Improving Law Firm Profitability
<b><i>Without Working Longer Hours or Raising Rates</b></i><p>In today's competitive environment, the profitability challenge to law firms is to increase profits while reducing clients' legal fees. This two-part article provides dozens of specific, workable ideas for enhancing profitability, leaving aside the played-out (and problematic) methods of working longer hours and raising hourly rates. This month's article offers ideas in the following categories, which together offer the greatest opportunities for profitability enhancement.
Unreasonable Compensation in a Professional Corporation
Until 2001, the general view was that IRS determinations of "unreasonable compensation" were not a concern for shareholder employees of professional corporations. That equanimity was shattered - at least for those paying attention - by the 2001 Tax Court decision in <i>Pediatric Surgical Associates P.C. v. Commissioner</i> (T.C. Memorandum 2001-81). In that case, the tax court determined that compensation paid to the shareholder physicians in a Texas surgical practice was unreasonably high because it exceeded the value of the services performed by the firm's shareholder physicians. This seminal tax court opinion turned on the issue of profits generated by the non-shareholder surgeons. Analogous compensation scenarios are common in law firms PCs, so they could face similar IRS determinations, with similarly costly results. Lawyers who are PC shareholders should pay close attention to this case.
Billing for Recycled Work: A Follow-up Exchange of Views
In a recent edition, Professor William G. Ross analyzed the professional ethics restrictions incumbent upon lawyers who want to bill by the hour for previously produced work product. ("The Ethics of Billing by the Hour for 'Recycled' Work," August 2003.) Edward Poll, one of our prominent Board members, responds to the issue.
Partner Capital: Why Firms Need More in 2003
Most law firm partners react skeptically to the suggestion that their capital contributions should go up in 2003. After all, with the cost of borrowing at its lowest level in over 40 years, why should partners invest more capital in the firm, thereby delaying or reducing personal cash flow? Nevertheless, even well managed firms are now likely to need more partner-contributed capital than they did just a few years ago.
The Critical Crossroads Of Corporate America
The general counsel function is the critical crossroads of corporate America. Even the most skeptical of senior managers and board members evince a growing awareness that the role of the general counsel is crucial and strategic, and not merely technical and subordinate. The question, however, is whether this crossroads can bear the increasing volume and weight of the traffic coming its way.
Who Will Run Your Franchised Hotel?
Management agreements provide the vehicle through which investors in hotels, restaurants, and other commercial properties engage professional managers to operate their properties. The practice began in the lodging industry after the end of World War II when hotel construction boomed in response to demand from middle-class American families for clean, moderately priced travel accommodations ' the same demand that spawned the Holiday Inn chain and other lodging industry franchises. Investors with no experience in hotel management fueled the boom in hotel construction with their capital, but professional managers generated the returns on investment the investors craved.
REGULATORY DEVELOPMENTS
On March 13, 2003, Tommy G. Thompson, Secretary of the U.S. Department of Health and Human Services (HHS), announced two proposed rules from the Food and Drug Administration (FDA) that are intended to improve patient safety and are part of a strategic initiative by the FDA to reduce adverse events involving products that it regulates.
Doing Business After Sarbanes-Oxley
In a recent article in this newsletter, we described a hypothetical situation about a publicly traded health care entity that was under attack by government regulators, disgruntled shareholders, and likely a qui tam relator. See, Michael E. Clark, Proffer Agreements May Be a Viable Strategy for Negotiating with Government, (Health Care Fraud & Abuse Newsletter, October 2002). This hypothetical situation continues in this article, as we illustrate some of the heightened compliance risks facing officers, directors, and attorneys who represent publicly traded entities as a result of The Sarbanes-Oxley Act of 2002 ('Sarbanes-Oxley'), Pub. L. 107-204, 116 Stat. 745 (2002), which ushered in major reform measures when signed into law on July 30, 2002 (and also in light of other proposals for strengthening corporate accountability from the major self regulatory organizations and exchanges: the National Association of Securities Dealers (NASD) (see NASDAQ Corporate Governance Proposals, September 13, 2002) and The New York Stock Exchange (NYSE) (see Corporate Governance Rules Proposals Reflecting Recommendations from the NYSE Corporate Accountability and Listings Standards Committee As Approved by the NYSE Board of Directors, August 1, 2002).
Adding to the Franchisor's Arsenal
Franchisors have long packaged a business model along with a collection of intellectual property that includes service marks, trademarks, trade names, logos, trade secrets, and copyrighted materials (<i>eg</i>, operating manuals, product information sheets, and advertising collateral), in order to form a business opportunity that is attractive to potential franchisees. In order to protect franchisees from unfair competition, franchisors have always had federal copyright, trademark, and trade dress infringement actions and state law trade secret and unfair competition actions as part of their legal arsenal against such competitors. This arsenal also includes state law breach-of-contract causes of action against insurgent franchisees failing to 'follow the rules' of the business model (<i>ie</i>, failing to honor the obligations set forth in the franchise agreement crafted by the franchisor). In today's economic and technological climate, one more option should be considered for inclusion in a franchisors' arsenal — business-method patents and the threat of a federal patent infringement suit against unfair competitors and insurgent franchisees.
