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It’s easy being arrogant when only you have all the right answers

May 4, 2010

This past Sunday’s NY Times Sunday Business section had an above the fold featured story on how the Bankruptcy Bar and related consulting firms are pillaging their clients.  Cited are $263,000 in photocopy charges in 4 months, and $2100 for one months’ worth of limos for a single partner.  For Lehman, the total to-date Professional Services charges for the lawyers, accountants and restructuring consultants is already at $730 Million and $1 Billion is not out of the question.  Expense invoices even include $2.54 for ‘gum in airport’, which must have cost more to enter into the system than it was worth but shows arrogance towards the client.   Also cited were Partners billing at $1,000 and Associates at $500 per hour, plus expenses.

There are two aspects here.  There is a time for paying top dollar to the very best talent.  $1,000 an hour for a top partner is well worth every penny.  But what is the best talent?  We dealt with a very senior attorney, a first named partner from a prestigious 30 Rockefeller firm, who didn’t catch that in NY the term ‘Exchange’ when applied to a financial website is a restricted word, wiping out the trade name and all investments in brand equity (and therefore valuation);  he did have a PhD in arrogance. Then there’s  the tsunami of Associates, each running up a tab, tripping over each other, playing games on their Blackberry’s, at the clients expense.  But there is even a bigger issue – quality.  During this recession and bankruptcy boom, many law and accounting firms redirected Associates to the Bankruptcy practice, so most if not all the Associates you’re paying to sit in meetings are actually being trained at your expense.  Same applies for partners, where being reassigned is better than being fired (even partners are being let go these days).

Restructuring consultation is another necessity where  paying  for the very best talent is worth every penny, but the typical leverage ratio of 22 Associates per Billing Partner pretty much assures writing huge checks just as these same folk are forcing you to cut all spending to the bone and then to the marrow. Here too, these highly billable engagements are stuffed with too many lower level staffers. We had one clean-up engagement where the consultants, having already spent a fortune of a damaged company’s precious money billed, no kidding, for 2 Big Macs; and without a receipt, violating their own stated policy for the client.

The other aspect is whoever pays the bills or at least authorizes them is on top of the satisfactory results pyramid. Arrogance is an absolute, you have it or not, but the ‘right answers’ subjectively depend on who’s interests the arrogant are protecting.

Where there  the company can survive, and you are paying the outsiders, the right answers should be conceived and executed without arrogance, which does not mean without confidence.  To prevent hidden arrogance manifesting in high billings, cost controls are a necessity.  Form a joint team where each member has a specific role, span of binding decision authority and set of deliverables, along with a maximum timeline.   Interview each consultant to ensure they are the real-deal and not just a leverage ratio fulfilling billing line item.  We play the deduction game.  Take away each ‘administrative support’ and Associate, one by one,  and see how it affects the required results stream. Most likely, the only thing affected will be the partner’s blood pressure.  Keep it real – don’t think you can have the consultants become the face of the company while you play puppet master.  Your customers, creditors and consultants won’t stand for it.  A perfect role for existing Senor Management while the consultants are trying to make sense of the situation is to go to every key customer and assure them the company will continue serving them, i.e. there is no need to move to a competitor.  Reality is, they will put some of their business with a competitor as a risk mitigation strategy, but Senior Management’s job is to keep that to a bare minimum. Let the consultants talk to vendors and landlords since internal credibility has already been eroded long before getting to this point.

Sounding petty but culturally necessary is severely limiting all Food and Living expenses by putting them on a maximum per diem, partners as well.  Included are afterhour’s meetings and group dinners.  As a rule, larger firms use a (salary  X  2.5/1000) multiplier to establish their billing rates and under this model  let them absorb afterhours meetings unless very specific and documented.

The biggest problem with arrogance is sustainability.  We’ve seen arrogance produce new ‘Ok for them but I’d never do it’ flows and organizations so overwhelmingly bad, employees tried unsuccessfully to function in the new model for 45 days and then gave up, with the company dying not long thereafter.  Bottom line – if it’s breakup time, arrogance is perfectly fine.  If it’s fix and execute time, see if they’ll eat their own dogfood in billings and T&E as well as lite staffing.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is http://www.growroe.comand is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations, IT and key initiatives. He can be reached at richard.eichen@growroe.com

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