Penn & Teller On World Peace

Penn & Teller have an Showtime series called “BS” (shortened).  One of the more recent shows was posted on YouTube and is pretty funny (and in my opinion spot-on accurate) – a good way to start the weekend.  (Language warning – Penn is not diplomatic with speech or use of acceptable words:  read:  curse words used.  Watch at own risk).

Penn & Teller on World Peace: Part I

Penn & Teller On World Peace:  Part II

Penn & Teller On World Peace: Part III

Goodbye GAAP, Hello IFRS

I wrote in April on More Partner Income about a CFO magazine article about the impending replacement of the Generally Accepted Accounting Principles (GAAP) standard for public accounting to the International Financial Reporting Standards (IFRS).

It appears the time has come.  According to a August 27th article in the Financial Times, “US companies are set to switch to international accounting rules in a move that will, for the first time, see all the world’s most important listed groups reporting according to the same set of standards.”

A “roadmap” has been proposed by the SEC to have US companies conform to the standard by 2014.

Christopher Cox, SEC chairman, said more groups were reporting under IFRS than US GAAP and the number would rise as other large economies made the switch. He said US GAAP would be marginalised if the US did nothing, making it harder for international investors to consider US companies.

As noted in the April post, this may mean nothing to you, especially if you report only on a cash basis.  However, if your firm is looking to get a true look at your financials, accrual based accounting is needed.  For those who were looking to GAAP, look again.  IFRS looks to be the new standard.

For more information on IFRS, click here to visit a page dedicated to it by Price Waterhouse Coopers.

The Case Against Universal Healthcare

A major part of the Democrat platform is the advancement of universal health care.  And who would blame them?  The health care system is ridiculous.  It is as far away from market-based as it has ever been in this country.  But is the solution to have it centrally managed by the federal government?  Or to return it to it’s market-based roots?

In my opinion, health care costs were bad in 1992, but since then have spiraled out of control.  I believe some measure of blame can be made on the universal coverage push made by then First Lady Hillary Clinton.  Though the objectives were noble, it mandated employers cover employees via heavily regulated HMOs.  HMOs had been around since the early part of the 20th century, but it wasn’t until the 1980′s in response to threatened socialization of medicine that they became popular.   The commercialization of HMOs came to a head in 1992, when for-profit HMOs were more numerous than non-profit HMOs.

There is little question that the 1993 health care plan exacerbated HMO growth and insurance carriers have taken over health care decisions ever since.

So is the answer federally guaranteed health care?  I went to a specialist the other day (referred by my primary care physician who seems more a referral stepping stone than a physician) who was refreshingly frank as to why doctors wouldn’t perform a certain procedure that used to be routine – lack of repayment by insurance carriers.  Insurers are controlling doctor decisions.  Even when doctors will perform procedures, they have to go through hoops to ensure payment even if they are certain the procedure must be done.  This causes needless delay and makes health care more expensive.

If I were a conspiracy theorist I could easily blame this on those seeking to instill universal healthcare on us – make the system so unworkable that people just want something different – change.

I prefer to think it is the meddling of health care by politicians with good intentions but with poor business sense.  If I were to go to 10 attorneys, I would get 10 variances in quality representation.  Based on the results, demeanor and cost I could determine who was the best and go to that attorney.  If I were to go to 10 doctors, I can only choose based on results and demeanor.  Cost is completely out of the picture.  This takes a market force and throws it in the trash – and is wrong.

Our country has safety nets for indigents that are subsidized by taxpayers – Medicare, Medicaid, and the Emergency Medical Treatment and Active Labor Act, which requires ambulance and hospital access to anyone regardless of citizenship status, legal status or ability to pay.

However, there is a problem with insurance coverage and preventative care.  Solving it, in my opinion, requires giving consumers the freedom to choose their care based on their pocketbook – not the pocketbook of an insurance carrier.  If individuals were able to choose care and insurers were only able to insure against catastrophic care (something, like any other supplemental insurance, can be done relatively inexpensively) the cost of care would reduce.

How?

How does the market work in every other arena?  Competition. Competition fosters efficiency and innovation and that leads to lower costs.

The alternative is universal care, or socialized medicine.  The argument for socialized medicine always starts with “every other industrialized nation has it”.   The Cato Institute has an article from 1996 that addresses European socialized medicine.  A highlight:

The Europeans have run into a very simple economic rule. If something is perceived as free, people will consume more of it than they would if they had to pay for it. Think of it this way: if food were free, would you eat hamburger or steak? At the same time, health care is a finite good. There are only so many doctors, so many hospital beds and so much technology. If people overconsume those resources, it drives up the cost of health care.

I maintain that we have been operating under a semi-socialized system for several decades.  Even if you consider the cost of health care in your paycheck, if you have met your deductible or have unused purchased health care, you are apt to use it more often, regardless of need.

I also believe that if the federal government were to control health care (and the cost of health care) it would damage the system tremendously.  Why?  Because lower cost reduces the incentive for quality doctors.  The best doctors would be in highest demand and those who don’t want to sit on a waiting list would pay a premium.  In other words, the only people would would benefit from universal care would be the rich, those who could afford paying extra.

Don’t fall for the rhetoric:  universal health care is a bad idea.  Our health care system needs to be fixed, but instead of socializing the system, we should look to lessening the presence of insurance companies in health care decisions.  In my view, putting the cost decision in the hands of consumers is a good step.

A federal tax incentive for saving for health care would encourage saving for your needs.  Rather than forcing you and your employer to set aside over a thousand dollars per month for a family of 4 that is paid to an insurance carrier, how about saving it in a money market account?  Then if you don’t use it, it accumulates and if you live long and healthy, you have saved up a nice retirement supplemental fund.

Catastrophic care needs insurance.  However, the risk associated with this for those who are healthy are low, meaning low premiums.  For those with chronic ailments, I believe the taxpayers are willing to help expand the safety net for those who need it.  It will still cost less than covering everyone.

What do you think?  Do you think universal coverage is a good idea?  Please let me know why.  If not, please give me your opinions on an alternative to what I propose above.

Survey Your Clients To Improve Performance

When talking about improving performance, we talk about measurement.  Measuring productivity, rate, realization, margin and leverage.  But what about measuring the satisfaction of your clients?  After all, without their satisfaction, all of your numbers decrease.

Internal “upward reviews” are good to determine how well management is doing internally.  Client satisfaction reviews are good to determine how well your attorneys are doing in providing excellent service to the firm’s clients.

Tom Collins wrote a good sample client survey form that posted on More Partner Income in 2005.  It’s freely distributable, so I have posted a copy of it that you can download by clicking here.

Free Disk Defragmenter Increases Performance (Of Computer)

I put my computer through hell.  I am constantly testing new software applications to find out what new technology is out there that can help make firms more productive.  This constant installing and uninstalling of applications puts a toll on my laptop.  Using Windows Vista, you’d think I would be happy with keeping my disk drive “defragmented” from its built-in tool.   However, I have noted a marked decrease in performance the past two weeks and I know it is all due to my testing of software.  Apparently Vista’s disk defragmenter isn’t doing enough. 

I went on a search for a better defragmentation application.  While researching PerfectDisk by Raxio (the one with the most awards by reviewers), I noted in forums that a rivalry was going on between PerfectDisk fans and fans of a free defragmentation program called JKDefrag.  I had already started testing PerfectDisk, but was intrigued enough by the sharp discourse to stop testing PerfectDisk and test out the free one.

JKDefrag is the brainchild of Jeroen Kessels, a website programmer.  For those who aren’t familiar with what hard drive fragmentation is, he offers the following explanations on his site:

What is “disk fragmentation”?

Imagine a book split into several parts, some pages are over here, other pages in another room on another floor altogether. You will have to walk a lot when you need to read the book. It may sound silly, but this is exactly what happens to files on your harddisk. Defragmentation will put all the parts (fragments) back together, making your computer a lot faster.

What is “disk optimization”?
Imagine a big library with lot’s of books, spread out all over the building and not sorted whatsoever. There is an index telling you exactly where every book is, but you will have to walk a lot when you need several books. This is exactly what happens on your harddisk, the files that belong to an application can be all over the place, anywhere on the harddisk. Optimization will bring all the files together in one place, leaving the rest of the harddisk empty, and will sort the files, for example alphabetically.

Installing it was ridiculously simple.  You download a compressed zip file, decompress it to a folder, then run the windows version.  It automatically defragments and optimizes your hard drive.  Working through my two partitions (100 GB physical drive) took it around 45 minutes.  And it worked beautifully.  My computer’s performance has been restored and I didn’t have to pay a penny.  I have no idea whether PerfectDisk is good or not – if I can get the job done with a free utility, there’s no need to test one that costs money.

The program doesn’t install any extra files and can be run from a flash drive – meaning you can carry it around and improve the performance of other computers in your office without having to install anything on their hard drives.  Further, you can set it to run on a schedule using Window’s built-in scheduler.  Instructions on how to do this is on his site.  There is even a way to have it run as a screensaver, though I wouldn’t recommend using it in that way – you don’t want to run a defragmentation program too often.  Although Kessels recommends scheduling it for once a day, I would only run it once a week.

I strongly recommend this program.  To test it out for your self, visit his website at http://www.kessels.com/JkDefrag/index.html.

Amlaw Daily: Profit Down in 2008

AmLaw Daily reports that during the first two quarters of 2008, “profit margin compression–that is, expenses increasing faster than revenue–was the greatest it’s been in the last eight years.”  The Wall Street Journal Law Blog takes a look at the highlights of the report:

• Too many lawyers:“Because law firms continued to add lawyers to their ranks despite the drop-off in demand,” writes [Citi Private Bank’s Dan] DiPietro, “firms experienced a slowdown in productivity comparable to the second quarter of 2001 and lower than every other second quarter between then and now.”
• Unproductive lawyers, beware: Among other things, DiPietro advises firms to “consider sending a tough message to unproductive lawyers at every level,” and to “conduct a systematic expense review to eliminate redundant or nonessential support staff and functions.” As for hiring in a soft economy, he writes: “[I]t’s particularly important to vet candidates to differentiate between laterals who are looking to move because they’re not happy and those who are looking to move because their firms are not happy.”
• Associate bonuses (a/k/a “The elephant in the room”):DiPietro is paring back earlier estimates for 2008 profits-per-equity-partner. “[W]e now believe PPEP will be flat, or even down by as much as 10%, in 2008,” he writes. “The top-tier firms will have an even tougher year, with profits down by 5-15%. Our reason for providing a range is that there is an elephant in the room: How will firms, particularly the top-tier firms, handle associate bonuses this year? The rational approach would be to pare them back, but, while lawyers display rationality and dispassion in the practice of law, they have exhibited ‘irrational exuberance’ on this issue in the past.”
• Most profitable firms hit hardest:Demand drop-off and expenses were accelerated at a more rapid pace at the top firms, writes DiPietro. He explains that top-tier firms tend to rely on high-end private equity deals, securitization, and structured finance, and have more financial service clients. Now, with those markets in decline, top-tier firms “are paying the price,” and the practices that firms typically rely on in a downturn, such as restructuring, bankruptcy, and litigation, haven’t helped “cushion the drop-off in transactional work.”
• A silver lining?“A bad year (and the numbers suggest 2008 will be even more trying than 2001, when partner profits were down slightly),” writes DiPietro, “will enable firms to take steps that partners would resist in a good year-winnowing out unproductive lawyers and applying greater discipline to expense control.”

 What can law firms take from this report?  Measure performance.   Of Counsel Consulting was created to help firms perform better.  Whether you need help in determining your profit drivers, need help in measuring them, or need help in implementing technology to make you more efficient, Of Counsel Consulting can help.  For more information, call (205) 588-4OCC (4622).

Russia Re-Establishing Ties With Cold War Allies

History is a great teacher.  Just think, it was less than 100 years ago when a fateful crime was committed that started a chain of events affecting most of the world for arguably 80 years.  The crime was the assassination of the ArchDuke of Austria, Franz Ferdinand, by Serbians ostensibly authorized by top officials of the Serbian government.

The response by Austria was an ultimatum that, if accepted, could have changed the course of history.  But that isn’t the subject of this article.  Serbia was backed by Russia and Austria was backed by Germany.  Both of the small Baltic countries knew that they had “super powers” who would help them defeat their opponent.  The result was the first of two World Wars that would dominate the 20th Century and a cold war between the remaining super powers that would only end in the twilight of the Century.

What is occurring now in Eastern Europe is eerily reminiscent of 20th Century politics.  The US has encroached into Eastern Europe, threatening Russia, and Russia has been consolidating their influence on their former satellite countries.  And today it was announced that Syria, another of Russia’s Cold War allies, is in talks to purchase Russian weapons in exchange for allowing Russia to re-establish a port base in their country, giving Russia’s Navy ”its first foothold in the Mediterranean for two decades.”

Poland just signed a treaty with the US for a missile system, and both Poland and the Ukraine are desperately trying to get into NATO before a feared Russian invasion of their countries.  Georgia’s membership has “kicked off” already.

Arguably, the real driver that is causing this unrest to “bubble up” is oil.  Oil is still at record prices and the area is flush with the stuff.  It is still the rule that he who controls the oil controls commerce. 

What this means to business is, unfortunately, the end of two great decades of record sustained growth.  Political unrest and widespread war that affects oil supplies will keep the money of investors away from the volatile markets (and thus sapping the life out of the main driver of risk and by extension growth).  Our best hope is to keep inflation at low levels to maintain the value of our currency.

From the looks of it, that too is taking a turn for the worse.  Globally, central bankers are avoiding the tough decisions and are keeping interest rates low.  The reasoning, according to Lehman Brothers Holdings’ chief economist Ethan Harris is that “[n]ext year we’re going to have extremely low inflation, and a lot of that weakness is due to the decline in energy prices“.  We’ll see.  For the moment, the federal reserve has decided not to raise interest rates in the hope that Harris’ prediction pans out.

The fall of the Soviet Union wasn’t a quick process.  It seemed that way on Christmas day, 1991, when Gorbachev resigned and ceded power to Boris Yeltsin.  Moreover, the time period between the start of Gorbachev’s glasnost and perestroika programs and the dissolution of the Soviet Union was only 4 years.  Perhaps ironically, it was the war with Afghanistan that was one of the driving forces behind perestroika. 

Today the US almost mocks Russia with its rhetoric.  Calling Russian comments “bizarre” and “losing their credibility”, Secretary of State Rice joins others who still look at Russia without respect for its past.  You’d think that one who had served under Brent Scowcroft as his “Soviet Expert” in the National Security Council under George H.W. Bush would understand the Russian mindset.  In fact, “according to R. Nicholas Burns, President Bush was ‘captivated’ by Rice, and relied heavily on her advice in his dealings with Mikhail Gorbachev and Boris Yeltsin.” 

I am not sure whether Georgia started this or if Russia is using the situation to expand its influence.  The fact is that Russia is expanding its influence.  Whether the alliances are short term or if this is the beginning of a military build-up is not certain.   

We can only hope that the alliances Russia is toying with creating is more a show of frustration rather than long-term intent.  We seriously can’t afford another cold war.

Bankruptcy “Hot and Sexy”; Hildebrandt, CitiBank Scratching Heads

The ABA Journal posted an article describing bankruptcy as a “hot and sexy” field for Weil, Gotshal & Manges summer associates.  Imagine that:  bankruptcy a hot field during an economic downturn.  This wouldn’t be news to me except for the fact that Hildebrandt and Citibank advised in their 2008 Client Advisory that the “perfect storm” was hitting the US shores, “in which finance, transactional, and litigation work have all trended downward at the same time, with no offsetting surge in work related to the economic downturn itself.” (p 2)

Apparently the cart was ahead of the horse on this.  While bankruptcy filings may have not been hot in January, the prediction was pretty bold considering history and logic.  Yet they had their reasons (spelled out in a More Partner Income post in January).  This isn’t the first post to find holes in the Advisory’s predictions.  I wrote in March regarding the market indicators showing great opportunities in bankruptcy and related litigation and in April regarding record foreclosure filings in Florida.

In Hildebrandt and Citibank’s defense it isn’t easy to predict the future (note to Global Warming Climate Change enthusiasts), but the tone of the Advisory appears almost hopeful.  After all, they “ha[d] for some time been predicting that the legal market was perhaps overdue for a ‘correction’ and that the era of easy or widespread double digit annual growth in profitability could well be coming to an end.”

Perhaps the era of double digit annual growth is in suspension, but the “perfect storm” just didn’t pan out.

Core Inflation Soars to 5.6%

The July Consumer Price Index was released today and core inflation soared to its highest rate since January of 2001. This follows a trend I noted on More Partner Income in March where I discussed the impact inflation has on your firm’s bottom line.

Inflation for the year is averaging 4.4%. Please keep in mind that inflation has averaged under 3% for the past two decades. Your forecasting needs to include the deflated value of your purchasing power. Expect the Federal Reserve to increase interest rates soon to counter the inflation threat.

UPDATE 8/15/2008:  Federal Reserve officials state that although inflation is a concern, it will “fade over time“.  They are even talking lowering rates.  For those who hated Chairman Greenspan’s philosophy, it looks like we will see what it’s like to not be a hawk on inflation.  My suggestion:  save money.

Array Formulas Solve Complex Excel Needs

There are plenty of reporting tools available for law firms.  However, one of the common questions firms have when looking at reporting software is “Can you export to Microsoft Excel?”  Microsoft Excel has become the tool for manipulating financial data.  Therefore, an understanding of some of the more powerful features will help you with the more complex needs, such as (from Microsoft):

• Counting the number of characters in a range of cells.
• Sum numbers that meet certain conditions, such as the lowest values in a range or numbers that fall between an upper and lower boundary.
• Sum every nth value in a range of values.

An array formula “is a formula that works with an array, or series, of data values rather than a single data value.”  In other words, for example, you can set up a formula to show a result based on a range of results from a column.  One way to use this is to measure your AR numbers.  Let’s say that you rank AR priority based on age, amount, and payment history.  You can create a column representing the average age of AR, one for the amount of AR, and one with a credit rating based on past payment history (using a scale of A-F). 

You can then create an array formula in a cell that can produce a result based on your logic for determining AR priority.  If you decide that A list clients with AR between $1,000 and $10,000 with an average age under 200 days should be excluded from your collections process, you can create an array formula that can sum all of the clients that fit these variables.  There are many uses of array formulas that will help you track important metrics.  They can be used to track fee earner capacity, mark-down frequency, and really anything you want to measure that is being tracked by the firm.

There are several websites that help in creating array formulas, but I really like the one set up by Pearson Software Consulting.  Instructions on creating an array formula from the Pearson site:

To enter a formula as an array formula, type the formula in the cell and press the CTRL SHIFT and ENTER keys at the same time rather then just ENTER. You must do this the first time you enter the formula and whenever you edit the formula later. If you do this properly, Excel will display the formula enclosed in curly braces { }. You do not type in the braces — Excel will display them automatically. If you neglect to enter the formula with CTRL SHIFT ENTER, the formula may return a #VALUE error or return an incorrect result.

To learn more about array formulas, visit their site by clicking here.

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