneys have the benefit of working closely with senior members.  Lay out the processes in place at your firm to help your team members hone their skills.  I listed several methods for incorporating professional development into your firm's everyday operations in a previous post.

Small firm partners who know how to communicate all they have to offer can be sure that they will hire the best of the best.

David DePietto is the founder and CEO of NexFirm. He can be reached at dd@nexfirm.com.