Momentum

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Momentum is one of those things everyone talks about but nobody can ever precisely define or quantify. It’s that sense that things are turning around or gathering speed in a certain direction, usually for the better — with a corollary borrowed from physics that the larger the object and the greater its velocity, the more powerful the result. Skeptics dismiss it — baseball managers like to say that “momentum is tomorrow’s starting pitcher” — but I think there’s something to it, especially right now in the corporate legal marketplace. You can feel the pendulum swinging, the weight shifting — you can sense a gathering wind in the sails of change.

Exhibit A, which you’ve surely read about by now, is the decision by international mining giant Rio Tinto to send $100 million worth of legal work annually to a team of lawyers in India. This is not back-office administrative work of the type that, say, Clifford Chance has been sending overseas. This is associate-level legal work like document review and contract drafting, and you can call it “commodity” work if you like, but there’s tons of it and it keeps many large firms profitable. It represents $100 million that Rio paid its outside law firms last year but won’t pay this year or, probably, ever again. With an offshoring project of this size and scale, Rio is obliterating the “legal work” distinction that many firms have long believed insulated them from the effects of outsourcing.  And it won’t stop there, as Richard Susskind notes in a commentary for the Times:

People often assume that outsourcing and the options are applicable only to high-volume, low-value legal work. The Rio Tinto deal confirms this is wrong. There is no legal job whose complexity and value elevates it entirely beyond market forces. The reality is that significant parts of even the biggest transactions and disputes are repetitive and routine; and in-house lawyers will be delighted that these can be packaged out to less costly providers.

Rio Tinto’s move is bad news for traditional law firms in two ways. First, the outsourced Indian lawyers are doing this work for one-seventh the cost of traditional outside counsel. Think about that: firms have lately been offering their clients rate discounts of up to 10% and feeling magnanimous about the sacrifice, and here comes CPA Global doing the same work for 85% less. That’s a stunning cost savings, and it doesn’t just change law firms’ playing field, it destroys it: it reduces any proffered “rate discount” to  irrelevance. Rio Tinto has served notice to its outside counsel that the price bar for this type of work  has been reset at a radically lower level, permanently. It should go without saying that traditional law firms can’t compete for that work at that price, not as they’re currently structured.

But maybe more importantly, Rio Tinto’s move feels like a momentum shifter. Its own sheer size as a client, and the mammoth scale of the outsourcing commitment it’s making, should have enough critical mass to really get things moving within a legal marketplace that, despite recent upheavals, has yet to make real, radical alterations to its business. Rio is not the first law department to send legal work offshore, far from it — but it’s a very visible example of what Seth Godin called Guy #3 , the participant whose entry breaks the ice and gives everyone else “permission” or cover to join.

Rio is sending a message to other law departments that legal work can be exported en masse to India without GCs having to automatically fear for their jobs. And it’s sending a message to law firms that the game has changed — a message some firms have received. Just a couple of days after Rio’s move, large UK firm Pinsent Masons announced it’s sending litigation work to lawyers in South Africa, while competitor Simmons & Simmons is preparing to send its own legal work to India, Australia or South Africa. This quote from Simmons managing partner Mark Dawkins is gold: “We’re not going to defend a business model that clients don’t want to have to pay for.” It’s really as simple as that — it always has been — and the reality on the ground is now starting to reflect that.

What’s really interesting, though, is that this momentum isn’t restricted to outsourcing — look around the legal marketplace and you can start to feel real momentum shifts in numerous places.

Consider firms’ treatment of new associates: after peaking  at $160,000, starting associate salaries have been in retreat for a few months now, to no one’s surprise. What was surprising was last month’s decision by Philadelphia-based firm Drinker Biddle to chop those salaries to $105,000 but add training and apprenticeship services for these new lawyers. “In some ways, we intend for your experience in your first six months to be a bit of a throwback to how lawyers ‘grew up’ in their firms literally only a few decades ago, before the rise of the billable hour,” the firm wrote to its incoming associates. Within a month, Cincinnati firm Frost Brown Todd followed suit. (Defenders of the articling year at Canadian law firms are probably feeling pretty good right now.)

And then, just a few days ago, large international firm Howrey LLP played the Rio role and announced it was cutting associates’ pay but increasing their training. Howrey has a track record of paying attention to how its lawyers learn (and, interestingly enough, in outsourcing to India too) — its Howrey Virtual University has been providing coordinated firm-wide web-based lawyer training since 2005. Howrey managing partner Robert Ruyak’s words are also noteworthy: The old model is broken. You’re bringing on these extremely bright individuals and letting them waste their careers buried in documents where they aren’t really learning the practical skills it takes to be a lawyer. The comment board at Above The Law, which invariably trashes any law firm decision that doesn’t involve more pay and less work, reacted positively to Howrey’s move overall — nearly 70% of poll respondents said they’d take the deal if it was offered to them. My guess is that right now, many large law firms are watching Howrey closely and treating it as their advance scout — like Rio, Howrey is a substantial player whose participation can and should tip the balance toward change.

There are other examples. Look at the recent frenzy of reports of law firms pricing their work at “fixed fees” — we’ve heard about flat-fee or fixed-fee initiatives underway at traditional firms like Alston & Bird, Lightfoot Franklin & White, Kirkland & Ellis, Simmons & Simmons (there they are again) and Morrison & Foerster, to name a few. Law firms generally still don’t understand fixed fees — here are some excellent critiques of their mindset and methodology from Tim Corcoran, Patrick J. Lamb and Jay Shepherd — and “alternative fees” are by and large still that, alternative.

But now along comes respected midsize firm Saul Ewing, creating a “cost certainty commitment” that standardizes fixed-fee arrangements with clients. Again, what’s unique here isn’t so much the offering as the prominent, high-profile way in which it’s being rolled out — the key to building momentum is to be seen to build momentum. From the Legal Intelligencer article: “Altman Weil’s Pamela Woldow said Saul Ewing’s cost certainty commitment is certainly unique. She said she isn’t aware of any other firm that has created such a program and made such a public, formal commitment by putting it on its website.” All of these moves — Rio Tinto’s, Howrey’s, Saul Ewing’s — are significant largely because of the signal they’re sending, quite intentionally, to the other members of the marketplace that things have changed.

Going first, and doing so conspicuously, is incredibly important to change in the law. It’s conventional wisdom to blame lawyers’ reluctance to innovate on the fact that they hate being first movers, that they much prefer to stand back and let someone else make the initial move. And that’s true as far as it goes, maybe even more so  for in-house lawyers than for private practitioners.  But the corollary to that is that lawyers also don’t like being the last ones to join the club. Ron Friedmann explains this very well by using “a discontinuous step-shaped function” to describe lawyers’ willingness to change:

Consider adoption in the legal market of e-mail, document management, marketing, lateral moves, or mergers. For each, there seemed to be only a few firms doing it and then, quite suddenly, many or all were. The “step function” reflects lawyer decision making: the first few adopters change slowly, gingerly, and quietly. Everyone wants to follow so once you have a dozen adopters, “the coast is clear” and the rest rush in.

“Gradually and then suddenly,” as Hemingway once put it — lawyers hate being  the first to change, but equally they don’t want to be the last ones left out in the cold. Law firms constantly monitor each other and the legal marketplace to see what’s going on, who’s doing what, and whether there’s anything big happening they should be part of. They’re watching for the “prominent first movers” Rees Morrison talked about in the Rio Tinto context. Once they feel that enough people have jumped into the water and declared it safe — once the reputational and financial risks of change have been taken and minimized by others — then they’re ready to leap, and if they sense a rush of movement among their competitors, they’ll even push each other out of the way to be the next ones in line.

I think that’s where we are today. In all sorts of ways, in many different aspects of the legal profession, first movers are forging ahead and dictating a new energy and direction, while the great silent vastness behind them watches closely and prepares to shift and follow. Momentum — mass times velocity — is an incredibly powerful force; we’re about to see it channeled through the legal services marketplace.

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4 Responses to “Momentum”

  1. Vickie Pynchon

    “This is associate-level legal work like document review” . . . . This is paralegal work, of course (and I hated it when I was a paralegal in Manhattan in the mid-70s). Off-shoring it will benefit thousands of young attorneys who can begin to learn their TRADE instead of earning inflated salaries for mind-numbing work that will turn them away from the joys and challenges of the practice of law. Yes?

  2. Jackie Huttter

    Great post, Jordan, and I hope you are right that momentum is being seen. I would add that while I agree that associate salaries got out of hand in the last 10 or so years, I believe that change cannot happen until law firm partners accept that they are not necessarily entitled to salaries and amenities that are wholely divorced from the actual value that they bring to their clients. Note that this does not mean that they will have to take pay cuts to stay in business. Rather, I believe that a critical mass of influential law firm partners must begin to communicate to their clients in economic terms about the value their work brings to their business. This will allow clients to not just shop on price, but also to consider the value a lawyer or law firm provides. Yes, this is “selling the unknown” but consultants do this all the time.

  3. Martha

    Love this post, Jordan. Although, as a contract researcher and writer, I have a bit of a conflict with the offshoring practice, I am truly excited to see how innovative our bright legal minds will become when their feet are put to the fire. Molding the old model to conform to modern economics is long overdue in our profession. While change can be painful, positive change in this regard ultimately will benefit everyone, lawyers and clients alike. Jackie’s point is well taken: legal practitioners at all levels need to consider their highest value and how they can best provide and represent that value in word and deed – true change will come when this ideal is adopted wholesale.

  4. Tim

    The real change agent is NOT the law firm, but the clients. Rio Tinto has done what most legal departments would shy away from because lawyers, whether in house or at a law firm, do not want to be on the cutting edge of changes in the models with which we are familiar. But change is the only constant in life.

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