The endangered partner

Last time out, I wrote at some length about the coming obsolescence of law firm associates. So it now seems only fair to turn the spotlight onto the other category of lawyers within law firms: partners. (Equity partners, that is — I’m not bothering with the transparently profiteering holding pen of the “non-equity partner,” a term that still makes about as much sense as “non-lawyer attorney.”)

A good place to start this inquiry is with a simple question: why do law firms even have “partners,” anyway? What’s the value proposition that the role of partner offers, both to the firms that create this position and to the lawyers who fill it? All law firms believe they ought to have partners, and many lawyers believe they ought to become partners. Why is that?

Partnership was a lot more fun and engaging back in the '80s.

Partnership was a lot more fun and engaging in the ’80s.

Well, there’s only one reason why law firms have ever sought out partners, and I’ll get to that reason later on in this post. But equally, there’s really only one reason why lawyers have ever wanted equity partnership in law firms. Lawyers seek law firm partnership, if you’ll allow me to be blunt about it, because they want power. And partnership has long promised lawyers power, in several dimensions:

  • The power of control over your own work, to be the assignor rather than the assignee of files — which usually means pushing down the dull stuff and keeping the best and most lucrative, high-client-contact work for yourself.
  • The power of influence over the firm’s direction and strategy — theoretically so that you could guide the firm’s development, but certainly to create an environment more conductive to your own satisfaction and career advancement.
  • The power of prestige — being able to hand out that little white business card with the raised-type gold-leaf “Partner” to your family, your friends, and especially that one law school classmate who was always such a tool. And of course,
  • The power of money — because let’s face it, the profitability of many law firms throughout the last few decades has reached levels so astonishing that an entire generation of associates has expended extraordinary effort just for the chance to access it.

Lawyers love control, influence, status, and money. Partnership has always offered the keys to each of those kingdoms, and it has always delivered on that offer — or at least, it used to. The actual nature of law firm partnership today, however, has become something else entirely.

One of the legal profession’s most cherished myths is the autonomy of the law firm partner: you’re an owner now! You’re an independent shareholder who can dictate the terms of your relationship with the firm! But the reality that greets most lawyers upon accession to partnership is a little different. You still have all the billable-hour requirements of associateship, but now you’re also responsible for bringing in new business, getting more hours out of your subordinates, and taking on myriad unpaid management roles. And unless you’re part of the firm’s tight inner circles of leadership, you have little practical input into strategy or direction: you’re informed of the firm’s changes, not consulted on them. You might as well still be an associate, a mere employee.

What’s worse, however, is that increasingly, partnership in a law firm actually reduces your autonomy, binding you tighter to your firm and narrowing your options. The capital contribution you made to secure your admission to partnership immediately disappeared into the firm’s operating account, and the odds are good that you’ll never see it again. The same applies to lateral partner arrivals who fall for what Edwin Reeser calls one of the “honey traps” that capture and financially strap the partner to the firm. At firms with large spreads in partner compensation levels (that is to say, virtually all of them), junior partners are effectively being leveraged like associates. And if you try to leave the partnership, your signing bonuses could be clawed back and any return of your capital could be strung out over several years to discourage your departure. For many law firm partners, the brass ring has transformed into a pair of handcuffs.

I don’t think this is all down to avarice on the part of senior law firm lawyers (although avarice seems to occupy the co-pilot’s seat in quite a number of firms). What this really suggests to me is that the partnership model for law firms — or at least, for any firm whose equity shareholders can’t fit around a standard boardroom table — has run its course. “Have we reached the end of the partnership model?” asked the ABA Journal last year, and as the article illustrates in vivid detail, I think the answer is yes. The operational, cultural, and ethical contortions through which many law firms have put themselves in order to maintain the benefits of the partnership system tells me that that system simply doesn’t work well anymore.

This is becoming clearer to potential law firm partners every day, and there’s plenty of anecdotal evidence that fewer associates are interested in becoming partners at law firms than in the past. That may be just as well for them. As partner cohorts get older and thinner, and as the eventual day of reckoning draws closer, the payload of risk that partner status represents grows ever larger. Many law firms today seem to be run as if they expect to wind down operations and cash out their equity shareholders in about five years’ time, leaving leadership voidsunfunded retirement plans, and unmet mentorship needs behind them. If your name is on an equity partnership agreement at one of these firms, you do not want to be the last one left to turn out the lights.

Bonus points if you even remember who these guys were.

Bonus points if you even remember who these guys were.

Partner status, in short, is becoming more of a burden than a blessing for a lot of lawyers. Many firms will accordingly find that when older partners do eventually retire, their positions won’t always be replaced and the partnership ranks won’t be fully replenished. That is a serious problem for law firms, for one reason — and that reason is the answer to the other question I raised at the start, where I asked why law firms even seek out partners. Law firms seek out partners because they need capital.

The defining characteristic of equity partnership in a law firm is “equity.” Regulations in every common-law jurisdiction (except Australia, England & Wales, and the District of Columbia) are adamant that equity in law firms may be held only by lawyers. If your firm needs capital, it needs lawyers to pony it up. I sometimes suspect that at least a few law firms have made and continue to make partners of some lawyers not because of the lawyers’ intrinsic merit, but because the firms need the money. Law firms need lawyers to invest their own money simply so that the firm can carry on business.

So what happens when you start running short on equity partners? You start running short on equity, and that’s a problem. Law firms can incur debt from banks to help maintain operations, sure, but no bank will lend to a firm without sufficient capital of its own. Borrow from future accounts receivable? That’s a very dangerous game. Dip into the trust fund? Enjoy your disbarment hearing. Nothing can really replace cold, hard capital, and firms are slowly losing access to their sole source of it.

And by an ironic confluence of events, law firms are going to start hurting for capital right around the time when they’ll need capital more than ever — when their market positions are under threat from staggeringly well-financed competitors.

The growing army of alternative platforms and rival providers, emerging and competing with law firms in the legal market over the next several years, will bring with them financial resources an order of magnitude beyond what lawyer-only equity can provide. The gross revenue of the entire AmLaw 100 in 2015 was $83.1 billion. The Big 4 accounting firms’ revenue alone in 2015 was $123 billion. Throw in legal technology providers financed by colossal Silicon Valley venture funds, and the still-distant but inevitable entry into law of corporate giants like Google and Amazon. Law firms, as currently structured and financed, are going to be massively outgunned in the coming market, just as their sole source of capital with which to fund competitive efforts starts dwindling.

And that, among other effects, is what’s going to finally change the legal profession’s rules around non-lawyer ownership of law firms. Today, lawyers and bar groups are doing everything they can to oppose the legalization of non-lawyer law firm ownership. Within ten years’ time, they’ll be the ones leading the effort to authorize it, simply in order to level the playing field and keep lawyers and law firms alive in a marketplace full of richly financed providers. The days when lawyer capital constitutes the sole permissible type of law firm equity are drawing to a close.

In the not-distant future, therefore, law firms will have alternative sources for capital other than lawyers. And by that time, an entire generation of lawyers will have been raised to view the position of equity partner with a certain skepticism and even suspicion. In that kind of environment, the role of “law firm partner” inevitably is going to be very different than it is today.

No longer the firm’s sole provider of equity, no longer the automatic ambition of young practitioners, no longer the promised land of power and profits — what will partnership represent? Will firms even maintain the category of “partner” anymore, or will they find some other title — “director,” “principal,” “stakeholder,” whatever — to identify the firm’s most important members, regardless of their seniority or their connections or whether they own a law degree? Will law firms finally get around to doing what they should have done years ago and separate the roles of owner, worker, and director into separate positions, rather than forcing lawyers to wear all three hats at once? Will they finally accord their “non-lawyer” professionals the respect, power, and equity status they deserve for their contributions to the firm? These are just some of the possible routes forward, and at least a few of them will come to pass.

“Partner” and “associate” were perfectly adequate categories to describe the two classes of lawyers in 20th-century law firms, back when these were the only classes of people that mattered. Neither of these categories fits easily or functions well in 21st-century law firms and the new market in which those firms will compete. More categories of key personnel — in management, marketing, professional development, technology, knowledge, pricing, process, procurement, customer service and more — will be needed. Neither these personnel, nor the firm’s financiers, will require a law degree.

That’s going to be a whole new ballgame. And it’s the structural and organizational reality for which today’s law firms, if they would like to also be tomorrow’s law firms, need to start preparing now.

The obsolete associate

As red herrings go, you will not find a fish more scarlet than Cravath, Swaine & Moore’s recent announcement that it would raise its starting salary for first-year associates to $180,000 per year. Now granted, it was great fun watching many other AmLaw 100 firms trip over each other in their haste to match the raise. Had these firms all issued press releases titled, “Cravath Is The Firm That Matters: We Play Follow-The-Leader Because We Possess Neither Gumption Nor Initiative,” they could scarcely have communicated their own positions and vindicated Cravath’s move so well.

But while the predictable grumbles were reported shortly afterwards from corporate law departments, I have a hard time imagining that it’s this particular straw that will shatter the camel’s vertebrae. Clients have enough serious complaints about outside counsel that this probably would register mostly as a stinging but still fairly trivial annoyance.

Cravath’s $180K announcement looks to me primarily like a marketing play — a reminder to clients and competitors alike of the firm’s alpha-dog status: “We decide how much we pay our people, and if you don’t like it, do something about it.” Until such time as other firms decide to stop playing Cravath’s game, or its clients decide they’ve had enough of rate increases for lower-value work, nothing much will change.

But it’s important to note that whatever Cravath’s $180,000 announcement was meant to achieve, it wasn’t about “attracting the best talent,” regardless of what the firm might claim. For one thing, if a firm really wanted to own the market for new lawyers, it would raise starting salaries to $300,000 or more. That’s how you clear the field of competitors: either they match you dollar for dollar at significant expense, or more likely, they drop out of the race and concede victory.

But $180,000? Pfft. In the context of how much these firms make, a $20,000 annual increase is chump change, a painless way to generate some publicity, assert market leadership, and maybe get a few more students clamouring for OCIs. Do we really suppose there were top-ranked law students who weren’t angling to land a spot at Cravath before now — who were just waiting around for that $20K pot-sweetener?

"A 12.5% salary increase? Where do I sign?"

“A 12.5% salary increase? Where do I sign?”

But there’s another, more significant reason why Cravath’s salary move wasn’t really about attracting new associates: because new associates mean less and less to law firms all the time.

There are only two reasons why a law firm employs associate lawyers: to breed future partners and leaders, and to provide leveraged labour. The first reason is not especially compelling to many law firms these days, as they’re either busy poaching partners from other firms or de-equitizing the partners they already have. Promoting promising talent from the minor leagues, although it should be a priority, often isn’t.

The second reason is far more important for most firms: they developed a tournament system in which attrition would eliminate 80% to 90% of an associate class in its first ten years, while these associates churned out backbreaking amounts of billable work to fuel the firm’s profitability engine. That function has become the overriding raison d’être for associates in law firms.

But throughout the last five to ten years, this rationale for employing associates has weakened dramatically. First, work gradually began moving off the desks of junior associates, largely because clients no longer trusted the competence of first- and second-year associates and resisted paying (or refused to pay) their billed hours. That work found its way to “non-equity partners,” superannuated associates who could bill at higher rates but weren’t otherwise that productive, and equity partners themselves, who needed the hours to meet the perverse demands of their own compensation systems. Associate leverage, which was once 3-1 and 4-1 in most large firms, fell to 1-1 or even less in many places.

Then, as the post-crisis economic situation became bleaker and the mood of the legal market darkened, the supply of associate-level work dropped significantly. Law departments began insourcing straightforward legal work, tired of paying a 50% premium for the efforts of law firm lawyers. Layoffs and hiring freezes at many law firms, occurring both in the immediate financial crisis and during the malaise that followed, contributed to a growing pool of unemployed and under-employed young lawyers and recent law graduates. And that created a new presence in the legal market: companies and agencies that offered the services traditionally performed by law firm associates at lower prices.

“There aren’t as many law firm jobs for graduating students anymore,” Integreon’s Caragh Landry told Corporate Counsel last summer. “There’s a trend toward large pools of contract attorneys who have great degrees, they have maybe done some practicing and they’re looking for jobs.” What we once called “law firm jobs” increasingly are being provided by companies like Axiom and United Lex, which appear more and more as if they’ll supplant large full-service firms as the primary provider of entry-level lawyer experience.

That short-term contract and temp lawyer situation has now blossomed into a long-term project and flex-work legal talent market into which law firms themselves are dipping (and not always nicely).

  • More than half of the firms surveyed by Altman Weil this past spring reported that they’re using part-time and contract lawyers to meet demand, including 75% of firms with 250 or more lawyers.
  • Several large law firms around the world —  Fenwick & West (US), Blake Cassels (Canada), Simmons (UK), and Corrs (Australia), to name just four examples — are establishing their own flex-time, contract, or project lawyer divisions.
  • DLA Piper even partnered with agile-law pioneer Lawyers On Demand rather than create its own division.

Nor is this entirely being driven by the firms: the emergence of secondment and project lawyer agencies is proving attractive to millennials. Lawyers On Demand’s new Spoke service is reporting immense interest from lawyers. Essentially, law firms are outsourcing a growing amount of their “associate work” to freelance lawyers, saving themselves pension, benefit, management, training, and overhead costs in the process.

And it increasingly appears that whatever hasn’t been outsourced will soon be automated. In a survey last October, says The American Lawyer, “35 percent of law firm leaders said they could envision replacing first-year associates with law-focused computer intelligence within the next five to 10 years. That’s up from less than a quarter of respondents who gave the same answer in 2011.” Deloitte estimates that 100,000 legal roles could be automated in the next 20 years. In this respect, law is simply experiencing the same job squeeze that many other industries have gone through: thousands of US manufacturing jobs that have been automated out of existence simply aren’t coming back.

Leverage this.

Leverage this, Your Honour.

The connection between more automation and fewer associates is pretty clear. “It is easy to imagine a world where partners rely on machines instead of associates to do work that is already being done,” Casey Flaherty wrote recently. “It is much harder to configure a future where the machines have taken on those tasks while leading to employment of additional associates to perform higher value work that (a) no one is currently doing and (b) the capable machines, who replaced the associate in the previous work, cannot handle.”

All of this helps explain the stubbornly high levels of unemployment experienced by US law graduates over the past several years, numbers that have mostly held steady despite an historic drop in the number of law school applications (and in Canada, too). Associate hiring among the National Law Journal 350 largest US law firms was flat in 2014, the most recent year for which I can find a report, while “MidLaw” firms of 11-100 lawyers rarely hire new lawyers at all. The number of salaried positions offered by law firms for lawyers for their first few years of practice is at a standstill, and it’s inevitable that these numbers are going to start sliding backwards very soon.

What we’re seeing, as I predicted a few years ago, is the accelerating diminishment of the law firm associate. Certainly, law firms still compete hard for the “best and brightest” new lawyers to become their future leaders and rainmakers, and perhaps that’s what will eventually drive us towards $300,000 first-year salaries at the largest and richest firms.

But law firms are no longer sifting through each year’s graduating law classes searching for raw sources of leveragable labour. Instead, firms are finally going to join other businesses in other industries by getting most of their leverage from software and systems, rather than from humans. As a class of lawyers within law firms, associates are becoming obsolete: there’s just not going to be much need for them anymore.

This development represent a profound shift in the nature of law firms and legal work, and as it continues to unfold over the next several years, it will have equally profound effects throughout the legal market.

  • Law firms’ new lawyer classes will become permanently smaller, as firms focus on fewer candidates and conduct far more intensive assessments to see which of them will become future rainmakers and practice leaders.
  • Law firms will no longer be the career launching pad for so many new lawyers as they’ve been in the past, meaning other entry-level lawyer platforms will have to emerge (and competence training will become a more acute need)
  • Law firm pricing will slowly be transformed, as productivity will be measured less in billed work hours and more in products and services generated by both external talent and internal systems and software.
  • Law schools will have to reconfigure their curriculum to produce fewer general-purpose plug-and-play law firm associates (which is what the current system seems geared to produce) and more lawyers ready to provide value to law firms through technology, systems, and knowledge management skills.

I have a hard time seeing how law firms will ever return to the days when associates outnumbered partners and served as the primary source of leveraged revenue generation. The original strategic purposes and business functions of the law firm associate don’t really fit this market anymore. And there’s at least a little irony in the fact that those original purposes and functions are frequently traced all the way back to a law firm named Cravath.

The intangible law firm

Remember all those ludicrous predictions you kept hearing about how law firms were someday going to invest heavily in intelligent technology that could do legal work? Funny thing about that: someday is today.

Here’s what’s actually happening, right now, with advanced technology in law firms:

This is only a recent sample of law firms’ technological commitments: consider Ron Friedmann’s Online Legal Services list for a more complete picture. And it’s not just happening in the US, either.

  • Berwin Leighton Paisner is using “AI-type solutions to carry out standard legal processes hundreds of times faster than traditional methods that use painstaking human labour.”
  • Mishcon de Reya’s new ten-year strategy includes a plan to “drive the automation of everything that can be automated, whether it’s legal or process,” including the establishment of  “an internal laboratory to vet artificial intelligence initiatives in a bid to make the firm an ‘early adopter for new technologies.'”
  • Australia’s Gilbert & Tobin has filed several patent applications to cover new computer applications it has built: “Rather than take 20 hours, some tasks can now be done in two hours,” said a G+T partner.
"She tripled the firm's productivity." "Burn her anyway!"

“But she tripled the firm’s productivity.”
“Burn her anyway!”

Talking openly and on the record about eliminating billable hours in a law firm has traditionally been regarded either as heresy or a sign of mental instability. “Burn the witch” would also have been a standard response to a lawyer who advocated spending real money on anything that could be described as artificial intelligence. But the facts are what they are: major law firms are actually building systems to do some tasks that previously only lawyers could do, at the expense of some of the firm’s hourly-billed inventory.

But that’s not all. Law firms are also adapting to the emerging imperative of process improvement, finding ways to introduce efficiencies and enhance the quality of outcomes through better procedures and workflow systems.

  • At Seyfarth Shaw, the process improvement gospel of Seyfarth Lean has become part of the firm’s core culture.
  • Process is just as important as technology for Littler Mendelson programs such as CaseSmart and Compliance HR.
  • Clifford Chance launched its Continuous Improvement program back in 2014 in a search for “the best approach to carrying out a piece of work.”
  • Gowling WLG talks about its acquisition of expertise in “non-legal support components of service delivery” such as project management and pricing.

You can expect to hear more of this from law firms in future. “Something like 90 percent of the RFPs we receive ask us about our [legal project management] capabilities,” said one respondent to a Jomati Consulting survey. “We get RFPs that not only ask us if we do project management, but also our specific methodology, and how many matters we have under administration,” said another. This is not a temporal anomaly: law departments take process improvement seriously, and they expect outside counsel to do the same. Some law firms are outpacing their own clients in response.

These are all signs, to my way of thinking, of a fundamental shift in the nature of law firms. Specifically, law firms are changing from entities composed almost entirely of tangible assets to entities composed increasingly of intangible ones.

The conventional wisdom on law firms has always been that “all their assets walk out the door every night” — and that the firms could only hope those assets walked back in the next morning. Suppose they didn’t come back? Take the lawyers out of a law firm; what have you got left? Reams of documents, files, and transactions — but no one to read, write, or process them. Capable and professional support staff — but with no one to support. Libraries full of case law and regulation, shelves lined with texts and CLE binders, filing cabinets crammed with precedents — but nobody to apply legal skills and expertise to convert them into actionable outcomes of value to clients. The law firm machine would stand idle, because its engines had disappeared.

Just as importantly, all these non-lawyer assets differed hardly at all from firm to firm. Law libraries were mostly indistinguishable in their collections; precedents varied so little as to be virtually copies of one another; workflow and operational procedures were standard across almost every type of firm. The only features of a firm that could legitimately be said to be exceptional, standing out from other firms, were its individual lawyers. Many of them were pretty general-issue as well, to be sure, but most brought at least some unique value to the table, and a few brought an enormous amount. So in the absence of lawyers, law firms would be true commodities: offering basically the same thing to everyone in the market, bereft of any valuable distinction.

This state of affairs has contributed greatly to the individual lawyer’s longstanding dominance of law firm strategies, priorities, and practices. More than three years ago, I wrote about the existential battle inside every law firm between individual lawyers and the law firm as an enterprise — one that the enterprise has been losing since the day battle was first joined. Law firms continue their mad pursuit of lateral partner acquisition strategies, and go to absurd lengths to retain the services of highly skilled lawyers, because lawyers have always held such enormous importance to the firms’ survival and competitiveness. When your enterprise has only one type of asset of value to the market, you don’t own that asset — that asset owns you.

It seems to me that it’s precisely this state of affairs that all these foregoing efforts will change. What these law firms are building, through their investment in technology and processes and non-lawyer sources of value, are intangible assets. These assets can provide legal answers or deliver legal outcomes of value to clients in some circumstances, thereby giving firms a second type of option for serving those clients. But unlike lawyers, these assets won’t leave the office at the end of the day, and they don’t ask for raises or demand larger offices or threaten to join the firm down the street — they serve the firm, not themselves. By building these assets, firms give themselves leverage over their lawyers, and they’re going to use it. These are the new engines of the law firm machine. And they’re going to multiply with astonishing speed.

Is there an Echo in here?

Is there an Echo in here?

The role of these process and technology assets is not to replace lawyers — most of these resources require lawyers to program or monitor them on an ongoing basis — but to reduce lawyers’ indispensability to the firm. An “indispensable employee” sounds like a great idea, until you have one. I once managed an indispensable employee, and it didn’t take me long to realize that I needed to make him “dispensable” — for the good of the organization, and ultimately, for his own good as well. I trained other people in the work that he did and had them develop relationships with his key contacts. The point wasn’t to get to a place where I could fire him; it was to get to a place where, once he eventually left the organization for better things (as it was always clear he would do), the organization carried on and he could go without feeling guilty about leaving us in the lurch. Law firms need to make their lawyers more dispensable, for everyone’s good.

The other important goal that law firms accomplish by investing in intangible resources is to start building firm-specific assets. Littler’s CaseSmart system exists only at Littler, Seyfarth Lean is unique to Seyfarth, and so on. Other firms likely will create similar programs and systems in due course, but what they create won’t be exactly the same, and rightly so — these assets will be native to each firm’s culture and structure. Building firm-specific assets is about creating “a resource that will produce its highest economic value only within the specific firm,” Prof. William Henderson wrote last year. “If a lawyer leaves, the underlying resource remains, with the result that client loyalties flow primarily to the law firm, rather than the lawyer.”

This is a significant point. Partners will continue to leave law firms, perhaps taking junior lawyers and important clients with them; but they won’t be able to take these intangible assets along for the trip. And the existence of those assets, if they make lawyers’ work easier and firms more productive and their deliverables more valuable, might well prompt some of those juniors and some of those clients to stick around. The expertise that firms generate around these assets is specific to the firm and can’t be applied directly anywhere else, making retention easier and, eventually, making recruitment of talent and acquisition of clients easier as well.

The rise of the intangible law firm will be aided and abetted by more sophisticated law firm marketing and branding efforts, too. Traditionally, law firms often defaulted to lawyer-centred marketing: hire us, because we have all these great lawyers! Every time a firm promoted a star lawyer in its marketing material or trumpeted the poaching of a key partner from another firm, however, it was actually undermining its own institutional brand — it was giving clients yet another reason to say, “I hire the lawyer, not the firm.” The rise of intangible assets will strengthen firms’ efforts to market themselves as enterprises whose value and identities are independent of their lawyers. The goal is to have clients routinely say, “I hire the firm” — full stop.

I’m not saying that individual lawyers will soon be irrelevant to a law firm’s value proposition; this isn’t an either-or proposition. Firm-specific, technology-enabled, intangible assets aren’t an attack on lawyers; they’re a means to eliminate a longstanding, unhealthy imbalance in the relationship between the law firm as a commercial institution and the lawyers who deliver value inside it. The best lawyers, especially the immensely skilled ones on whose efforts clients bet their existence, will always be able to name their price and choose their platform. But that’s not the kind of work that’s going to dominate the legal market from now on. The dominant type of work will not be “bet the company,” but “run the company,” and the firms best positioned to win this work will be those with the kind of consistent, reliable, immovable, and uniquely valuable assets that clients can confidently count on.

Take a quick inventory of your own firm’s assets. How many are tangible and how many are intangible? How many walk out the door and how many stay overnight? And how prepared are you to compete for talent and business in a market where you can’t afford to let your lawyers walk, but your rivals can? Because that’s the market that’s unfolding in front of us right now.

Why law firms should focus on adaptation, not disruption

In a post last month, Ron Friedmann poured cold water on the notion that large law firms were anywhere close to being “disrupted” — to losing the commercial legal services market to high-tech NewLaw raiders. Disruption? More Like Incremental Change for Big Law, he said, and it’s hard to argue.

Many commentators claim that tech, especially artificial intelligence (AI), will do something to Big Law. I disagree. Tech more likely will do something in it: incremental change. …

By the late 1980s, a few law firms had most of their lawyers using PCs. The market did not reward these early adopters. Nor did it punish late adopters. The same pattern played out for email, the Internet, and social media. Tech did disrupt legal secretaries. But that took an economic crisis and 15 years. Tech has enabled change – for example, the rise of boutiques and clients using alternative providers – but that has not disrupted lawyers or law firms.

An even bigger event than tech – the 2008-10 economic crisis – also failed to disrupt Big Law, notwithstanding widespread layoffs and a few dissolutions. In the aftermath, Big Law faces price pressure and more competition, but not disruption. Even with tech, with price pressure, and with clients bringing more work in-house, Big Law prospers as reported by recent Am Law 100 and Altman Weil surveys.

With this history, I just don’t see how the new technologies today will be any different than the past.

The book actually wasn't that great. Better than the movie, though.

The book actually wasn’t that great. Better than the movie, though.

“Disruption” became a flashpoint term in the legal community a couple of years ago, when Clayton Christensen’s groundbreaking 1997 work The Innovator’s Dilemma belatedly reached the legal market and the “Reinvent Law” boom was at its loudest. Ron’s post suggests that it’s time we take another look at this concept and begin to parse the difference between disruption theory and on-the-ground practice in the legal world. Let’s do just that.

All market activity, obviously, requires two parties: a source of demand (purchaser) and a source of supply (seller). Market disruption requires the presence of a third party: a new, alternative source of supply that can appeal to the source of demand in ways that the primary supplier can’t. The alternative’s appeal lies in its ability to provide value to the purchaser to a degree or in a dimension that the incumbent supplier has overlooked, ignored, or believed to be impossible. The alternative supplier can generate this value because it has adopted a means of production profoundly different from the incumbent supplier’s, one designed to produce deliverables (in dimensions such as affordability, timeliness, convenience and quality) better aligned with what the source of demand really values.

Now, disruption theory states that given all these circumstances, the alternative supplier will steadily grow its market share — starting from the edges of the market and its least complex and lowest-value needs, then gradually working its way up and in to higher-value sectors as it develops and matures — until at a certain point, the established supplier fades away and the challenger becomes the new incumbent. The circle of life, and all that. Christensen cites numerous examples of this pattern from steel, computer chips, and many other industries. So how about law?

It seems to me that we have all the pieces in place right now, in the corporate/commercial legal market, for this kind of disruption to occur. (As George Beaton points out in a comment on Ron’s post, this process is further along in the consumer legal market.) We have demand on an enormous scale — several hundred billion dollars spent every year, by an increasingly irritable and cranky corporate client base. We have traditional supply — incumbent law firms with little imagination — by the hourly-billing boatload. And now we’re finally approaching a critical mass of the third ingredient: alternative sources of supply. You could group these options into three distinct categories.

  1. Alternative Options for Lawyers’ Services. It used to be that if you needed to buy a legal service or solution, you had to go hire a lawyer. Today, demand for some legal services can be met by viable substitutes for lawyers. These are primarily technology solutions (including ODR systems, e-discovery software, contract analysis programs, advanced document assembly software, expert applications, predictive analytics, and various cognitive reasoning systems), which can perform some tasks or achieve some outcomes that previously only lawyers could manage. The result: some legal work never makes it to a lawyer, going instead to a viable lawyer substitute.
  2. Alternative Platforms for Lawyers’ Services. Suppose that for your particular need, however, there is no viable substitute: you must have access to a lawyer. Well, it used to be that if you needed to hire a lawyer, you had to visit a traditional law firm (including solo practices) to find one. Today, demand for lawyers can be met by alternative platforms for lawyers’ services: project and flex lawyer companies, managed legal services providers, the legal divisions of accounting firms, and various self-identifying “NewLaw” firms, among others. The result: some “lawyer work” never makes it to a law firm, going instead to a viable law firm substitute.
  3. Internal Options for Addressing Legal Needs. The ultimate alternative to an external legal solution of any kind, though, is to remove the need for the external solution altogether. Corporate law departments have expanded their internal productive capacity — increasing lawyer headcount (insourcing), developing their legal operations (“legal ops”) capacity through software installations and process improvement techniques, and (to take another of Ron’s observations) “doing less law” and eliminating some legal demand altogether. The result: some legal work stays in-house and never gets shipped to any external provider, period.

It’s nothing short of fantastic that buyers can now access all these options. Kudos to them all. But so far, these alternatives have captured just a tiny sliver of the entire commercial legal market. A few worthy exceptions aside, large corporations and institutions haven’t significantly changed their legal buying patterns. That’s not because the alternative sources of supply have proven inferior to the incumbent suppliers — in fact, by most indicators of cost-effectiveness, quality, and value to the buyer, the opposite is true.

The real cause is that most front-line purchasers of corporate legal services (in-house lawyers) care more about what traditional suppliers (law firms) can offer them (strong personal relationships, a reliable brand, routine buying processes, and a familiar culture) than what they can offer the enterprise. Lawyers who buy legal services are just as conservative, risk-averse and change-resistant as the lawyers who sell them — probably more so — and they define “value to the buyer” much more narrowly and individually than their company does. Purchasers of commercial legal services, to this point, operate in a very different corporate environment than purchasers of steel or computer chips or other commodities. Their cultural influences and individual incentives reward low-risk decisions and prioritize personal relationships over enterprise results. The impact on buying patterns shouldn’t surprise us.

Now, corporate procurement personnel are currently hard at work infiltrating and influencing legal purchasing, either by persuading the legal department to exercise its buying power differently or commandeering that power altogether. Take the lawyers out of the equation, and maybe you start getting somewhere. But so long as lawyers are buying legal services from lawyers, and especially so long as both sets of lawyers emerged from the same type of law firm culture, there’s little reason to anticipate imminent change. While it still appears inevitable to me that commercial legal purchasing will be transformed — and with it, the entire commercial legal market — I’ve personally grown tired of its stubborn evitability. “Waiting For Procurement” is not a performance I feel like sitting through multiple times.

We need to talk about Godot’s productivity.

The larger point, though, is this: “Disruption” is a means to an end, not an end in itself. It’s not a goal towards which anyone in the legal market should be bending his or her efforts. It’s simply a process by which other goals — chief among them, a more effective legal market that serves its customers better — can be achieved. Disruption will come when it comes, and there’s not much more to say about it than that.

The more interesting and important question, I think, is how the traditional incumbents will react to the high-tech upstarts in the meantime. What law firms do in response to the market’s emerging “NewLaw” options will determine the long-term success of both groups.

It should be pretty apparent that the longer the “disruption” process takes, the more difficult life becomes for most of the innovative alternatives. The builders of better mousetraps can wait only so long for the world to beat a path to their door — eventually, the venture capitalists who funded the traps want to see some Return On Mice. A drawn-out disruption period is especially hard on smaller upstarts, who either run out of money or become ever more vulnerable to acquisition and consolidation by rivals with larger footprints and deeper pockets. And of course, if market resistance to innovative new options is strong enough and lasts long enough, there’s a chance that the whole concept of viable alternatives to traditional suppliers will fall out of favour altogether, and the revolution will be stopped before it can begin.

For all these reasons, you’d think that traditional law firms would have every incentive to prolong the “steady state” of the old legal market, with its toothless demand and monolithic supply, as long as possible. But if anything, the danger to law firms here is more acute than to the upstarts.

The longer disruption takes, the more comfortable life will seem for the incumbent suppliers, and the more likely that they’ll be lulled into a competitive slumber. But whether it arrives tomorrow or next year or ten years from now, change is gonna come. The value proposition of alternative suppliers is too strong, and the well-publicized process of adjustment is already underway within some of the biggest sources of legal demand (including Shell, Cisco, Honeywell, AIG, and Capital One). Just as importantly, the alternative suppliers that do survive will get bigger and stronger by the day, growing and consolidating into truly formidable opponents. Law firms that fall asleep will be shaken awake to the realization that the waters kept on rising while they slept, until the levees eventually gave way.

So for law firms, the concept they should be focused on isn’t disruption, but adaptation. How will they adapt to changing market demand? How will they adjust their offerings and rework their operations to compete against powerful rivals for the attention of sophisticated and aggressive buyers? Will they try to destroy high-tech providers, or integrate them? Will they ridicule process improvements, or adopt them? Will they keep trying to “out-lawyer” everyone or, as I’ve argued, start trying to out-customer them?

The more that law firms accept these realities and adapt to these new alternatives, the less business they will lose, and the less these new alternatives will advance: by co-opting their rivals’ best features, they will improve their own productivity and value and maintain their dominant market position. There’s no shortage of examples in this regard among established incumbents (including Wachtell, DLA Piper, Norton Rose FulbrightDentons, Baker Donelson, Littler, AkermanAshurst, Mishcon de Reya, Gilbert + TobinMcCarthy Tétrault, and Stewart McKelvey), but you’ll also find some alternative providers going the same route (including Deloitte, LegalZoom, Riverview Law, and Lawyers On Demand).

Conversely, the more firms resist the advancement of substitute providers and stick to their old ways of doing things, the more time they’ll grant their most fearsome competitors, the more ground they’ll lose to them, and the faster the disruption process will proceed. For every day law firms fight adaptation, that’s another day in which the alternative platforms receive an extended lease on life — and that’s a dangerous game for law firms to play. If you give competitors with a better way of doing things enough time and oxygen to grow, then grow they will.

So this is a key moment for law firms. Viable substitutes to law firms have established themselves on the margins of the market, offering a genuinely better option for at least some legal services to (what is currently) a skeptical and conservative community of buyers. Most law firms seem to be betting that the market will remain skeptical and conservative — that the odds of real demand in market change are so small that the substantial payload of the corresponding risk can safely be ignored. That’s not a bet I’d care to place right now.

Disruption has not reached the commercial legal market, and maybe it won’t for a long time. But adaptation is here, right now. And for law firms, adaptation is by far the more pressing and important matter. Law firms can afford to put off worrying about disruption for the foreseeable future. I don’t see how they can put off thinking about adaptation one day longer.

Well, I’m back

Since I took the title of my sign-off post 18 months ago from the last album by my favourite band, I figured I’d take the title of this return post from the last line of my favourite book. Because in times of great change and upheaval, it’s dated pop-culture references that will hold us all together.

Take the "Baggins" off the nameplate, Rosie. From now on, it's Gamgee LLP.

Take the “Baggins” off the nameplate, Rosie. From now on, it’s Gamgee LLP.

I’m sincerely glad to welcome you back to Law21 and to finally make my return to the blawgosphere. (Are we still calling it that?) I put this blog on hiatus back in December 2014, partly because I was edging towards burnout after six years of blogging, and partly because I wanted to write a book and I needed to clear the decks completely to make that happen.

I assumed, at the time, that since I wasn’t blogging, law firms wouldn’t call me about speaking engagements so often and I could devote enormous amounts of free time to writing. I also assumed that authoring a book was pretty straightforward, something I could knock off over the course of a few solid months. These turned out not to be the soundest assumptions I’ve ever made.

In the event, I’ve been kept busy over the past 18 months giving presentations (including to law firms, state bars, in-house lawyers, the ABA, CBA, LMA, NALP, and a few other groups) on the accelerating rate of change in the legal market. As well, I’m very happy to say, I’m close to completing the final draft of my book, and I anticipate a publication date sometime within the next few months. And as you’ve probably noticed, I’ve redesigned Law21 itself, expanding it from a blog to a full-scale platform for my business and a resource centre to which I’ll be adding free downloadable materials in the coming weeks. (A grateful shout-out to Rob Wilson of Stem Legal for the website build and to Mark Delbridge of Delbridge Design for Law21’s new logo).

I’ve also been fortunate to have had several report writing opportunities come my way over the last 18 months, and if you’re interested, you can find a selection below:

But what I’ve really missed during my lengthy sabbatical is the opportunity to write for you, here at Law21, about the changing legal market. So you can look for two new posts later this week and two more the week after that, because it sure seems like there’s a lot to talk about in the legal market right now. Just in the last few months, for example:

  • Artificial intelligence has taken over the legal profession (judging from breathless media reports, anyway),
  • Non-lawyer ownership of law firms has become radioactive (thanks so much for that, Slater & Gordon)
  • Gigantic accounting consultancies are about to consume the legal market (directed by Michael Bay, in theatres Friday),
  • Legal Ops are rewriting the entire in-house counsel playbook (directed by, I don’t know, let’s say M. Night Shyamalan)
  • Someone in New York thought it was a good idea to start paying first-year associates $180,000 a year (<eyeroll emoji>).

Human sacrifice! Third-party litigation financing!

The funny thing is, though, that while it might look like the apocalypse out here, it doesn’t really feel much like it — at least, not judging from the lawyers and law firms I’ve been speaking with recently. I don’t see nearly as much denial and detachment as I have in the past — lawyers clinging to the belief that these are all just “isolated incidents” or “temporary conditions” or whatever other coping mechanism they developed to deal with all this craziness.

Instead, I’m meeting more and more lawyers who’ve developed a remarkable degree of sangfroid about legal market change and an admirable readiness to just start dealing with it already. Law firms are still making questionable tactical decisions for nakedly self-serving reasons, of course, but that’s a more or less permanent condition of the species. What’s different, from my perspective, is that there’s a growing consensus within the profession that the market really has changed for good, and so we might as well just accept it and start moving forward. It looks to me like lawyers are finally treating legal market upheaval the best way they know how: as a problem to be understood, addressed, and solved.

Altogether, this just seems like an exceptionally timely and opportune moment to get back into blogging about the law. So I really hope you’ll join me, up here in the cheap seats where the ushers rarely venture, as we try to make some sense of it all in the months and years to come. And thanks, very much, for holding my seat until I got back.

…famous last words

And thus, at last, I fulfill a long-held goal of using an album title from my favourite band in a blog post.

You can always tell when a blog is nearing the end of its natural life: the author starts making apologies for not having posted in so long. I’ve seen enough defunct blogs in my time whose last post, after several quiet weeks, reads like the start of that letter to the distant cousin you met on the previous summer’s family vacation: “I’m sorry for the lengthy delay in writing back to you….” After that post comes the long silence, and inevitably, one day, the 404 message. I’ve always firmly intended to avoid that sort of outcome, which is why we’re here today.

Be assured, I’m not shutting down Law21. But I am putting the blog on hiatus for the next several months, and when it returns, this site will look very different. If you’re a regular reader (and I truly am grateful if you are — especially if you were here back when the blog looked like this), you’ve surely noticed the drop in my posting frequency this year: this is just my 14th post of 2014, and it’s no exaggeration to say that in Law21’s earliest days, I sometimes wrote that many entries in a month.  My first post this year didn’t arrive until mid-April.

These long pauses and sporadic entries have surprised me as much as anyone, because I sure don’t feel like I’ve run out of things to say or interest in saying them. I’ve tried to figure out the causes for this, and in true Law21 fashion, I’ve ended up with neatly bulleted list.

  • Work keeps taking precedence. I didn’t start this blog so that people would ask me to come speak to them about the legal market; but that’s been the happy result, and now I’m travelling once or twice a month to meet with groups of lawyers, law students, or legal professionals somewhere out of town. Whenever I do find myself with enough breathing space to start crafting a new post, it’s usually 4 pm on a Friday and the kids are home from school. But that’s dangerously close to making excuses, to being the delinquent correspondent: you’re working hard too, and kids are always and forever coming home from school.
  • I’ve written a lot. I mean, a lot. I’m closing in on 450 posts and 400,000 written words here at Law21, not to mention dozens of articles and posts elsewhere, and I’m getting close to crossing that line where I’m repeating myself just for the sake of saying something. (You might be inclined here to channel Jed Bartlett telling CJ Cregg, when she asked him if she was crossing a line: “Look behind you.”) One of the standards I set for myself when I began blogging was that if I didn’t have something I felt was original or important that was worth your time to read, I wouldn’t post just for the sake of posting. I’ve really tried to stay true to that.
  • There are many more voices now. When I wrote my first Law21 post in January 2008, there weren’t many people talking about change in the legal marketplace. Today, market upheaval is on everyone’s agenda, and not only the blawgosphere, but also law firm conference rooms are now bursting with conversations about it (not to mention social media, which barely existed back then). I’m hardly claiming causation or even correlation; I’m just saying that my burning desire to spread the word about change and the need for lawyers to respond is now shared by many others, reducing the need for me to be always yapping away here.

I can feel the cumulative effect of these forces and others pulling me away more and more often from this space, to the point where I risk people no longer knowing whether or not Law21 is still a going concern. Hence this post, which is meant to make some assurances:

  1. Law21 is a going concern, because change in the legal services market is only just getting started, and I intend to hang around doing as much play-by-play and colour commentary about it as possible.
  2. Later in summer 2015, I’ll have a brand new website at this location, which will include a re-energized blog, downloadable slide decks, law school lesson plans, and yes, information about a full-length original book.
  3. I’ll still be an active participant (and will lead whenever I can) in conversations about the legal market, principally on Twitter, at Edge International, at Stem Legal, and in your local legal periodicals.

I usually end each year at Law21 with a summary of where market change has taken us in the last 12 months and where we can expect to go next. Given the circumstances, I’d rather end this year, and this stage of Law21’s evolution, with the following thoughts for the legal profession:

We have a once-in-a-lifetime opportunity to re-conceptualize what it means to be a lawyer. The underlying fundamentals of the legal market — clients, competitors, tools, regulations — are changing so quickly that a new climate now surrounds us, a new landscape has emerged under our feet, and even greater upheaval is on the way. In the very near future, we will find that we’ve adapted how we run our businesses, how we deal with our clients, and how we feel about being lawyers. That’s the end game, regardless of how happily or willingly we get there.

The only real question is whether these adaptations will be forced on us, involuntarily and painfully, or whether we will start the adaptation process ourselves, and thereby maintain some degree of influence over the lawyers we will become and the market in which we will practise. I urge lawyers, as I’ve urged so many times here in the past, to take the second path.

It might feel like we’re powerless in the face of change, but that’s simply not true: we have the ability, and the unprecedented opportunity, to redefine the contours of lawyering, before impersonal market forces do it for us, and to us. Take control of your professional destiny, by accepting the things we cannot change and moving swiftly in the direction of those we can.

Here’s the three-part process I recommend to get us there. Make three columns on a piece of paper or a computer screen, and do the following:

1. In the first column, make a list of everything you love about being a lawyer: what inspires you, excites you, interests you, gets you out of bed and into your office every day because you look forward to the opportunity to do it. This is the best of being a lawyer: it’s also, very probably, the parts of a legal career least susceptible to automation and outsourcing, the parts most closely associated with actual people and actual service.

2. In the second column, make a list of everything you really don’t like about being a lawyer: what bores you, discourages you, upsets you, gets put off or rushed through because the thought of facing it makes you question your career choice. This is the worst of being a lawyer, and while some of it might be unavoidable, much of it is not. And I’ll bet that a great deal of it really is amenable to change, systematization or outsourcing to more appropriate providers.

3. In the third column, make a list of everything you wish you could do as a lawyer, but that circumstances seem to prevent: the help you’d really like to provide, the people you really wish you could serve, the insights and assistance and improvements you would love to be able to facilitate. These are the new possibilities of being a lawyer, and for the first time, these possibilities can be translated into reality. Change is fluid and dynamic, and it can flow from all directions, including from you.

Take the first and third columns, synthesize them, and make the resulting integrated activities and characteristics the foundation of a different and better legal career for you and your colleagues. Take the second column and look for ways to move these items off your desk and ideally, out of your practice altogether, into the waiting arms of a growing array of specialists who will do them for you, and do them better than you.

This process — call it reinvention, re-engineering, reconfiguration, reconceptualization, or any similar concept with a “re”- prefix attached to it — would not have been possible 30 years ago, or 15 years ago, or even 10. It was just barely possible in January 2008, when I started blogging here; but not only is it possible today, it’s also necessary: it’s the key to a viable, worthwhile, meaningful legal practice. Take this post home over the holidays and tinker with these ideas. Bring back your three columns in the new year and show them to both your work partners and your life partners, and see what they think.

Make 2015 the year you decide not only to accept the things you cannot change, but to be the driver of the kind of change you actually want to see in your own practice and your own world. This is your opportunity, and this is your time. Make it happen.

Jordan Furlong says, quite simply, thank you very much.

 

Law firm ownership and lawyer independence

Malcolm Mercer, who’s been a driving force in the debate around legal service regulation changes in Canada, wrote a terrific post at Slaw titled “A Different Take on ABS – Proponents and Opponents Both Miss the Point.” Malcolm’s post galvanized a lively exchange in the comments section, to which I was drawn and compelled to add some thoughts on two separate but related aspects of legal market liberalization: (a) the affordability and accessibility of legal services, and (b) lawyer ethics, professionalism and independence.

I’ve already written about accessibility elsewhere at Law21, and you can refer to my comments on Malcolm’s article for more. But I thought I’d expand here in some more detail on the second point: the impact of regulatory change on lawyers’ professional conduct. The spectre of “non-lawyers” owning equity in law firms has led some practitioners to express grave concerns about the survival of our ethical standards, and about the wisdom of allowing “non-lawyers” to deliver legal services at all. I think that before we can dive too deeply into these questions, we need to step back and look at the bigger picture first.

Generations ago, lawyers were granted the privilege (not the right) of self-regulation. Using the powers assigned to us through that privilege, we developed, published, and strictly enforce on ourselves several behavioural codes that we refer to collectively as “legal ethics.” (For clarity, “ethics” here refers to explicit normative standards of conduct, rather than the more colloquial sense of “moral behaviour.”) Among the standards we enforce through ethical codes are:

  • service above all to the courts and the rule of law,
  • complete confidentiality of client information,
  • loyalty to client interests, as expressed through conflicts rules, and
  • independence of our counsel from outside influence.

These rules are meant to guarantee to clients and to society generally that we serve the greater good and advance the interests of our clients without partiality. They’re part of the quid pro quo of self-governance: we hold ourselves to very high standards so that no one else feels compelled to step in and hold us to theirs. Nobody, in the continuing debate over liberalization of law firm ownership rules, contends that these standards and goals are obsolete or unnecessary. (Indeed, in the multi-player market that’s coming our way, our ethical standards will nicely double as a competitive advantage.)

Lawyers tend to raise two ethical objections to the changes in legal regulation that have occurred in Australia and Great Britain and that have been proposed in the CBA’s Futures Report. The first is that “non-lawyers” are not bound by lawyers’ ethical standards, and therefore the risk is too great that their clients’ interests will not be protected and may even be abused. The second is that allowing “non-lawyers” to own equity in a law firm fatally compromises our duty of loyalty to the courts and to our clients, because the lawyer will be bound by an additional, higher duty to advance the interests of these “non-lawyer” shareholders. Let’s look at these objections in turn.

1. “Non-lawyer” unfitness: There is, to begin with, a strong case to be made that “non-lawyers” are fully capable of conducting themselves with the integrity and impartiality we expect from lawyers, not least because exploiting or abusing one’s customers is a terrible way to run a business and a good way to wind up in jail. I’ve written before about the specious and self-serving nature of the “non-lawyer” category into which lawyers place everyone in the world except us. But let’s assume, just for argument’s sake, that “non-lawyers” will pose a genuine risk to their clients’ and customers’ interests.

It’s not entirely clear to me why this would be something that should concern the legal profession. Those who hire “non-lawyers,” in the multi-participant legal market of the near future, are not our clients, and we owe them no professional duties. Nor are we their parents or guardians. They’ll have made a choice to hire someone who isn’t a lawyer, and they can reap both the rewards and consequences of that choice. Fundamentally, it’s none of our business.

Lawyers have been granted the privilege of regulating ourselves; nobody, however, has ever granted us the privilege or assigned us the duty to regulate anyone else. (With two exceptions: independent paralegals in Ontario and limited license legal technicians in Washington State.) In almost all cases, law societies, state bars, and other regulatory bodies are not directed in their founding documents to “protect the public.” They are directed to “govern the legal profession in the public interest.” Those are two different mandates. If someone wants to hire a “non-lawyer,” and the “non-lawyer” accepts the engagement, it seems to me that that’s their business, not ours.

2. Corruption of lawyer ethics. This objection, on its face at least, has more merit. It’s reasonable to be concerned that the presence of “non-lawyers” in the ownership structure of law firms could pose a threat to our duties to clients and our independence from outside interests. Even a small risk in this area should be taken seriously, because of the enormous importance of lawyer independence to our professional existence and to the rule of law. But simply because this risk is real and serious doesn’t automatically mean that identifying it is enough to end the discussion. If it’s a risk, let’s look at whether and how it can be managed.  [do_widget id=”text-7″ title=false]

We should isolate, for this discussion, the operation of in-house or public-sector law departments, which very clearly are owned and operated by “non-lawyers.” We’re concerned here with the private bar, providing services to lay clients for whom we assume (though not always correctly) a low level of sophistication. The principles at play in these workplaces are not fully applicable to this conversation — although it’s at least helpful to note that the mere presence of “non-lawyers” in the ownership and financial structure of their “clients” has not been fatal to the independence of these lawyers. “Non-lawyer” status is not an airborne disease.

As it happens, we have an example of a large, multi-national law firm with “non-lawyer” equity owners: Slater & Gordon. If you review the firm’s initial public offering prospectus, you’ll find that among the “risks” disclosed to potential share-buyers was their tertiary position in the firm’s loyalties: the courts first, clients second, shareholders third. Those who buy stock in Slater & Gordon acknowledge and accept that, unlike other businesses where “shareholder value” is (perversely, in my opinion) the only objective, investing in a law firm means accepting a much-reduced level of influence and importance.

I’m not aware of any ethical difficulties Slater & Gordon has experienced, or any accusations that have been made by clients or judges, that public ownership of the firm has corrupted its lawyers’ professional duties or harmed their clients’ interests. The emergence or revelation of such problems or accusations could indeed pose a serious challenge to advocates of “non-lawyer” ownership. But equally, the absence of such problems or accusations, over a period of several years, in two different countries, ought to be factor in the discussion as well.

It seems to me that whether a law firm is owned by lawyers, by “non-lawyers,” or by Martians, the lawyers in the firm still operate under the auspices of lawyer regulation. (Under “entity-based” regulation, which is already in place in Australia and the UK and appears to be coming to Nova Scotia, the firm itself will be bound as well.) If a  regulated lawyer breaks a professional standard, for whatever reason, she will be investigated and punished. Whether her cheques are signed by the managing partner lawyer or by a corporate payroll employee, she is still on the hook for what she does and doesn’t do to advance her clients’ interests and serve the rule of law. There will be no exception granted to a law firm owned in whole or in part by “non-lawyers”; if anything, I expect that ethical scrutiny of such a firm would be several degrees more intense than for lawyer-owned firms.

Now, it might be objected that the influence of a “non-lawyer” equity owner would be more subtle and pervasive than that. The “non-lawyer” would not directly order a lawyer to drop a case or reveal a client confidence on the record; instead, he or she would influence, by their very presence and through various innocuous but well-timed remarks, that perhaps the firm should pursue a different course or be more open about a client’s position. I have two responses to this objection.

First, if we’re now guarding against invisible, inaudible, and theoretical risks to lawyer independence — “this might happen and there’d be no way to prove that it didn’t” — then I think we can concede that the clear and present danger of this risk is not readily apparent. We’re now moving out of the zone of probability, which is a fair and legitimate battleground, to one of possibility, which is unanswerable: no one can ever prove that something undetectable will never happen. And secondly, the assumption at the heart of this objection is the same as the the one above: that “non-lawyers” are less trustworthy, less honourable, and more mercenary than lawyers are — and conversely, that lawyers have more integrity, character, and selflessness than “non-lawyers” do.  I don’t find this line of reasoning especially sound or especially attractive.

As I’ve already noted, I’m not dismissing out of hand the risks posed by regulatory overhaul to lawyer independence: the concern is legitimate, and the stakes for the legal profession are stratospherically high. The case for either side of the debate is not so slam-dunk obvious that further discussion is unnecessary. We should continue to engage on these issues. But let’s engage on probabilities, not possibilities; evidence, not worries; what we know and can reasonably, sensibly anticipate, rather than on what we fear. The right answer is out there. Let’s go find it.

Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.

What leadership really means

I recently had the opportunity to speak with John Kain, managing partner of Kain C + C Lawyers in Adelaide, Australia. John’s company (it’s an incorporated legal practice, not a firm), which specializes in high-end corporate, commercial and M&A work, is one of the more progressive and innovative legal service providers that I’ve come across in a while.

Among the interesting features of Kain C + C Lawyers is a short-form advisory memo that lawyers are sometimes asked to give clients. This memo, which can run no longer than two pages, must contain one of four recommendations concerning the client’s proposed course of action: “Very Good,” “Good,” “Poor,” and “Very Poor.” When John relayed these measures to me, I immediately identified what was obviously missing among the choices, and I’m sure you have as well. And then I realized why it was missing.

John does not offer a middle choice, a “Fair” or an “It Depends” between “Poor” and “Good.” He does not permit his lawyers to be ambivalent in their advice to clients. Either recommend something or recommend against it, strongly if you so choose; but you must take a stand with your advice and you must sign your name to it. Invariably, every new lawyer in the company, when first confronted with this memo, comes to John asking for the middle-way option, and he always refuses. The client, he tells them, is paying us to advise them. So: advise — and be ready to live with the results.

I found this a really interesting practice, because it forces the lawyer to shift from the easier role of “analyst” into the more perilous role of “advisor.” We’re quite comfortable, as lawyers, with analysis: it’s an intellectual exercise that allows us to occupy a safe, low-stakes position. The “reasonable person” that we fetishize in the law is an analytical construct, an imaginary neutral against whom we measure actual human behaviour for fun and profit.

Advice is a different beast. Clients act on advice, making decisions that carry consequences for which we bear at least partial responsibility. It’s the difference between “What does the law say?” and “What should I do now?” There’s a good argument that advanced technology (e.g., expert applications, IBM’s Watson) could provide sound legal analysis; but nobody seriously argues that technology can render trusted counsel, or that any client would act on such counsel even were it offered. To my mind, a lawyer “grows up” the first time she gives actionable advice to a paying client. You’re not just writing a memo anymore; this time, it counts.

Every practicing lawyer can probably recall the thrill of her first real “advisory” moment — and the deep anxiety that accompanied it. Because the flip side of advice is responsibility: the possibility of error, the risk of failure, and the finger of blame pointed at our heart if it all goes wrong.

Everyone suffers from a fear of consequences for a wrong decision, but I sometimes think lawyers are unusually prone to it. We talk about our “risk aversion,” our overabundance of caution and hesitancy. I’ve written before that lawyers are more properly described as “embarrassment-averse” — we hate looking bad in front of clients and colleagues, and nothing looks and feels worse to us than failure.  The nadir of this phenomenon is what you might call “responsibility aversion”: the desire to avoid any action with more than a nominal amount of uncertainty and a corresponding probability of failure.

The antidote to all these aversions is the same: it’s courage. Courage is not simply one of the virtues, as C.S. Lewis has written: it’s “the form of every virtue at the testing point.” I would argue that no characteristic is more important to a good lawyer than courage: it’s what allows us to stand up for our opinions and to stand by our clients as they implement those opinions and change the course of their lives. The best lawyers aren’t just the smartest or hardest-working or the most caring: they’re also the bravest. The worst lawyers, by contrast, are the most timid and the most easily led away from their instincts and standards.

That’s all well and good. As I see it, though, our profession has something of an issue with courage these days. Specifically, I think we need to start showing more of it. Here are four examples of what I mean.

Our advisory role. I’ve only been part of this profession for 20 years, so I can’t give first-hand accounts of the “old days.” But I have the distinct impression that lawyers used to be firmer and more direct when giving advice than we are now. Conditions and reservations seem to be a more common feature of legal advice these days. Clients complain that we frequently default to “No” (if there’s a chance something will go wrong, don’t try it) or hedge our bets (do this, unless any of these seven things are present, in which case don’t). Clients seeking our counsel about what to do often receive advice about what not to do instead.

Our procedural habits. The apocryphal story of the in-house counsel, who asked his law firm for a chair and got a dining room set instead, illustrates our tendency to employ diligence far beyond what’s often necessary. Lawyers are infamous for turning over every stone and tracking down every possibility, which prolongs legal matters and increases costs. We like to say this is because we’re thorough and perfectionist, and we are. But it’s also because we fear the remotest possibility of a bad outcome and seek to eliminate all uncertainty, which is just not practical. There’s a cost-benefit line at which reducing uncertainty any further ceases to pay dividends, but we often lack the courage to stop at that line and say, “Enough. We’ve got what we need.”

Our business practices. We price our services by the hour because we want clients to bear 100% of the risk that something unexpected will happen (as if often does) during the course of a retainer, rather than having the gumption to calculate that risk as best we can and explicitly share it with our clients. We resist changes in our firms’ practices and procedures because we fear the consequences of failed innovations, and so we timidly wait for a dozen other firms to go first and thereby miss our chance. We dwell more on the personal and professional risks of adopting new methodologies and technologies than on the rewards they could provide to our firms and our clients.

Our regulatory approach. Lawyers do not permit competition in legal services from anyone outside our profession, even in the face of the clear failure of our present system to provide affordable legal services to more than a handful of potential clients. You can call that many things — protectionist, paternalistic, callous — but it also comes across as a lack of conviction that we could hold our own against “non-lawyer” providers. If lawyers are so convinced of their superiority, these entities argue, why are they afraid to compete against us in an open market? Where is the courage to take on new comers, or to take a measured risk of liberalization that could improve access to the law?  [do_widget id=”text-7″ title=false]

Please understand: this is not an attack on the moral backbone or personal courage of individual lawyers. This is an expression of growing concern that our professional habits have driven us into a culture of doubt and apprehension, a general meekness and conservatism in how we view our world and act within it. That world is undoubtedly riskier and more perilous than it’s ever been: the mind-boggling complexity of the law, the challenges of sustaining a viable practice, the savagery of competition between lawyers, and the spectre of client retaliation in court for mistaken advice all play a part. How much easier to reduce our exposure, stay the familiar course, adopt defensive postures, and reinforce our strongholds.

But when we bend to these challenges, rather than rising to meet them — when we spend too much time thinking about the worst-case scenario and how to avoid it — we miss out on so many opportunities and we accomplish so much less than we could.

Our ultimate value, to both clients and society generally, lies in our willingness to speak the truth and recommend the right course, regardless of the discomfort or pain that will entail, especially to ourselves. Our professional calling is to assess, manage, and recommend courses of action (and their attendant risks) that serve both our clients’ interests and the greater good, and to gladly accept responsibility for doing so. That’s courage, as manifested in the legal profession — and in all its manifestations, it takes one familiar form: leadership.

This is the time for leadership in the law, and I’m here to tell you that no one is exempt. Every lawyer has both the opportunity and the responsibility to visibly exercise leadership, in our firms and with our clients and in our profession, by acting courageously. Assess risks, accept them, and act accordingly; stand tall for what you believe is correct; look failure in the eye until it blinks; put yourself on the line for what’s right and necessary. We’ve become too passive, reactive, and defensive for anyone’s good, too reliant on what we’ve always done before. We can’t afford any more “it depends” or “wait and see.” It’s time to stiffen our collective professional resolve and show the world what a powerful, confident legal profession can do.

So: advise, and live with the results. Innovate, and stand by your efforts. Speak out, and welcome everyone’s eyes turning to you. Lead, and watch everyone else get out of your way.

Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.

Partner compensation: Start making sense

I was chatting recently with a U.S. law firm managing partner, who asked me about the Canadian health-care system and how I’d compare it to its American counterpart. Stepping carefully around that minefield, I did allow that health-care regimes worldwide are like partner compensation schemes in law firms: there’s at least one thing seriously wrong with every version, but so long as you’re not constantly losing people, you’re probably okay.

Compensation has always been the third rail of law firm management, not least because there’s no perfect (or even great) system for measuring and rewarding people’s contributions to a firm. You can be guaranteed multiple pockets of unhappiness throughout the firm no matter what approach you adopt, since so many participants in the system consider it, reasonably enough, to be a zero-sum game. But that doesn’t justify the financial and cultural damage that these systems invariably inflict on the firms that use them.

I’ll be the first to say that I’m no expert when it comes to compensation systems. Cleverly, I’ve decided to construe that as an advantage. I’d like to submit for your consideration, from this outsider’s perspective, three suggestions for bringing law firm compensation into the realm of common sense.

1. Stop over-valuing sales. Broadly speaking, there are three categories of business functions in a law firm:

  • The generation of paid engagements (sales)
  • The management of people and processes
  • The delivery of products or services

In virtually every law firm, the first category (business generation, or sales) is the most highly valued. This makes sense — it’s hard to manage and deliver non-existent work. But historically, this role has been disproportionately esteemed — in most law firms, the great salespeople are lionized to an almost mythical extent — and compensated. Perhaps this is no surprise: most firms were founded by great rainmakers, so of course they would ensure that outsized rewards accreted to business generation. And for many years, when law firms were smaller and service delivery was less complex, maybe sales really were the alpha and omega of a firm’s existence.

But whether or not you think business generation is still far and away the most important function in law firms, you’d probably agree that it has far and away the most turbulent and disruptive impact on firms’ culture. Nothing skews the social order in law firms like compensation, and nothing skews more dramatically and damagingly than partner compensation for sales. Law firms reward sales far more richly than many other companies do — if you’re not sure about this, ask the next retail clerk or telemarketer you meet about their hourly wages — and that has knock-on effects for everyone else at the firm who also works hard and contributes value, but doesn’t bring clients in the door.

Notwithstanding that, though, the biggest problem with disproportionate rainmaker remuneration is that fundamentally, it values finding the client more than serving the client. Lawyers really want to bring in business, but they don’t always know what to do once they get it. Again, if you want proof, ask clients how they feel about being aggressively courted by a law firm, and then once they’re in the fold, being treated like just another email in the inbox.

To avoid that problem, law firms should try rewarding sales through a fixed, short-term, declining payment structure. Here’s a hypothetical: the rainmaker receives 75% of profits (not revenue) from the new client in the first year, 50% the second, 25% the third, and nothing thereafter: all future profits from the client belong 100% to the firm and the lawyers who contributed value to that client that year. Insert whatever other numbers and come up with whatever variations you like, so long as the formula is fixed, short-term, and declining.

The underlying principle here is that the purpose of a referral is to serve the client, not to enrich the referring lawyer. If you make the origination credit period too long or the referral rewards too rich, you reduce the incentive of other lawyers to invest their time and energy in the client’s case. That inevitably risks leaving the client out in the cold (not to mention depriving the firm of a new business opportunity).

I once knew a law firm that gave what amounted to permanent business origination credit: the rainmaker received a large share of revenue from that client practically for life. What do you think resulted? A firm full of salespeople, of course: everybody bringing in work, nobody motivated to do the work, and constant internal warfare over origination credit. Have you seen Glengarry Glen Ross? Do you know what happens when you place salespeople in direct competition with each other for huge amounts of money and social standing?

My claim here is not that sales are unimportant. It’s that (a) the sale is only the start of the client relationship and ought to be valued accordingly, and (b) other things in law firms are important, too. Which brings me to my next point.

2. Start properly valuing everything else. As we’ll discuss further below, most compensation systems allocate the great majority of revenue to business origination and hours billed. Again, there’s obviously nothing wrong with rewarding the finding of clients and generation of work product. But you and I both know there’s more to a successful law firm than that. Here’s a partial list of law firm functions and activities that are not remotely compensated as highly as sales and hours (along with suggested metrics for measuring their value):  [do_widget id=”text-7″ title=false]

  • Client relations (measured by client satisfaction ratings generated through monthly “checking in” inquiries and closing surveys)
  • Project management (measured by performance against expectations of legal project timeline and budget targets met)
  • Legal marketing (measured by number of leads generated, industry speeches given, blog posts written etc., against plan)
  • Leadership activity (measured by specified annual stipends for executive, management committee, or practice group chair service)
  • Recruitment efforts (measured by on-campus interviews, associate committee service, bringing in new partners who stay 3+ years)
  • Community investment (measured by pro bono work or community activity performed, against firm’s annual average hours)

Given the growing importance of process improvement, workflow management, client relations, and all these other factors in the success of modern firms, it doesn’t make sense to continue to overlook and undervalue the people who contribute to these lower-profile but still significant activities.

In any work environment, you get what you pay for. Compensate people according to hours billed, as most firms do, and you’ll get mountains of hours and not much else. Pay people for rainmaking, and that’s pretty much all you’ll get too. Instead, start also paying people for how well they manage projects, how often they speak with their clients, how well they develop future partners, and how seriously they take the firm’s standing in the marketplace — and then watch as your firm becomes something different, and better.

When you create a compensation system that recognizes the multi-dimensional nature of success in a law firm, and you use that system to motivate an array of helpful behaviours in due proportion, then you start to build something that looks like a modern enterprise — rather than a medieval fiefdom, which is what many sales-obsessed law firms, let’s face it, most closely resemble.

3. Stop paying partners to bill hours. It’s been 20 years since I served my articling term at a large national law firm here in Canada. Some memories of the experience are understandably fuzzy at this point, but I do remember quite clearly the widespread assumptions around career progression. You worked hard as an articling student in hopes of being hired on as an associate. You worked even harder as an associate — we could see the brutal workload shouldered by the juniors above us — in hopes of becoming a partner.

But once you made partner, well — at that point, you could reasonably expect to enjoy the fruits of your labour. You’d still work hard, of course, but it would be at a higher, more refined, more engaging level — no longer churning out hours on basic legal tasks, but being an expert in your field, a highly regarded advisor, a director of the firm, and so forth. Even back then, though — I also remember this — there were rumours circulating that the associate’s afterlife wasn’t quite as heavenly as all that. Partnership, it was whispered, was actually a lifetime supply of More Of The Same.

It mystified me then, as it mystifies me today, why that has come to be the case. I always thought the point of achieving partnership was that you didn’t need to keep racking up the hours. You could spend more time building your business, sharpening your skills, increasing your profile, and yes, leveraging the work of those below you. Not a perfect system, nor even a necessarily admirable one — but at least it helped explain the appeal of partnership: you earned your reward and you didn’t need to be a billing machine anymore.

So why have law firm partners helped create a partner compensation system that rewards them in large part for the least attractive aspect of being a lawyer? Why have they overseen the development of (and ferociously defend) a reward system that has made their lives less enjoyable, not more?

One managing partner suggested to me it was because Millennial associates don’t like to work hard, while Boomer partners do. Even if that’s true, that still strikes me as kind of crazy. The associates don’t own the firm and they don’t make the rules — in theory, 80% of the reason for even having associates is to generate leveraged revenue for the partners, while 20% at most is to develop future partners and keep the system going. Adding associates should allow the partners to work differently and much less frenetically.

So it boggles the mind that partners have instead invented a system under which they are essentially still associates, plowing away in the fields every day under a hot sun. And I wonder if part of the reason for this is that law firms do a generally poor job of training partners to be anything else other than superannuated associates with an expensive equity stake — and that lawyers themselves, in the absence of any clear management direction (or personal affinity) for doing anything else, revert to the safest, most familiar form of business activity they know.

Accordingly, my final thought experiment is this: Imagine a firm where partners received no compensation credit for billed hours. Think for a moment about the change that adjustment would induce in how partners keep themselves occupied. What would they do all day? How would they apply themselves to the development of their expertise, the increased productivity and profitability of their practice and the firm, and the firm’s future development and prosperity? And if it turned out that a given partner had no interest in doing any of these things, then why is that person an equity holder in the first place?

In most law firms, the compensation system is the only really effective instrument for influencing behaviour. But there’s no rule that says it has to be a blunt instrument. Even if you decide the three foregoing ideas are completely unworkable in your firm, I urge you to use them to start thinking differently about how people get paid in your firm, and why. Smart law firms know they can’t operate like it’s still the late 20th century anymore, and that’s great; it’s time they brought their compensation systems into the present day as well.

Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.

Don’t think like a lawyer

This article was just published in the “I Wish I’d Known” column in the October 2014 issue of Student Lawyer, a terrific publication of the ABA’s Law Student Division. My thanks to Marilyn Cavicchia and Darhiana Mateo Téllez of the ABA for the invitation and opportunity.

“You’re going to learn to think like a lawyer,” said one of my professors in the first week of law school. She didn’t mean it as the threat it turned out to be.

Law degrees might be three years long, but let’s be honest, you’ve begun thinking like a lawyer within one. I still remember, in that first year, walking past a tall ladder propped precariously against a city building and thinking not about the worker’s safety, but about his liability.

It’s a small, insidious change. You start to view others not as people, but as tortfeasors, claimants, or consignees — parts to be played, with fault to be assigned and damages to be assessed. Cases become puzzles, games: Spot the issue! Identify the error! Feel justified as you deny coverage to the quadriplegic accident victim who didn’t see the light turn red. Distance yourself from him with the insulating, all-excusing logic of the law.  [do_widget id=”text-7″ title=false]

Thinking like a lawyer is easy and fun. But I wish that “thinking like a lawyer” had been provided as a complement to my already-installed “thinking like a person” system, not as a replacement for it. I wish I’d been shown the off switch.

Equally, I wish that law school had gone on to instruct me in “feeling like a client.” Few lawyers, and hardly any law students, know what it’s like to be a client — the anxiety, the vulnerability, the isolation that accompanies a problem we don’t know how to solve and whose consequences could ruin us. Many lawyers forget this, if we ever knew it or felt it in the first place.

I wish there’d been a mandatory second-year course called, simply, “The Client.” And as part of that course, each student had to visit a local lawyer incognito for a 20-minute consultation about a hypothetical problem. And to come back afterwards to report: how were you made to feel? Like the subject of a human event, or the object of a legal process? Were you engaged, or just acknowledged? Looked at, or looked through?

And, oh man, the price. What it feels like to ask a lawyer the seemingly simple question, “How much will this cost?” And either the lawyer hedges and quotes an hourly rate that doesn’t help, or she actually drops a real number on you. And in 10 or 15 years’ time, if you’re financially successful, maybe that number won’t faze you. But today, as a law student, with debts and middling job prospects — that number will chill your blood. As it should.

Legal education is a powerful drug; but if you’re not careful, it can drown out your instincts, stifle your emotions, and numb your heart. Law school molds and enhances your intellect, but frequently neglects to enlighten and illuminate your soul. The damage is predictable.

Great lawyers are more than just brilliant tacticians: they’re instinctive, heartfelt, caring, and real. No matter what else you do in law school, start learning how to be a lawyer like that.

Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.