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December 2, 2009 5:29 PM

Welcome to the Future: What Bill Belichick's Taste for Risk Can Teach Law Firms.

Posted by Aric Press

By Paul Lippe

Just before Thanksgiving, we visited the brouhaha over the ACC's Value Index. This week, we'll stay with  brouhahas, and discuss the decision two weeks ago by New England Patriots coach Bill Belichick to go for it on fourth and two from his own 28-yard line in the waning moments of the Patriots's loss to AFC archrival Indianapolis Colts.

Ninety-nine times out of 100, a team punts on fourth down from anywhere on its own side of the field, in pretty much any situation, even when its losing by several touchdowns and punting means abandoning any chance of winning. Why? Because punting usually makes sense, and it’s always the norm.

Belichick's decision to go for it cut against the grain of the conventional wisdom (John Maynard Keynes said, "Most people would rather fail conventionally than succeed unconventionally."). When the Pats didn't get the first down, he was pilloried.

But was Belichick unwise? Let's take out our calculators.

--If the Patriots had made the first down (a 50 percent probability, say), they would have had a 95 percent chance of winning the game by running out the clock.

--If the Patriots had punted, the average net gain would have been 39 yards (with some risk of a block or a long return), and the Colts would have had the opportunity to go 70 yards to score a touchdown. (I'm not just making these numbers up. I discussed them last Thursday with a very quantitative class at the University of Chicago Law School. For the truly obsessed, see Advanced NFL Stats for some helpful analysis.)

Once the Colts had the ball, they were going to do something--their behavior is not static, and not at all influenced by the Patriots' feeling that they had made a safe choice. As it turned out, the something the Colts did was score a touchdown to win the game. How much less likely would the Colts have been to score a touchdown from their own 30-yard line following a punt versus starting from the Patriots' 30-yard line following the failed fourth down?

Anyone watching the game saw what Belichick saw, that the Colts' Peyton Manning was moving the ball at will, and was likely to score from anywhere on the field, so there was no material increase in risk by yielding the ball in Patriots territory, versus a material likelihood of game-clinching success if they got the first down.

What does this have to do with a column about law?

Everything.

The dominant idea in law (which governs the way lawyers think about advising clients, and managing their own careers and legal businesses) is that if we make choices that appear safe or are more conventional, we will reduce risk. But that's just not true, and it’s especially not true when the world is changing, as it is today, or when you have to play in the multiplayer game that most clients do. If the calculation that risk aversion equals risk management were true, you’d expect to see some evidence that clients who spent more on lawyers had fewer losses. In fact, the opposite is often true (let's wait for a subsequent column to debate which is cause and which effect, but for sure there’s no evidence that more spending equals better outcomes).

I have spent my career in-house or in operating roles in the tech world, mostly in Silicon Valley. There's a perception in the traditional corridors of law that Silicon Valley is a "riskier" legal market. I've always seen it differently. The clients in Silicon Valley are focused on wealth creation and acknowledge that there is always risk in the pursuit of opportunity. The traditional practice of law (historically trusts & estates, bonds, and real property) was focused on wealth preservation, and therefore any action could be seen as increasing risk to the status quo. Yet the biggest losses (think Citigroup) have occurred among clients who approached legal risk in the conventional, risk-averse way. Why? Because in a world of uncertainty, focusing on the obvious risk gives a false sense of assurance and obviates the need to truly understand risk.

Over time, the Belichicks who think through risk and make choices that can be second-guessed are better risk managers than the folks who always make conventional choices. And whether he was right or wrong, you can be pretty sure that Belichick (and other coaches watching) thought very carefully about when to punt and when not to after the loss. Conventional choices may minimize the possible harsh glare of criticism, but they also minimize learning.

The same reality is emerging in how lawyers manage their business and careers.  I was on a panel recently with leaders from two large firms. When asked how they would respond to a hypothetical client seeking an alternate fee arrangement that involved some risk sharing, one replied, in essence, "If we completely understand what it is, and there's no risk for us, and we're assured our normal level of profitability, and everyone agrees, then we could consider it." The other leader replied "yes." Which one do you suppose thought through the alternate fee approach harder? Which one is more likely to learn and be in a position to manage risk more effectively?

My wife's dad played college football in the 1930s, when the wingback ran the ball and passed and usually returned kicks. He held the NCAA record for average overall yards gained in a game for nearly half a century, in large part because as a punt returner, he was able to catch punts at full sprint (anathema under today’s fumble-averse norms) which entailed some risk (and required a higher level of skill), but held a higher reward.

Last Sunday, two teams--the 49ers on fourth and two from the 48 and the Ravens from their own territory with three and half minutes to go in their game against the Steelers--went for it on fourth down, defying the conventional logic and risking a Belichickian pillorying.

Both coaches got the first down and won the game. Brouhaha resolved.

Paul Lippe is the founder of Legal OnRamp. He can be reached at paullippe@legalonramp.com.

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You should read Bill Simmons's column on Belichick's call. (http://tinyurl.com/sgbsbb) He suggests (correctly, I think) that the problem with Belichick's was not that it was "unconventional," but that the statistics that have been used to justify the call are themselves wrong. The basic point is that the percentages take into account every play of every game over a certain period of time. We were to study the percentages in similar situations (e.g., late in the game, between two particular teams, or teams of a particular ability), the statistics would have dictated a different decision -- almost certainly a punt.

Thus, he essentially posits that Belichick's bad call is a product of transaction costs (i.e., imperfect information), and not going out on a limb by going against the conventional. There is a time and a place to be unconventional, but it should be based on better information than that used to justify Belichick's call.

That link didn't work, trying again:

http://tinyurl.com/sgbsbb

and here's the long one:

http://sports.espn.go.com/espn/page2/story?page=simmonsnflpicks/091120

Paul -

As I die-hard Patriots fan, I agreed with the Belichick decision. (I didn't like the call, but that's a different topic.)

What seems to be missing from the discussion of non-hourly billing is that it can be more profitable for the law firm. If you have a million dollar idea, why are you selling it at $500 per hour? Hourly billing is cap on profits. There are only so many hours in the day (at least if the hour is honest) so there is only so much revenue you can generate.

Businesspeople tend to regard risk in rational, measurable terms, as a key element in wealth creation. They want to understand it and minimize it. Lawyers are more inclined to see risk as a nebulous threat and to try avoiding or eliminating it -- we're not so great with the data and metrics behind risk analysis. One of the reasons why clients have such difficulty getting lawyers to integrate risk-sharing into their business models is this difference in approach.

Also, Belichek's decision was based not only on data -- 4th-down conversion success rates versus likelihood of opponents' TD from various points in the field -- but also on a supreme confidence in the security of his own position. It's a lot easier to make audacious calls when you're a multiple Super Bowl winner than if you're Wade Phillips struggling to keep his job in Dallas.

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