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.

BigLaw levels up

My older brother used to give my teenaged self (with some justification) a hard time about playing Dungeons & Dragons. I eventually grew tired of the cracks about wasting time in a fantasy world, though, and I assembled what I considered a strong defence of the game. “D&D helps you build a lot of skills,” I said. “You develop your imagination and creativity; you practise your problem-solving abilities; you learn to collaborate with others and pool your unique resources in working towards solutions.” This triumph of rationalization clearly had “future law student” written all over it.

But here’s something else Dungeons & Dragons pioneered: It was one of the first games to reward a player’s success with greater abilities. You don’t gain powers throughout a game of Monopoly or Risk or Scrabble; you just amass more money or territories or points. But in D&D, every successful venture results in “experience points,” and when you reach a certain amount, your character moves up a level and gains new abilities as a result. Your capability increases as you gain experience — much, ironically enough, as in real life. It’s called “levelling up,” and today, so many games contain some variation on that theme that we take it for granted.

Of course, as you level up, your opponents become stronger and your challenges become greater — again, much as in real life. Large law firms, it seems to me, are now in the process of “levelling up” — through effort and experience, they’re forging successes that are increasing their effectiveness and helping them pull ahead of their peers. But as they do so, newer and tougher challenges are rising up to greet them — and it’s an open question whether the firms will be up to the task.

BigLaw has, in fact, been paying attention to what’s going on around it, and this should not really come across as a surprise. For all the grief that people like me enjoy giving them, large law firms are not actually hapless dullards stumbling backwards towards the edge of the cliff. They’re big operations with tons of money and some really smart people high in the org chart, and they’ve noticed that the legal environment is undergoing irreversible change that threatens their business model. Not every firm that recognizes its peril can do something about it; but those that see the challenge, and can execute to meet it, are more numerous than popularly believed.

A raft of examples has emerged just in the last few months to illustrate this. Prof. Bill Henderson highlights three large firms — Bryan Cave, Littler Mendelson, and Seyfarth Shaw — that have made great strides in technology, systematization, and workflow, and are revolutionizing the way they do business and serve clients.  The American Lawyer‘s Aric Press points out the rapid rise of pricing officers in BigLaw (76% of large US firms now have one) and its implications for changes to cost and profitability management, value definition, and partners’ pricing discretion. LeClair Ryan teamed up with LPO United Lex to create a Legal Solutions Center for doing routine, repeatable work with low costs and high systematization, just the latest in a line of firms to outsource straightforward work to a low-cost provider. Allen & Overy even commissioned and published its own report into the future of legal service delivery.

Ron Friedmann argues that far from being disrupted, BigLaw has begun to adapt to the new forces at work in the market: “Most US large firms continue to perform fairly well. While some firms do suffer, many thrive.” This undoubtedly is true. To a greater or lesser degree, many BigLaw firms have levelled up: they’ve learned, invested time and energy, and made adjustments that helped them improve their productivity and effectiveness. They should be commended for that, because it really is not easy to introduce change of any kind into large organizations with extremely diffuse decision-making authority and a deep ambivalence about innovation. [do_widget id=”text-7″ title=false]

But the thing about levelling up, of course, is that as your own powers increase, your quests become tougher too. Intermediate warriors don’t take on goblins and orcs anymore; they’re up against cave trolls and frost giants. It’s great that BigLaw is overcoming its initial challenges, because the next set will not only be tougher, they’ll be multi-dimensional. From my perspective, here are four forces with which large law firms will shortly have to contend:

The exponential growth of technology. I’m still relatively sanguine about the ultimate impact of technology on the legal sector — mostly because I’ve never yet had to reboot a lawyer. But it’s difficult to ignore the evidence that machines are becoming extraordinarily good at replicating many functions that firms traditionally assigned to their attorneys. Clio’s Joshua Lenon provided a useful overview of a panel at the most recent International Legal Technology Association meeting that featured insights from four accomplished legal tech leaders. Lawyerist’s Sam Glover explained Fastcase’s Bad Law Bot and its head-spinning implications for litigation. There are so many new applications now, from Shake and Fair Outcomes to Neota Logic and Picture It Settled, that it’s a matter of when, not if, tech will start seriously infiltrating BigLaw.

One name in particular keeps popping up in these conversations: Watson. The American Lawyer gave us a snapshot of what IBM’s machine-learning behemoth is now capable of (the version that won Jeopardy! could read 200 million pages in three seconds; the current iteration is 24 times faster). IBM’s GC, Robert Weber, believes Watson could pass the bar tomorrow. (Interestingly, he also believes non-lawyers shouldn’t be allowed to own law firms.) Watson’s potential legal applications are already emerging: a version called The Debater assembled arguments for and against banning video games based on a lightning-fast survey and analysis of existing content on that topic. Ron Friedmann described some reservations about the outlook for Watson in law; for my part, I think there are many more repositories of useful legal data than large law firms that would be willing to help create these tools. And when technology does finally penetrate BigLaw firms, one impact will be felt above all others:

The collapse of their compensation systems. Michael Mills of Neota Logic, a speaker on that ILTA panel, wrote an incisive article about legal technology and innovation, specifically about the one feature integral to law firms that blocks both these forces: the billable hour. “The elephant in the room is stamping and snorting and must be heard: Innovation destroys hours. Now, that’s bad wherever the majority of lawyers’ revenue is rates x hours. Every hour saved is a dollar lost. But it’s especially bad for law firms, and that is almost all of them, whose partner comp schemes set the income of individual partners with a formula that counts the individual partner’s hours, or the hours of her team. Because then she knows that she will be personally penalized for her own innovations.” Innovations reduce law firms’ inventory, the billed hours of their lawyers. But equally, innovations are inescapable. You can see where this is heading.

Technological automation, process management, and operational efficiency will all be essential to the ability of large firms to be profitable in the years to come. But virtually every new tool or system that increases a firm’s productivity reduces the time spent to complete a task, and “time spent” is the lifeblood of lawyer compensation systems. And as I wrote years ago, the traditional law firm simply can’t function without counting and maximizing hours; it’s built into their financial and cultural DNA. De-emphasize or remove time as a factor in productivity, and you remove the one card holding up the whole house. So law firms that hope to be both functional and profitable will have to find new, non-hourly ways to remunerate their people. I don’t know of a single BigLaw firm that’s even close to that point. Something’s got to give here — but it’s not going to be the market forces driving change. It never is.

The rise of colossal competitors. The legal market is at the precipice of unprecedented regulatory upheaval. Most everyone knows about the Legal Services Act and the licensing of more than 300 Alternative Business Structures in England & Wales over the last couple of years. Not everyone realizes that among the legal entities that have been authorized there are law firm businesses owned by a giant insurance company, a telecommunications provider, and a financial and consumer services company. Most significantly, three of the Big 4 accounting firms have considered or (in the case of PriceWaterhouseCoopers) already received an ABS licence. These are all entities that traditionally have retained large law firms or have referred work to them. Non-lawyer law firm ownership, already approved in Australia and Great Britain, has been endorsed by the Canadian Bar Association and will likely be considered by Canada’s largest legal regulator next spring. Sooner or later, at least one US jurisdiction will follow suit, and the world’s largest legal market will be changed forever. This is the future competitive landscape that BigLaw needs to start anticipating today.

Take a closer look at the accounting firms, because if there’s any potential new player in the market that should keep BigLaw’s managing partners awake, it’s this one. “Accountants aren’t kidding with ABS this time,” wrote The Lawyer‘s Catrin Griffiths earlier this year, and she zeroes in on exactly why BigLaw should be watching very carefully: “The accountants are after bread-and-butter commercial, employment, mid-level corporate, immigration, outsourcing and IP; it may not be bet-the-company stuff, but they create deep relationships with clients that can be leveraged.” It can be argued that the likes of Parabis and Co-Op and Slater & Gordon are focused on the consumer market and therefore safely distant from BigLaw’s hunting grounds (although Parabis evidently aims to move into the corporate market); the same can’t be said for “Big4Law.” Lawyers struggle with value billing; accountants advise their clients on it. A tiny handful of the world’s largest law firms generate $2 billion in revenue a year; as Catrin points out, PWC alone clocks in at $32 billion. If a fight does break out in this sector, it won’t be a long one or a fair one.

The emergence of client self-determination. In some respects, this might be the most significant new challenge for BigLaw to unravel, because it goes to the heart of law firms’ work supply chain. Many lawyers have already experienced a reduction in work and revenue from corporate clients, and the biggest reason has been insourcing: clients keeping a growing chunk of work inside the law department. “Over the past decade, the number of in-house lawyers has doubled in the UK. Now, one in five lawyers practises in-house. Over time, private practice has lost up to 20% of its market share to its clients,” writes Reena SenGupta in Legal Business. “Few private practice partners can pre-empt problems in the way their in-house counterparts can. … Where will their value be in the future? Outside of specialist legal knowledge that does not reside in the internal legal team or the ability to marshal bodies for a major matter (and the necessity for the latter is in question), where is their value-add?”

I wrote recently about how clients will become lawyers’ biggest competitors, and nowhere does this apply more than with corporate, commercial, and institutional clients. They have the unique combination of a strong impetus to manage their legal affairs better and the financial assets with which to make that possible. They are re-positioning themselves in their relationships with outside counsel, viewing BigLaw as just another resource rather than the default sourcing option, and they’re placing themselves at the centre of a new risk management ecosystem. Large firms, for the most part, have no idea what to do about this. They find it difficult to look at the world through clients’ eyes; they lack the necessary empathy. They know how to receive and perform legal work, not how to develop and manage the complex client relationships that produce work. This is an institutional skill, one that can be learned — but it’s much tougher than installing new software or even initiating legal project management.

BigLaw has seen and has begun to respond to shifts in the legal market, and kudos to those firms that have done this the best. But I want to make it clear to them that this process is not over, but rather is just beginning. Fundamental assumptions about their business models, their competitive environments, and their client relationships are all poised to shift dramatically over the next ten years, and it will require extraordinary effort, resilience, and leadership for them to adjust accordingly. Many firms have found it exhausting just to get this far, and I’m not sure how well they’ll respond to what’s coming.

It would be foolish to write off BigLaw, even given the enormity of these challenges: recall what I said earlier about what size, smarts, and money can accomplish. But, man — this is not going to be easy. Welcome to Level 2.

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.

Why law firms need R&D investment

Lawyers hardly ever talk about research and development. We might be the only major industry or professional sector that fails to do so.

Last year, total spending on R&D by the world’s 1,000 largest companies was about $638 billion, according to the Strategy& 2013 Global Innovation 1000 Study. The 10 companies that spent the most on R&D (from Volkswagen to Johnson & Johnson) shelled out a little less than $100 billion themselves. Five of the ten companies on that list were in the health-care industry. Typically, businesses invest about 3.5% of their annual revenues on R&D, a measure known as R&D intensity.

The commercial legal market generates something in the range of $300 billion in revenue annually (a figure that comes with some reservations). Applying a normal R&D intensity of 3.5%, we would conclude that law should be spending about $10.5 billion every year on research and development. The AmLaw 100 alone clocked in at around $77.4 billion in revenue, suggesting their R&D spend ought to be $2.7 billion. We all know, of course, that nothing like this is actually happening.

Money was spent on legal R&D in 2013 — but as Susan Hackett pointed out, it wasn’t spent by established by law firms, but by their suppliers and competitors in legal startups. A venture capital investment of $458 million is slightly more than 1% of total legal revenue; it’s not nothing, though it’s not a whole lot more than that. But preliminary estimates suggest 2014 will produce lower levels of outside investment in the legal industry. So if there’s going to be an imminent uptick in legal R&D, it will have to come from lawyers and law firms themselves.

Many lawyers have difficulty seeing how R&D would have any application to their businesses, probably because “R&D” conjures images of scientists and engineers in lab coats, conducting experiments in hopes of discovering some new chemical compound or medical miracle. But research and development is far broader than that: it refers to activities that a business undertakes in the hope they will lead to the development of new (or the improvement of existing) products, services, and procedures. It’s not limited to the scientific or manufacturing sectors at all.

How could a law firm conduct research and development? By considering possible new products and services for its market, or new ways in which its services could be created and delivered. Here are four types of R&D activities that law firms of any size could undertake.

1. New Products And Services: Think about emerging or overlooked possibilities for providing value to your firm’s current or desired markets. Look at it from the perspective of people and businesses within those markets, their needs and opportunities, and consider potential responses or solutions that you could offer. This isn’t a lawyer-centred “business development” exercise; it’s a client-centred “opportunities and solutions” exercise.

2. New Delivery Mechanisms: Brainstorm potential new client service protocols or enforceable firm-wide systems for client interaction. Envision new methods for delivering products and services online, directly over the Net. Could you package your firm’s expertise as an ongoing service? What delivery system changes would enhance the speed and convenience of service for your clients? What do clients wish law firms would change, but never do, about client service?

3. New Pricing Systems: Anything that truly moves your firm away from the billable hour is going to get clients’ attention. Effective pricing involves knowing your client, your competition, and your costs: what projects could acquire this information from the market or dig it up from within your operations? Identify the lawyers, practices, or client relationships most amenable to new pricing arrangements, and start coming up with experiments to try them out. (NB: Your compensation system will be affected, too.)

4. New Management Systems: There’s not a law firm in the world that couldn’t benefit from better processes and management practices. Rethink your assumptions around talent by exploring home-based or mobile workers and project lawyers, or by reconsidering your recruitment and training regimens. Study the potential use of project management on personnel, budgets and timelines. Could you harness your firm’s know-how to improve productivity or create value? Think of ways to reward people for good management.

Earlier this year, at a Legal Marketing Association conference, I delivered (along with Prof. Dan Katz of Michigan State Law’s Reinvent Law Lab) a day-long session on R&D to a group of law firm CMOs. The marketing directors were intrigued by the possibilities of law firm R&D, and in their breakout sessions, they came up with all sorts of great ideas and initiatives that could be planted and could blossom under such a program. [do_widget id=”text-7″ title=false]

But when we asked them to identify the internal obstacles to developing an R&D functionality, many CMOs wearily raised the same objection: the partners wouldn’t go for it. Research and development, by its very nature, is an investment in the future, a short-term expense made today in order to generate revenue and sharpen competitiveness in the medium and long term. Many law firm partners, fixated on their annual profits, have no interest in reducing their income today in the hope that their income tomorrow will be multiplied (and that goes double for any partner in his or her last few years of practice).

This is most likely true. And I can’t help but note this reluctance in the context of the growing debate around non-lawyer ownership of law firms. Virtually every company in the Global Innovation 1000 is publicly owned, with shareholders renowned for their insistence on steadily rising value — yet these same shareholders have no difficulty approving the expenditure of millions of dollars annually on R&D initiatives. They’re quite willing to forego some profitability today if it could help sustain and improve the company’s prospects down the road. Yet lawyers, supposedly the guardians of higher-minded professional objectives, prefer to empty the entire piggybank every year rather than divert a few coins to enhance the firm’s long-term competitiveness.

But happily, there are exceptions. Earlier this year, AmLaw 100 firm Akerman LLP announced the launch of an R&D Council, “dedicated to creating new offerings that advance the business of law and redefine service delivery models, jointly helping Akerman and its clients overcome future barriers to innovation and growth.” Akerman has a history of innovation-friendliness, but their efforts here should demonstrate that R&D is neither impossible for nor irrelevant to law firms.

Nor is R&D limited only to large firms. I remember reading (and if I can find the link, will provide better details) about one moderately sized firm that gathered its young associates together, gave them a chunk of non-billable time, and told them to come up with ideas about markets the firm could be serving tomorrow if it started investing the time and effort today. One of the many ideas brainstormed in that session grew to become one of the firm’s top practice areas. That wasn’t a systematic, budgeted and ongoing R&D functionality; but even as an ad hoc event, it demonstrates what can happen when a firm gives its lawyers the permission and the space to be creative about what they do and how they do it.

Law firms probably won’t break the R&D 1000 anytime soon, but they don’t need to, either. Asking every partner in the firm to take 99% or 98% rather than 100% of their annual draw, and putting that money towards a well-funded research and development director who reports progress quarterly to the firm’s management — that might be all it takes to get your firm’s R&D started. And that investment, in turn, might be all that keeps your firm relevant and competitive as the legal market continues to redefine itself in the years to come.

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.

Watershed: The CBA Futures Report

This morning, the Canadian Bar Association released the widely anticipated Final Report of its CBA Legal Futures Initiative, “Futures: Transforming The Delivery Of Legal Services In Canada.” I had the benefit of receiving an advance copy a few days ago, so I’ve had time to review the report and prepare some thoughts.

My primary thought is this: The CBA’s report constitutes a watershed moment for the legal marketplace in Canada, and possibly in North America. No document like this has ever been produced by a legal organization on this continent; the only reasonable comparison I can draw (albeit obviously not as groundbreaking) is Britain’s Clementi Report, released nearly 10 years ago. That’s how significant I think the CBA Futures Report could turn out to be: it has the potential to help usher in a new era in legal services on this side of the Atlantic, and to utterly remake the Canadian legal market in any event.

Here’s a link to the full report, one to its executive summary and 22 recommendations, and one to an article in the CBA’s National magazine outlining its major points. This post identifies what I think to be the report’s most important recommendations, with accompanying commentary. I won’t touch on every recommendation, just the ones that I think have the greatest potential impact.

A few key points, however, at the outset:

1. This Report is not CBA policy, not yet anyway: in order for that to happen, the report must be approved by the CBA’s Governing Council. Normally, if I recall my CBA procedures correctly, that vote would occur at the association’s next mid-winter meeting in February 2015. Council might adopt the report in its entirety; it might also adopt only some of its recommendations, and it’s possible (although I think very unlikely) it could reject the whole thing. The next several months of debate and discussion should help indicate which way this will go.

2. The CBA, in case you’re not aware, is solely a lawyer advocacy group. It has no regulatory function, although it frequently advocates in the public interest and makes suggestions to the provincial law societies, which do exercise the statutory regulatory role. So even if CBA Council adopts this report in its entirety, that still doesn’t change the governance of the Canadian legal profession. I imagine, however, that Canada’s 14 law societies might well consider the report to be persuasive evidence (especially in Ontario, where a similar committee is poised to deliver a report on ABSs next spring).

3. I had no input, in case you were wondering, into the direction or content of the Report (I worked at the CBA for 10 years, ending in 2009). I facilitated a #CBAFutures Twitter chat earlier this year, and I provided some informal advice about communications and social media approaches for the project the year before that, but that was the extent of my involvement: this report arrived as new to me as it is to you.

With those points in mind, here we go:

1. Flexibility in Business Structures

Lawyers should be allowed to practise in business structures that permit fee-sharing, multidisciplinary practice, and ownership, management, and investment by persons other than lawyers or other regulated legal professionals.

Nothing like starting with a bang, is there? The Futures Committee recommends a nearly complete liberalization of the regulations that govern lawyers’ business structures. MDPs aren’t all that dramatic a change anymore — they’re already available in some Canadian jurisdictions, albeit with various restrictions on non-lawyer control — but fee-sharing with non-lawyers is a major development, one that hasn’t received as much attention recently but that could have a significant impact on solo and small-firm practices.

But the big-ticket item — the one that will dominate headlines and conversations — is the recommended approval of law firm ownership, management, and investment by non-lawyers. Note that there are no qualifiers, here or elsewhere in the report, about controlling percentages of ownership. Scotland, for example, allows up to 49% non-lawyer ownership in order to maintain lawyer control, and British Columbia’s 2011 report on Alternative Business Structures spoke approvingly of this middle way. The CBA, by contrast, has gone all in — and wisely, I think. Minority non-lawyer ownership is neither fish nor fowl: too much control for traditionalists, but not enough control to actually change the way firms run, leaving nobody happy. If you’re going to start a revolution, you don’t bring toy guns to the barricades.

The CBA, to its credit, has struck at the heart of the argument over how lawyers should be permitted to structure their businesses. Recommendation #1 will be seen, correctly, as the crux of this report and the vanguard of the recommendations that follow, and it will be the main battleground between traditionalists and liberalizers. If this recommendation is defeated or watered down before adoption, this report loses much of its impact, and many of the subsequent recommendations, even if passed, will feel toothless. If it’s approved, everything afterward will change.

4. Alternative Business Structures

Non-lawyer investment in legal practices should be permitted, but only on a carefully regulated basis as follows:

[My summary of what look like the key conditions:

  • An ABS (along with its lawyers) is to be regulated exactly as a law firm would be, with the same fiduciary, ethical, candour, and conflicts obligations to clients as a law firm has, and it must advise clients solely in their interests;
  • Non-lawyers can deliver legal services if they’re effectively supervised and controlled by lawyers;
  • The ABS, its owners and its shareholders may not access privileged client information without express client consent and then only for the client’s benefit;
  • The ABS must purchase legal malpractice insurance no less than required for lawyers but increasing with the size of the ABS.]

None of these restrictions seems unreasonable to me: most seem simply to confirm that the level of regulatory scrutiny currently applied to law firms should be applied in equal measure to an ABS. That’s no small thing: the report might have recommended higher governance standards for ABSs, but it did not.

The requirement of lawyer supervision of non-lawyer legal service providers is one that is already applied within most law firms anyway, and while it’s possible this requirement might eventually prove unnecessary, there’s certainly no harm in adding it now, especially if it helps calm traditionalists’ fears (ditto for the insurance requirement).

5. Fee-sharing with and Referral Fees to Non-Lawyers

The FLSC Model Code Rules should be amended to permit fee-sharing with non-lawyers and paying referral fees to non-lawyers, subject to the following:

[My summary of what look like the key conditions:

  • Existing conflict, confidentiality, privilege, and candour rules fully apply;
  • The client must receive full disclosure of, and discuss with the lawyer the relationship with, the fee-sharer and of the shared fee, which itself must be fair, reasonable, and fully accounted; the fee cannot be contingent and the referral cannot be “exploitive”;
  • The lawyer and client must discuss client expectations arising from the referral and mutually agree on the basis of the retainer.]

This recommendation should be most relevant and useful to solos and small-firm lawyers, because it should provide them with alternative sources of revenue (and giving firms access to novel financing sources is one of the main purposes of liberalization). What I like best about this recommendation, though, is that it brings out into the open all the fears and suspicions that lawyers have always carted around concerning fee-splitting with the dreaded “non-lawyers,” and it forces us to confront them head-on.

It’s a (generally unspoken) article of faith among traditionalists that fee-sharing with non-lawyers inevitably “corrupts” the legal profession, although to my knowledge, no one has established this belief through either sound argument or specific examples. I’d listen to those arguments if they were forthrightly made and stood up to scrutiny; but rarely is either the case. This recommendation reads like a refutation of lawyers’ unconscious assumption that non-lawyers are fundamentally less moral and ethical than we are; I look forward to hearing someone argue that assumption explicitly, in public.

6. Delivery of Non-Legal Services by MDPs and ABSs

MDPs and other forms of ABSs should be permitted to deliver non-legal services together with legal services on the basis that [the same client , confidentiality, and ethical protections that we’ve encountered already, but with this interesting addendum:] If the public interest demonstrably requires that some non-legal services should not be provided together with legal services, the rules should so provide. Otherwise there should be no restrictions. [do_widget id=”text-7″ title=false]

These new entities probably will want to deliver non-legal services as well, so it makes sense to start creating a regulatory framework for that (although it will be very interesting to see how lawyers choose to define “non-legal services,” and what impact that definition might have on subsequent attempts to enforce the “unauthorized practice of law”).

But that last sentence is intriguing: it sets up a presumption in favour of the authorization of non-legal services delivery, overcome only by a demonstrable public interest. The report could have created the opposite burden: no non-legal services, unless the ABS can demonstrably show there is no threat to the public interest. The report chose not to do so.

8. Compliance-Based Entity Regulation

Compliance-based regulation of legal practices should be adopted to promote ethical best practices as a supplement to existing rule-based regulation of individual lawyers. Under compliance-based regulation:

  • law firms would be required to register with the law societies;
  • law firms become regulated entities upon registration;
  • law firms would be required to designate a lawyer with whom the law society may deal on behalf of the law firm and who is responsible for overseeing law firm regulatory compliance; and
  • regulation of law firms would include the requirement of supplementary compliance-based regulation to promote ethical best practices.

Now, this is interesting. As mentioned above, the CBA itself has no regulatory powers, and the law societies have always politely made it  clear that such issues are entirely within their jurisdiction. But compliance-based entity regulation is an idea whose time is rapidly approaching, if it’s not already here: Australia and England have already adopted it to varying degrees, and some Canadian law societies are taking a very close look at it. The Nova Scotia Barristers’ Society, in particular, is making groundbreaking progress in this direction, and Ontario’s ABS Working Group has also explored the issue. Approval by CBA Council of this regulatory approach would be interpreted as a strong vote of confidence in this direction and could signal a tipping point towards its widespread adoption in Canada.

10. Effective Supervision of Non-Lawyers

The FLSC Model Code Direct Supervision rule should be revised to require effective supervision rather than direct supervision. …

This recommendation, previewed in #4, goes on to explain and qualify this approach in some detail, but the key distinction has already been made: substituting “effective” for “direct” supervision. The practical outcome is to relieve lawyers of the need to hover over their non-lawyer employees, monitoring or checking everything that they do, which “direct supervision” implies. “Effective” suggests that as long as there are systems and procedures in place that work to maintain acceptable standards of conduct and activity by non-lawyers, the lawyer need not concern himself or herself with more than the normal supervisory process applied to trusted colleagues of any description.

19. Structured, Rigorous and Consistent Pre-call Training

There should be a structured, rigorous, and consistent approach to pre-call training to ensure new lawyers have all the skills and knowledge required to practise safely and effectively.

This looks like a reference to the struggling articling system, which is in the throes of upheaval and can’t be asked to function much longer as a de facto competence qualification process. The key word here is “training,” which is quite a different concept than “experience,” the usual way in which articling is described. Articling is indeed a great way to “experience” what it’s like to be a lawyer; but that’s not the same thing as being given “training” in how to be a lawyer. I wonder if this isn’t a backhanded vote of confidence for Ontario’s Law Practice Program, which could offer an alternative qualifying route to articling, one that emphasizes “training” over “experience.”

21. Parallel Legal Programs

Educational providers should consider creating parallel programs in areas such as legal technology, in college or other environments, or incorporated into law school education, to educate and train new streams of legal service providers which may include lawyers.

Many of the recommendations in this report touch on legal education, but they’re not nearly as sweeping as those related to the regulation of lawyers and their business structures. Perhaps that’s an acknowledgement that the CBA, like other organizations, isn’t in a position to bring about any sort of change in law schools, no matter how much such change might be needed and desired. But still, the report has no difficulty stepping directly into the law societies’ regulatory back yard, so one has to ask why a similarly bold incursion wasn’t made onto law schools’ lawn.

In any event, this is an excellent suggestion, one that law schools should rush to explore and perhaps implement. It’s increasingly obvious that new legal professionals with innovative skill sets and job descriptions will grow in the years to come, at the expense of traditionally educated law students. Law schools looking for a growth area should already be drafting curricula for Legal Knowledge Engineers, Legal Process Managers, and the like — before someone else does. There are now more than 5,000 trained paralegals in Ontario, not one of whom received his or her paralegal training from a law school. It would be a shame for the law schools to miss the same boat twice.

22. Continuing Professional Development

Continuing professional development should be designed to meet lawyers’ needs through the stages of their careers and reflect identified and emerging client needs. Legal regulators should adopt consistent outcome-based national standards for CPD. Research should be undertaken to measure any link between quantity or input-based CPD and competence.

This is the report’s final recommendation, and it caught me by surprise. I’ve written before about the fundamental problems with how CLE is mandated and delivered, especially the problem of demonstrating its effectiveness. This recommendation tackles these issues and more, declaring that CPD’s purpose is to meet the evolving needs of lawyers and clients (which reads to me like a call for more practice- and client-related information and training), that there should be CPD standards grounded in practical outcomes, and that the assumption that traditional CPD correlates with competence should be tested (that last point, if studied and debunked, could change CPD worldwide). Everyone will have their own rooting interest for one of these recommendations; this is mine.

As mentioned, I’ve only highlighted some of the report’s recommendations; others might strike you as more significant, and you might have a different take on the ones I’ve explored. If so, let us know what you think in the comments. I truly have no idea if CBA Council will approve this Report, partially or in its entirety, and whether such approval would prompt one of more law societies to implement some of these recommendations through regulatory review. The Report has only just entered the public sphere, and the forthcoming commentary and conversations should be fascinating.

But I go back to my opening assessment: I’ve seen a lot of reports from a lot of organizations about “the future of law,” and I’ve never seen one as powerful, wide-ranging, and apparently serious as this one. Several U.S. sates, as well as the American Bar Association (through its new Commission on the Future of Legal Service Delivery) are considering many of the issues highlighted above; I can’t help but think that this report could be cited as persuasive authority by those who favour (as I do) the liberalization of legal market regulation and legal service delivery. No matter what changes actually result from this report, its release changes the conversation about legal regulation in North America.

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.

Who’s your biggest competitor?

That’s a question I sometimes like to ask when visiting a law firm or speaking to an audience of lawyers: “Who is your biggest competitor?” I usually let the respondent decide what “biggest” means — sometimes they interpret it to mean the competitor who poses the greatest threat to their book of business, or who has the kind of clients the lawyer wishes he or she had, or who keeps them up at night worrying about what they’ll do.

Take a moment to think about it yourself. Who’s your biggest competitor? If your colleagues happen to be walking past your door, flag them down and ask them. Come back to this post when you’ve written down your answer and/or collected others.

So, here are the most common answers to that question, in no particular order:

  • A specific lawyer in another firm
  • A specific lawyer in my own firm (surprisingly common in larger firms)
  • An entire practice group in another firm
  • An entire firm (managing partners think along these lines)
  • A legal provider outside my jurisdiction (LPOs, for example; not too often)
  • A non-lawyer substitute, such as LegalZoom (more common for smaller firms)
  • Me (the clever answer from lawyers who take pride in always pushing themselves harder)

I don’t dispute any of these responses, and some of them are absolutely correct. Sometimes a lawyer might identify the right category (a lawyer in another firm), but the wrong specific answer (it turns out that Attorney B, rather than Attorney A, is her biggest competitor). Nonetheless, I think that many of these responses are wide of the mark, because they overlook what I consider to be almost every lawyer’s biggest competitor, now and especially in the future.

  • My client.

We have entered the era of do-it-yourself lawyering. Clients of every type — individuals, families, businesses, corporations, non-profits, and governments — have taken their lead from Annie Lennox and Aretha Franklin: they’re “doing it for themselves.” They are self-navigating their way, in whole or in part, through the legal system to achieve their goals — not because they love the experience or because it delivers better outcomes, but because (a) the price of a lawyer’s full-time guidance is beyond their means or disproportionate to the value of their needs, and (b) products and services are emerging to help them self-navigate.


There’s a lot more going on here than simply an “access to justice crisis,” although that’s certainly part of it. What we’re seeing, partly in response to that crisis, is the gradual acquisition by both individuals and businesses of the skills, confidence, and willingness to manage at least part of their legal affairs on their own.  [do_widget id=”text-7″ title=false]

The longstanding assumption at the heart of the legal system — one shared by lawyers, judges, and legal organizations — is that interaction with the system requires the assistance of a lawyer. We unconsciously assume that “hiring a lawyer” is the default setting. But as I’ve written before, that assumption is no longer shared outside the legal community — lawyers are in danger of becoming incidental to the legal system.

I think “self-navigation” is the fundamental trend driving much of what’s confounding lawyers and the legal system today. And I don’t really see that this trend will be thwarted or diverted anytime soon. Technology continues to develop useful and accurate tools for legal self-navigation, lawyers increasingly recognize the benefits of limited scope representation, and the spread of open and well-designed legal knowledge and information systems is constantly creating more sophisticated system users.

I suspect that this trend will result in a re-examination of the word “client.” We use this word to describe the people and businesses who hire us to guide them through the legal system — but when you think about it, “client” is an oddly possessive word for us to use. When we, as lawyers, call someone a “client,” we define them in terms of their relationship to us. That has several practical and ethical benefits for lawyers, but it also traps the person or business in a one-dimensional, lawyer-facing position regarding the legal system. What we’re starting to see is people and businesses struggling to free themselves from that straitjacketed, all-or-nothing position. And I think they’re getting the hang of it.

In future, people and businesses with justiciable issues will have a portfolio of options for addressing those issues, and at the centre of that portfolio will be not a lawyer, but the individual person or business. Lawyers will simply be one of the options in that portfolio, to be deployed selectively and appropriately when our skills match the present needs. Our “clients” are going to assert more independence, carve out a stronger position, gain more choice in understanding and resolving their legal issues. Instead of automatically coming to us and asking, “Can you do this for me?” they will increasingly bypass us while saying, “I can do this part myself.”

So don’t focus too heavily on what other lawyers, other firms, or even the dreaded “non-lawyers” are doing to take business from us. From now on, our own clients will be our biggest competitors.

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.

A word in Spanish

Earlier this summer, I was asked by Mario Ferrer of Responsea, an online lawyer platform in Spain,  if I could answer a few questions for their readers, especially those who are just starting off in the law or grappling with the onslaught of technology. My brief replies sound much better and more elegant when translated into Spanish, as the resulting Responsea post demonstrates. But I thought you might be interested in reading the original English version, especially if you’re in the early stages of your legal career.


1. How can a lawyer prepare himself or herself to prepare for the future?

There are three things every lawyer must know as well as possible in order to thrive in the new legal market:

1. Your clients. Understand their concerns, walk in their shoes, look at the world through their eyes. Identify their goals and hopes, worries and ambitions, so that you can advise them as well as possible. Help them anticipate problems and opportunities before they arise.

2. Your competition. Not all your competitors will be other lawyers: online providers and non-lawyer rivals will become more common in the next several years. But among lawyers, understand clearly who else wants to serve your chosen client group in your chosen area, and what they offer in terms of service and price.

3. Your business. Too few law firms have a sufficiently clear picture of how much they spend to provide their legal services. Fewer still have installed tools and procedures to help make their businesses more efficient and productive. Run your legal business to be as cost-effective and quality-controlled as you can manage, and always be aware of your cash flow.

2. How can a law firm be competitive nowadays?

You can’t be competitive for every client in every market for every type of work. You also can’t be competitive for work that just walks in off the street. You can only be truly competitive when you identify the specific type of work you want to do, for the specific type of client you want to serve, to accomplish specific sorts of outcomes or values for those clients. If you know all of these, and if you can explain why you’re the right choice in these circumstances, you’ll have no difficulty outclassing other firms in these areas.  [do_widget id=”text-7″ title=false]

3. Which are the priorities of today’s clients? Time, money …?

Clients want different things in different contexts: the multinational corporation and the single mother are obviously completely different entities. What all clients want, however, is peace of mind. They want a worry resolved, a pain eliminated, an opportunity filled, a step forward taken. How can you give your client peace of mind? Answer that question, and you’re well on your way to meeting the client’s priorities.

4. How can a law firm encourage its workers to adapt to the online environment?

Everyone now searches for everything on the internet. Vast numbers of people buy vast quantities of products and services on the internet. Having a weak or non-existent internet presence is like moving your law office out of a prime commercial office building in a major city and into an unmarked house on the outskirts of a small town. It’s really no more complicated than that.

5. Which are the most common errors committed by the legal sector on the Internet?

The failure of lawyers to offer products and services that are created and delivered partly or entirely through the internet is the error that will cost law firms the most in the years to come. Some legal services can only be delivered face-to-face, hand-in-hand, in person. But many, if not most, can be delivered partly or wholly online. If you believe the internet is useful only for hosting your firm’s website, then you’re going to miss out on some valuable emerging opportunities in the near future.

6. What would you recommend to a lawyer who decides to open an office on his or her own? 

Never assume that the legal market owes you anything. The market asks, of every provider who enters it, “Who are you, and why should I care?” You need to have an answer ready. Create a website that tells your chosen market who you are, what you do, who you do it for, and what results your clients will get from using you. Write posts on your website showing off what you know and giving people information they can use. Speak to gatherings of and in the communities you want to serve. Hang around afterwards to answer questions.

Act like a startup. Even better, act like you’re still in law school. Keep your costs under tight control. Be frugal and innovative: do more with less. Buy nothing unless it’s truly a necessity or truly an investment. Be humble. Be grateful. Be helpful. Be trustworthy. Be the kind of lawyer you’d recommend your parents hire. Be the kind of lawyer your grandchildren will boast about someday. Serve your clients and your community with integrity, class, and grace under pressure. Everything else will fall into place.

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.

The failure of legal innovation

Okay, I admit: that was a pure linkbait headline. Not quite as bad as 17 Heartwarming Photos That Will Restore Your Faith In Humanity, but still, I couldn’t pass up the opportunity to draw in people who might be thinking (hoping?) that I’d given up on innovation in the legal market.

But the headline isn’t a complete fraud. In fact, you could consider this post as a necessary companion to An incomplete inventory of NewLaw, which generated a great deal of interest and enthusiasm last week. Scores of new law firms, businesses, and technologies are emerging in this dynamic market, generating justifiable excitement. Ron Friedmann led a discussion this week on Twitter that estimated the percentage of the corporate legal market that NewLaw is carving off — it may be quite small, but it still translates into a whole lot of money in a very short period of time.

Nonetheless, it’s precisely now, when legal innovation seems to be really taking off, that we need to remind ourselves how fragile and fraught the startup environment really is. A thousand flowers may well be planted in the legal marketplace; but hundreds will never bloom.

An excellent illustration of this idea can be found in a recent James Suroweicki column in The New Yorker. “Epic Fails of the Startup World” is a sober pail of cold water dumped onto the frenzied fires of innovation. “We live in the age of the startup,” Suroweicki writes, but this Cambrian explosion of innovative new businesses is occurring contemporaneously with a mass extinction: failed startups overwhelmingly outnumber successful ones.

The reasons behind these astonishingly high failure rates should give legal entrepreneurs pause: it appears that most startups suffer from a massive overabundance of misplaced confidence, made worse by a startup culture that has come to lionize failure as the noble condition precedent to success. There’s no question that failure is indeed a condition precedent to success in the startup world. But far more frequently, failure is just a condition precedent to more and bigger failures. Serial entrepreneurs, according to a German study, are actually more failure-prone than first-time innovators.  [do_widget id=”text-7″ title=false]

The upside of this phenomenon is that the extremely few successes that emerge from the startup world deliver disproportionate benefits in economic and social terms: one LinkedIn or Uber is worth many Pets.coms. “We’ve built a whole system on unrealistic expectations,” says Suroweicki. “Because we don’t know how to identify good companies in advance, investors end up funding lots of them in the hope that a few will hit it big. … In the delusions of entrepreneurs are the seeds of technological progress.”

Remember that line you were given on your first day of law school? “Look to your left, look to your right, only one of you will be here in five years”? Imagine you’re in an auditorium with 100 other students and the speaker says, “Only one of you in this room will make it.” That’s a decent approximation of the odds facing startups. It’s only the bullheaded optimism of the entrepreneurial spirit, as well as the outsized rewards awaiting the rare winners, that keeps the system going, to everyone’s benefit.

We should expect the same thing to happen to NewLaw. In fact, it’s already happening. England & Wales has been described as the world’s legal laboratory; well, some of that lab’s experiments have already fizzled out. Conveyancing ABS In-Deed Online gave up the ghost last summer, sold for a mere one pound after arguably hitting the markets too early. Stobarts Barristers went the way of all flesh last month, perhaps confirming that a trucking company might not have been the best platform upon which to launch a law firm. And Co-Op Legal Services, the early heavyweight contender of consumer law ABS (and my personal rooting favourite) might not be dead, but there’s reason to worry that it might simply be nailed to its perch.

More failures and disappointments will follow. Some innovations will fail because they were based on a bad idea, some will fail because of bad execution, and some will fail because of bad luck; but they’ll all come to the same end. This is not a jab against NewLaw and legal startups, or a red flag on any specific entity; it’s simply the natural outcome of a marketplace law. There are nearly 100 entries on my NewLaw list, and probably scores of others I haven’t yet come across; they can’t all be lucky exceptions to the rule against startups.

If anything, the recent tsunami of cash investments in NewLaw might be just as much a sign of concern as of confidence. Josh Kubicki, the clear thought leader in the legal startup world, reported $458 million invested in legal tech startups in 2013, adding that 2014 is ahead of last year’s pace. Funding round announcements in the tens of millions of dollars aren’t routine quite yet, but we’re getting there. Is this a sign of the tremendous promise and potential of legal startups? Almost certainly. But it might also be a sign of vast amounts of money burning holes in the pockets of angel investors and searching for the next shiny thing. It might be, in the famous words of Alan Greenspan, a certain degree of irrational exuberance.

I wanted to note these ideas for a couple of reasons. One is to slightly temper the commendable enthusiasm inside and around the legal startup world, to remind participants in this genuinely exciting market that the risks rival or outnumber the rewards — it’s a narrow path to glory, and the drop on either side is steep. But the other reason, and I think the more important one, is to counter the inevitable arguments of the skeptics and cynics that will issue, in a few months’ or a few years’ time, standing over the corpse of some high-profile NewLaw entity and proclaiming that there was never anything here but hype and snake oil. That’s simply not the case.

Failure is built into innovation. It’s a feature, not a bug. You can choose, if you like, to glorify failure as a critical rite of passage on the path of enlightenment; like any heady drink, that’s fine in moderation, though it’s fatal in stronger doses. But you can also choose to revile failure, to loathe it and shun it and attach shame to those who experience it. This is the lawyer’s approach to failure, and it’s a leading reason why so little change has occurred in the traditional business model. We’re not just risk-averse as lawyers, we’re embarrassment-averse: we fear the self-inflicted humiliation of falling short. That’s why the schadenfreude felt by many lawyers when a legal innovation fails is palpable: we believe the innovator’s fall confirms the wisdom of our own reticence.

Rather than glorifying or reviling failure, however, I suggest we simply accept it as a perfectly natural part of doing business in a turbulent market. As the legal profession is pulled deeper into that turbulence, failures will mount, and they’ll be far more common among those who tried than among those who shied away. But the rewards will also be much larger and more numerous among the innovators than among the laggards. You don’t have to love failure. But I do recommend you get a lot more comfortable around 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.