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Practice Made Perfect - May 1, 2014

John Fitzgerald 05.01.2014 | Practice Made Perfect

Clawback Ruling Could Inhibit Mobility

By John Fitzgerald, CPA

The bankruptcy and collapse of the law firm Howrey Simon Arnold & White LLP may have repercussions for partners seeking greener pastures and firms thinking of bringing them on board.  A February 7, 2014 ruling 1 by U.S. Bankruptcy Judge Dennis Montali in the Howrey matter opened the gates wider for a dissolved firm to claw back profits from uncompleted business that a partner took to a new firm.  The judge saw “no reason to limit the definition of Howrey unfinished business to matters pending as of dissolution."

While clawbacks are hardly new, this ruling goes further to allow them in cases where the partner departed before the dissolution.  In the wake of the Howrey ruling, a partner who departs a firm before it dissolves may have to return any profits from unfinished work.

The ruling adds a compellingly negative consideration for firms who are weighing whether to bring in an attorney from a firm that has seen better days. The firm will have to balance the potential boost in revenue that would result from the new business the partner brings in with the very real possibility that some or all of the profits might be pulled from their grasp.  

The Howrey ruling is by no means the last word on the subject as some law firms argue that a client should be free to do business with whomever they please. Still further, firms view this decision as one that places an unfair restriction on attorney mobility.

1 Howrey LLP, Chapter 11. Allan B. Diamond, Chapter 11 Trustee for Howrey LLP, Plaintiff v. Pillsbury Winthrop Shaw Pittman LLP et al, Defendant. Bankruptcy Court, N.D. California February 7, 2014

There’s No Time Entry like the Present

By John Fitzgerald, CPA

The very human tendency to procrastinate is something we all need to combat and in the world of professional services this is particularly important when it comes to time entry. It is worth a review of the benefits of entering time on time along with some thoughts on how to overcome the urge to put off what is inevitable and essential to the firm’s success.

Benefits

Potential for Increased Revenue:  The faster that time gets into your system, the faster it becomes a part of your billing. Delay a week and you slow down that system. Delay a month and the lag becomes greater and so on. Revenue inflow slows accordingly.

Greater Accuracy: Memories are tricky — the longer you take to enter your time, the less accurate you will be about your activities and those important details. Entering your time as close to immediately as practical not only increases your accuracy, it can help you justify your position should a client call a charge into question. You are also less likely to shortchange yourself and the firm if, in the bustle of daily activity, something happens to slip your mind and goes unrecorded.

Fuel for Better Decisions: Real-time entry of your time allows your firm to keep better track of your retainer accounts and other billable reporting matters.  Armed with the most accurate and current information available, the firm can make more informed decisions.

It Saves You Time, Reduces Stress: If you enter time when it is fresh in your mind, you actually save time for yourself. Otherwise, you might need to consult notes, rifle through papers, check emails and phone messages, and even bother colleagues in an effort to reconstruct the past.  All that adds stress to a professional lifestyle not known for its placidity.  The alternative is far more attractive.

Add Teeth To the Rules

Unfortunately, no matter how indisputably good an idea is, there are those who simply will not comply. Here are some ways to bring the reluctant around to this best practice.

Make It a Part of the Annual Review: It is a simple enough task to separate out those who enter time on a daily or near daily basis 90% or more of the time.  Those who drop below a firm-designated percentage become well aware of their failure. Behavior will then modify.

Deny Access: Those who regularly ignore firm requests to put in their time can be penalized by being locked out of Outlook, the firm network, and/or other access points until that catch up.  

Reward the Punctual:  Set a goal (Say, six months of daily entries) and reward the winner publically. An expensive timepiece might earn both a smile and appreciation.