As snow falls on the WordPress dashboard and the UK (apart from the Wirral)… and email and Twitter traffic slows to a trickle, a blawger’s thoughts turn to the Christmas holidays.
This will be my last post of 2009 unless something really fascinating happens before Christmas eve.
As I am in a festive mood I have decided to dispense with the usual law and social media stuff and turn into a festive “self help guru” with my thoughts on happiness in 2010.
My son’s Baby Sensory Christmas party was last week. As partners were invited and I had the morning off I went along to join in the fun.
The shock of seeing thirty babies in one room playing on brightly coloured inflatable bouncy horses should not be underestimated. However, as I watched the Mums and babies singing and dancing to Jingle bells (and the dads hovering nervously on the perimeter) I noticed how incredibly cheerful and upbeat the instructor was.
My cynical first thought was how awful it must be having to be perpetually happy and enthusiastic. What if you had overdone the Pinot Grigio the evening before? How painful must it be to have to look perky and force a smile.
However, later in the day I started to wonder whether the opposite was true. Maybe if you get up in the morning in that state of mind then your mood follows and you enjoy yourself more?
In fact, there does seem to be research that shows this positive correlation between positive attitude and happiness. (Disclaimer – the link really is an express elevator to Self Help central… if you don’t like that kind of thing you have been warned!).
The reason I find this believable is that a couple of years ago I gave up having bad days. I realise that is a bizarre statement and obviously I do still have days when things go wrong or bad stuff happens (unfortunately it isn’t quite that easy!).
What I mean is that I forced myself to let go of the idea that one bad event (spilling my coffee on my laptop in the morning or whatever) meant that it was going to be a “bad day”.
Once I got into this bad day mindset I started thinking negatively and looking for other bad stuff (and, nine times out of ten managing to find it). Eventually I realised that this was just a pointless waste of mental energy and decided to stop it.
It’s not a measurable effect, but consciously reminding myself that there is no such thing as a “bad day” does seem to have reduced the number of bad days I have had. I’m not sure I will be writing any self-help books on the back of this, but I do feel like it was a worthwhile change to make.
Anyway, for 2010 I am wondering if I should borrow a little of the “positive attitude” trick from the Baby Sensory instructor and try to start the day a little more upbeat. I will draw the line at singing in the office and bouncing up and down on bouncy horses as this might not be considered professional.
If it works I shall report back… at the very least it should confuse my colleagues!
Finally, I would like to say thanks to everyone who has taken the time to read and comment on this blog in 2009.
It was a bit nerve-wracking starting it up, but I have really enjoyed writing it so far and look forward to bigger and better things next year.
Wishing you all a Happy Christmas and a fantastic 2010!
You never count your money when you’re sittin’ at the table.
There’ll be time enough for countin’ when the dealin’s done.
Amongst the rhetoric and public outcry at bankers’ bonuses, one of the common arguments is that bonuses should be linked to long-term performance (rather than short term profits) and subject to some kind of clawback if investments or transactions go bad.
This is effectively the approach being taken by the Federal Reserve in the US to regulation of bonuses. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system.”
The UK is currently taking a different approach with the “populist” bonus supertax (as described by the Times), but the underlying intent is clearly similar judging by Lord Myners’ stated desire to “end a culture of risk-taking and excessive rewards that damaged our banking system”.
My view as previously stated on this blog is that only global regulation is likely to be effective to achieve this aim. However, what seems to be missing from the puzzle at the moment is a title for this regulation which will grab the popular imagination.
I was listening to “The Gambler” by Kenny Rogers on my drive home today when it occurred to me that the lyrics quoted above fit the bill pretty well. The advice given by the mysterious “Gambler” could just as well be aimed at the banking sector. I don’t know if it is possible to simply implement the lyrics of a country singer-songwriter as primary legislation, but it would save a great deal of parliamentary drafting time.
I thought at first that the Kenny Rogers Act had a nice ring to it, but whilst typing this post a more populist (and US friendly?) option occurred to me:- I give you… “Kenny’s Law”
Anyone have Alistair Darling’s direct line?
I read with some surprise the recent article by Dick Jennings in the Law Society Gazette claiming that hourly fee charging drives quality and efficiency.
I read quite a lot around the subject of law firm pricing and I always look out for Jay Shepherd’s excellent Client Revolution blog. In particular I would recommend his post entitled Are Cellphone Companies Smarter than Law Firms?
Jay’s view is that the claims made by lawyers “…that their inability to figure out what a particular case or matter costs makes it impossible to offer fixed prices” totally misses the point. After all, “law firms’ costs are generally fixed: associates’ salaries, other payroll, leases, insurance, and so on.” and so the fact that a matter takes longer does not actually increase the cost to the firm.
I would strongly recommend reading the full post, but Jay’s conclusion is essentially that no business can accurately calculate the cost of doing a piece of work and that law firms are no different. Further, they can’t expect to use this as justification for retaining hourly billing.
I know from my own experience that business clients do not want to be quoted an hourly rate (leaving aside the fact that is likely to fall foul of the Solicitors Regulation Authority rules on costs information).
Instead, unsurprisingly, they want to know how much the work is going to cost before they commit to engaging a lawyer to do it.
That’s not to say that they expect a fixed price for a complicated company sale during our first telephone conversation. They are happy to accept that the quote has to cover a specific scope of work, tightly defined and subject to appropriate assumptions. They accept that if the scope of the work changes or the assumptions are not met that the costs may need to be reconsidered.
They accept this because it is what they expect from every other supplier they use and because it is probably expected from them.
What they won’t accept is an open ended “this is my hourly rate and it will take as long as it takes”. There are many reasons for this, but I touched on one of them in my first Lawyernomics post:- maybe the lawyer doesn’t know the value of the work as Mr Jennings suggests, but the client does know the value they place on it. If the client doesn’t know the price of the work then how can any kind of efficient market for legal services operate?
Some of the other points raised in the Gazette article puzzle me. “Hourly rates allow cost comparison between law firms”. Surely only if the firms involved give a binding indication of the number of hours they will spend – in which case this is effectively a fixed fee and the hourly billing rate a purely internal measure.
“Hourly billing is least likely to disincentivise the law firm from giving best impartial advice.” Not one for the plain English brigade, but once untangled it seems to raise two issues:- firstly, if the only reason we act in our clients’ best interests is because it is financially expedient to do so then we may as well close the doors now. Secondly, if we accept that lawyers are influenced in this way then surely hourly billing is “least likely to disincentivise” using the most complex and lengthy method of doing any piece of work?
It is true that it is pretty much impossible to quantify in advance the cost of carrying out any particular piece of work. Despite this there are firms (such as Jay’s firm Shepherd Law Group) who have successfully moved away from hourly billing and even time recording.
My view is that this is because they have realised the essential truth that whilst lawyers are obsessed with this time / opportunity cost issue, clients don’t care about your overheads or whether you can accurately predict the cost of carrying out work on their matter.
They simply want good quality legal services at a price which is less than the value they place on the service being provided. If you are unwilling (or unable) to tell them what this price will be then how will they make this decision?
Cell phone companies apparently don’t know how much their services cost to provide (see Saul Hansell’s original article on cell phone pricing in the New York Times), but they still manage to put a price on them.
It seems to me that it is impossible for estate agents to calculate the cost of selling your house in advance. They are subject to a similar overhead structure to lawyers, but yet they are still able to charge for their services at a fixed percentage of the sale price. This looks more like value billing, but in reality they may have added huge value or virtually none and still receive the same fee.
For lawyers to admit to their client that they are unable to stand by their estimate of what a job will cost and then pass the risk that the estimate is wrong on to the client (which is what hourly billing effectively does) seems insane.
My prediction is that the influx of new providers into the market over the next few years will increase the prevalence of fixed fees and make it more difficult to sustain a billable hour model… but time will tell whether I am right!
BBC news reported yesterday on the draft legislation being promoted by the Law Commission to remove what they referred to as the “unfair burden” of insurance law.
By this, they mean the duty which currently falls on policyholders to disclose all material facts to insurers (and the risk that if they do not do so then the insurer may be entitled to void the policy).
Reading the actual Law Commission Report it is clear that the Law Commission are concerned to ensure that insurers ask specific questions of policyholders about material issues and that “there should be no duty on a consumer proposer to disclose matters about which no questions were asked”.
The report goes on to note that the Financial Ombudsman Service will not allow an insurer to void a policy in this situation in any event.
However, the BBC report doesn’t refer to this and uses the example of a lady who answered no in a proposal form in response to a question asking “whether she had smoked in the previous 12 months” when, in fact, she had just given up smoking.
It appears that the error was actually made by her broker although it isn’t clear from the report whether she had subsequently checked and signed the proposal form after the broker completed it.
The Financial Ombudsman Service actually found in her favour and ordered her to be paid £46,000, which suggests that it was satisfied that there was a clear mistake rather than any intention to avoid disclosure.
The issue the Law Commission are concerned about bears no relation to the example used by the BBC, which I would imagine must turn on the fact that the broker entered the information in error. It is difficult to see how the insured answering a question about smoking history incorrectly could be seen as a mistake or how voiding a policy in this instance could be “unfair”.
The Law Commission report relates to a different situation entirely:- where an insured answers all questions asked by the insurer, but fails to disclose some other information which is not specifically requested, but is material to the risk insured. This is a totally different issue and it appears from the report that the FOS and most insurers accept that this simply represents existing good practice.
I am always worried to see this kind of reporting on legal issues, but I would really expect a more thorough analysis from the BBC. An article on this type should at least give a general understanding of the issues involved, but this just doesn’t seem to be the case here.
I posted yesterday about the ongoing row about the position being taken by the board of RBS and what action the government might take.
Unsurprisingly, a number of other bloggers covered similar ground (including this excellent, detailed explanation by @loveandgarbage). As the UKFI website seems to have gone down under the weight of traffic I would imagine that there is still a lot of research being done in various quarters.
I have seen a couple of other posts today suggesting that the government (or rather UK Financial Investments Limited which owns the stake in the bank) should exercise its voting rights as a 75% shareholder (a slight oversimplification as its stake is actually larger, but voting rights are limited to 75% to avoid RBS having to de-list) to call an Extraordinary General Meeting and pass a resolution directing the board to block the bonuses.
For example, CRITique commercial law blog argues intelligently that a change in the articles of association could be forced in this way so that a bonus policy was included which “the directors would be bound to follow or risk derivative action by the shareholders”.
I also wonder whether, in theory, the majority shareholder could simply ratify the potential breach of duty by the directors under section 239 of the Companies Act 2006.
The economic arguments against blocking the bonuses still need to be considered. If you believe Anatole Kaletsky in The Times then each bond trader could be “replaced with ten local branch managers earning £100,000″ (full story here). However, this might work better if RBS hadn’t already been ordered to dispose of much of its branch network by the EU.
The more pressing issue is whether UKFI is likely to take any action of this kind at all.
The responses given to Parliamentary questions by Lord Myners about UKFI’s role at the time the government stake was taken seemed to suggest that this was unlikely. Specifically, he stated that “individual employee salaries and bonus payments are the responsibility of the bank in question” and that UKFI “will not intervene in the day-to-day management of its investee companies”. Link to relevant Hansard reports here.
A u-turn is probably not out of the question, but as I suggested in my previous post it is difficult to see how the goverment will be able to force the issue (at least without some major shareholder activism along the lines suggested by CRITique). Even that kind of activism may not sit will with other institutional shareholders who may well have some sympathy with the board’s position.
It seems that a solution may still be some way off.
I don’t often see an issue of Company Law in the top slot of the BBC website or the front page of the papers.
However, the current row over RBS (covered on the BBC site amongst others) is basically a discussion about company law.
Are the directors of the Royal Bank of Scotland justified in saying that they will resign en masse rather than accepting a direction from Alistair Darling to limit the bonuses paid to RBS bankers?
Legally the answer is almost certainly yes (as they have apparently been advised by their own lawyers). Under section 172 of the Companies Act 2006 (link here) their duty is to “promote the success of the company for the benefit of its members as a whole…”.
If they genuinely believe that the failure to pay bonuses would make it impossible to retain key staff in their investment banking arm then it would appear that their duty is to pay the bonuses.
I should clarify that I don’t believe that these bonuses are positive in any way (either morally or economically).
However even if you see this as “snouts in the trough” then, to continue the metaphor, the reality is that if the trough runs dry then the pigs will head elsewhere. The end result will be a lack of juicy smoked hams hanging from the rafters come Christmas time!
I find it hard to believe that the Treasury has willingly taken on the poison chalice of vetoing bonuses in this way.
I can’t see that the directors are able to back down and agree not to pay them, so the chancellor is left with a choice of either approving them (and presumably sparking massive public resentment) or triggering a mass resignation of the board.
Some (such as Vincent Cable) may simply say “let them go”. All very well, but who is going to replace them?
The same dilemma will still remain for the incoming board. Presumably they will get the same legal advice (including that a breach of the section 172 duty may give rise to personal liability for those directors involved).
There may be directors and officers insurance in place, but I can’t see executives queueing up for the role.
The root of the problem may be a lack of thought when the public stake in the bank was taken – leaving the board subect to their usual duties of corporate governance and subject to government direction puts them in an impossible position.
The directors are of course obliged to consider the interests of the taxpayer shareholder, but legally this is by promoting the success of the business to increase the value of their investment. It doesn’t mean taking into account any moral or policy issues with which the public (or the government in the runup to a general election) may be concerned.
It will be interesting to see how Alistair Darling plays this one!
Lord Hunt of Wirral (always good to have a Wirral link!) commented recently in the Times about the risks posed by unregulated providers of legal services.
A number of lawyers have commented on Lord Hunt’s article and I don’t intend to go over old ground.
Instead, I wanted to take a closer look at what these unregulated providers offer in terms of protection. Recent comments have tended to focus on will writers, but actually there are only six “reserved legal activities” provided for by the Legal Services Act 2007 so there a number of areas where they are free to operate without regulation by the Legal Services Board or the Approved Regulators which it oversees.
I am not looking at the actually quality of the documents (maybe in a later post) just the level of protection offered to the client.
The provider I picked may not be representative of the sector as a whole (and I haven’t named them in this post for obvious reasons). However, they promote themselves as a more efficient alternative to “old fashioned” solicitors so it seems reasonable to see how they compare.
Their prices are all quoted on the website on a fixed fee basis (certainly no bad thing from a consumer point of view).
On a headline basis the prices quoted are extremely low. A typical offer was a “standard” shareholders agreement (handy if you have a “standard business” of course) for £50.
The website claims that they offer £2 million pounds of professional indemnity cover (the same as the minimum amount required by the Solicitors Regulation Authority for partnerships and sole practitioners).
On that basis the proposition seems difficult to argue with. If this provider can genuinely offer like-for-like services at this price then they deserve to corner the market.
Before making that decision though it pays to look at what protection they offer in a bit more detail.
The firm in question is not a solicitors’ practice regulated by the SRA (or if they are then they are in breach of Rule 7 of the Solicitors Conduct Rules by not stating this fact on their site).
Who does regulate the organisation then? They don’t refer on the site to any of the other Authorised Regulators so the answer may well be that they are not (and not required to be) regulated by any professional body.
In this case, which professional body do you complain to if there are problems which they can’t or won’t address? Again, the answer may well be nobody.
What qualifications do they have? The website actually doesn’t refer to any (although it is full of references to their expertise). The reality is that it is impossible to know.
Their basic terms and conditions of engagement are set out on the site itself. This is actually a plus in my view and maybe something solicitors could learn from.
Reading on though, their liability to you is limited in their terms and conditions to 105% of the fees you pay. This may not actually be enforceable (especially where their “client” is a consumer rather than a business), but if it is then it means that the total amount you can recover if they are negligent in producing your “standard” shareholders agreement is £52.50!
As I mentioned above, solicitors are required to carry a minimum of £2 million cover (or £3 million if operating under a limited liability structure) per claim. The minimum terms of cover are strictly regulated (which in part is why cover is so expensive). Also they are not permitted to limit their liability below this level.
Whether you can recover anything at all will also depend upon whether the business is still around when you make the claim. The organisation is a limited company which may or may not be around in 12 months time. Five years time?
Do we know what provision have they made for this situation? Maybe they have insisted on bullet-proof terms with their insurers to make sure that run-off cover is in place and have arranged for a fallback fund out of which claims can be met in case of problems in the same way that solicitors are required to?
The reality is that the legal services could be provided by an unqualified, unregulated organisation covered by PI insurance on the cheapest terms available and subject to heavily limited liability if things go wrong and with nobody to turn to if the organisation is no longer around in the future.
I should make it clear that these guys don’t appear to be doing something wrong or illegal. I am not even suggesting that there is some kind of unfair playing field which needs to be levelled.
My real issue is why we as a profession are not doing more to highlight the phenomenal level of consumer protection, regulation, qualification and expertise which clients receive when they use a solicitor.
Your bank doesn’t offer that level of protection (the Financial Services Compensation Scheme only covers deposits up to £50,000), yet the reality is that firms seem to make little effort to promote this.
This is a particular problem because there is a large overhead associated with this level of protection which unregulated providers do not have to pay. Even with the absolute maximum amount of cost reduction, digital technology and efficiency, solicitors (and indeed other providers regulated under the LSA) will have to pass this on to the client.
To do this without capitalising on the reasons for it and the benefit to the client disguises the true “cost” of the £50 shareholders agreement and increases the risk of losing clients because they only focus on that headline price.
The Legal Services Board do seem to have recognised this in their recent consultation paper. Their suggestion is that the licensing authorities should “focus on educating consumers” about the protection offered by using a regulated provider.
Personally though I don’t think this is something that falls within the remit of a regulator. Perhaps it is time that we did more to get the message across ourselves?
