The other shoe

If you like your comedy dark, track the law firm layoff news. There’s the partner at Pillsbury LLP who, seated on a crowded but quiet commuter train into NewYork City, conducted a loud cellphone conversation with a colleague at the office that revealed planned associate layoffs at the firm, right down to naming the names of pending victims. There’s McDermott Will & Emery in Chicago deciding to eliminate free coffee in the lobby of one floor of the firm’s offices, a move purportedly meant to express congruence with larger cuts but that came across to many observers as, you know, kind of chintzy. There’s the saga of a laid-off associate in the engaging Above The Law serial “Notes from the Breadline,”  with updates like this:

The next morning I e-mail the partner to tell him that I’d like to talk to the client, explain my departure, and say goodbye. A few hours later, I have heard nothing in response, so I call him. “Oh, don’t worry about it,” the partner says breezily. “I talked to them already.” I ask him what he said. “I told them that you decided to ‘move along,’ if you know what I mean,” he answers. No, I think, I don’t know what you mean.

But whether firms choose to take the callous route, or seem to be trying to soften the blow (cf. Latham & Watkins’ severance, Simpson Thacher’s pro bono plan)  the practical and human reality behind the thousands of layoff notices at big law firms is just plain ugly. I won’t bother trying to update the latest round of notices — suffice to say some of the biggest names in the US and UK legal profession are shedding anywhere from 10% to 20% of their associate workforce and an equivalent or greater number of staff. But when you look behind the rain of numbers, something interesting starts to emerge: the sense that these are just the warm-ups, not the main event.

First of all, cutting associates by the hundreds is not something you do if you expect the economy to turn around soon — otherwise, you’re just paying termination costs to people you’re going to have to rehire in less than a year. Firms understand perfectly well the negative fallout from layoffs, so a bloodletting on this scale indicates two things. One is that there’s no work for these people and none is expected soon, which must reflect what clients are telling firms about their own near-term prospects. The other is that firms don’t expect to need so many associates when things pick up again — partly because the post-recession workload won’t be as heavy, and partly because the good old days of stocking up on associates and riding their billable hours to profit are coming to a swift end. In other words, this isn’t just reducing headcount and expenses — this looks like the start of a fundamental and possibly permanent restructuring of the law firm model.

Secondly, there’s the other shoe that hasn’t yet dropped — partner cuts. With a few exceptions, we haven’t heard the ugly word “de-equitization” spoken much over the last several months. That might be because there won’t be any — that firms are confident that the associate and staff firings will be enough to safeguard profitability and keep the ship afloat, making more drastic moves unnecessary. Or it might be because the associate and staff cuts are the easy place to start, a non-controversial way to improve the bottom line short-term and give everyone a clearer picture of exactly what the profitability situation actually is. Once that picture emerges  by early summer, and is overlaid with what the firms’ internal assessments are saying about the subsequent 12 to 18 months, then the second round of personnel explosions should start going off.

Most people would agree that many large law firms overhired, to at least some degree, on staff and associates — that’s why these cuts have come so large and so quickly. But what’s not talked about much is that many law firms are also over-partnered. The Boomer generation has swelled the ranks of law firms partnerships just as it swelled the upper ranks of every business and organization in North America. I think you’d have a hard time maintaining that all those partnerships were equally earned on merit and productivity — or that, if they were up for partnership today, all or most of those lawyers would get serious consideration. Gen-X lawyers have complained for years about how the Boomers took all the best seats at the table largely by virtue of arriving first. I think we’re starting to see the same thought occur, belatedly, to the partners themselves.

Most law firms of any size are riddled with inefficiencies, from how they bill to how they compensate to how they process tasks to how they hire. We’re beginning to see, through the steady rise of flat fees and customized pay and automation and outsourcing, each of these inefficiencies start to be squeezed out of the system. Through all of this, one  inefficiency — the composition of partnerships — has been all but sacrosanct. I think we’re a few months and a deepening recession away from seeing that final wall breached.

The evolution of lawyer regulation

The thing about change is that once it gets rolling, it’s almost impossible to control and can go in directions you neither anticipated nor like very much. That thought occurred to me while reading a report issued last week by the Legal Services Policy Institute, the think-tank division of UK legal training company The College of LawTowards a New Regulatory Structure for Corporate and Commercial Legal Services: Options for Change is just 23 pages long, half of which is a lengthy appendix. But what the report recommends looks to me like an entirely new system of lawyer regulation, one I’m not sure I’m crazy about.

A little background: if you’ve been following the course of events flowing from the Clementi Report and the 2007 Legal Services Act, you’ll know that the UK legal profession is in the midst of redefining itself. On this side of the pond, we mostly hear about the LSA’s provisions to allow alternative business structures and non-lawyer ownership of law firms. But a major element of the reforms involved splitting the Law Society’s previously dual functions of solicitor regulation and representation, on the grounds that the same body could not both govern professionals in the public interest while also advocating for the interests of those professionals.

Regulation of the legal profession in England & Wales is to be the overall province of the newly created Legal Services Board, which launched on Jan. 1 and aims to assume all the powers assigned to it under the LSA by the end of this year. The Board will oversee all the various regulatory bodies for lawyers, such as the Bar Council, the Institute of Legal Executives and the Council for Licensed Conveyancers. Until the Board becomes fully functional, the Law Society technically remains the approved frontline regulator of solicitors, through the Solicitors Regulation Authority, which was partly spun off from the Law Society for this purpose. The SRA remains officially part of the Law Society, but is independent from it. Relations between the two are not always warm, and have just taken a marked turn for the frosty.

This is kind of an interim period in the regulatory overhaul process: the Legal Services Board is active but not yet fully on stream. That’s why some people were taken by surprise last fall when, with one day’s notice to the SRA, the Law Society commissioned a report to review the lawyer regulation process. That report’s author in turn commissioned a sub-report on whether current regulation of law firms serving corporate clients is satisfactory. It’s in the context of this mishmash of reports and political jostling that the Legal Services Policy Institute report was issued and needs to be understood.

The report’s premise, as I read it, is that a single regulatory framework can no longer properly govern the extreme range of solicitors’ practices in England & Wales. More specifically, the traditional framework, geared towards sole and small-firm practice in smaller communities, simply doesn’t work for the major corporate/commercial firms of London and their clients. In areas ranging from defalcations and conflicts of interest to client sophistication and lawyer transfers from other jurisdictions, rules meant for a smaller profession serving private clients constrain and damage global firms serving massive corporate and institutional clients.

The report’s recommended solutions are radical. While nodding towards a midway approach — merely modifying the current SRA regulations for large commercial firms — the report’s clear preference is to create a brand new regulatory regime for these large firms and the lawyers who work within them. This new regulator would create and administer new qualifying criteria and would even bestow a new title for these firms’ lawyers to use (the report refers to these, in uncomfortably Orwellian terms, as “NewReg,” “NewQual” and “NewTitle”). Here’s how the Institute summarizes its case for a new regulatory regime: Continue Reading

The future law book

Two thought-provoking posts from the UK shed some light on the future of the printed word in law. Nick Holmes at Binary Law notes the accelerating demise of the printed law review journal and other hard-copy forms of legal scholarship: “Where online equivalents are already paid for out of the budget or where free access materials might substitute, print will suffer severely.” Only practice texts will survive the value cull, he forecasts.

Scott Vine at Information Overlord chimes in to predict that the e-book reader (Kindle, Iliad, Sony, etc.) represents the light at the end of the tunnel for legal publishers: “[I]f I were a lawyer, who could have all the legal journals I wanted and all the legal texts I wanted – displayed as they would be in a ‘traditional’ print run – all on one device that I could keep in my desk or take with me to client meetings etc., then I would be a very happy bunny.”

Like Scott, I think e-book readers are the future of legal publishing, especially if their creators take to heart some of Seth Godin’s many recommendations for the Kindle. The second-most important application for e-readers in the legal context, I think, will be the hyperlink: the ability to leap from the book on your lap to a relevant page on the Net with 0ne click. You could click from a judicial interpretation or expert analysis of a statute or regulation directly to the most current version of the statute or regulation itself; imagine how that would reshape publications like annotated statues or criminal codes. Or think about footnotes on steroids: instead of just a reference to another work of significance, you get a link to the work itself.

But I think the killer app for legal e-books will be RSS. As every law librarian and legal researcher knows, the drawback to law books lies in post-publication developments. Looseleaf updaters have been around for ages, and have never become less laborious to insert one page at a time. Legal publishers tried issuing new CD-ROMs every month, but I don’t think that really caught on. Online research services remain the most reliable source of updated legal information — but not only do they remain expensive, they also require you to seek out the information you want. But what if the information you needed sought you out?

An RSS-enabled legal e-book would update itself. An authoritative Court of Appeal case at the time of publication might later be overruled by a Supreme Court; within days or even hours, the e-book would automatically change to reflect that. The proclamation of statutory amendments or the coming-into-force of regulations would download themselves while you sleep. Bulletins from tax authorities or rulings from securities commissions would appear with that little yellow “New” tag. A legal book — be it a casebook, a reporter series, an annotation — would become a constantly self-refreshing authority, truly the latest word in the law.

Legal publishers wouldn’t be able to sell annual or subsequent editions of popular texts; but they would be able to open up a whole new market of real-time knowledge refreshment. The speed and accuracy of updates could become  points of competition between publishers (a category that could include the established giants as well as upstart individuals or bloggers).  In addition to downloading the new Supreme Court ruling, a publisher could also offer access to an analysis of the decision by its in-house expert, perhaps as a value-added part of the user’s monthly subscription that enables the downloads. Online CLEs regarding a recently revised subject area could be advertised as part of the update.  Or how about access to relevant wikis to which other e-book users contribute?

In ways like these, the legal e-book could become a dynamic, full-scale legal knowledge portal — 24/7 Net-connected, automatically updated, linked to a community of writers and readers, plugged in to a collaborative legal knowledge world well beyond the written word. That would do more than revolutionize the legal publishing industry — it would help change how lawyers view and use legal knowledge.

It’s the InnovAction Awards, Charlie Brown

This is an article I wrote for the February 2009 edition of the ABA’s Law Practice Today e-zine about innovation in the practice of law and the College of Law Practice Management’s InnovAction Awards, which I’m very happy to be chairing this year. The awards are now open and are accepting applications starting next week. Thanks to the ABA for promoting the Awards and for providing permission to reproduce this article.

In early December, I happened to catch a CBC Radio program about the making of A Charlie Brown Christmas, the holiday special first broadcast in 1965 and now considered a classic of the season. It struck me that the origins of the special, also touched upon in its Wikipedia entry, have something important to say to lawyers nearly 45 years later.

Charles Schulz and Bill Melendez had been looking to do an animated Peanuts program for TV, but couldn’t find a willing sponsor. Finally, Coca-Cola stepped forward to bankroll a Christmas special, but gave Melendez less money and less time to do it than they needed to get it right. Working rapidly under tight financial conditions, they put together A Charlie Brown Christmas in a matter of months and brought it to CBS executives. The execs were, in a word, horrified.

It wasn’t just the choppy nature of some scenes and obvious glitches (the first version featured Linus apparently flying through the air) that left the executives aghast, though. It was the fact that the special broke almost every rule in the TV book:

  • Almost all the characters were voiced by child actors rather than professionals, as was the standard practice at the time (Schulz and Melendez simply couldn’t afford grown-ups).
  • The jazz soundtrack supplied by Vince Guaraldi was unheard of – everyone knew that Christmas TV specials required sugary jingles and pop versions of classic carols.
  • “Did that kid just quote from the Bible?” Even in 1965, network suits were nervous about Bible readings on air.
  • But worst of all – by far – the special had no laugh track.  Audiences needed to be told when to laugh, and that was that.  (A laugh track version was created, but never aired and no longer exists).

The executives rejected A Charlie Brown Christmas.  Melendez, undeterred, sought out the president of the network, only to be told he had just left Los Angeles on a flight to New York. Melendez booked himself on the very next flight, flew across the country, tracked the president down and literally pleaded with him to run the special. Eventually, the network president gave in, but muttered that he was going to have to pre-empt an episode of The Munsters to put the special on the air.

You probably know the rest. A Charlie Brown Christmas aired on December 9, 1965, and was watched by almost half of the households in the United States.  The response from both the public and TV critics was universally, overwhelmingly positive. What’s most remarkable is that all the things the network executives hated about the special – the child actors, the jazz soundtrack, the Bible reading, the absence of a laugh track – were exactly the things viewers loved the most.

This is a classic, almost archetypal story about innovation.

  • It starts with a vision to do something different – not just to be different or novel, but to do it really well, better than it’s been done before.
  • The visioneers are short on resources, both time and money, and the finished product isn’t exactly what its creators hoped or planned it would be.
  • Nonetheless, the finished product still meets fierce resistance – not for its quality per se, but because it shatters the accepted rules by which these sorts of things have always been done.
  • Rejection is immediate, but the quest doesn’t end there: the innovators are persistent, relentless even, in pursuit of their vision, and they keep at it till it pays off.

I find it hard to believe that the legal profession in 2009 could be any more conservative, risk-averse or fearful of change than was the television industry in 1965. If a timeless success story like A Charlie Brown Christmas can emerge from that era and that context, lawyers should have every confidence that they can create similar innovations within the practice of law today.

We’re seeing examples of this everywhere: law firms that boast their rejection of the billable hour, evaluate and compensate their lawyers with sophisticated performance metrics, automate or outsource the most basic legal services and pass the savings on to clients, package their services into online programs their clients can access 24/7, gain employees, clients and publicity through social networking sites like Facebook, LinkedIn and Legal OnRamp, and so much more. Few people realize it, but we’re at the forefront of a golden age of innovation in the legal profession.

Some lawyers will shy away from innovation because of the recession. They’ll say this is no time for grand schemes or big ideas; better to burrow in, hunker down and keep doing what we’ve always been doing, only less of it. In fact, that’s a recipe for irrelevance and, in times like these, potential disaster: business as usual is part of what got us into this mess in the first place. Innovation takes courage, especially in tough times, but it pays off.

The rewards of innovation are well-known: first-mover advantage, increased market share and awareness, an enhanced reputation for creativity, and the ability to attract other like-minded innovators to your camp. But there are other rewards too: the recognition of your peers, publicity throughout the profession as a leading light with courage to spare. That’s where the College of Law Practice Management comes in.

The College is revving up for the 2009 InnovAction Awards. These awards, bestowed by an international panel of judges drawn from the ranks of the College’s renowned Fellows, pay tribute to law firms and legal departments that have implemented innovations in law practice, client service, law firm management and a host of other areas. These innovations create something that’s never been done before, or never been done quite this well before. And they help advance the law down the road towards becoming a truly innovative profession.

Past winners of an InnovAction Award range from giant firms like DLA Piper and Pillsbury Winthrop to smaller firms like Raskin Peter Rubin & Simon and the Law Chambers of Nicholas Critelli to worldwide firms like Wragge & Co. and Malleson Stephen Jacques. Your firm or department could be next.

Visit the InnovAction Award home page and download an entry form – you can nominate your own firm or someone else’s.  Tell us about your firm’s contribution to the wave of innovation sweeping the law.  Step up now, and get the recognition you deserve for being one of the legal profession’s premier innovators.

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Lawyers as a public good

Thanks to San Diego lawyer and blogger Joseph Dang, I belatedly caught up with an article in California Lawyer magazine about the University of California at Irvine’s intention to launch a new law school this fall. If you’re not familiar with this plan, UC Irvine ambiti0usly aims to debut in the Top 20 rank of US law schools, in no small part by adopting an innovative, non-traditional approach to the school’s purpose and curriculum:

“Relatively early in the 20th century,” [Dean Erwin] Chemerinsky observes, “preparing lawyers for the practice of law was relegated to the bottom rung of law schools, and the top law schools didn’t see it as their primary mission. Could you imagine if a school graduated medical students or dental students who never treated a patient? Yet most law students have never had a client.”

The new school aims to change all that, starting with its first year, when law students will be introduced to the practical tools of their profession through a lawyering-skills class that integrates clinical experience. Then, in their second year, students will work through simulated fact situations, honing their skills in a particular field of civil or criminal law, so that when they are ready to register for a third-year, semester-long clinical course, they will already have a working knowledge of how to represent clients. “My central vision for the school,” says Chemerinsky, “is that we will do the best job of any school in the country in preparing students for the [actual] practice of law. A top-quality clinical program is key to achieving this.”

Among UC-Irvine’s other goals is to encourage more interdisciplinary study among law students and produce a healthy ratio of graduates taking public-sector jobs. It’s a bold experiment, and the odds are long against it, but there’s no better time than this for a new kind of law school to take root within the profession. Perhaps needless to say, I think this is a great idea.

But what really caught my imagination, and sparked a whole other line of thinking, was one other aspect of the UC Irvine model: thanks to funding by a clutch of law firms, the university plans to offer every student a full scholarship — that is to say, free tuition. That’s a concept that, among other things, cuts to the heart of what law schools are for. If the idea behind a law school is to turn out the world’s best lawyers — and UC Irvine appears to be aiming that way — doesn’t it make sense to remove barriers to that goal raised by the ability of the best candidates to afford the program? And in turn, doesn’t that get us thinking a little about the role of the marketplace in the formation of lawyers and the services they will eventually deliver?

This ended up, interestingly enough, dovetailing with a growing discussion within journalism circles about the future of the newspaper. You’ve certainly read enough articles about it and heard me talk about it here before — the fact that most everyone accepts newspapers are dying (and TV is next) and that the web is the immediate future, but that no one knows how to build a profitable business model that can sustain a news-gathering organization.  Premium subscriptions, micro-payments, online advertising — it’s all been tried and nothing has really worked yet. So now people are starting to talk about radically different solutions.

In The Guardian, Maura Kelly looks at non-profit newsrooms and start-up media organizations like GlobalPost. But interestingly, Bruce Ackerman (of Freakonomics fame) and Ian Ayres effectively combine these two approaches and have proposed (also in The Guardian) national endowment systems for investigative journalism:

In contrast to current proposals, we do not rely on public or private do-gooders to dole out money to their favourite journalists. Each national endowment would subsidize investigations on a strict mathematical formula based on the number of citizens who actually read their reports on news sites. …

[C]ommon sense, as well as fundamental liberal values, counsels against any governmental effort to regulate the quality of news. So long as the endowment only subsidizes investigative expenditures, in-depth reporting will get a large share of the fund – provided that it generates important stories that generate broad interest.

The endowment must monitor media hits and circulation counts. This is doable. Advertisers already rely on independent audits. So can the government. Some governmental monitoring of financial matters is also necessary. News organizations would otherwise be tempted to obtain subsidies for marketing and business operations. Without minimizing the problems involved in institutional design, the creation of an effective and disciplined national endowment seems entirely realistic.

The driving theory behind these efforts to save journalism is that investigative reporting — finding out what people don’t want to tell us — is a public good that’s too important to be left to the vagaries of the market. Just as we don’t rely on privately run firehouses to keep our cities from burning down, we can’t rely on privately run media companies to bring pressure to bear on our society’s power brokers. Newspapers, as Seth Godin says, wrap two cents of journalism with ninety-eight cents of overhead and distraction. Investigative journalism suffers from the tragedy of the commons: everyone benefits from its existence, but hardly anyone is willing to pay for it by itself. By removing (or at least reducing the impact of) market forces from its implementation, we can help investigate reporting to flourish and deliver real benefits of transparency and accountability to our society and its institutions.

What does any of this have to do with UC Irvine’s law school and its full-scholarship program? Think about this: what if every law school in the world had free tuition? (Or, more accurately, no tuition.) What if interested third parties covered all the costs of legal education in order to ensure it was done properly, freed from the shackles of market pressures and US News & World Report silliness? Now think about this: what if lawyers were free?  What if we decided that the provision of legal services was so important to the operation of a just society that market mechanisms preventing access to justice should be removed? What would our profession look like then?

Well, it’s a safe bet that our graduating law school classes would be far more diverse, especially socio-economically: the built-in bias in favour of applicants from wealthy backgrounds would fade. It’s also a safe bet that a law school curriculum designed to maximize the benefit of each graduating lawyer to the public good would be incredibly different from what most law schools now offer. Also very different would be the qualifications required of the people offering the courses.

What would become of the private bar? Remember, lawyers in this system aren’t charging fees directly; they’re billing the government or a non-profit entity for their work (but not, I’ll wager, for their time). Rationally, the funding organization would want to create certain standards of competent advice and productive service; it would be interesting to see which ones they came up with. Law firm compensation and advancement likely would not be based on hours billed but on other criteria — perhaps client satisfaction, risk reduction, value generation and so forth. Solos would be plentiful, mega-firms less so. Millionaire lawyers, like millionaire media and performing artists of the near future, would be rare. More people would go into the law not to make money, but to serve society. (Many doctors are already familiar with this sort of model, and I think those who have to answer to a for-profit entity would describe a very different quality of service than those who answer to a non-profit entity.)

This is, I readily admit, a thought exercise rather than a practical or even fully desirable scenario; think of it as Imagine for lawyers. There would be plenty of complications and downsides to a publicly funded legal profession. But there are plenty of complications and downsides to our current professional setup too. Today, law is a private-sector business that provides what is very arguably a public good. It’s fair to surmise that at least some of the difficulties and tensions between lawyers and society result from that misalignment.

If lawyers were considered a public good — if everyone knew and could access all their rights, could easily build legal risk management and problem avoidance into their lives and businesses, utterly free from worries about the direct cost because we were all collectively funding it for our mutual benefit — what sort of legal profession would we end up with? What would we lose? What would we gain?

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About ABA TECHSHOW

Just a quick note this morning to take part in an Internet meme I can get behind: a two-day promotional effort for ABA TECHSHOW in Chicago April 2-4. If you don’t know (and if you read this site, that’s pretty unlikely), ABA TECHSHOW is the world’s premier legal technology CLE conference & expo. It’s a three-day CLE conference with more than 50 legal technology CLE and training sessions attended by more than 1,500 legal professionals. The quality of the programs is uniformly excellent — the 60 Minutes sessions are only the most well-known — but as a four-time attendee, I can say that it’s the people who make the difference.

The faculty list includes some of the best-known and most respected legal tech and practice management experts in North America. Here are just 20 for your consideration: Reid Trautz, John Simek, Ben Schorr, Catherine Sanders Reach, Dan Pinnington, Nerino Petro Jr., Sharon D. Nelson, Tom Mighell, Erik Mazzone, Steve Matthews, David Masters, Adriana Linares, Dennis Kennedy, Dominic Jaar, Ellen Freedman, Laura Calloway (Chair), Jim Calloway, Brett Burney, David Bilinsky and Andy Adkins. Leading off as the keynote speaker is Richard Susskind, who has just published a book you might have heard about.

But the highlight of TECHSHOW for me is always the social and networking events. Last year, they launched an After Dark cocktail party in the Chicago Hilton’s Grand Ballroom (trivia question: what hit movie’s big climax was filmed there?), which was a blast. Every year, they hold “Taste of TECHSHOW” evenings, whereby two faculty members organize a pay-your-own-way dinner at one of Chicago’s three million amazing restaurants during which up to a dozen attendees can talk about a specific legal technology or practice management topic between courses and drinks. I’ve met dozens of fascinating people and had many illuminating conversations at events like these.

There’s an early-bird deadline of February 28  by which delegates can get a discount on registration, and members of sponsoring organizations (including, for my Canadian colleagues, the CBA) are entitled to a further discount again. I’ll be there, and I’d love to meet any Law21 readers in attendance — pull me aside if you see me (I’m hoping to have a new photo on the About page by then, one less dated than the 2002 model currently in place, by which you might even recognize me). If you’re on the fence about attending ABA TECHSHOW, consider this an unconditional recommendation.

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The corporate client disconnect

I’m coming to think that many corporate clients get the outside counsel fees and service they deserve. After reading this LegalWeek article about in-house lawyers’ predictions for 2009, I had to note the ongoing disconnect between what corporate law departments say is important to them and what they actually do. The article speaks with some GCs noted for their innovation and asks them what the future will bring. One says: “Some firms are still operating with the view that people will pay their rates for quality alone, but GCs will begin to question their value.” Begin to? Another says: “We will be having discussions with our legal service providers in Europe in an effort to sharpen up the management of costs. One way of doing this is by asking advisers for a quote rather than just waiting for a bill — that will save money.” You think?

I don’t mean to be snarky, but we’re well into the worst-recession-since-they-started-calling-these-things-recessions, and we still seem to be mired in the Platitude phase of the long-vaunted overhaul of corporate legal services purchasing.  Companies have been  talking tough about reining in legal spend for years, but where are the deliverables? The recent mass lawyer firings have nothing to do with how firms sell services to clients; the fundamentals of the inside-outside counsel dynamic haven’t shifted. Since it’s the rare law firm that will open any conversation likely to lead towards either less revenue or a business model restructuring, clients are the only ones with both motive and opportunity to pull the trigger. Yet even with disaster looming, hesitancy appears to rule the day.

So why does corporate legal spend still resist most attempts to apply the kind of rational discipline painfully familiar to other commercial suppliers? Why does the other shoe continue to hover in the air?  Here are three possible explanations, though I can’t say whether or to what extent any are definitive; I’d welcome input from any current or former in-house lawyers. Continue Reading

The disappearing associate

Well, that was ugly. In case you missed it, or you need a summary, here’s what happened on a day (yesterday) that the ABA Journal called Black Thursday and Above The Law readers have decided should be named (a little early) the Valentine’s Day Massacre:

This doesn’t include announcements of other cost-saving measures, like more salary freezes and Luce Forward rescinding its offers to new graduates and cancelling its 2009 summer program. If there’s one certainty you can take from this very unhappy day, is that this is just a sampling of what’s to come. (This morning, Peter Zeughauser agreed: “There will be more. Materially more. I’m aware of some big ones coming up.”) We’re at the beginning of this process, not the end.

And what process is this? Well, as previously noted here, it’s of course the marked decrease in client engagements; but it’s also the fallout from the 2008 financials finally becoming clear and the dire need for firms to keep partnership revenue and marketplace confidence as steady as possible. But I’m also coming to think it’s about something else: a serious, gut-check re-evaluation of the whole purpose of law firm associates. I count 297 lawyer firings in that list above; so far as I know, not one of them was a partner.

It’s becoming more evident that we’re not just looking at a normal recession with the usual coping tools (layoffs, salary freezes) from law firms. We’re looking at an extreme recession  (or worse) that happens to be occurring at a time of particular vulnerability for law firms and an unprecedented willingness or necessity to reconsider traditional approaches. With every brutal update, the good folks at Citi and Hildebrandt are speaking more plainly:

[T]he current economic downturn can be viewed as an opportunity to make some fundamental changes in the way law firms are structured and do their business – changes that are not only long overdue but that will also serve the profession well as it emerges from the current recession. …

Among the measures that Citi and Hildebrandt strongly urge is the abandonment of lockstep compensation for associates:

In the current economic climate, it is irrational to have half or more of a firm’s highly compensated lawyers on largely seniority-based salaries…. Firms that have not already done so should seriously consider modifying their associate compensation structures to allow a substantial portion of compensation to be tied to individual performance in support of the firm’s goals and strategy. Firms should also be willing to consider moving away from locked-step associate advancement (and compensation) toward competency-based models. The legal profession is one of the last industries still to cling to this outmoded seniority-based method.

This would not be an unprecedented measure, of course. But as sensible a move as this would be for many firms, events are overtaking it. Some firms are already in the uncomfortable position of having clients refuse to pay for work billed by first- or second-year associates, on the premise that these novice lawyers add inconsequential value to the task at hand and that the client is not going to pay the law firm’s on-the-job training costs. A few others are facing up to the reality that Indian firms can and will complete associate-level tasks for dimes on the dollar, or that new software can streamline and automate the due diligence and document review process on which so many associate hours have been billed.

What we’re looking at here is the real possibility that the law firm associate, in its current form, will not survive this crisis. As the number of associate billable hours clients are willing to pay declines, so too does the need to develop and maintain these vast grazing herds of associates within firms. Partners are going to have to start thinking seriously about what purpose associates serve when they no longer constitute the bottom two-thirds of the profitability pyramid. If you can’t sell the billable hours they’ve been churning out, what do you do with them? What, exactly, is the law firm associate for?

The standard answer, of course, is that associates are future partners in training — that’s what the recruitment brochures maintain. That might be more convincing if attrition — natural and otherwise — didn’t slice off about three-quarters of all lawyers between first year and the partnership committee. It might be more convincing  if more firms had a rational system for identifying, assessing and hiring associates, actively trained those associates from day one in the firm’s financial and culture realities, and had a strategy setting forth how many future partners are expected to come up through their own ranks as opposed to through lateral hiring.

Since all of these things are true at very few firms, and none of them are true at many, we’re left to conclude that as a general rule, associates are hired to be billing machines. If that machine stops working, then we have a serious problem.

Paul Lippe of Legal OnRamp noted in an American Lawyer piece:

[T]he recession will last through 2010. Law firms will use this period to substantially restructure, and beginning in 2011, things will start growing again. While there’s a lot of detail and nuance around the form this restructuring will take, it can be described in simple terms. A typical law firm bill in January 2011 will generate the same dollars for partner work as it does today, but it will generate half the revenue for associate work.

Paul’s article is titled in part: “The End of Leverage.” “Leverage” in law firm terms means associates. It’s not hard to see where this is taking us.

And in truth, not every law firm has been slow to figure this out. Calgary energy law boutique Thackray Burgess has 29 partners and 0 associates. The firm employs more than 20 “consultants,” independent contractors who look like associates but are paid by the hour, work however many hours per year they feel like, pay the firm a fee to cover their overheads costs and a percentage of the hourly rate they charge their clients, and keep the rest themselves. I don’t love the hourly billing aspects of this setup, but the idea of associates as independent contractors, retained for what the client requires and no more, makes perfect sense. Axiom Legal and Virtual Law Partners have also re-engineered the traditional associate position. I’m sure there are other examples, and more will come.

By the time this recession runs its course — and no one really knows when that will be — both client expectations about the manner in which rote legal work is done, as well as the technological and offshore solutions available to do that work, will be so different from today that there’ll no be going back. The idea that a firm can employ dozens if not hundreds of inexperienced lawyers primarily to generate revenue on low-value work will eventually be seen as a relic of the 20th century. Firms will still hire and retain associates — new partners, even laterals, have to come from somewhere — but there’ll be far fewer of them, they’ll be selected, evaluated and trained far more systematically, and they’ll be engaged, billed and compensated much differently than they are today.

We should make no mistake about how profound a change this will be, nor believe that its ramifications will be limited to big law firms. To a growing degree over the last decade or two, large multi-service law firms in urban locations have been completing the job of legal education that law schools and governing bodies have been haphazardly starting. We can complain all we want about overpriced, underskilled associates in firms; the fact is that these firms and their clients have been subsidizing the bar admissions process, providing the last three years of what amounts to a seven-year law degree. When modern marketplace economics finally puts an end to this practice, who will pay new lawyers with few skills and massive law school debts while introducing them to law practice? Who will be responsible for completing lawyers’ education and training them? We’re going to need answers to those questions, and fast.

Like I said, we’re at the start of this process, not the end. The fundamental restructuring of the law firm business model that Citi and Hildebrandt are calling for is at hand, and the changes we’re seeing now stand a very good chance of being permanent. There’s a reason I used “fired” instead off “laid off” at the start of this post.

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Book Review: The End of Lawyers?

The End of Lawyers? by Richard Susskind (London: Oxford University Press, 2008)

This is an enormously important book, and if you have any interest or stake in how the legal marketplace will operate in future, you have to read it. The End of Lawyers? provides a sweeping assessment (and in places, an indictment) of today’s legal services landscape and describes the architecture of the systems that will replace it. It identifies the pressure points where the legal services marketplace is poised to fracture and describes the forces that will cause the breaks. But what really stands out about The End of Lawyers? is its comprehensive depiction of a profession undergoing massive transformation – it provides a unique panoramic view of a legal marketplace in unprecedented flux. We talk a lot about “visionaries” these days, but in the legal profession, nobody seriously competes with Richard Susskind for that title, and this book shows why.

Now, I’m a little late to this party — many other people have written excellent reviews already, most recently this incisive commentary by Mitch Kowalski at the Legal Post. Others have also covered this terrain very well, including Bruce MacEwen, Jim Hasset, Nick Holmes and Ted Tjaden, as well as numerous consumer reviews at the Amazons of the world. Accordingly, while I’ll provide an overview of the book’s contents, strengths and weaknesses, I’m going to try focusing more on what the book represents in the history of legal innovation (answer: a watershed) and its implications for the legal profession’s evolution (answer: potentially shattering).

The End of Lawyers? relates how technology (especially the Internet), collaboration, globalization, and other forces are changing the fundamental rules by which legal services are bought and sold. The book is characterized by several key observations about how the legal marketplace is being transformed, with three especially significant ones:

  • The identification of an evolving and fluid spectrum of legal services categories: bespoke (one-off, customized or tailored), standardized (drawing upon precedents, process or previous work), systematized (reduced and applied to automated systems), packaged (systematized services exported to clients) and commoditized (packaged services so commonplace as to have little or no market value). Most lawyers insist that their services cluster around the left-hand end of this spectrum; Richard convincingly argues that movement to the right is inevitable for many types of legal services, with profound implications for lawyers’ business models.
  • The decomposition of legal tasks into component parts that can be delegated to various sources, few of them actual law firm lawyers. Twelve types of destinations for this multi-sourcing (reminiscent of unbundling) are identified: in-sourcing, de-lawyering, relocating, offshoring, outsourcing, subcontracting, co-sourcing, leasing, home-sourcing, open-sourcing, computerizing and no-sourcing, each of which is explained in more illuminating detail. Despite this multiplicity of legal work performers, an overarching entity responsible for managing the work must exist, and all the systems and processes involved must work together seamlessly.
  • In the context of astonishingly deep and rapid technological advances, the emergence of no fewer than ten disruptive (in the Clayton Christensen sense) legal technologies: automated document assembly, relentless connectivity, the electronic legal marketplace, e-learning, online legal guidance, legal open-sourcing, closed legal communities, workflow and project management, embedded legal knowledge, and online dispute resolution. These developments offer tremendous opportunity for more efficient and effective legal services delivery; but they also represent major threats to various aspects of the traditional law firm business model.

And this really is just a sampling – only an actual précis of the contents could convey everything that the book suggests. The details and depth in which these and other observations are explained and illustrated, with ample use of current examples, should be enough to persuade most readers that these trends are real and they are irreversible. But over the course of the book, Richard makes other observations that can fairly be called eye-popping ­– they open the mind to possibilities that none of us have been pondering: Continue Reading