Fixing the failings of new lawyer training

Last week, I contended that when it comes to the current lawyer admission process, law schools are part of the problem and show little interest in being part of the solution. Two articles published since then do give me some hope for the academy, both from Canadian law school deans: “Five new developments to reshape Canadian legal education,” by Lorne Sossin at Osgoode Hall Law School in Toronto, and “The Canadian Lawyer in the 21st Century,” by Ian Holloway at the University of Calgary Faculty of Law.

But that’s as much as I want to say about the schools, because what we’re really talking about in these conversations, when you get right down to it, is the competence of practicing lawyers. The legal profession is concerned with competence in two ways: at the start of a lawyer’s career (what I’d call Initial Professional Development, or IPD) and then throughout the course of the lawyer’s career (what we already call Continuing Professional Development, or CPD). Let’s begin with the first one and tackle the second one next week.

The bar has a self-evident interest in ensuring that new lawyers enter the profession with enough knowledge, skills and experience to provide reliable legal services at a purely functional level. It’s the responsibility of lawyers, as self-regulating professionals, to set and enforce these basic, minimum standards — to oversee this Initial Professional Development — in order to fulfill our mandate to protect the public in the provision of legal services. So far, so good.

Here’s the problem: Initial Professional Development for new lawyers is a mess. It’s been cobbled together from a mishmash of activities, some mandatory and some optional: a law school education, a summer stint in a law firm, a bar admission course, a bar exam, an articling or trainee contract, and so forth. These measures overlap in some areas and leave other areas completely unaddressed: a new lawyer might have sat through three primers on real property law, for example, but never have the opportunity to run a simulated mediation.

All these activities, moreover, are administered by a range of providers that rarely consult with each other to coordinate their efforts and that are, to a great extent, free to set whatever standards they like in planning and administering these activities. No jurisdiction that I’m aware of sets and enforces a comprehensive strategy and structure for new lawyer training. The bar has effectively outsourced Initial Professional Development to a series of for-profit providers without specifying the equivalent of an acceptable and enforceable Service Level Agreement to govern it.

We frequently complain that “law school doesn’t prepare students for practice.” But we’re missing the point. The point is that our sloppy, jury-rigged approach to new lawyer training is broken. It’s a glaring failure of self-regulation, and it’s what Initial Professional Development reform needs to address.

Consider three emerging alternatives to the status quo, and you can start to see the forces that will guide this reform process.

1. The training brokerage. In the UK, a contract lawyer agency called Acculaw has set off a minor earthquake with its entry into the solicitor training sphere (new solicitors are required to spend two years as “trainees” and pass a professional qualification course before recognition as full-fledged lawyers). Before now, firms would recruit and hire the trainees themselves, much as Canadian firms recruit articling students and American firms hire first-year lawyers. The difference is that UK firms are making commitments well over two years in advance of the day they’ll actually bring these trainees on board as solicitors, at which point the firm’s and the market’s circumstances may have changed dramatically.

Now, Acculaw will hire these trainees straight out of post-graduate law school and then “second” them to law firms as requested. The secondments (a maximum of three per trainee) will last between three and eight months. The premise is that the trainees will serve as a “just in time” resource for firms that want to hire potential new lawyers more sparingly and judiciously.

Acculaw says it will oversee the secondment and ensure that the trainees are, you know, trained. But how this will work in practice is anyone’s guess: we’ve never tried something like this before, so we don’t know how well, if it all, this will advance the goal of acceptably competent new lawyers. Most large and prestigious firms will continue to recruit straight from the schools and have their pick of the graduating litter, so Acculaw’s trainees probably will be viewed as the leftovers. Will this increase their attractiveness on the market? Probably not. But the UK is much farther ahead than other jurisdictions in sending work to LPOs and contract workers: trainee offers of all kinds have dropped nearly a quarter in the last two years. Many trainees will be happy to take whatever they can get.

Make no mistake: this is not a graduate-oriented initiative. Acculaw couldn’t be clearer that its customers are law firms and that its goal is to streamline the trainee recruitment process for efficiency and effectiveness. But this all came about because the previous system wasn’t serving the firms’ needs. That’s the lesson to draw from the early days of the Acculaw experiment: if law firms don’t like the lawyer training process, they will come up a risky and potentially problematic alternative. A centralized brokerage for Initial Professional Development, one where the company takes the trainees in hand and accepts ultimate responsibility for their competence, could work very well in theory, and I hope that’s where this goes. But it’s not hard to envision a less happy outcome.

2. The teaching law firm. Law professors Brad Borden and Robert J. Rhee attracted a lot of attention earlier this month with the suggestion that law schools own and operate their own law firms. In Prof. Rhee’s words, “graduating students [would] get trained in the practice of law for a fixed duration, similar to a judicial clerkship or analogously a residency for new doctors. The law firm would be run by senior attorneys who develop books of business, and it would be economically sustainable.Response from the legal community was widespread — that last link contains an excellent analysis by John Hodnicki — and mixed interest with skepticism. My own reaction was that I’d be more interested to see law firms get into the legal education business. But there is definitely something here.

What the professors are suggesting is essentially the legal equivalent of a teaching hospital. (Surely you’ve watched House?) A teaching hospital, like all hospitals, is primarily concerned with treating the sick and injured; but a strong secondary purpose is to give med school graduates and interns an opportunity to experience and learn from actual medical practice on real patients, something that no amount of instruction or simulation can achieve. Senior physicians and staff supervise their work, of course, but the patient experience is undeniably different than it would be in a standard hospital. The expectations are also different, on both sides of the bed: patients of teaching hospitals are frequently low-income or uninsured. Teaching hospitals work by filling a number of gaps in the markets for both medical services and medical training.

In theory (and at Chicago-Kent Law School, in practice), a “teaching law firm” could work equally well: senior law school students and recent graduates, under the supervision of experienced lawyers, engage with clients, research issues, try to resolve problems and generally learn the ropes of being a lawyer while getting the hang of billing and collecting for legal services. Given the likely clientele, the legal work would likely focus on criminal cases, custody and support disputes, immigration and refugee matters, landlord and tenant conflicts, and so forth. That sounds like a law school legal clinic, but those operations are underfunded and are not, so far as I know, operated like businesses. To succeed, a teaching law firm would have to train lawyers not just to practise law but also to run a profitable business. The profits would probably be minuscule, but the point is that the graduates would learn that a law office is not a charity.

It’s worth wondering, however, whether law schools are the best institutions to operate these teaching law firms. Mitchell Rubinstein points out an important acknowledgment by the professors themselves: “this law school law firm would have to be staffed by attorneys, not by the professors. The major problem with law school professors today is that many, if not most of them, are simply incapable of practicing law and many never had. But this is what we have, for the most part, training the lawyers of the future.” If a law school opens a law firm and has to bring in outside lawyers to run it, we have to ask why the law school is involved at all. Teaching hospitals are often associated with universities, but universities and med schools have a better reputation within the medical profession than law schools enjoy in theirs. And there are very few med school professors who’ve never treated a live patient. This may be a good idea in search of the right home.

3. The expert application. A third possible route for ensuring the competence of new lawyers is a technological one: the use of expert applications. Earlier this month, I received a demonstration of a fascinating new application by a company called Neota Logic, founded by respected knowledge management pioneer Michael Mills. Neota Logic is essentially an applied knowledge management system: it automates lawyers’ knowledge and expertise to create step-by-step processes for solving low- and medium-grade regulatory, compliance and advisory problems. Michael sometimes refers to it as “Microsoft Excel for compliance.”

Neota Logic users log in and enter the relevant data on the regulatory or compliance issue facing them; the system prompts them to answer a sequence of questions based on the data it’s receiving. The system guides the user through the process of entering the data, choosing the paths dictated by the responses, and arrives at the same result that an expert lawyer would have reached. It’s not only a cost-saving system that reduces the need for lawyers — it’s also a quality-control system, through the creation and application of a legal database that’s informed by, and collectively better informed than, all the lawyers whose expertise underpins it.

Neota and other expert applications to come will have a massive impact on legal workflow generally, and I’ll look at that in more detail later this fall. But what really struck me was that in the firms where it’s bring used, Neota has emerged as an associate training tool. The lawyers who’ve used it refer to it as the “partner at your shoulder” system, or more colourfully, the “Guardian Angel.” It performs essentially the same function as having a partner sitting in a chair next to the associate, asking her all the right questions, checking on her responses, and guiding her towards the right conclusion. This type of mentoring is something we wish every law firm partner would devote the time and energy to provide; we also know that extremely few ever do. So an expert system that trains lawyers as they perform could be a fine alternative.

It’s worth noting that none of these three innovations — training brokerages, teaching law firms, and expert applications — has come from the practicing bar or professional regulators. That’s not really surprising, considering lawyers’ track record when it comes to developing innovations; but I do think we’re pretty decent at adopting innovations once they’re available. Olswang has already signed on to the Acculaw system, some law firms are already using Neota, and lawyers of all kinds found the “law school law firm” to be worth a close look. I’d like to see bar associations and lawyer regulators consider these and other emerging options for Initial Professional Development as possible external solutions to the new lawyer training fiasco we’ve foisted on ourselves thus far.

If we’ve learned anything from our current situation, it’s that Initial Professional Development has to be taken seriously as the first and fundamental competence responsibility that comes with self-regulatory status. This will probably sound very familiar to you, but: just because we’ve always ushered lawyers into the profession this way doesn’t mean it’s good enough, or that we should keep on doing it this way. Multiple players have something to contribute to new lawyer training, including law schools, law firms and private-sector providers; but at the end of the day, the organized bar has to pull it all together, decide on a new approach, and enforce it. And “the end of the day” had better arrive very soon.

The decline and fall of law school

As every frustrated customer knows, there comes a time when you stop trying to negotiate with a stubborn supplier and start looking for alternatives. I think that time is just about here for the legal profession in its relationship with law schools.

If you’ve been reading this blog for awhile, you probably already know that my general opinion of law school is a fairly jaundiced one (if not, those links sum up my feelings pretty well). To their credit, some legal educators and administrators have recognized the serious if not fundamental problems with the current model and are trying to tackle it. In particular, you should be aware of:

But these are the happy exceptions, and the general rule against which they’re struggling is widely followed and deeply entrenched. For the most part, law schools are legal research and publishing platforms that finance their activities by granting law degrees, enabling aspiring lawyers to join a practicing bar that generously allows the schools to conduct the first three years of new lawyer training. The price of a law degree has risen steadily for almost 20 years; arguably, the value of that degree has stagnated or fallen throughout that time.

This state of affairs has bred an inefficient and sub-standard approach to legal education and new lawyer training, culminating in the crisis of confidence now apparent in the law school-legal profession relationship. Lawyers have been grumbling for years about law school, but they’ve never done more than complain. That’s about to change, because the facts on the ground have become impossible to ignore.

Stable careers are long gone and contract work is becoming the norm for many, even at the training level. Education, it seems, is transforming into training without the benefits that true education can bring. More and more the employers, as in the case of KPMG, are taking charge of selection, leaving the academy as a mere processing plant. And an expensive one at that. The current model of legal education is unsustainable in its present form. It can’t make up its mind as to whether it is education or training for jobs, or worse, some cackhanded attempt at both. This failing besets legal education in both the US and the UK and others too. Legal education is a perverse mix of cheap delivery and expensive consumption.

What’s really remarkable about this is that most law schools are (or pretend to be) completely unaware of the gathering storm. They continue to value faculty scholarship more highly than the classroom experience or students’ career paths. This calculation that the average law review article costs about $100,000 isn’t as shocking as this additional revelation:

“… 43% of law review articles are never cited by anyone. ‘At least a third of these things have no value…. Who is paying for that? Students who will graduate with six figures of debt.'”

What role, precisely, do law schools serve? They’re not really trade schools — they don’t take career preparation or placement very seriously — and they’re not really graduate schools — the law degree, as I’ve argued before, is a glorified undergraduate program. Their value to the legal marketplace resides in a few magic letters — J.D. or LL.B. — and they seem to be daring the profession to find alternative providers of this three-year credentialing service. I’m not sure why they’d take that risk. Most schools are heavily reliant upon law firms’ continued willingness to hire enough new graduates (often with high salaries and bonuses) to justify those schools’ tuition — at a time when the bible of large law firms, The American Lawyer, has flatly referred to those outlays as “a waste of money.”

Law schools that value their continued involvement in the legal education industry need to understand just how dangerous their position has become. The lawyers and legal regulators to whom I speak sound close to giving up on law schools, writing them off as partners or even stakeholders in the bar admission reform process. These people are the schools’ customers — the annual buyers of their inventory — and they’re despairing of any movement by the schools towards a different approach or even a real conversation with the profession about its needs. There just doesn’t appear to be anyone home.

John Flood writes: “The academy has the present advantage of providing the only route into the legal profession, or what’s left of it. I imagine it won’t retain that monopoly.” I think he’s right. The bar needs better options for the education, training and admission of new lawyers, and it is a motivated buyer. Next week, I’ll look at the whole question of new lawyer admission in some more detail and at the early signs of some new entrants to this market.

If you work in a law school, I’d suggest you track these developments closely. Because schools are poised to become something far worse than simply an irritant to the profession. They’re poised to become irrelevant.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.


At the crossroads of regulation

I respectfully suggest that we stop using the following lines from Henry VI Part 2, Act 4, Scene 2 in conversations about the modern legal profession:

DICK: The first thing we do, let’s kill all the lawyers.

CADE: Nay, that I mean to do. Is not this a lamentable thing, that of the skin of an innocent lamb should be made parchment? That parchment, being scribbled o’er, should undo a man? Some say the bee stings: but I say, ’tis the bee’s wax; for I did but seal once to a thing, and I was never mine own man.

These lines are routinely misused by two warring parties: the small-minded critics with contempt for the profession who gleefully cite Dick’s line to justify actionable loathing of an identifiable group, and the self-righteous lawyers who aver that Dick and Cade were traitors and rhapsodize about lawyers’ role as bulwarks against anarchy (in actual fact, lawyers in Henry VI’s time were often viewed as corrupt accomplices to the king’s crippling taxation laws).

I wish we could leave these lines to literature and history, but that phrase keeps coming up, most recently in a new book from the Brookings Institution titled First Thing We Do, Let’s Deregulate All the Lawyers. The title put me off right away, as did the unusually flawed article in The Economist that discussed the book’s findings and recommendations.

The authors are, however, on reasonably solid ground when they identify numerous distortions in the legal marketplace that inflate costs well beyond what they should otherwise be. I’d need to read the book to assess their claim that “of the $170 billion spent on lawyers every year in America, some $64 billion is a premium produced by market distortions,” but it doesn’t sound wildly improbable to me. (Gillian Hadfield’s excellent work on the distorting effect of lawyer regulation comes highly recommended.)

What I really don’t get, however, is this idea that “deregulation” of the legal services marketplace would be a good thing. Set aside for a moment the sorry history of deregulation across almost every industry, as well as the fact that we’re now unmistakably entering an era of more regulation and greater government involvement in the private sector. Legal services in particular require regulation for the simple reason that consumers are in no position to know whether or not they were properly served: this is not a marketplace in which buyers can figure it out for themselves before purchasing. Legal market deregulation isn’t an option even in the UK, which is undergoing massive change, as Stephen Mayson points out.

What we need in the legal marketplace is not deregulation, but disinterested regulation. We need a regulatory structure in which we can have the highest possible confidence that all vendors are equally scrutinized and all purchasers are equally protected.

In many jurisdictions, legal services are regulated by lawyers, who regulate themselves and other licensed providers in the public interest and prosecute unlicensed providers for unauthorized practice. It was, however, the widespread perception of inadequate self-regulation that led to momentous governance changes in Australia and England & Wales, highlighted by the removal in whole or in part of lawyers’ right to exercise ultimate authority over either the marketplace or themselves — demonstrating with a vengeance how fragile these rights actually were.

The public interest in disinterested regulation is now going to take center stage in the US and Canada, thanks to the emergence of web-based legal service providers (including, significantly, Lexis-Nexis) not owned by lawyers and not licensed by the appropriate governing bodies. The correct function of legal marketplace regulation, it seems to me, is to set acceptable service and competence standards for all providers and assess the fitness of each provider against those standards. Lawyers’ traditional approach to regulation, by contrast, has been simple and syllogistic: (1) Only lawyers are competent to provide legal services, (2) these providers are not lawyers, (3) ergo, these providers are not competent to provide legal services.

And maybe so. But jurisdictions in which the government regulates the legal market (such as the UK, where the Legal Services Act specifically prioritizes consumer interests) have viewed these new outside providers more favourably than jurisdictions (such as the US) in which lawyers regulate the market. It’s reasonable to ask why that’s the case, and it’s not difficult to come up with answers.

The “practice of law” (as I noted at the 3 Geeks blog recently) is something of an historical anomaly: lawyers have long been performing many law-related activities without competition mostly because there wasn’t anyone else around to compete. Our exclusivity emerged from the fact we were the only competent entrants in the market, not from a time-tested demonstration of skill so superior to other players that it required a ring-fenced franchise on legal services. It’s natural, in that context, that “self-regulation” should have morphed into “marketplace regulation,” but that doesn’t mean that morphing had a rational basis.

Times have now changed and new providers have emerged, making defensible claims that they can tackle some (but by no means all) kinds of work that lawyers previously performed exclusively. How will we respond, and with what regulatory philosophy?

“Disinterested regulation” of the legal marketplace is not only in consumers’ interests; it is very much in our own interest as lawyers. If the public and the government perceive us as truly objective regulators, fair dealers who apply the same standards of competence and reliability to lawyers and non-lawyers alike, then we have a pretty good shot at retaining our governance role. But if we’re instead perceived as regulators who consistently approve our own kind while systematically barring everyone else, then we’re practically asking for state intervention. You can guess which end of the spectrum we’re currently nearer.

No one out there is going to cut us any slack; too many people still quote Henry VI and smirk. So we need to be beyond reproach when assessing new market entrants in our regulatory role, or we risk serious consequences. We can afford to lose the right to govern the market; I would not want to see us lose the right to govern ourselves.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

We measure what we value

People love lists. We love the choosiness, the ordering, the nice linear way they stack up or count down. There’s a reason why every cover of Cosmopolitan includes at least one numbered list. You think Stephen Covey would be a millionaire today if he’d merely written The Habits of Highly Successful People? You think we’d even have heard of the American Film Institute but for its endless series of movie lists? We love lists, and we especially love rankings, which add the irresistible power of personal judgment: I declare “you” more important than “you.”

Sometimes it seems that no one loves rankings more than lawyers. We devour directories, books and websites that rate and rank our firms and competitors. We want to know what Chambers, Martindale-Hubbell, Avvo and other august authorities have to say about us, and if they’re saying good things, we crow about it. Lawyer magazines (and you can think of a few) generate attention and revenue every time they publish an article rating lawyers or law firms in a given region or field. Lawyers love attention, status, prestige, and beating the other guy, and rankings tick all those boxes. (Clients who want easy or lazy ways to choose a law firm like them too.)

The problem with rankings, of course, is that they’re riddled with subjectivity and bias. Who and what you rank, and in which order, has everything to do with the criteria you choose and the people you ask to apply them. What are the best corporate finance law firms in New York? How we answer that question says more about us than it does about the firms, and how those questions are phrased says more about the questioner than it does about us or the firms. When you stare into a ranking, the ranking stares back into you.

Rankings are in the news right now thanks to this recent article (and this follow-up, not password-protected) in the Wall Street Journal. It reported some discrepancies between the profits per partner (PPP) of the 100 biggest law firms in the United States (the AmLaw 100) published in The American Lawyer, and the same numbers apparently compiled by Citi Private Bank Law Firm Group, which lends to many of these firms. Specifically, the Journal reported that “[r]oughly 22% of the top 50 firms overstated their ‘profits per partner’ by more than 20% in 2010, according to a person briefed on an analysis prepared by Citi Private Bank Law Firm Group.” Citigroup declined to comment or to release its figures to the Journal. The American Lawyer also tried to obtain Citi’s figures and was rebuffed.

This has generated a lot of attention, and as those links demonstrate, many people have reasonably drawn conclusions that don’t exactly flatter the firms. At this stage, I’m inclined to think the likeliest explanation for the discrepancy is that we’re measuring different things here — Citi’s definition of “equity partner,” which lies at the heart of the calculation, is slightly different than AmLaw’s. That said, it sure seems odd that none of the discrepancies arose from firms under-reporting their profits per partner in 2010. And it does seem odd, when we really think about it, that the industry-bible ranking of large law firm profitability — a measure that is extremely important to these firms’ position in the market — is based on self-reported figures that do not, so far as I know, have anything like an independent audit standing behind them.

This story reminds us of a couple of things. One is that few checks and balances exist to ward off the potential for privately held law firms to inflate their publicly announced financials. This is especially a problem because whether or not every firm inflates (and I don’t think they all do), every firm is highly motivated to do so. A precipitous slide down the AmLaw rankings is often a prelude to an exodus of key partners and potentially the collapse of a firm. It was to avoid exactly that result that many firms sliced off so many staff and associates in the wake of the financial crisis — you have to prop up profits in the face of falling revenue by slashing costs or risk having partners flee the firm as if it were on fire. Moreover, to the extent partners pay attention to their firm’s overall financial situation (and that is generally not a great extent), they quite probably suffer from cognitive bias: they want to believe that their firms are highly profitable, so they’re not going to heavily scrutinize any report that says they are. This is a system inherently prone to inflationary bias.

The other reminder is of the stark reality that we’ve developed some pretty unhealthy priorities in the legal profession. We use rankings of the previous year’s self-reported partner profitability as a surrogate for the prestige and desirability of a law firm, and what that says about our profession isn’t good. (Do you admire companies based on their ability to make a profit off you? Do your clients?) I was speaking to a friend who advises law firms on professional development, and she mentioned that relatively few law firms track what their associates are actually doing — the opportunities offered to them, the tasks they’re engaged in, and the skills they are (or aren’t) developing. In fact, most law firms closely measure only one aspect of their associates’ work lives: how many hours they’re billing. The message about the firm’s priorities is clearly received by associates and is passed on in turn to the next generation.

We like to complain, as a profession, that law firms only seem to care about partner profits — but we assiduously follow and legitimize rankings that not only endorse that outcome but effectively create it. We measure what we value. So you might try asking yourself what your own firm records, measures and acts upon. Those are your priorities. That’s your culture.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Goodbye to all that

Last week, having written about the rise of online disruptors and the emergence of super-boutiques, I promised that the final entry in this de facto trilogy would identify how lawyers and law firms can ensure their profitability in this new environment. But then I spent three days at ILTA’s Rev-elation, the 2011 annual meeting of the International Legal Technology Association, and it seems to me that that ship is already sailing out of the port.

What I saw and heard at ILTA, about document assembly and contract standardization and reverse auctions and KM advances and outsourcing services and a host of other developments, is that the storm we’ve been warning about for the past few years has finally broken (read the linked articles for more details). Tired of waiting for law firms to lead change, the market has itself developed tools and processes to provide the certainty, efficiency, transparency and cost-effectiveness that legal services have long needed. Clients love these innovations and are telling law firms to use them, even (and especially) where they conflict with firms’ traditional ways of working and making money. And firms are obeying, with the vague but dawning realization that they’re now being told how to do their jobs.

What’s happening is this: law firms are finally losing control of the legal marketplace.

Law firms used to dictate the terms upon which legal services were performed — work assignment, work flow, scheduling, timeliness, format, delivery, billing, pricing, and many others — because buyers had no other options. Those options have now emerged, powered by technology and driven forward by market demand.

  • They promise legal documents not just faster and cheaper but also, incredibly, better, in terms of quality and reliability.
  • They promise greater efficiency and transparency in the previously laborious RFP-driven process of choosing and pricing law firms.
  • They promise real-time integration of world-class legal knowledge into the legal work production process.
  • They promise alignment of a legal task’s value with its performer’s skills, qualification and location.
  • And at ILTA, they demonstrated delivery on all these promises and more.

But the emergence of these options isn’t the real story. The real story is that firms are buying these new products and services, not selling them. They’re taking marching orders about their use, not issuing them. They’re accepting the new realities of the marketplace, not inventing them. Law firms are now drifting to the periphery of the marketplace, trading places with technology-driven outsiders whose own importance increases daily. Law firms, whether they realize it or not, are settling into a new role: sources of valued specialists called upon to perform certain tasks within a larger legal system that they did not create and that they do not control.

New providers and new technologies are not going to replace lawyers. But they are going to marginalize lawyers and render law firms mostly irrelevant.

Lawyers are smart, knowledgeable, creative and trustworthy professionals who, unfortunately, suffer from poor business acumen, terrible management skills, wildly disproportionate aversion to risk, outsized revenue expectations, and a business model about 25 years out of date. The market won’t abandon them — they have unique and sometimes extraordinarily valuable skills and characteristics — but it will find the best use for them: expert specialists with limited influence over the larger process.

Law firms are widely decentralized partnerships that charge on a cost-plus basis, retain no earnings from year to year, and pray every morning that their best assets will walk back through the same doors they exited the previous night. That’s not good enough. The new legal market demands systematization, collaboration, transparency, alignment, efficiency and cost-effectiveness within and among its providers. A few law firms have already adapted these traits, and some more will follow. Some law firms are so powerful they won’t have to change. The rest are in grave danger.

Here’s a revealing thought experiment to illustrate these points. Consider the flurry of investments and acquisitions that have taken place in the legal technology area recently. I’ve already written about Google Ventures’ $18 million investment in Rocket Lawyer and LegalZoom’s acquisition of $66 million in venture funding. During ILTA, Aderant acquired Client Services and CompuLaw for an undisclosed but certainly massive sum. And in the biggest news of the week, Hewlett-Packard purchased Autonomy, which among other things is a leading e-discovery provider, for no less than $10 billion.

With those figures in mind, ask yourself: what would you pay for a law firm? What price would you meet for any of the world’s ten largest law firms? Some very smart people discussed that question during a conversation at ILTA, and we reached this likely conclusion: nothing. Not a cent. Because really, what do law firms have to sell? They have no patents. They have no unique business methods. They have little unique knowledge. They have few long-term client commitments under contract. They have limited goodwill. Their only real assets are a handful of partners with great technical expertise or amazing rainmaking skills, and these assets can leave anytime with no penalty. What, precisely, would you be buying?

I said at the outset of these posts that lawyers and law firms need to decide carefully what they do and how they do it if they want to remain profitable and valuable. Let me instead suggest more questions for lawyers and law firms to ask themselves in order to even remain in the conversation.

What: Identify your inventory — what you sell to clients — and determine how much of it involves the application of lawyers’ high-value performance or analytical skills. Assume that the price for everything else you sell will plummet, and that you’ll be able to stay in these markets only if you adopt various high-efficiency systems. Absorb the reality that you will need many fewer people within your law firm to be competitive in these areas.

How: Study the means by which you accomplish the work you sell to clients and determine whether and to what extent you can adopt new technologies and processes to be not just more efficient, but also more effective in terms of quality, relevance and responsiveness. Don’t think in terms of adapting your current approaches; think in terms of starting from scratch. Use your creativity and ask: How should we go about doing what we do?

Who: Identify every person who receives a salary or a draw from your firm and ask: what is their primary contribution to the firm? Good answers will include proven business development skills, outstanding professional expertise, and amazing management abilities. These are your irreplaceables, and you’re probably underpaying them. Everyone else will require a clear demonstration of why they occupy a place in your office.

Where: In association with the previous entry, determine the best physical location for the services you provide. We are past the time in which a law firm’s four walls house all or almost all of its functionality. Some services might best be performed in a suburban location, others in a home office, others in a low-cost center elsewhere in the country or in the world, and others from a server farm.

Why: This might be the most important question of all, and I posed it in an article last month: what is the point of your law firm? I don’t mean generating profits for partners; I mean your marketplace purpose. Why do you exist? What specific need for what specific audience do you meet? If you disappeared tomorrow, who would find the loss irreplaceable? Believe me when I say: The market is asking you that question right now.

We’ve begun crossing over from the old legal marketplace to the new one. Lawyers still have outstanding value to offer in certain quarters, but we need to concentrate our market offerings around that value, and we need better platforms for our services than traditional law firms provide. We need to understand what technology is doing to legal services and either adopt that technology, adapt to the client expectations it’s creating, or leave. We need to understand our role in this new market and appreciate that it does not lie at the center of the legal universe. We’ve missed our chance to lead the new market, but we can still flourish inside it. It’s up to us.

Welcome to the crucible.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.


The rise of the super-boutique

Yesterday, I advanced the notion that lawyers’ profitability now depends on what they do and how they do it. One reason is disruptive internet-based providers that not only are grabbing commodity work and profiting from it, but more dangerously, are also changing the values clients associate with “good legal service” to emphasize speed, affordability and convenience, threatening to replace firms as platforms of choice for many legal services. Today, I’d like to look at parallel developments within the legal profession that further illustrate this point.

Earlier this year, I wrote about the stratified legal market and its implications, and more recently, for The Lawyers Weekly, I described the consequent need for law firms to do what they do best and outsource the rest. With a hat tip to John Wallbillich’s fee pyramid, I’ve put together the following rough approximation of what the market for legal services now looks like (click to enlarge):

So you have bet-the-company work at the top, ordinary course of business legal tasks in the middle, and low-value commodity work at the bottom (the stratified legal market post explores these tiers in more detail). The top tier is now shrinking — it’s probably on its way down to 10% of the total market — and the bottom layer is growing, soon to encompass about half of what clients need.

Clients enjoy seeing their legal needs settle into segments with different price points, but they still find most lawyers and law firms frustratingly amorphous and undifferentiated, both individually and collectively, in terms of skills, methods and attitudes. They sure would like to see the legal profession recognize and respond to the realities illustrated by this pyramid.

That’s why the news last week from CMS Cameron McKenna looks so significant. The London-based global firm announced that it was essentially outsourcing its entire immigration law department to an equally global but fully specialized immigration law firm, Fragomen, Del Rey, Bernsen and Loewy. Understand, Camerons isn’t sending some low-value aspects of immigration work to Fragomen — they’re sending everything, lawyers and all. Camerons will no longer provide immigration law services within its offices — but it will still provide those services to its clients, using Fragomen as its preferred supplier.

This, I need hardly tell you, is something new. It’s so new that we don’t have a verb for what Camerons has done. The Lawyer uses “divests” and “offloads,” LegalWeek uses “transfers” and “spins off,” Fragomen uses “acquires” and I used “outsourced,” but none of these really seems to fit. Fragomen is now a little bit Camerons, and Camerons is now a little bit Fragomen; they’ll always be separate entities but they’ll always be joined. We probably need a term borrowed not from business, but from biology.

John Wallbillich, again on the case, wonders if this is the end of the full-service law firm, and he may be right. But at the very least, it’s a major mutation in the full-service firm’s evolution. Camerons hasn’t abandoned immigration law altogether; it has simply recognized that immigration work was neither strategically nor financially significant enough to remain a core activity of the firm, yet was still important to the firm’s key clients. You solve a problem like that by figuring out what you do best and outsourcing the rest, which is exactly what Camerons did here. It’s closest to the Wave system pioneered by Lovells (as it then was), but a Wave circulates work from a major urban firm through smaller regional providers and back again; this is a different animal.

What we may be seeing, in addition to the evolution of the full-service firm, is the rise of the super-boutique. Fragomen, as Ron Friedmann explains, is a walking illustration of what he calls Law Factory principles:

  • Focus on a single practice: with 250 lawyers, it is much bigger than its next biggest immigration firm competitor at 35 lawyers.
  • Handle high volumes: it has handled 50,000 immigration transactions annually for 3 years.
  • Keep overhead low: its offices are not fancy (and until a then-recent move, the offices sounded pretty shabby).
  • Leverage non-lawyer professionals: the firm has more than 500 paralegals, putting the ratio to lawyers at more than 2:1.
  • Work on fixed fees: 95% of its work is charged on a flat-fee basis.
  • Take legal technology seriously: the firm has provided web-access to case files for more than 10 years; its paralegals have access to a digital best practices library of key flowcharts.
  • Keep lawyer pay in check: new associates earn $125k, not $160k and do not come from top-tier schools.
  • Be global: the factory is global with 15% of work outside the USA.

You know what leaps out at me from that list? Fixed-fee work is ninety-five percent of Fragomen’s business. You can charge fixed fees when you only practise one type of law and come to know the area intimately; you have to charge fixed fees when your margins are so thin that you need to know exactly how much it costs you to carry out a given task. That’s the world Fragomen lives in, and it has adapted itself accordingly. It’s a world foreign to most law firms, who like to do everything and charge it all at cost-plus. But it’s a world that’s growing.

Take a look at the insurance defence bar, at least in the UK (which, thanks almost entirely to the Legal Services Act, is now the world’s legal laboratory). This article in The Lawyer describes the rise of insurance defence mega-firms, most recently highlighted by Clyde & Co.’s merger with (acquisition of) Barlow Lyde & Gilbert to produce a firm with 280 partners and revenue just south of half a billion dollars. Think about that for a second: $500 million a year largely from insurance defence work, possibly the least remunerative and most demanding corporate legal practice area in existence. And that merger simply lets the new firm tackle rivals that are about to grow in a hurry: Irwin Mitchell (soon to convert to an ABS), Parabis Law and Minster Law (both with aspirations in that area). Says The Lawyer:

This change is being ­driven by savvy in-house counsel,?who?can see ­financial savings to be made from their service providers. … Clydes chief executive Peter Hasson said the ­merger was driven in part by the anticipated reduction in panel places for global insurers. “The insurance industry is consolidating suppliers on a global basis. The UK insurance industry is much more international. Our clients are saying, ’We’ve just opened in Canada – we want you there’,” he said. [And so Clydes is, recently acquiring Montreal-based Nicholl Paskell-Mede to become the second global firm to enter Canada.] …

The insurance legal ­market is changing the way legal services are being delivered. This is a change that is being driven by the volume markets squeezing profit margins and forcing their peers to play a different game. Consolidation can only continue in this sector for a limited time before it starts to seep into other key legal areas.

And so it will. Take a look at Littler Mendelson, 71st in the 2011 AmLaw 100 with 750 lawyers in 50 offices across the US and annual revenue of $381 million, and the only thing it does is labour and employment law. Like other super-boutiques, Littler is a sharp, savvy firm that knows how to maximize the value of its investments. Just as an example, read this description of Littler’s CaseSmart system, nominated for an InnovAction Award this year:

“[It] streamlines the way that cases are managed and provides attorneys with a ‘smart system’ designed to anticipate their needs as they investigate facts, conduct research, prepare responsive documentation and perform their legal and risk analyses. The system also provides clients transparent, online access to information about the status of their individual legal matters, as well as key performance indicators regarding the overall work being performed in this system.”

How many full-service law firms do you suppose create and support something like this? Not many. Yet firms like Littler, Clydes and Fragomen make investments like these, because they’re responding to the realities of a legal marketplace that demands better and more cost-effective ways of producing legal work. That’s why Camerons’ move is so significant: it has created a visceral and structured relationship with a super-boutique, increasing its effective reach and capacity while simultaneously reducing its size and spend. That’s a pretty neat trick, one that other firms may find hard to duplicate.

So we come back to the theme at the start of this post: how do lawyers and law firms ensure their profitability in this environment? That’s going to take more space and time than I have right now, so it looks like this series will have to stretch to Part 3 next week.

But I want to emphasize the trend that seems to me undeniable: as commodity work grows in volume, more law firms are stepping up to take that work and profit from it through a relentless focus on volume, specialization and systematization. Go back to the pyramid: these firms are eventually going to dominate that third tier of client work (or at least, that percentage of the work that doesn’t leave the legal profession altogether). The first tier, mission-critical work, is shrinking, and the very top law firms have already locked in on it.

What’s left for the vast majority of non-specialist law firms? What do they get? In my opinion, they get an existential crisis. More on that next week.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.