AIG Posts Third Consecutive Quarterly Loss Exceeding $5b

Warning to firms who represent AIG:  Watch your AR.  AIG reported losses from their mortgage portfolio of credit default swaps (CDS) would be between $5b and $8.5b.  In a Reuters story published August 7th, AIG has recorded “nearly $25 billion in unrealized losses from writing down the value of its CDS portfolio”.

Although this may mean nothing as far as your relationship with AIG is concerned, it may foretell some changes internally at the company.  AIG is already known as a tough client when it comes to billing guidelines and getting paid. 

They are a public company and they still must please their shareholders.  Whenever a large corporation posts losses in consecutive cycles, job losses almost invariably follow.  Even if you don’t lose your contacts with the company, it wouldn’t be a shock to see them delay payment of bills.  Some firms already must wait 60 days after acceptance of an electronic invoice to get paid.  Considering that AR is considered in critical arrears at 90 days, that places firms in a tough spot in terms of cash flow. 

I encourage those who represent AIG to stay in touch with their contacts and keep an eye on any invoices that aren’t being accepted or are delayed longer than normal.

Tracking Billing Cycle Metrics

The law firm business model is based on the measurement of 5 key profit drivers:  Rate, Realization, Utilization, Leverage, and Margin.  I would add another metric:  Cash flow.  You can really see a return on your investment in time and effort if you have a lot of time in WIP (work in process) and AR (accounts receivable).

The critical metrics that affect cash flow are the average days to bill, average days to collect (and by extension the sum of both to create the total billing cycle) and the average days in AR. Using a rolling 12 month period will give you an annual baseline, but you can also track it monthly. 

In the graph below, The variables are the total fees unbilled, total fees billed, and total fees collected over a 12 month period.  Knowing these numbers, you can calculate the total receivables outstanding during this time span, the average monthly and daily fees unbilled, billed and paid and your average days to bill, collect and days outstanding.

These metrics are critical for measuring your efficiency both at billing your work and collecting your fees.  If these numbers are high, then a review of your processes is due. Click on the graphic above to download and test with your own numbers.

“Social Engineering” Attacks Against Corporations At Record Pace

According to a June, 2008 press release by IDefense Labs, a social engineering attack called “spear phishing” has skyrocketed over the months of April and May.  “Spear phishing”, also known as “whaling”, is an attack where an email is sent that contains personal information about the recipient to get them to believe that the email is legitimate.  The purpose is to get you to click on links or open attachments that compromise your system or steal your identity. 

IDefense reports over 15,000 known corporate users that have been attacked over the past 15 months.  The intended victim is typically senior executives and other high profile individuals in the organization.  Law firms are among those entities that have reported being compromised.   

In these attacks, the goal is to gain access to corporate banking information, customer databases and other information to facilitate cyber crime.

Most of the attacks were carried out by one of two groups.  The first group used what is called a “browser helper object” and the other installed a web server and a key logger (a tool that records all things a user types, including banking information).

The key statistics noted in the report are:

• 66 distinct spear phishing and whaling attacks between February 2007 and June 2008
• Over 15 different templates have been used including Better Business Bureau (BBB), Internal Revenue Service (IRS), Federal Trade Commission (FTC), US District Courts, Department of Justice (DoJ) and Proforma Invoices
• 95 percent of the attacks emanate from two cyber crime groups
• Signature-based anti-virus detection ranges from 5 to 40 percent for each attack
• Victim losses can exceed $100,000
• Malicious code from these attacks targets over 50 financial institutions in the US
• Attacks are often well timed to coincide with events such as tax day, Microsoft Patch Tuesday and month-end processing
• Malicious payload split 50/50 between links and attachments
• For more than 12 months, the malicious code is capable of defeating most two-factor authentication systems
• Over 15,000 corporate victims in 15 months of attacks
• Attack volume reached new highs in April and May with 10 and 9 attacks, respectively
• Recent Attacks have netted over 2,000 victims in May alone
  • May 29, 2008 – IRS / US Treasury Tax Court – 600 victims
  • May 12 – 22, 2008 – IRS Tax Court – 800 victims
  • May 1 – 7, 2008 – BBB Complaint – 800 victims

How can you defend yourself against such attacks?  First you need to understand what “social engineering” attacks are.  Social engineering is one of the most effective tactics at compromising security.  The reason is that it uses prima facie legitimacy to gain access.  Common examples of social engineering attacks are when thieves pose as cleaning crews or IT personnel and walk into offices with no objection and steal passwords, install malicious software on computers, or steal laptops.  (To learn more about social engineering, please click here). In this case, the tactic is to convince you that the email is legitimate by posing as an email from the US Courts or the Better Business Bureau, using legitimate-looking graphics and using personal information that is publicly available about you (such as your full name and address or other information you may share publicly) to fool you.

IDefense cautions that there is no simple solution to protect from attack:  “No single technical defense is likely to prevent these attacks; however, most can be prevented using a layered defense that includes desktop and gateway anti-virus, URL filtering, vigilant monitoring of anomalous network activity and the use of non-administrative user accounts.”

In my opinion, it is a red herring to believe that the non-use of administrative accounts can protect you.  It is easier than you would think to perform what is called a “privilege escalation attack“.  It is always a good idea to look at multi-layered protection when it comes to security, however, and not using administrative accounts does serve to lessen your exposure.  One thing is certain:  anti-virus protection and a firewall is not enough.  Microsoft has more information on how to defend yourself against phishing attacks:

•  Never reveal personal or financial information in a response to an e-mail request, no matter who appears to have sent it.
• If you receive an e-mail message that appears suspicious, call the person or organization listed in the From line before you respond or open any attached files.
• Never click links in an e-mail message that requests personal or financial information. Enter the Web address into your browser window instead.
• Don’t post any information on your blog or social networking site that could be used by identity thieves to target you, your family or friends, or your company. 
• Report any e-mail that you suspect might be a spear phishing campaign within your company.

Click here for more information from Microsoft.  There are also other software and hardware defenses against such attacks.  Employing a pro-active approach to security increases your odds against being a victim, but the best defense is knowledge.

Review of IPhone 3G

My first review is of the new IPhone 3G.  I owned the first generation IPhone and was able to use the 2.0 software upgrade before purchasing the 3G so this review will contain comparisons between the two as well.  It will not be as in depth as some and is geared for determining whether it is a viable option for attorneys to use as a business mobile device.

First impressions

Compared to the first generation, the 3G is slightly larger but still fit in my ISkin cover, so it isn’t by much.  The case is a little different, but that is not of any relevance.  The phone is all screen – there is a button at the bottom center which operates as a “home page” button by default, and a receiver at the top center.  The rest is dedicated to the touch screen.  There are volume and mute buttons on the left side, headphone jack, SIM card holder and power button at the top, and the docking connector at the bottom surrounded by two small speakers.  On the back there is a small lense for the 2.0 MP camera.

What I have always hated about touch screens is the tendency to push buttons that I didn’t intend to hit.  The IPhone solves this pretty much by allowing you to press the power button at the top which turns off and disables the touch screen.

Functionality

The IPhone is married to the AT&T network and will continue to do so for the next few years.  There are hacks around, but you likely won’t be interested in using them. The first generation was hampered by closed development; ie, there were no ways to install 3rd party applications (without a hack).  This was resolved in the 2.0 software, which was released on the same day as the 3G was released, but updated the first generation IPhone as well.  I decided to see if I could sync to my Exchange server easily before going with the 3G.

After a few hiccups (most notably that Exchange service pack 2 that had to be installed over the Windows 2003 Small Business Server service packs), the sync worked and was surprisingly fast, even over the much lamented EDGE network.  The 2.0 software upgrade is a large improvement and greatly improves the functionality of the IPhone.

One glaring defect with the IPhone that wasn’t resolved in the 2.0 upgrade was the lack of copying and pasting text.  This, above all, is the biggest drawback of the IPhone.  Since this is correctable through a software upgrade, I can’t believe this will remain a problem for long.  Still, this is one thing that will hamper business use of the IPhone, especially if you want to take a part of the text of one email and paste it to another email.

Another limitation of the IPhone is the inability to edit documents.  For me, this is no big deal, but to some, this is a deal breaker.  If you require the ability to edit documents on your mobile device, then you need a Windows Mobile device (blackberrys don’t allow editing either).

Both versions are bluetooth capable, carry the Safari (Apple-developed) browser, have GPS capability (the 3G supposedly has upgraded capabilities but I have not tested them), have one button weather and stock information and are incredibly easy to use.  Phone quality on both are equally excellent.  Both also integrate ITunes and an IPod functionality so you can use it as a phone as well as an ipod, which is handy when working out or riding your bike.

Another group of nice features are the conferencing capability, easily displayed time on a call and the call history with the time of the call.  These features are handy for billing purposes.  I am not aware of any integrations with billing systems yet, but anticipate there will be options available before too long.

Another difference between the IPhone and other mobile devices such as blackberrys is that the touch screen handles the dialing and the typing.  Whereas some like blackberrys have raised keys, the IPhone uses the touch screen for the keys, something that takes time to master and is futile for those with large fingers (but that is a problem with all mobile devices).  I personally liked the full keyboard of the blackberry 8700 series, but have gotten used to the touch screen of the IPhone so I wouldn’t necessarily call it a draw-back.  But you might.

Comparison with First Generation IPhone

The issues and features above appear in both the first generation IPhone and the 3G version.  So what really distinguishes the two?  Minor aesthetics, broadband internet, supposed GPS capability, and price.  In fact, the price is the biggest gotcha! of all.  AT&T automatically pushes you back to a 2 year agreement, increases your monthly fee by at least $15, and tries to convince you that you need to pay another fee to get the “business package” which seems to imply that you must purchase the business package to sync with Exchange.  Since I was already syncing with Exchange with the first generation IPhone, I opted against the upcharge and had no problem connecting to Exchange.  I am not sure what the purpose of the business package is, but I won’t be too surprised to see a letter from a law firm in a few years advising that I am part of a class that may have purchased this and am entitled to a $2 settlement award.

Some have complained about battery life, but so far I haven’t noticed the difference. 

Bottom Line

Reasons to own an IPhone for business use:

• Syncs contacts, email and calendar from Exchange
• Bluetooth capable
• Good phone quality
• Ease of use
• You use or are not against using the AT&T network
• Small form factor (for the feature set)

Reasons not to own an IPhone for business use:

• You use another email server besides Exchange
• You want to edit documents
• You need to have copy-paste functionality
• You don’t want to use AT&T service
• You like raised keys instead of a touch screen for dialing and typing

In my opinion, if you already have the first generation IPhone, there really is no compelling reason to go to the 3G – the increase in speed doesn’t justify the increased up front cost and continued costs associated with the 3G.  In fact, for those contemplating going with an IPhone, you should seriously consider buying the first generation IPhone since it is no longer being made and many (like me) rushed out to get the 3G model and are dumping their first generation models on places like Ebay.  That said, if you don’t already own an IPhone and are considering the 3G, it is certainly worthy of consideration – and it works easily with Exchange.

5 Technical Skills Attorneys Should Know

Inspired by the 5 technical skills a modern professional should know (Generally Aware Executive Part 1 post on Justin Foster’s BrandMilitia blog (hat tip to Stephen Nipper and Enrico Schaefer)), I have come up with 5 technical skills attorneys should know:

1. How to Use Microsoft Office (including Word, Outlook, Excel and PowerPoint);
2. How to use a blackberry, Iphone, or windows mobile device to check email, synchronize contacts and synchronize calendar;
3. How to use a projector;
4. Understanding the concept of redundancy;
5. How to navigate Windows without a mouse.

Some assumptions: 

• Microsoft Windows is the only option – great, use your Mac, use Linux, whatever.  Major software developers build on the Windows platform and to the extent they develop web-based applications, the servers that provide the backbone for these applications are Windows boxes.   I have a macbook pro at home and it does a great job with family applications.  Windows is and will be for the immediate future the solution for businesses.   This article isn’t about potential emerging trends.
• I make an assumption that attorneys can operate and perform basic tasks within Windows such as knowing the difference between a single click and a double-click.  It isn’t fair to leave out those who struggle with the basic tasks of using a computer, but if you don’t know how to use a computer by now the train has already left you at the station – and likely you made the choice to stay. 
• I am assuming basic skills in using a mobile phone, such as accessing voicemail.

Ok, so why did I choose the above 5?  I’ll go into each.

1. Attorneys must know how to use not only Microsoft Word and Outlook, but Excel and Powerpoint.  Why?  Because they are essential tools for your practice – and if you purchased just about any version of Microsoft Office, both of them came with it.  If you aren’t using them, you are wasting valuable tools.  One of the things I always do when working with firms is take an inventory of their existing technology.  Most firms have overlapping technology and some may be looking to invest in tools that they already have but don’t understand how to use.  Outlook is essential for communication.  Word is essential for drafting documents.  Excel is essential for creating reports, charts and graphs.  PowerPoint is essential in organizing your thoughts into a coherent argument that others who haven’t spent months researching the topic can understand.
2. Attorneys must know how to use a mobile device that can synchronize their calendar, contacts, and email.  If your firm doesn’t already utilize mobile technology, they will soon.  I have been a blackberry user for several years and have just switched to the Iphone (which works well with Exchange, the mail server that pushes email to Outlook).  I am not big on Windows mobile devices because of my past experiences – I never felt that I was productive using a stylus and no matter how much I tried, I never edited anything on a mobile phone.   Some swear by them, however, so it is necessary to understand the strengths and weaknesses of each solution so you can invest in the one that makes you the most productive.   For me, having my calendar, contacts and email synchronized and available to me anywhere is essential.
3. Litigators, if they don’t already, will eventually need to use a projector.   And I am not alone in experiencing the moment when you are trying to connect a projector to your laptop and the thing just doesn’t want to work.  Most of the time the solution is simple, but if you don’t know how the connection between a laptop and a projector works, precious moments are lost and at the very least you are distracted from your focus.  It isn’t that hard.  The easiest way to handle projectors is to have your own and have a spare lamp wherever you go.  Once you learn your own projector, your problems should end. 
4. Attorneys need to know several ways to get their information.  Just this past week I was working with an attorney who relied on a virtual private network (VPN) to access their office.  Unfortunately, VPN access isn’t assured when you are away from the office.  Some systems block the ports that are needed and then you are stuck waiting on tech support to get to your files or check your email.  Redundancy helps.  You should be able to access and compose email in several different ways.  Outlook for the Web allows you to access your inbox via any web browser.   If you have a mobile device, it should sync with your mail server.  There is also terminal services, which if not used as a primary method of access should only be used in an emergency.  However, it will get you access to your files and you can get work done – and that is the point of redundancy.
5. Attorneys need to free themselves from the mouse if necessary.  There are a few key reasons.  One, you can work faster.  Having to go back and forth from a mouse to the keyboard slows you down.  If you know keyboard shortcuts, it makes you more efficient.  Efficiency is the key to higher margins and is the primary benefit of technology.  Use it.  Also, if your mouse decides to stop working, which is known to happen from time to time, you are not stuck staring at a screen. 

If attorneys spend the time to learn the above skills, they will be in a better position to become more efficient and less frustrated with their technical resources.  If you think there is another essential technical skill attorneys should know, please feel free to add a comment.

Simplifying the Law Firm Business Model

The law firm business model, as defined by David Maister, is made up of the following equation:

1. Leverage
2. Rate
3. Productivity (Utilization)
4. Realization
5. Margin

If you are not tracking these profit drivers, it doesn’t matter how many reports you are thumbing through – they won’t measure the keys to per-partner profits and are thus, as far as profitability is concerned, irrelevant. The good news is that it doesn’t take much to track these drivers.  You can derive a simplified financial statement by just plugging in your numbers.  The below graph shows how tracking these key indicators can help you see exactly what drives your firm’s profits.  To download and plug in your own numbers, click on the graph.

 

I will be going over each of the drivers in more detail over the next several weeks.

Service, Responsiveness Key For Maintaining Client Relationship

The Remsen Group has released a series of articles reviewing the latest surveys and have found a common thread of each:  enhancing relationships with existing clients is key to keeping them.  This should not be an alarming nor surprising conclusion. 

Remsen provides ways to help keep your existing clients from looking elsewhere:

• Provide Exceptional Service
  Be responsive. Be accessible. Meet deadlines. Follow through.
• Solicit Client Feedback
  There are a number of ways to do it. Be sure to act on findings.
• Conduct Client Site Visits
  Lawyers visiting clients to learn more about them and their business.
• Present Seminars
  For maximum ROI, go with an industry-focused seminar series. Recruit an advisory board to develop your format and determine topics.
• Publish Newsletters
  Be sure your communiqués are timely, relevant and brief.

Click here to read the entire report.

Does Your Law Firm Have a “Level 5″ Leader?

In a recent entry posted to the Harvard Business Review’s Editor’s Blog, Diane Coutu wrote of a deceased Columbia University professor who she describes as a “Level 5 leader”:

“that rare person who can successfully combine drive, intelligence and humility to attract followers and to encourage them to perform to do the best of their abilities.”

Why is such a combination so rare?  From the standpoint of any practicing attorney, humility isn’t common.  Yet in the context of a leader, humility isn’t so much in how you practice but in how introspective you are.  Those who spend time congratulating themselves for their achievements are not preparing themselves for future success.  With this in mind, how can managing attorneys become level 5 leaders?

At first glance, most successful partners have two of the three characteristics off the bat.  Drive and intelligence are hallmarks of any successful lawyer.  Where the disconnect occurs is how they apply their drive and intellect.  Good lawyers use these qualities to represent their clients.  Good managers use these qualities to “attract followers and to encourage them to perform to do the best of their abilities”.

To be an effective leader should require total dedication.  Yet for many firms, the managing attorney is also a leader in productivity.  I have talked to many managing attorneys who are also one of the highest producers in their firms.  To expect them to succeed both as managers and practicing law is not a recipe for success for at least one of their responsibilities.

For firms who can’t afford to have a partner dispense with their billable productivity while managing the firm, consider among other things the following ways to encourage positive results from your managing partner:

• Choose a managing partner who can develop consensus. Many managing attorneys state that they spend as much time building consensus as they do all the other responsibilities of managing the firm combined.
• Choose a managing partner who has a vision of where they want the firm to go. Managing partners must not only drive the vision, they must also develop and nurture it.
• If possible, don’t choose a managing partner from your top producers. To be effective, the managing attorney will have to reduce their workload.  Taking a high producing attorney away from the field will have an immediate negative impact on the firm.  Attorneys aren’t the most patient of people and seeing a reduction in productivity isn’t the best way to support a new managing attorney.
• Encourage “upward reviews“. Getting the best from others may hinge on keeping an open ear to their needs and concerns.  If there are grumbling associates that are either afraid or disinterested in sharing their concerns, they can be like a cancer that becomes hard to eradicate.
• Measure performance. The way to judge how well a managing attorney is focusing their drive and intelligence to encourage those to perform to the best of their abilities is by setting standards and holding everyone, including the managing attorney, accountable for their results.

As noted in the first comment of the blog entry, “such leaders {don’t} focus on {themselves} too much, but on defining a vision, articulating it, and then actualizing it.”  I believe that these qualities aren’t as rare as Ms. Coutu suggests.  On the contrary, I believe most firms have people in their own firm who, with the right support and responsibilities, can develop into such a leader and can provide a great service to the firm.

The devil is in finding them.

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