Hands across the water

by with 0 Comments

Posted in: Big Firms, Innovation

I don’t normally focus on very large law firms and mergers thereof, but I’ll make an exception for this one. As you might have heard, US-based Hogan & Hartson and UK-based Lovells have apparently reached an agreement to merge their respective firms by May 2010. The combined entity (Hogan Lovells, provisionally) would crack the top ten worldwide in terms of both number of lawyers (circa 2,500) and annual billings (north of $1.9 billion), would have a massive global reach (as many as 40 offices, including substantial presence in China, Hong Kong and Germany), and would represent a rare joining of roughly equal-sized firms that appear compatible in both practice and culture.

I won’t try to improve upon the analyses already provided by Bruce MacEwen, Alex Novarese and Aric Press, among others. But I will provide one quote from each to indicate that this is not your garden-variety merger announcement:

– Bruce: “This is potentially a transaction that will change a conspicuous portion of the BigLaw landscape globally.”

– Alex: This is “the first concrete evidence to back up the claims made for months by managing partners on both sides of the pond that the general mood is warming to transatlantic mergers.”

– Aric: This is “a sign that while the Magic Circle and most financially elite New York firms continue to insist on their independent futures, firms just one step behind can see a future where a combination is greater than the sum of their parts.”

And in its daily e-newsletter, The Lawyer put it this way: “[T]he consensus so far in the market is that this deal could genuinely see the creation of something not seen before. ‘At a stroke you’ll have a firm the size of [Allen & Overy], better quality than DLA Piper, broader in scope than Herbert Smith and far more international than anything in the current UK mid-market,’ is how one London consultant sums up the deal.” The arrival of anything truly new in the legal services marketplace is always noteworthy, but a Hogan/Lovells merger could have significance beyond whether the firm manages to become more than the sum of its parts (which at this point seems fairly likely).

For one thing, this firm could be really transatlantic, in ways previous cross-ocean expansions (cf. Clifford Chance and Rogers & Wells) were not: a mega-firm, created by a merger of equals, with a center of gravity somewhere between the two capitals rather than vying between them (Hogan & Hartson, with a strong government practice, is headquartered in Washington, D.C., such that traditional London-New York rivalries might not kick in.) Back in February, I forecast a true US-UK powerhouse emerging from the recession, although I thought the American entry would hail from the Big Apple, and I didn’t think it would happen quite so soon. If the experts are right, other cross-ocean mergers might follow and a real wave of consolidation could be at hand.

Secondly, it’s instructive to note the innovations that each side is bringing to the table. The Lawyer reported earlier this month that Lovells is preparing to abandon its lockstep partner compensation system in favour of Hogan’s pure merit-based approach. Merit-based compensation has tremendous momentum in large firms right now, and although no one’s denying the challenges of partner compensation facing a potential Hogan Lovells, this suggests that more complex systems for assessing lawyers’ productivity are at hand. At the same time, Lovells was one of the first law firms to publicly acknowledge it was outsourcing legal document review to India, back in December 2007. UK firms are substantially ahead of their US counterparts in offshoring, so the Hogan side of the deal is going to acquire direct experience with this phenomenon. So in at least two ways, this is going to be very much a 21st-century law firm.

But here’s the main reason why I think this deal could be a game-changer: about a year after the expected May 2010 date for the Hogan Lovells merger to be completed, key provisions of the Legal Services Act come into force, and UK law firms will be allowed to accept non-lawyer investment and ownership under Alternative Business Structures (ABS). What if a future Hogan Lovells decided to take advantage of those provisions? It doesn’t figure to be the kind of Magic Circle or white-shoe firm that most agree would disdain the entrepreneurial offerings of the LSA — in fact, it looks exactly like the sort of firm (fresh, ambitious, global, innovative and unencumbered) for which the non-lawyer equity investment provisions were designed. If this new firm — or any other powerhouse resulting from a US-UK merger in the near future — went down that road, extremely interesting things would start to happen.

Hogan Lovells would be both English and American — and not one of the 50 states allows non-lawyer ownership of even a fraction of a law firm. So if this new firm did in fact accept venture capital or investment-fund equity, or float shares on a stock exchange, it likely would be in immediate contravention of the ethics rules in all the states where it carries on business. Hogan & Hartson, by way of example, currently has offices in Maryland, Colorado, Texas, California, Florida, New York, Virginia and Pennsylvania, as well as the District of Columbia. The ensuing tangle, it seems to me, would rapidly bring to a head the burgeoning conflict between how UK firms and US firms are structured and governed. In a globalized legal profession, this conflict is inevitable — but this new firm, if it comes into existence and if it acquires an ABS under the Legal Services Act, could actualize that conflict much sooner than we  expect.

So keep a closer eye on this merger than you normally might. It could be just another instance of two large firms becoming an even larger firm, still struggling to make its way in a challenging marketplace. Or it might turn out to be the catalyst for unprecedented change in the profession worldwide.

The rise of the responsible client

by with 10 Comments

Posted in: Clients

At its recent annual meeting in Boston, the Association of Corporate Counsel dropped a minor bombshell by announcing it had created a law firm rating system. In-house lawyers can now rate their outside law firms on six criteria: understanding of objectives/expectations, legal expertise, efficiency/process management, responsiveness/communication, predictable cost/budgeting skills, and results delivered/execution. Even if these weren’t excellent criteria, which they are, it’s refreshing to see firms ranked on terms that signify value to clients, rather than by how much money they make or how well they score on the latest “Best Employer” survey.

But there are a couple of twists to this system. Larry Bodine points out the first: the ratings are only accessible by ACC members, not by the law firms themselves. That strikes me as counter-productive: a law firm can hardly be expected to improve upon ratings it never sees, so this doesn’t seem like a useful tool to motivate change. But I’m actually more interested in a second aspect of the ratings: they can be made anonymously.  It’s up to the reviewing in-house lawyer whether to divulge his or her identity when delivering the law firm critique. To me, this is more problematic, and it illustrates a flaw in the growing client-rating movement.

We supposedly live in an age of internet-enabled consumer empowerment. Instead of relying solely on what a company tells us about its product or service, we can seek out the collective wisdom of other users. And if the matter at hand is a low-value proposition like whether a pizza place or iPhone App is worth trying, then great: you can afford to look just at the average number of stars out of five bestowed by unidentifiable computer users. But if the purchase has anything more than fleeting value, then you want some weight attached to the review in question — you need to know something about the reviewer. A lawyer review submitted anonymously, whether positive or negative, doesn’t have nearly enough weight to be meaningful. I raised the same objection to anonymous client reviews when Avvo debuted a while back.

Proponents of anonymous reviews could point to wildly successful peer-review systems like Amazon, where users don’t have to use their real names when reviewing products. But even if you post as your cat on Amazon, the system still links to all your other reviews, from which a reader can build a sense of your history, knowledge and biases and decide whether your assessment is worth any attention. Reviews by themselves are just opinions — they only become useful when you know something about the reviewer, when you can critique the critic. That’s the real benefit bestowed by widespread online access: not the power to evaluate, but the power to evaluate those doing the evaluating, to go behind the judgment to the judges. If you can’t do that —  if you don’t know who’s saying great or terrible things about a given lawyer — then you can’t derive much value from what’s being said. People tend to be a lot more circumspect when their opinions are accompanied by their identity.

But the question of anonymous lawyer ratings points up an even larger issue — the fact that clients’ growing power needs to be matched by an equivalent acceptance of responsibility. Clients stand at the threshold of unprecedented choice and power in legal representation — they can hire a lawyer from anywhere they want, order a legal task to be completed by any of a growing number of innovative methods,  demand to be billed in certain ways and up to certain financial limits, and so forth. And it’s all great fun and very empowering for the client, until the ramifications sink in: now they have to work a lot harder to choose their legal services providers and manage their legal affairs more closely.

Clients need to develop sophisticated and defensible systems for selecting and commissioning legal services providers — they can’t just outsource the whole thing to an outside law firm and dust their hands of the details. They need to demonstrate why a particular law firm was chosen over others, or why a law firm is doing a given task at all. They need to understand how legal tasks are unbundled, assigned and workflowed at least as well as their law firms do, and they need to come up with systems to monitor the progress of these tasks and how well they’re proceeding against various time, budget and effectiveness milestones — the process revolution in legal services is underway, but as Rees Morrison points out, many in-house counsel are no better trained at project management than their outside counsel are. Clients will discover that the price of having more choice is the requirement that the choice be exercised justifiably and managed systematically, and that neither will be a picnic.

It’s not so easy to rate a lawyer when your name is attached to the rating, and it’s not so easy to complain about intransigent outside counsel when the question of your own transigence is brought into play. So while it’s true that it’s becoming a lot harder to be a lawyer, I’d also argue that it’s about to become a lot harder to be a client.

The solution or the problem?

by with 2 Comments

Posted in: Clients, Innovation

Last week brought news of three innovations that, each in their own way, aim to increase access to justice. It’s noteworthy that none of them came from lawyers.

First is a report that for the first time in Canada, a third-party litigation funding company, BridgePoint Financial Services Inc.,  persuaded an Alberta trial judge to allow it to provide funding to the representative plaintiff in a class action,  Hobsbawn v. ATCO Gas and Pipelines Ltd. The judge’s reasons aren’t known because the ex parte order was sealed, and Alberta’s class actions costs regime is a little different than other Canadian provinces’, but this is still a potentially pivotal ruling. It could remove the chilling effect of brutal costs penalties for would-be plaintiffs, which nominally should increase access to justice. It also gives rise to substantial ethical concerns, and I’m on record as having serious misgivings about treating a civil action as an investment. But there’s no denying it’s innovative, and that it should make it easier for people to get to court.

Also making inroads in Canada is legal expense insurance, as the local arm of worldwide provider DAS inches closer to approval of its offering by the national superintendent of financial institutions. Already popular in Quebec, legal expense insurance could become widespread throughout the rest of the country if DAS is given the go-ahead. For an annual premium of $500, policyholders receive indemnification of up to $100,000 in legal costs for matters like wrongful dismissal disputes, tax problems and personal injury claims — but not, significantly, family law matters, the most common source of access problems. Legal expense insurance also raises the question of who makes the decisions about how a legal matter is conducted: the policyholder or the insurer? But again, it’s hard to argue that this offering leaves potential litigants worse off than they are under the current system.

And finally, shifting gears and hemispheres, comes word from Australia of what is so far a successful family law initiative called Family Relationship Centres. This excerpt from the story summarizes the project better than I could:

Everyone who walks through the door, or calls the toll-free line, is entitled to three free hours of help every two years, whether it be on-site counselling and mediation or off-site specialized services. After that, costs are based on ability to pay. Walk in the door of a Family Relationship Centre and you are greeted by a “parenting counsellor” rather than a wall of pamphlets. Their job is to get a sense of your personal situation and how it’s playing out for your family, and to assess what help you need to start moving ahead.

The centres are meant to act as triage units for ex-partners who may be hobbled by mental health issues and addictions, or children acting out because of prolonged family conflict. “They will not close that file until they are certain that person has got the help they need,” says Parkinson. Mediation is a mandatory first step, a move aimed at making the costly and adversarial court system a “mechanism of last resort.” The last of the centres opened last year, and already Australia has seen an 18 per cent drop in court filings.

These Centres are part of a massive and very expensive state overhaul of the family law system in Australia, and so far they seem to be working very well. But like the other two advances noted previously, this project apparently developed with little if any leadership from the legal profession.

We seem to be ceding the innovation ground in law to private companies, which by definition are primarily interested in turning a profit, and to government, which has a different set of priorities than either lawyers or their clients. Last month, the very first InnovAction Honourable Mention handed out by the College of Law Practice Management went to the Practical Law Company; last year, an InnovAction Award went to Novus Law LLC — both private companies. I doubt they’ll be the last winners from outside the practicing bar.

So why aren’t lawyers, law firms, or lawyer regulating bodies leading the way in developing innovative legal service delivery solutions? Part of the reason lies in the profession’s singular resistance to initiatives that involve risk or an entrepreneurial spirit. But part of the reason, it seems to me, is also the fact that the solutions these entities are providing are to problems the legal profession helped create.

In most cases where plaintiffs shy away from using the legal system, it’s because the cost of the trial is both disproportionate to the potential award and completely out of reach of the great majority of individuals. And the cost of a trial is largely within the control of lawyers, because lawyers’ fees are by far the single biggest component of litigation costs. Who else bears responsibility for how much we charge? Yes, there are other factors inflating trial costs — better funded courts could reduce backlogs and delays, and discovery can be difficult to predict and control. But if there’s a case to be made that someone or something other than the price of lawyers’ services bears the majority of responsibility for litigation costs, I’d like to hear it.

Most innovations in the law these days are devoted to making the legal services delivery process more streamlined, more efficient, and more affordable to more people. A good number of these solutions come from individual lawyers and law firms, which is extremely encouraging. But as a profession, we should be concerned about the extent to which other solutions are emerging from outside our walls — and the extent to which they’re aimed at solving legal cost problems for which I think lawyers bear primary responsibility.