Category: Financial Management

Can You Deduct Business Expenses Combined With Vacation Activity?

It’s common practice to  add some vacation activity to  a business trip to help defray the cost.  When and to what extent is it really deductible?  Today’s post is written by guest blogger Patti S. Spencer, Esquire

Patti Spencer

Patti Spencer

Patti is a nationally recognized Trusts, Estates and Taxation Lawyer, Writer and Expert Witness. Her areas of concentration include trusts, estate administration, settlement, and planning, as well as, inheritance tax, fiduciary liability,  and tax planning.

 

The cost of a pure business trip is 100% deductible.  Unreimbursed hotel, airfare, car expenses, cleaning, telephone, tips, are all 100% deductible as well.  Up to 50% of the cost of meals are deductible.  In general, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

What if you add on a few “vacation days”?  After all, here you are in Paris, are you going to skip  the Louvre?  If the trip is an international one, the travel cost is 100% deductible if the trip is at least 75% business.  Less than 75% and then the deductible portion of airfare is generally pro-rated based on the number of business days compared to the total number of days.  If the business trip is within the United States, the airfare is 100% deductible as long as the primary purpose of the trip was for business.  Lodging and meal expenses for business days are deductible, not for vacation days.

With smart phones, laptops and other new-fangled technology, if you spend most of your time at the Louvre answering e-mails and taking phone calls (say 4 hours) – arguably that’s a business day as well.  A business day is any day you are traveling to or from the business destination, a day when you have a pre-scheduled business appointment (regardless of how long), or a day when you spend at least 4 hours on business.

Did you ever see those advertisements for trade associations or professional associations putting on seminars in seaside resorts?  Those travel expenses are most likely 100% deductible.  The seminar or conference fees are deductible as well.

If the trip is primarily for vacation, then you cannot deduct hotel and travel expenses.  Visit the IRS Tax Topic page for more specifics.

Remember: it is very important to keep records.

Be reasonable.  (Hiring a luxury limo and driver on the trip when you drive yourself in a used car at home is not reasonable.)

If you are an employee, deductible travel deductions are claimed on Form 2106 and are miscellaneous itemized deductions for which you receive a tax benefit only to the extent they exceed 2% of adjusted gross income.  If you are self-employed, expenses are deductible on Schedule C or the appropriate business return.  You can get more information in IRS Publication 463: Travel, Entertainment, Gift and Car Expenses. Keep receipts and a log of your travel and activities.  More detail is better.

 

Economic Recovery Eludes Legal Industry

If job gains and losses are any indication of economic recovery, it is safe to say that the general economy continues to inch out of the recession pit, but the legal industry is still in the hole.  The most recent report by the US Department of Labor indicates that the legal industry lost 1,200 jobs in April, even as the economy as a whole saw the highest monthly job creation in more than two years.

According to DOL, the private sector as a whole has posted a job gain for 50 consecutive months.  That’s clear evidence that the recovery is moving at a snail’s pace.  Still, it keeps improving, and that’s what counts.  It has always been a peculiarity of the legal industry in that it lags behind the general economy;  slower to experience dips, and slower to recover.  So it’s not surprising at all.

Optimists like myself take comfort in knowing that eventually our sector will catch up.  Just keep in mind that the economy in the legal industry will never return to where it was.  There will be some expansion in some practice areas.  But as a whole we’re going to be faced with flat or diminished client demand and strong competition from firms of all sizes.

If you’ve been hanging on by a thread waiting for the recovery to bail you out –trying to avoid making changes which might be painful — it’s time to make the hard decisions.

Tax on Legal Services in PA

There’s no time to passively wait on this issue, folks.   Seniors are heavily in favor of tax on legal services, as it will replace property tax, and make it more affordable to hold onto their homes when limited to social security. Pennsylvania Realtors (“PAR”) are also heavily pushing this tax “reform” because the real estate tax is a factor which can impact a buyer’s decision for one residence or another.  They have a well-funded PAC, and it’s alleged that among the various groups which have put this bill forward, there is $1,000,000 or more in financing pushing it forward.

On the other hand, the Pennsylvania Bar PAC has about $250,000.  Outnumbered in voices, and crushed by the funding disparity, it’s not looking good right now. The sales tax in PA will increase from 6% to 7% under SB 76.  Sales tax on legal services would be 7%.

Tax guru Kelly Phillips Erb, Esquire, makes another point:

To be clear, it’s not just sales taxes that would increase in the Commonwealth. Personal INCOME taxes in the Commonwealth will also increase in order to offset the loss in property tax revenue (likely landing somewhere around 4.25% eventually – a rate that is higher than the rate of personal income growth). That boost, together with the increase in sales tax base, will not be enough to offset the difference as initially determined by the Independent Fiscal Office. The IFO – which looks at data but does not support or oppose a position – did a rather thorough analysis of the proposal
last year.

Let your voice be heard.  Contact your Senator and express your opposition to Senate Bill 76PBA can’t do it alone.   Not only will this tax have a chilling effect on access to legal services for those of marginal income, but it will be an administrative nightmare for law firms, particularly solo and small firms.

Imagine if you have to pay sales tax when billed, but you don’t actually collect it (or your fees) for months.  Does your billing software even have the capability to charge tax?  Most do not.  That’s because there are only 3 states in the nation which tax legal services: Hawaii, New Mexico and South Dakota – which takes the form of a gross receipts  tax in each state.    Apparently FLA had a tax on legal services, but repealed it due to problems in administration.  Read the ABA statement.

When Fee Exceeds Value

I present a number of seminars to PA attorneys in which I strongly make the point that billing is more art than science; however if an attorney approaches it from the perspective of  hours x rate = You owe me, the lawyer has missed the point.  From the client’s point of view, it’s about value received being equal to or greater than dollars billed.  I additionally stress that billing should  not be deemed a chore, but rather an opportunity to communicate ones continued value to the client.

Read this ABA Journal Law News Now article entitled “Judge scolds BigLaw over fee request for research on ‘basic and banal’ legal principals.” In a matter which was worth approximately $40K, the firm billed $126K, and asked the court to make the client pay.  Really?  It isn’t obvious that this was excessive to someone, anyone, at that firm who touched this transaction?  I hope the firm involved is sufficiently embarrassed by the ensuing bad press.  (This story has appeared online in several notable publications.) They obviously  have no notion of value from a client’s perspective.

I have frequent conversations with attorneys who tell me horrific stories of having referred cases for trusted clients to other attorneys they think they know well, only to be contacted later by that same client who is angry over the referral.  In 9 out of 10 cases it has nothing to do with skill, but rather “blowing through retainers in a heartbeat,”  “billing an amount far in excess of the value of the matter,” and “failing to communicate regarding the investment status of outstanding time/costs until the matter is a done deal.”

Every lawyer, regardless of the number of years in practice, should be required to read Jay Foonberg’s book “How to Draft Bills Clients Rush to Pay” at least once.  You can buy it from the ABA bookstore here.

 

 

Cyberattacks on U.S. Banks – Are You Safe?

McAfee warned of this months ago, and their predictions are coming true.  U.S. Banks are under attack.  As are some cloud providers, for that matter.  The attacks are more massive and organized than ever before.  An article in CNet News on December 13, 2012 revealed that a report released by McAfee Labs predicted an impending attack on U.S. financial institutions — dubbed Project Blitzkrieg — was a “credible threat.”

Project Blitzkrieg is believed to be headed by an individual known as vorVzakone, according to McAfee. In September, vorVzakone announced a massive fraud campaign to be launched against 30 U.S. banks in spring 2013. VorVzakone also put out a call to arms for fellow hackers to join his cause. The attacks are said to be done with a highly developed Trojan that could infect victims’ computers, plant software, and allow cybercriminals to steal information and money.

Rather than being a sweeping attack, McAfee said the campaign will selectively target accounts at investment banks, consumer banks, and credit unions. Going after selected groups makes it easier for vorVzakone to stay under the radar and not be detected by network defenses, according to McAfee.

The attack was to expected to hit hard in Spring, 2013.  But it looks like plans have moved up a bit.  And are not being executed as predicted.  A January 10, 2013 article in the Philadelphia Business Journal carried the title “PNC, Wells Fargo Cyberattacks Work of Iran, U.S. Believes. ”  The real story is based on a January 8, 2013 article in the New York Times entitled “Bank Hacking Was the Work of Iranians, Officials Say“:

But there was something disturbingly different about the wave of online attacks on American banks in recent weeks. Security researchers say that instead of exploiting individual computers, the attackers engineered networks of computers in data centers, transforming the online equivalent of a few yapping Chihuahuas into a pack of fire-breathing Godzillas.

The skill required to carry out attacks on this scale has convinced United States government officials and security researchers that they are the work of Iran, most likely in retaliation for economic sanctions and online attacks by the United States.

Since September, intruders have caused major disruptions to the online banking sites of Bank of America, Citigroup, Wells Fargo, U.S. Bancorp, PNC, Capital One, Fifth Third Bank, BB&T and HSBC.

A hacker group calling itself Izz ad-Din al-Qassam Cyber Fighters has claimed in online posts that it was responsible for the attacks. . . . But American intelligence officials say the group is actually a cover for Iran. They claim Iran is waging the attacks in retaliation for Western economic sanctions and for a series of cyberattacks on its own systems.

Iranian officials emphatically deny any connection with the attacks.  However, the attackers allegedly stated last week that they had no intention of halting their campaign. “Officials of American banks must expect our massive attacks,” they wrote. “From now on, none of the U.S. banks will be safe.”

I don’t know what I believe about who or what is behind these attacks.  I do believe that the threat, no matter the source, is very real.  Thus far there has been no theft; simply a consistent disabling of the bank’s abilities to service online customers.  However, I have no doubt that this is camouflage designed to distract security professionals from the eventual real consequences of these attacks, which has the potential to create havoc with assets of individuals and businesses. 

What do you need to do? 

  1. Be mindful of the insurance limits which apply to all of your combined accounts.  (Excluding IOLTA.  See “Unlimited FDIC Insurance on IOLTA Accounts Due to Expire” for further details about this issue.) 
  2. Make sure that you are not dependent on online banking for essential transactions.  Even if you do your deposits and bill paying remotely, have good old-fashioned deposit slips and checks handy. 
  3. Be sure you print out your monthly statements if you do electronic review.  You may need to access your information quickly at a time when your financial institution is trying to clean up a mess.  Those with an audit trail of their own will always fare better.
  4. Be careful about where you conduct your business.  Never log onto your secure encrypted accounts from a public computer, or over a public WiFi connection.
  5. If you don’t have a password on your smartphone, netbook and/or tablet, put one on immediately.  Yes, I know it’s a pain that after 3 – 10 minutes of idle time you have to put in a password to resume work.  On the other hand, no one can pick up your device when you’re not looking, and find your autologin information for your bank!
  6. Be especially wary of any so-called email communications from your banking institutions asking you to logon and reset your password, enter your SSN, or other sensitive information, and especially if they provide you with a link to do so.  Verify the legitimacy of the request by calling the institution on the phone before clicking on the link.  Nowadays sophisticated fraudsters create web sites that are so close to the real thing it can fool most people into entering sensitive information.

These are just a few quick thoughts to get this issue on your personal radar screen.  I encourage you to add your thoughts in terms of what we need to do to protect our firms, ourselves, and our clients.

Unlimited FDIC Insurance on IOLTA Accounts Due to Expire

The unlimited FDIC Insurance coverage on IOLTA accounts is set to expire on December 31, 2012.  Coverage will revert to $250,000 per client per institution.  In an article in ABA Journal Law News Now, it was reported that a provision of the 2010 Dodd-Frank law that provided for the unlimited coverage is scheduled to sunset on Dec. 31.  If Congress does not act, the amount of FDIC insurance available will be $250,000 per client, per financial institution, as long as the account is properly designated as a trust account and there is a proper accounting of each client’s funds.

Despite the gravity of the situation for law firms and their clients, and significant effort on the part of the American Bar Association, it seems unlikely that Congress will act, due to ” legislative maneuvering that was unrelated to the merits of the issue.”

Remember, that all funds held on behalf of a client at the same financial institution, even if in separate accounts, will fall under the same $250,000 maximum limit.  Firms which hold funds in excess of that amount for any one client may need to quickly open accounts at other financial institutions and move the excess to the new accounts.

Deadbeat Clients: Exact Your Revenge for Bad Debt!

You can follow all the right procedures, but sometimes clients still stiff you.  What can you do?  How about revenge?  Does that appeal to you?

Let’s say you have a strong engagement agreement.  You got a decent retainer.  And at first the client kept up when the retainer ran out.  By the time you realized that the client was falling behind, you were too far in, or too close to the end, to extricate yourself.  It happens all the time.  You follow up with calls and letters, but the client is silent and non-responsive.  You ask whether there is a problem, hoping you can at least get a dialog started which will result in some compromise payment.  The client is still silent and non-responsive.

If your engagement agreement is well written, you have the option to sue the client.  But we know that isn’t always the right move.  First, some insurance companies forbid it.  (Not the PA Bar-endorsed plan.)  Second, even those who don’t forbid it ask about your practice on your annual malpractice insurance application.  Admitting that you sue clients for fees may impact your premium, or even your ability to get insurance.  It will depend on whether or not you have ever been counter-sued for malpractice, and on how many times you have sued clients for fees.  A lot of suits will indicate to the carrier that your procedures are not what they should be, or that your clients are not as happy as they should be. 

Yes, past due receivables are sometimes an indication that clients are unhappy.  So if you have lots of past due receivables, and have had to sue clients more than once or twice, it will not reflect well on your firm.  And frankly, sometimes the amount of the deductible on your policy outweighs the outstanding debt, making the risk of suing, and being counter-sued, not worth the amount at stake.  So you bite your lip, write it off, and consider it a hard lesson learned.

But there is one more thing you can do.  It probably won’t get the client to pay, although sometimes it does.  However, what it will do is provide you with a measure of psychological satisfaction even as you write off the debt.  First, make sure you have sufficiently dunned the client to take away any doubt that the debt is uncollectible by any fashion other than to file suit.   Wait for the statute of limitations to toll on a malpractice action.  Once the statute has passed, send the client a letter in November or December saying something like the following:

I have done everything within my power to get you to pay your outstanding debt in the amount of $xx.xx.  It is clear at this point that you have no intention of doing so.  Accordingly, you leave me with no alternative than to write off the debt.  In accordance with IRS regulations, you will be issued a 1099C for the full value of the forgiven debt, so that you can declare the amount on your tax return as taxable income.  You will receive the 1099C  by 1/31/xx.

Although financial institutions and similar other entities are required to file a 1099C, any entity can do so voluntarily to ensure that income from forgiven debt will not go undeclared by the debtor.  The due date for sending the 1099-C to the debtor is 1/31/12.  The due date to send it to the IRS is 2/28/12.  You can get the forms, and all instructions on the IRS site here.

Since most people cannot send off an estimated tax payment in time to cover the 1099C income, you will derive some measure of satisfaction knowing that you have probably messed up their financial planning and created a taxable situation for the client.  Even better, you know that anything dealing with the IRS and tax returns creates high anxiety for most people, so at least they will feel some of your “pain.”  Sometimes the threat of the 1099C will cause the client to send payment at the zero hour.  It’s always nice to have the money, but the revenge factor may be even sweeter.

Keep in mind that from your internal accounting perspective, the transaction is handled differently.  If your firm is like all the firms I’ve encountered, you are on a cash basis for tax purposes, so you will not actually have a write-off of fees to expense on your profit & loss.  That’s because you don’t declare fees until they’re actually collected.

However, when you write off the receivable, you may expense any unreimbursed hard costs.  Client costs are — if handled correctly — considered a loan to the client.  They sit in a liability account through which costs “wash” in and out.  This account is on your balance sheet, and does not impact your profit and loss.  In other words, when handled according to IRS guidelines, you don’t actually deduct client costs as expenses on your profit and loss as they are incurred.  When you declare a client debt unrecoverable, at that time you can remove the unpaid client costs from the liability account, and deduct them as an expense on your profit and loss. 

Be sure to consult with your accountant.  In my experience, a lot of firms still “mishandle” client costs by expensing them immediately.  So your required action may be different.

Happy new year!

Law Firms on the Edge

Loans to law firms used to be a “no brainer” until some spectacular failures created losses in the millions.  Now, law firms are watched and analyzed carefully by banks.  An article entitled “Consultant Has ‘Somewhat Robust’ Watch List of Law Firms in Possible Danger” which was appeared in ABA Journal Law News Now, included a video of an interview of Dan DiPietro, chairman of the Law Firm Group at Citi Private Bank.  I was impressed with the interview, and the fact that Dan uses “real” indicators of whether a law firm is in trouble, rather than just focus on the P&L.  He knows that underbidding jobs, partner defections, and excess capacity are all surer advance indicators that a law firm is heading for the fiscal cliff’s edge.  He rightly recognizes that only later do these trends reflect in the bottom line.

His view is that transactional work is strong in a few industries, but otherwise is mostly still flat, causing financial hardship at large law firms.  And that trend will continue for the foreseeable future.  Although his focus seems to be exclusively with “BigLaw” I can confirm that this trend is affecting mid-size firms as well.  Especially because of increased competitive pressure from larger firms now focusing marketing attention on smaller clients than normal, in an attempt to increase utilization of professional staff. 

I convey these increasing competition principles to attorneys by using a fishing analogy.  Think of the BigLaw firms as the deep sea fishermen.  They’re after the big scores.  But when their favorite locales are overfished, they look for new spots.  Next thing you know, they invade the waters formerly favored exclusively by the mid-size firms. Smaller fish, but still reasonable size and quantity.  They make up for the size difference in fishing for greater volume.  So what do the smaller firms have to do, faced with better-equipped increased competition that outclasses their operations?  They come and fish off the local pier of small-firm.   Firms that never expected competition; firms that always felt that larger firms were not interested in their clients.  They are now facing increased and daunting competition. 

When you know that you are or will shortly face steep competition where there was little or none before, it’s time to bring on your A-game.  Excellent service — defined from the perspective of the client, not the law firm — will be the number one determining factor of who gets or keeps the client.   Cost management and innovative pricing strategies will be another.  The days of clients rewarding inefficiencies are over.  If you haven’t taken quality-control measures to leverage your firm with knowledge management and workflow innovations, you will be unable to remain competitive.

What’s Your Fraud Vulnerability Score?

There are a lot of pervasive myths regarding fraud in law firms.  Most of them have been around so long that lawyers believe them to be fact.  The more of them you believe, the higher your vulnerability score.  Over the years I have written and spoken quite a bit about Fraud Prevention.  And having done accounting work for many years in the corporate world before joining my first law firm, I feel I have a particularly insightful perspective.  Truth be told, were I not an innately honest person, I could have stolen from most if not all of my employers.  And for the most part it’s because they don’t pay attention, and make it too easy.

You may want to read “Is Your Firm Safe From Fraud” which was originally published in 2005, but is still highly on point.  I have also blogged previously on this topic in “Fraud on Lawyers – A Small Measure of Satisfaction“‘;  “More on Bad Check Frauds“; “SC Law Firm Loses $390k in Bogus Check Scam“; “More on Lawyers as Fraud Victims . . . With a Twist“; “Fraud Prevention and Online Banking Scams“; and “Fraud Prevention Rules No. 1 and 2“.  Let’s review just a few of the top myths which can cost you if you still believe in them.

  1. GOOD PEOPLE DON’T DO BAD THINGS.    The simple truth is that good Church-going God-fearing people do bad things under at least two circumstances.  First, when it seems that is just too easy to get away with it, and the constant temptation becomes too strong to resist without perceived consequences.  Second, when exigent circumstances create a desperate need for money.  I witnessed first-hand how a staff employee whose son was dying of Aids, and how a partner with an alcoholic husband, each stepped over a line they would have never crossed absent the circumstances in which they found themselves.
  2. LOYAL LONG-TERM EMPLOYEES ARE NOT THOSE WHO COMMIT FRAUD.  IT’S THE NEW EMPLOYEES WHO DO.  The truth is the exact opposite.  Those long-term employees are the ones who are trusted without question.  They have proved themselves.  And in doing so, they have managed to bypass the normal scrutiny and good business oversight practices one normally employees.  A recent article in ABA Journal Law News Now entitled “Former Office Manager Gets 10 Years for Embezzling More Than $500K from Suburban Chicago Law Firm” illustrates this point perfectly.  I have dozens of articles with similar stories that I have saved over the years.  The former office manager “apologized in court on Friday to attorney [ABC] for violating his trust. She had worked for a decade as his receptionist and office manager.”  By the way, this theft occurred over a four year period.  You might ask yourself how a small firm could lose that much money in a short period of time before it drew their attention.
  3. LARGE LAW FIRMS ARE THE MOST VULNERABLE, BECAUSE THEY ARE SUCH COMPLEX ORGANIZATIONS, AND THERE IS SO MUCH MONEY MOVING ABOUT.   Nope.  Wrong again.  Large firms are indeed complex organizations with lots of money moving about.  However, they have developed a high level of separation of duties, checks and balances, and direct oversight.  In short, it’s a lot harder to steal from such organizations without getting caught.  In small firms there is often one person who handles money both in and out, as well as handles monthly reconciliations.  This is one of the first areas a forensic accountant will advise to separate duties.  Those divided responsibilities and checks and balances are essential.  But in a small firm which is fortunate just to have someone to help carry the load when it comes to bookkeeping and billing, the thought of adding additional personnel is cost-prohibitive. 

Ok, these are just the top three myths.  What was your score?  Did you believe 3 out of 3?  If so, your vulnerability score is high.  Here’s what you have to do:

  1. TRUST NO ONE COMPLETELY OTHER THAN YOURSELF.   
  2. You need to make sure to ask questions.  Even if  you don’t really care why your firm has paid for so much toner in the past 6 months, the fact that you will periodically be a pain in demanding to see “back-up” for who knows what.
  3. You need to keep your eyes open for things like changes in lifestyle, working hours, family or credit problems of employees. 
  4. You need to be unpredictable about what you will look at, so that there is never an expectation on an employee’s part that there is somewhere they can hide their deception without your possibly stumbling across it.
  5. OCCASIONALLY ANSWER YOUR OWN PHONE AND OPEN YOUR OWN MAIL.
  6. Make employees take vacation.  Those who never take a day off aren’t loyal in my book, they’re scary.  Fraudsters have to stay vigilant in order to intercept the letter or phone call that could reveal their wrongdoing.
  7. Don’t use signature stamps.  Never.  It lets the bank off the hook for validating signatures.
  8. Don’t allow a non-attorney the ability to write checks on IOLTA or client Estate bank accounts.
  9. PERIODICALLY RECEIVE ALL BANK STATEMENTS FOR THE MONTH AND OPEN THEM YOURSELF.  Fraudsters cover their deeds by shuffling money from one account to another, or from one client’s credit to another.  It’s a house of cards they keep rebuilding higher and higher.  Look for checks to people that don’t make sense.  Look for endorsements on the back that don’t match the payee on the front.  Don’t check everything, just pull a random number out and look them over.  Pull one deposit and make sure that each check was credited to the proper client.  If your stuff doesn’t come in your statement but is visible online, make sure you visit periodically, and let your employee who handles the money know you are doing so. 
  10. BEWARE DISREGARDING NORMAL PROCEDURES JUST BECAUSE YOU STAND TO GAIN A WINDFALL.  Every single instance of the substantial check fraud losses suffered by attorneys around the nation and in Canada have resulted from ignoring the “it’s too good to be true” voice screaming inside your head.

For those of you in PA, you may want to consider asking your county bar association to bring me in to present my “Fraud Prevention” seminar.  Hearing the amazing real stories of actual cases of fraud in law firms, committed by people at every level, from file clerk to partner, is sheer scary entertainment.  Hearing the simple methodologies which could have prevented it is priceless, and worth an Ethics credit as well.

Checklist to Make Sure Your Firm Isn’t Dewey

Every once in a while I read a blog post or article which is so spot-on I am compelled to share it.  That’s the case with “A (Don’t Be) Dewey Dozen: Use This Checklist to Make Sure Your Firm Isn’t Dewey” which was written by Paul Lippe.  It appeared in ABA Journal Law News Now.  If you’re wondering why Lippe’s name is familiar, he’s the guy that worked hard to get Gary Hart elected President — twice.  The insightful comments at the end of his post  (over 25) add much food for thought on top of this excellent post.  No matter what the size of your firm, this should be on your must read list.  Following I highlight and comment on a couple of points I feel strongly about.

4. Do mergers and acquisitions advance the strategy? Whether it’s merging with another firm or bringing in a lateral partner, law firms are constantly engaged in some form of M&A. When I was running M&A for my old company, our one-question test was” “What do we say to our top 20 customers the morning after the deal is announced explaining how they are better off?”

If you look at some of my past posts and articles regarding mergers, you’ll see me ruminating about this same point.  [See, for example, "Post Merger Economics".]  It’s not simply about size or economies of scale when it comes to mergers; it’s about synergy.  One plus one better equal more than two, or the merger has no external value, and probably even less internal value.  Lippe really nails it with his one-question test.  Simple and eloquent.  He really says a  lot  in few words.  I’m thinking about printing this and adding it to the very few items on the tack-it board above my monitors — reserved for especially cogent thoughts.  I consider it my business haiku bulletin board.  Earning a spot on there means a lot.  I’m sure I will be sharing this one-question test with clients in the future.

6. Does management render unto Caesar? Lawyers use logic and reason to argue indeterminate facts, and they do it well. . . .but at minimum firms need to recognize that there are some inarguable facts. As my old boss Sen. Daniel P. Moynihan said: “Everyone is entitled to his own opinion, but not his own facts.”

The old adage, “figures lie, and liars figure” came immediately to mind when I read this.  I continue to encounter attorneys who somehow manage to dismiss what I find to be self-evident facts which are as plain as, well, the nose on their face.  It’s one thing to play devil’s advocate for love of the debate.  It’s great at the dinner table with cherished guests, during a round of golf, or over drinks at ones favorite establishment.  But it’s not so great when it’s a never-ending process at the firm.  It wears the heck out of your partners and administrative management.  It seriously impairs the firm’s ability to evolve and realign to a constantly changing marketplace.  It creates dissension and dissolves the glue between partners which many firms work so hard to develop. In short, it’s detrimental to the health and vitality of the firm. 

I’m not suggesting that you blindly accept numbers put in front of you.  Far from it.  But there has to be collaborative effort to allow and enable objective analysis, and let the chips fall where they may once that is done.  Stop arguing endlessly just because you don’t like the numbers.  Put that same energy into improving them through some innovative thinking,  difficult discussions and decisions, and an action plan to implement change.

 

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