Lessons from Small Business to Small Law Firm - - Hiring and Firing

A small business owner lamented The High Cost of Bad Hiring a few weeks ago in an article in the New York Times "You're the Boss" series.   Small law firms are also small businesses.  The solo practitioner or small firm partner is also a "boss."  

 Lawyers tend to be notoriously poor managers.  Don't interpret that last comment as entirely negative.  Lawyers simply prefer to practice law, not interviewing new hires, training office staff or giving performance feedback.  This same tendency might be observable among other professionals and even in some businesses where the principals would prefer to focus on their particular expertise (for example design, cooking or merchandising) rather than manage their business.

 There are exceptions in the legal profession.  Some excellent managers, even CEO's of substantial businesses, are legally trained.  But, let's focus on the more general case.  Most of us can benefit by thinking through the lessons offered by The New York Times'  once-frustrated-but-now-enlightened business owner: 

1. It's worth taking the extra time to thoroughly screen candidates to find the "right" one;

2. Training is essential.  So is supervision.  As our now-enlightened owner put it: "I was not delegating.  I was relegating.

3. Tenacity is important.  It may take a while and multiple tries to find the "right" person for the job.

 

I would add that effective hiring is especially critical for the small law firm.  There is simply no one around to pick up the slack for a bad hire.   By the way, a "bad" hire can mean a bad hiring decision or bad supervision by the manager or partner, not just an underperforming employee.

 My bottom line: if staff is necessary for the delivery of professional services, legal or otherwise, a well-balanced approach with due attention to managerial issues, such as hiring, can only benefit the practice.

 

 

 

 

Our New Connecticut Office Address

As of March 29, 2012, our Connecticut office will have a new address:

Rogers & Tartaro, LLP

158 Danbury Road

Suite 8

Ridgefield, Connecticut 06877

 

Our telephone number, fax number and e-mail addresses remain unchanged.

 

This blog will continue to comment on topics of interest to the small business community. Thus, metaphorically this blog continues to be "On Main Street."

Speaking About Social Media

Last week, I was invited to participate on a panel for a “Social Media Boot Camp.” I was asked to present material from my blog and answer appropriate questions from the audience. The event was jointly sponsored by the Ridgefield Chamber of Commerce and the Ridgefield Library.

 

Joining me on the panel were Maria Miranda of Miranda Creative, a social media-based advertising and branding agency, and Kerry Anne Ducey, the author of Talk of the Town, the popular blog about the town of Ridgefield.

 

I was pleased to learn that the turnout was the largest the Ridgefield Chamber had ever seen at an event like this. There was apparently great local interest in the topic of the escalating field of social media.   

 

Although I was a featured guest on the panel, I learned a great deal that morning. There are scores of social media vehicles emerging every day, and the tools and methods available are overwhelming. As an attorney, however, I recognize that these amazing capabilities raise an array of issues that test our laws and create opportunities for conflict. Privacy issues are of course inherent with anything online, but there are questions about content control and ownership, defamation, litigation impact and employment practices, among others. 

 

I understand that the attendees left with a great deal of knowledge and even more questions than we had time for. The one question most had was, “can you do this again?” My thanks to the Chamber and Library for giving me the opportunity to participate in a very educational and useful event.

Your (Facebook) Friendly Law Enforcement Officer

Although we don’t practice criminal law, recent articles such as the one in ABC News should spark anyone’s interest. The issue is whether law enforcement authorities can or should become online “friends’ to pursue their criminal investigations.

 

ABC News reports that an internal Justice Department document states that U.S. law enforcement agents are using social media to surreptitiously collect information on suspects. According to ABC News, the document, obtained through a Freedom of Information Act lawsuit, reveals that agents are browsing targeted individual’s postings, personal photographs and video clips, as well as identifying their friends and relatives. Additionally,according to the report, agents may disguise themselves with false online profiles and exchange messages with suspects.

 

This, of course, brings up a plethora of issues about privacy and crime-fighting. Where does one draw the proverbial line? How much of the evidence from social networking is admissible in court? The alleged perpetrators in the popular NBC “To Catch a Predator” series claimed entrapment. Fortunately, it seems many suspects are reckless, posting photos of themselves on their Facebook pages enjoying the spoils of their illicit activities. 

 

Recent cases seem to indicate that individual states will be controlling these decisions. California, for example, seems to be more protective of social media privacy than New York.  

 

We’ll keep a close eye on these developments. In the meantime, we advise everyone, whether a Good Guy or Bad Guy, to check privacy settings. And, know who your “friends” are.

Facebook Privacy, Groups & Interface (oh my!)

Last week, Facebook Founder and CEO Mark Zuckerberg made a much-anticipated announcement about the 500 million user website. Before the press conference, there was much speculation and excitement about what Zuckerberg would reveal, but he simply announced the following changes: 

  • tighter control over Groups to more easily share things with a limited subset of "friends"
  • an option to download everything you ever uploaded to Facebook
  • a dashboard in the privacy interface that will more clearly show which Facebook applications have access to your data, and when each application last took advantage of that access.

According to the New York Times, the changes were in response to Facebook’s confusing privacy policy and how it was sharing users’ information on the Web. The Times noted that the press conference was meant to position Zuckerberg as the user’s champion; Facebook was making these changes in response to their comments. After all, according to the Times, he repeatedly said, “it’s not about the money.”

Facebook users who are concerned about privacy will probably find this set of changes to be a step in the right direction. Apparently, they can now have a better look at how applications use their information to personalize their experience.

Also, according to the official Facebook blog, the new Groups setting will allow users to communicate with small groups of friends, and to share things in a “private space.” The default setting is Closed, which means only members see what's going on in a group. This, of course, does not preclude members from adding their own content, or sharing yours with others.

Nick Bilton of the Times observes that some of the privacy issues inherent in Facebook would be reduced if all the settings were “opt-in”; everything should be locked until you open it up, rather than the other way around. 

Since our practice includes litigation, often employment litigation, I offer additional perspectives on these changes (1) even information in “private space” is most likely “discoverable” in litigation - - that means you may have to give it up or answer questions about it if you are party or just a witness in a lawsuit; (2) there is a lot of buzz in the legal blogosphere about what information employers can or can’t use and for what purposes (hiring, termination) and I’m sure some general ground rules will soon develop - - but if the information is “THERE”, can any rules be effective, in a practical sense, to restrict its use?

All in all, the social media sites can be helpful in protecting our privacy, but ultimately we all still have to exercise individual discretion.

The New Health Plan: What Does it Mean for Small Businesses?

Carol and Glenn* own a small business in Ridgefield with six employees. They’ve been watching the news carefully, and like most of America, are curious about the implications of the new health care bill. “In principle, I think it’s admirable to make sure Americans are receiving proper medical care,” Carol said. “But I’m concerned about how some of the aspects of bill are going to affect my business.”

Carol’s not alone. After all, we are a nation of more than 29.6 million small businesses with about 58 million employees (source: USA Today), and the new bill will change the way small-business owners purchase and provide health insurance for themselves and their employees.

In his Connecticut Employment Law Blog, Dan Schwartz reviewed some of the basic facts of the bill. Schwartz explains that employers are not, technically, required to provide health insurance to their workers under the bill. But, if employers with 50 or more employees do not provide health insurance, they will be required to pay a fine of $2000 per worker each year if any worker receives federal subsidies to purchase health insurance.

Many of the provisions will not kick in until 2014. Within the next two years, a plan to provide a vehicle for small businesses to offer tax-free benefits will be created. According to CNN, this would ease the small employer's administrative burden of sponsoring a “cafeteria plan.”

As for employees, their good news is that they won't have to stay in a job they hate for fear of losing health insurance for themselves or their children.

It’s still very early, so we will keep posting as part of our employment law commentaries as more relevant information develops. In the meantime, CNN and The Washington Post offer some helpful information.

*names have been changed to protect privacy

Ridgefield Chamber Event: Economist Seminar

As I’ve said before, I am not an economist but occasionally play one on this blog (though I’m always conscious of my amateur status in the field).

Imagine my pleasure, therefore, of attending the informal “seminar” conducted by a REAL economist, Nicholas Perna, at the Ridgefield Chamber’s “Rise & Shine” breakfast earlier this week. Dr. Perna was able to side-step ideology and talk “real” economics, not only in an understandable fashion, but also with humor.

Our law practice, like any small business, is directly impacted by key economic trends. We also have to manage our practice around those trends. For example, last year, there was a drop in real estate transactions, while there was an increase in employees contacting us to review severance agreements. In Big Law, outright layoffs and the rescinding of job offers to graduates were even better evidence.

So, in addition to being informative and entertaining, the Rise and Shine breakfast was directly on point. My thanks to Dr. Perna and the Chamber.
 

Keeping Current: Law Practice and Business Management

A healthy business requires appropriate and effective attention to the process of staying in business. A law practice is no exception. Keeping up with developments in the law is a “given,” but with respect to our business processes, we share many of the concerns, issues and shortcomings of any business, including the current pressures of the economy.

(For me, interest in business processes comes naturally. I became a lawyer in mid-career; my pre-law credentials include an MBA and project management experience developing business software and “back office” procedures for insurance and financial organizations.)

Last week I attended the Sixth Annual Law Practice Management Symposium of the New York City Bar.

Don’t stop reading. This is not “inside baseball” for lawyers.

So, very briefly, here are my highlights of the symposium:

Cash Flow – Considering the economic environment, what business is not interested in improving cash flow? Merchant banking (credit card processing) services for our business have become really sophisticated and not only improve cash flow, but also automate some of the strict controls over attorney escrow accounts that we otherwise handle manually. For example, clients can now pay by credit card via e-mail and the terminals are “virtual,” that is, online.

Financial Services – A few banks have focused on attorneys as a market niche and have developed expertise on how to handle escrow accounts (such as organizing statements to facilitate reconciliation). Generalizing to other businesses, why not work with a financial institution that actually understands your business?

Marketing – All the buzz in marketing was about social networking sites on the internet. Here, my “take-away” was pick and choose carefully. However, two important points were raised, applicable to any business: (1) a down economy is not the time to save on marketing, and (2) businesses that don’t cut back on marketing tend to increase market share in a down economy.

Information Management – Practice management systems for lawyers have evolved and are now truly impressive. They tend to be sold on the promise of capturing more billable time and increasing revenue for lawyers. That’s not good news if you’re a client. Take heart. My “take-away” is that they are not likely to increase revenue significantly but they are likely to organize information so as to save lawyers from loads of “administrativia” and free up lots of time for real work or for (is it possible?) leisure.

And, incidentally, it’s a myth that lawyers gain by wasting time on clients’ work to boost billable hours - - actually, getting the work out efficiently and effectively leads to a more profitable practice and is a win-win with clients.

Balance of Work and Leisure – This is as much an issue for lawyers as it is for other professions and occupations. My take-away is that if you organize your practice (or business) so that it functions effectively, life balance becomes a more manageable issue.

And, as a parting point, my primary criterion when evaluating business processes is effectiveness rather than efficiency. I think that applies to any business and more specifically to law practice management.


 

Unhelpful Lawyers or Unhelpful Survey?

A recent Law.com post reported on a survey indicating that news reporters who cover litigation say that lawyers are not particularly helpful when it comes to helping reporters understand the core issues in a case.

Before continuing, I have to confess to a pet peeve about over-reliance on surveys of dubious value. Cable news shows, for example, get me going when they cite their “informal” viewer polls, and admit to a lack of “scientific” validity but go on to discuss the conclusions as if they are entirely valid. Grrrr.

Nonetheless, my hunch is there is some validity to the notion that lawyers and reporters may not speak the same language when identifying or talking about “core” issues in a case.

But, here’s my problem: the second paragraph of the Law.com post says outright that the survey may not be “bankable,” which I interpret to mean “reliable.” Then, by training, I have to think like a lawyer. If the only evidence - - the survey - - is not reliable, there is no reliable evidence to support the proposition that lawyers are unhelpful to reporters in identifying core issue in litigation. If there is no reliable evidence supporting that proposition, then why is there an article discussing it?

Here’s another problem. Long ago I learned that in sampling, the problem is not the size (or lack of size) of the sample but the representative nature (or lack thereof) of the sample. Thus, if the only problem is that the sample is small, the survey may be reliable after all. But, we may never know because all we know is that the response rate was low.

I suspect that we’re left with the intuitive notion that some lawyers may not be helpful to reporters. I also suspect that there’s an easy solution; it’s just a matter of finding the right lawyer to ask.

In this blog, we try to be helpful to all our readers, especially if they are not lawyers, in understanding a variety of legal issues within our primary areas of practice. Reporters (or all readers) are invited to comment to let us know how we’re doing.

The Federal Stimulus & The Local Grocer: ECON 101

The students at Barlow Mountain and Scotland Elementary Schools don’t use the water fountains – they drink bottled water.


This is not a personal choice, this is a necessity which stems from the fact that chloride levels in the school’s water supply exceed state health standards. Fortunately, however, Ridgefield is on the short list to receive federal stimulus money to cover more than half of $1.45 million North Street water main project.


Ridgefield’s Weir Farm is also benefiting from the federal stimulus funds. The park just received $457,000 in federal stimulus money to help complete three projects.


These stimulus items remind me of the “multiplier effect,” one of the fundamentals of macro-economics. The concept is that any money spent on stimulus has to circulate, and how often or how quickly it circulates (the “multiplier”) determines how effective it is in stimulating the economy.

 
For example, Ridgefield gets money and pays contractors for the waterworks. In turn, they hire employees or subcontractors. That help goes out and buys groceries. The grocer hires additional help. And so on.  Every time a dollar changes hands in an economic transaction, it adds to our "Gross Domestic Product," the measure of our domestic economy.


Reasonable minds can and do differ about what kinds of spending have better multipliers or whether tax cuts are a better multiplier than outright spending. The bottom line for any small business is that the process of circulation takes time, so we have to accept that the changes to our practice or business will also take time.
 

Ridgefield Chamber Plans New Initiatives

At a recent meeting of the Ridgefield Rotary Club, I had the opportunity to hear Marion Roth, Executive director of the Chamber of Commerce, speak about some of the new initiatives she and the Chamber’s Board have been working on. Her general goal is to develop a sense of cooperation among the agencies and organizations concerned with economic development, including the Chamber, the Town’s Economic Development Commission and private groups like the Chamber itself and Downtown Ridgefield. One of the Chamber’s most interesting initiatives involves leveraging cultural resources to make Ridgefield a destination for the arts, theatre, restaurants and inns.  The "Look.  Listen.  Stay." initiative will be inaugurated in May, and will coincide with several local events.

These are exciting plans. I regret that for now I can only touch the surface because there is much more to learn about these initiatives and the people, along with Marion, making things happen. Our firm is a member and we’ve supported its past activities (partner Bev, a long time resident, being actively involved). I hope to cover the progress of the new initiatives and report on future developments in greater depth.

Friends Going Into Business Together

A group of friends and I are considering going into business together. What kind of partnership agreements/incorporations would be best? What exactly is a “closely held business?”

We are often contacted by friends intending to go into business together. The first thing we tell them is that they are now negotiating among themselves so their interests are in conflict. They may each want to consult their own attorneys until the agreements that they need to form the business are put in place. They can waive the conflicts and consult an attorney together but should do so only if they fully understand the conflicts they are setting aside.

 

The term “closely held business” is generally used to distinguish the business from a publicly traded business. So, it is a business owned by a relatively small number of people. Obviously, there can be wide variations: from one owner to hundreds. And, in specific tax contexts, the definition can be more precise and technical. 

 

Entire books have been written on selection of a form of ownership: sole proprietorship, “S” corporation, “C” corporation, limited liability company (LLC), partnership, limited liability partnership and so on. One of the first considerations should be to effectively limit the liability of the owners. Then, there are many tax and business considerations. The selection has to be based on considerations specific to each business and its principals but here is a general point to remember: after the selection of form of ownership is made, it is important to observe the formalities so that you do not lose any of its benefits.

Avoiding Litigation and Making it Through a Deteriorating Economy

A short post in the New Jersey Employment Law Blog succinctly makes the point that while a deteriorating economy means belt-tightening, layoffs and severance agreements, obtaining advice before taking action is the one way to avoid making a difficult situation even worse.

I’d like to elaborate on that point and comment on a related but different aspect of the economy. There is no doubt that survival is the overriding business objective when the economy deteriorates. The real question though is whether the actions being taken to “survive” might actually accelerate the demise of the business. 

 

The business will not only survive but may actually come out stronger if (1) costly and demoralizing litigation and controversies are avoided while (2) building habits that establish a more professional, effective style of management towards workers and the business in general. 

 

On a different aspect of the deteriorating economy: there has not been sufficient time for all the government-generated liquidity and rescue funds to make any kind of impact. Without being over-optimistic, there is a good chance better times may be coming sooner than widely expected. Our businesses and professional practices need to exercise patience, professionalism and perseverance to position themselves for better times ahead.

Reminder From NY Appellate Court: In Real Estate, Rely Only on the Written Contract

A New York Appellate Court, in a recent decision, reminds us that in a real estate transaction, the parties should rely only on the written contract. The case is Friedman v. Kagan, 2008 Slip Op. 07624 (2d Dep’t).

The plaintiffs commenced the lawsuit because, having purchased a single family residence, they claimed the defendant/sellers dissuaded them from having the basement professionally inspected for mold. The house was contaminated with “toxic” mold. But, the written contract included a disclaimer that the purchasers were not relying on oral representations and the house was being sold “as is.”

 

The trial court granted summary judgment to the defendants and the appellate court affirmed. For our non-lawyer readers, that means decision for the defendants without a trial because there are no facts at issue. The facts not at issue are that the written contract disclaimed any reliance of oral representations.

 

The plaintiffs tried an alternative theory that the mold was fraudulently concealed but that went no where either.

 

We shouldn’t need the reminders but, being human, repetition is helpful: a real estate contract has to be in writing. A disclaimer, similar to that found in this case, tends to be the norm. Thus, the parties should not rely on oral representation, they should “get it in writing.”

 

Image: Slime Mold from Wikipedia Commons

Finding Opportunities in Uncertain Times: Develope a Longer Term Perspective

A recent blog post suggesting that decreasing asset values present opportunities did not get my full appreciation until I put it together with an unrelated experience in an estate litigation case to draw a broader lesson.

The post was in the Utah Business, Real Estate and Estate Planning Blog, by Matt Fankhauser and entitled “A Silver Lining in Decreasing Asset Values.” The point was that decreasing asset values present opportunities for high net worth individuals. With gift and estate taxes not likely to go away, individuals can make gifts at a discount (that is, at depressed values) to take maximum advantage of lifetime gift tax exemptions and annual exclusions. 

 

While seemingly unrelated, the idea brought to mind my experiences with the parties in a will contest that was resolved only after years of litigation.

 

Valuable investment property had been in the family 35 years with the decedent refusing to allow it to be sold in her lifetime. One party in the will contest fought to gain control of that property intending to keep the property from being sold and as a family asset even longer. The estate also happened to include overseas properties that may have been owned by the decedent for 50-60 years.

 

In holding properties 35, 50, 60 years, the decedent (and other family members) exhibited a distinct long-term mindset. Since they intended to hold on to the assets for the long term, this family might very well consider a period of depressed values to be an opportune time to make tax-saving gifts.

 

More generally, a longer-term mindset, even in an uncertain economic environment, may identify opportunities that would otherwise be overlooked. That is as true of personal financial issues, such as estate and gift tax planning as it is of core business issues.

Learning From the Borat Case: Waivers and Merger Clauses in Contracts

The Wall Street Journal Law Blog reports that the federal judge who rendered the Borat decision has been nominated for an appointment to the U.S. Second Circuit Court of Appeals. I doubt there was an actual connection. So, we congratulate the judge and move on to more thought-provoking aspects of the story and case. The post is “In Wake of Borat Ruling, Judge Preska Nominated to 2d Cir High Five.” The decision ishere.

The case was also reported in ABAJournal in a post by Martha Neil (“’Borat’ Filmmakers Win Legal Battle”).

 

I have not seen the movie. But, I’m not going to discuss the movie. I am going to discuss waivers, merger clauses and the importance of understanding and resolving the ambiguities in contracts before they are signed.   

 

In the Borat case, the claims against the producers for fraudulent inducement to participate in the movie were dismissed because the plaintiffs signed a contract that included a waiver of all claims. The court found that the waiver, for participation in a documentary-style film, was not ambiguous.

 

The determination that there was no ambiguity turned on the meaning of the term “documentary-style,” which described the movie. The Court emphasized that the operative word is “style.” Thus, the movie did not need to be an actual documentary. The plaintiffs’ argument that “documentary-style” is ambiguous was unavailing. The term “documentary-style,” according the Court, is a film “displaying the characteristics of a film that provides a factual record or report.”

 

The claim that the plaintiff-participants were fraudulently induced to enter into the film was defeated because each contract included a “merger clause.” The participants waived their reliance on promises or statements, other than any stated in the contract, by anyone involved with the film.

Although our small business clients may never be invited to participate in a “documentary-style” movie, they are invited to sign all kinds of contracts, all of the time. Thus, the Borat story has an element of universality: the parties to a contract will be presumed to have understood the contract terms. 

 

And, the Borat litigation story also reminds us to be acutely aware of the merger clause in a contract. The Borat contract waiver, as is commonly the case, explicitly stated that the plaintiffs relied on no representations other than those stated in the contract. Thus, when ambiguous terms are defined, clarified or explained, it is important that the definitions, clarifications and explanations be in writing so as to become an integral part of the contract.