Thank you

I was preparing what I figured would be my last post before Christmas, a thank-you card to everyone who reads and has linked to this blog since its inception in January. But then along came another reason to be grateful and another person whom  I want to thank. Dennis Kennedy has released his 2008 Best of Law-Related Blogging Awards, or Blawggies, and I’m extremely delighted to say that Law21 received the Best New Law-Related Blog Award, as well as two runner-up selections in the Best Law Practice Management Blog Award and the Best Writing on a Legal Blog Award. If you follow legal blogs at all, you know that Dennis is, as I referred to him in a comment on the post, the grandmaster of law blogs, so as you can imagine, I’m deeply honoured by and grateful for these selections.

I started this blog almost a year ago, on January 8, 2008 — after stocking the shelves with older articles I’d written elsewhere, I wrote a short piece titled “Waking the neighbours,” the first of what would be scores of posts on a future legal profession that has been resolving itself into the present legal profession faster than anyone anticipated.  I had no idea whether Law21 would catch or hold anyone’s attention, and I’m still more than a little amazed and touched that it has. My next post will be my 200th, but the thrill that came with the very first comment and the very first incoming link hasn’t gone away.

I’ve loved every second I’ve spent here, and I wanted to be able to properly and formally say thanks for that. So, thank you to Simon Fodden, who provided not just great encouragement and advice during Law21’s start-up phase, but also that first incoming link at Slaw (extremely deserving winner of the top Blawggie for Best Overall Law-Related Blog, by the way) that drove an extraordinary amount of traffic this way. Thanks to Steve Matthews of Stem Legal, who has been a tremendous advisor and supporter and was the first person to ask me when I was going to start blogging.  Thanks to Merrilyn Astin Tarlton, whose encouragement during a talk at a 2007 conference made an incalculable difference. Thanks to Jesse Collins, whose wonderful redesign and re-engineering of Law21 over Canadian Thanksgiving made it a better blog in both form and function. Thank you to each of the bloggers below, who during the past year paid me the great compliment of  a link and recommendation (sometimes more than once):

Adrian Lurssen

Aletha McManama

Allison Shields

Amir Kafshdaran

Andis Kaulins

Andre Mazerolle

Benson Varghese

Bob Coffield

Bob Tarantino

Brett Burney

Brian J. Ritchey

Brian LaBovick

Carolyn Elefant

Colin Samuels

Connie Crosby

D. Todd Smith

Dan Hull

Dan Michaluk

David Bilinsky

David Giacalone

David Harlow

Dennis Kennedy

Donna Seale

Doug Cornelius

Doug Jasinksi

Eoin O’Dell

Garry Wise

George Wallace

Gerry Blackwell

Graham F. Scott

Greg Lambert

James Mullan

Jamie Spencer

Jason Goodwin

Jim Calloway

Jonathan Frieden

Joshua Fruchter

Karen Sawatzky

Kevin O’Keefe

Larry Port

Laurie Mapp

Lee Rosen

Mark Gould

Mary Abraham

Matt Homann

Michael Fitzgibbon

Mitch Kowalski

Nancy Soonpaa

Nick Holmes

Nicole Black

Omar Ha-Redeye

Patrick J. Lamb

Paul Caron

Philip Hodgen

R. David Donoghue

Rob Hyndman

Robert Ambrogi

Ron Friedmann

Sandra Bekhor

Scott Greenfield

Sean Hocking

Simon Chester

Simon Fodden

Stephanie Kimbro

Stephanie West Allen

Steve Matthews

Susan Cartier Liebel

Tarun Jain

Tom Mighell

Tracy McGaugh

Vern? Myers

Victoria Pynchon

Wendy Reynolds

But mostly, thanks to you — to everyone who visits this blog, to the hundreds of people who’ve signed up for RSS or email feeds for new posts, and to the hundreds of people who’ve left tremendously helpful and welcome comments here.  I’m immensely, off-the-charts grateful for your interest and patronage — it’s a cliché, but no less true for that, that you’re the reason I’m here and the reason I’ll keep coming back. I’m looking forward to giving you additional features and options at Law21 come next spring, and to take the small community of ideas we’ve started here to the next stage.

I hope to get one more post in before the end of the year — I’ll admit the symmetry of #200 appeals irrationally to me — but I didn’t want to let this season and this occasion pass by without thanking every one of you for giving me the best present possible: the gift of your time.

Watch for falling dominoes

I don’t think Detroit’s automakers scored a $17 billion care package from the White House because anyone seriously thinks the cash will staunch the gaping holes in their business models and turn them into American Toyotas. More likely, the US government feared a massive ripple effect throughout the faltering wider economy if even Chrysler went belly-up, let alone GM. As the analysts at Stratfor put it last month, when the patient (the economy) is on life support, you don’t give it a healthful purgative that puts it into a coma.

There’s something instructive about this development for the legal industry as well. You’ve been reading a lot, here and all over the blawgosphere, about the recession’s impact on law firms. Today brought us one of the grimmer forecasts, and when it comes from Prof. William Henderson at the ELS Blog, you need to take it seriously. Bill looks at massively over-leveraged US law firms and sees bad things ahead:

[W]ith the potential for historically low collection rates, a large proportion of Biglaw firms are in one hell of a vise.  Salaried lawyers represent fixed costs.  And even if you lay them off, managers are under intense pressure to pay a reasonable severance (e.g., 6 months pay) to preserve the firm’s reputation for an eventual recovery.  Further, firms with the most human capital leverage will nonetheless be stuck with vast expanses of Class A office space under lease terms negotiated during the salad days.  If Biglaw revenues go down 20% for the fiscal year, which is certainly in the realm of possibility for many firms with large capital market practices, profits could dive by 50% or more.

Similar to what happened at Heller Ehrman, the grim financials could put the firms in violation of their bank lending agreements, see Drew Combs, Why Heller Died, The American Lawyer (Nov. 2008), thus requiring partners to pony up more cash.   Sensing trouble, lawyers with the most options start heading for the doors, initiating a sudden and rapid death spiral.  In short, there is good chance that several hallowed Biglaw firms, particularly those with weak balance sheets, will cease to exist sometime in early to mid 2009.

Large firms, especially those in the US that were deeply committed to corporate work, look most vulnerable to the rising economic winds. But really, I don’t see any size or type of practice in Canada, the US or the UK that won’t take some kind of hit from the recession, anywhere from a glancing to a body blow. The question is whether the collective force of those hits will be enough to seriously stagger the private bar as a whole. If not, then we’ll muddle through alright. If so, well….

Vehicle manufacturers are at the heart of the auto industry, but of course they’re not its sole residents. Surrounding them is a circle of  parts suppliers, local dealerships, service depots, used car showrooms, and other ancillary businesses. Then comes a further concentric circle of dependent businesses like gas stations, car rental agencies, transport truck companies, satellite radio installers, and so on — not to mention all the businesses that depend on employees of these inner-circle companies to buy, rent, visit or consume their products and services. Fear of a domino effect through these circles was a powerful argument in favour of government help.

Likewise, although private law firms lie at the heart of the legal industry, there are many other ancillary industries, companies and institutions whose own business models assume a certain level of spending and productivity by the private bar. While we might understandably fixate on the ups and downs of law firms of all shapes and sizes, we should also keep an eye on the long lines of dominoes radiating out from the private bar, because some of them look none too steady either.

Bill Henderson links to an insightful post by Michael Cahill at PrawfsBlawg, who raises the spectre of a “legal education bubble.” The problem of law school tuition increases have usually been passed on to big law firms, which are supposedly poised to pay law graduates (or some of them, anyway) equally high salaries; but if those firms stumble or fall, who’ll help new grads dig themselves out of debt? Not only that, but with credit still mostly frozen, who will lend law students that tuition in the first place? And with fewer private-law jobs available at any salary, Michael worries, when does a law degree slip below the cost-benefit line? If even some of these consequences come to pass, the legal education industry will be looking at a major contraction of its own.

Then there’s legal publishing. If both firms and schools are forced to cut back, law book publishers have a new set of problems, because that’s basically their entire marketplace. Those that have branched out into online legal research will find little help, because they haven’t really diversified: the markets for e-research are pretty  much the same as for books. Legal periodicals depend heavily on advertising from law firms and their suppliers. I’ve already heard of planned cuts to law firm marketing and advertising budgets for 2009, and suppliers like software companies are going to find it harder to sell upgrades and new releases when people are more willing to hold on to their older versions and wait for prices to fall. And so forth.

Lawyers in private law practice tend to forget sometimes that they serve a more complex and important function in this industry than mere sellers of legal services. They’re also buyers of private law practice supplies, everything from students to books to software to newspapers to photocopiers to recruiters to memberships and much more. In The Elastic Tournament, Profs. Henderson and Marc Galanter point out that “large law firms have become immensely fragile institutions.” But really, the entire legal services industry is a fragile ecosystem, and if the center should ever give way, the domino effect could be extraordinary. And I don’t think anyone’s preparing a bailout package for that.

The failure of billable-hour compensation

Two ugly stories from the mainstream legal media at least give us the opportunity to consider an under-publicized way in which the billable hour poisons the profession.

First is this National Law Journal article about how law firms are responding to the recession (short answer: myopically). Among other things, firms are laying off staff and paralegals in droves, perhaps in part because underutilized associates are keeping for themselves the work they normally delegate to these para-professionals:

“It’s a desperate move to keep their billables up,” said [Chere Estrin of paralegal training company Estrin LegalEd], noting that paralegals have told her that some associates are doing their own document reviews, deposition summaries and other research. “It’s gotten worse lately, and it’s not good for anyone.”

Not good for the paralegals, vulnerable employees placed at greater risk of layoffs in an economic storm. Not good for the associates, whose legal skills atrophy as they rediscover how many words they can type per minute. And not, by the way, so good for clients who wind up paying associate-level prices for staff-level work. Pretty good for the firm’s bottom line, though.

Difficult as it might seem to trump that story, this one manages it: “Down in the Data Mines,” an aptly titled article in December’s ABA Journal. It’s a first-person account of a contract lawyer labouring in a New York City basement doing document review for a large law firm (HT to Ron Friedmann). Here’s the most telling, and appalling, excerpt:

If I review 100 documents per hour (a very fast pace), I get paid the same hourly rate as if I review 30. More­over, each project consists of a finite number of documents; so the faster I work, the sooner I am out of a job and need to start hustling for the next project. “Don’t work us out of a job,” a veteran contract attorney once derided me in private after I reviewed too many documents on the first day of a new project. And the firm is usually OK with this attitude; in my experience, speed and accuracy have always taken backstage to billable hours.

We’ve pretty well established that the billable hour is harmful to the lawyer-client relationship, and these two articles provide evidence for that. But what we don’t talk about as often is that the billable hour is far more damaging — poisonous, actually — to the relationship between a law firm and its employees.

We need to start by emphasizing the two related but distinct ways in which “the billable hour” is used in the legal profession. In the lawyer-client relationship, it represents a method (or a regime) by which lawyers’ services are billed to the client — a construct for the terms of purchase and sale, nothing more. And there are situations where the billable hour is completely legitimate as a fee methodology. We most often cite examples like a complicated merger or a difficult divorce. But the billable hour would be appropriate in any transaction between a lawyer and client who know each other, trust each other, and have established transparency around the means by which the cost and value of the service is calculated.

The problem, of course, is that that kind of relationship is rare between lawyers and clients. More commonly, clients don’t trust lawyers to name a just fee for the work they did, and lawyers don’t trust clients not to take advantage of cost estimates and time parameters. In those situations (far more common in larger firms than in smaller or sole practices), the billable hour is rife with the potential for abuse by the lawyer, who holds the upper hand in an opaque, awkward relationship. But it’s important to recognize that the billable hour is essentiallya surrogate for trust between lawyer and client, one that could (and hopefully will) someday be replaced when the relationship becomes more mature, transparent, and equal. The billable hour is not really the fundamental problem — a relationship short on experience and bereft of trust is.

A lawyer and client look forward to the day when their relationship is sufficiently strong that the billable hour becomes irrelevant — it falls away from the relationship like a baby tooth replaced by an adult one. But there’s no similar hope for the other manifestation of the billable hour: a measure of lawyers’ productivity, compensation and advancement in most law firms. Every lawyer, from the rawest associate to the oldest partner, is scrutinized annually on the basis of the number of hours he or she has billed to clients. You never outgrow it and you never escape it – it’s a permanent, pernicious blot on the law firm landscape.

One of the oldest rules of economics is that people value that for which they are compensated. Compensate a lawyer on the basis of year-end client reviews, and that lawyer will move mountains to ensure satisfied clients. Compensate her on the basis of revenues actually brought in (rather than hours billed), and she’ll be a collections fiend, billing regularly and following up to make sure there’s no outstanding work lingering in the pipeline. But compensate a lawyer for the number of hours he invoices to clients, and that lawyer will lowball everything else — efficiency, timeliness, value, communication, even ethics — in order to maximize the amount of time he can take to address a client’s request. That’s the kind of lawyer our law firms have bred and unleashed on the marketplace for half a century.

Look at contract lawyers working slowly and inefficiently to bloat billable hour totals. Look at associates typing their own documents to sustain billable hour totals. Look at partners hoarding work from their associates in order to maintain billable hour totals. Fundamentally, instinctively even, lawyers know that how many hours they’ve managed to bill does not reflect how good they are at what they do. But under irresistible pressure, they twist their instincts and corrupt sensible business practices in order to conform to their employers’ business models and value systems. Organizations filled with people going about their business in ways that satisfy neither themselves nor the people they serve are going to be deeply unhappy places, and that’s what many law firms are.

Law firms have managed a feat you would have thought impossible: taken smart, dedicated, hard-working young men and women who are passionate, even geeky about the law, introduced them into one of the world’s finest and noblest professions, and within just a few years, made them hate it.

Here’s a question every law firm should have to answer: if you never billed another client by the hour, how would you compensate your lawyers? The fact is that few law firms would have the first clue what to do. They’d have to sit down and figure out how much value that lawyer delivered to clients and to the firm, a difficult exercise that requires a lot of research and judgment calls. They’d have to set multi-faceted performance expectations at the start of each year, mentor and follow up with the lawyer regularly to ensure those expectations are being met, and deliver an assessment at year’s end, all in the context of a employment relationship where each side respects the other more than they do now. Difficult, and a lot more work — but not impossible, and absolutely delivering a more accurate result.

Law firms assess and compensate lawyers by the hour for much the same reasons they charge clients by the hour: it’s convenient, and they can get away with it. The convenience will never go away — the billable hour is as lazy and facile a method of assessing employee value as you could ask for — but the tolerance level is finally starting to fade. We’ve seen a rising client revolt against the weakness of billable-hour pricing; I think we might be on the cusp of a rising lawyer revolt against the weakness of billable-hour compensation. Talk of a generational divide in law firms has faded with the onset of the recession, but it’s still there, and one of the ways it manifests itself is in very different ways of actualizing a person’s value. I don’t think Millennials are keen to be assessed and paid according to hours posted. I don’t think they’re going to buy that at all.

Billable selling and billable compensating are inextricably linked, and I doubt we’ll see one disappear entirely while the other thrives unaffected. Law firms, take note: every tiny step away from a billable-hour system for charging clients is also a tiny step towards the inevitable day when you’ll have to buckle down and actually figure out what your lawyers are worth to you and to your clients. You probably won’t enjoy that; but you’ll be a lot better off once you’ve done it.

The new leverage

Bad news on the economic front continues to pile up — you don’t need the links from me — and the legal profession is finding its ride increasingly bumpy as a result. Wachovia’s legal specialty group reports that partners in large law firms are bringing in less revenue for the first time since approximately the Industrial Revolution. But it also points out an overlooked fact: despite all the talk about associate layoffs, it’s staff that’re really taking the hit at firms, down 18% in September alone. That suggests a couple of things: that some firms really are taking steps to retrain or otherwise hold onto their associates (and there’s good reason to do so, says Bruce MacEwen), but also that these firms aren’t looking as far down the road as maybe they should.

Looking down that road are the good people at The American Lawyer and Legal OnRamp who, with the assistance of consultant Rees Morrison, recently conducted a survey of in-house counsel members of Legal OnRamp. The survey (disclosure: I made small contributions during the design process) asked in-house lawyers about their relationships with outside counsel and their predictions about how those relationships and in-house practices will evolve over the next five years. Topics of inquiry included client satisfaction surveys, value billing, outsourcing, commoditization, automation, consolidation, and social networking.

The thrust of the results is that in-house lawyers aren’t especially happy with outside counsel in terms of service, partnering and communication — nothing new there — but are surprisingly tentative about predicting major change in how they go about acquiring services from these law firms. Very surprising, actually, as Michael Grodhaus says in reference to another study “in which 32% of 600 corporate executives predicted significant changes in law firm billing practices over the next two years. … So in the face of what is likely to be the worst financial crisis in this country since the 1981-82 recession — two-thirds of these corporate executives expect to continue to be billed by the hour for legal services just as they have always been? Where are their shareholders?”

The AmLaw/OnRamp survey results are here, the analysis by Rees and AmLaw’s Aric Press  is here, and Paul Lippe’s analysis at Legal OnRamp is here (members-only on that last one). All insightful stuff, and worth your time. For me, though, the takeaway is found in Aric’s introductory AmLaw editorial, summing up the big-picture view of the changes underway in the legal services marketplace. He identifies, correctly I think, four trends driving change — client pushback, talent upheaval, technological disruption and the Legal Services Act — and forecasts both fundamental change (farther down the line) and disaggregation of legal services (probably a lot sooner) to come. He closes with this concise but powerful state-of-the-nation on change in the legal marketplace (emphasis added): Continue Reading

Information, innovation and a top 10 list

This is kind of a roundup post — a few things I thought might interest you on the theme of innovative information for lawyers.

First, if you haven’t checked out JD Supra lately, you might have missed this handy new feature: a Facebook application for streaming your legal documents. JD Supra Docs allows legal professionals who publish their work on JD Supra to make their documents and professional qualifications automatically available to their friends and contacts on Facebook. Every time you post a new document on JD Supra, it will automatically stream to your Facebook profile. Steve Matthews nicely sums up what JD Supra is doing here with the term “social legal documents.” That’s a concept worth leaning back and thinking about for a while — it represents an important part of the law’s future in a wired world.

And speaking of wired lawyers, Richard Granat of the eLawyering blog dropped me a line to let me know about the ABA Law Practice Management Section’s James I. Keane Memorial Award for Excellence in eLawyering. James Keane founded the ABA’s eLawyering Task Force, which looks at ways lawyers can use the Internet and other electronic resources to deliver legal services to the “latent market” of people of moderate means. One of my core beliefs is that latent legal services represents the future of the profession — lawyers will lose much of their traditional work to technology, commoditization and new competitors, but they’ll gain much more through the innovative provision of proactive or constructive services to currently unidentified and untapped client markets. So I’d like to help encourage the kind of service recognized by this award, about which you can learn more right here.

Finally, Susan Cartier Liebel of Build a Solo Practice LLC, a very deserving ABA Journal Blawg 100 finalist, decided to provide her own “Best of the Blawgosphere” list, on which Law21 is humbled to appear. Then she challenged all of us to do the same: create a list of recommendations of those blogs you believe others should learn about and publicize on your own blog.  Let’s take the idea behind the ABA 100 and expand it.  Let’s make December of every year the month we introduce our readers to new blogs of note. Let’s give everyone who blogs for education or love of writing and who does so with consistency and quality a pat on the back for a job well done.

Victoria Pynchon of the Settle it Now Negotiation Blog was first out of the blocks with this great list, so I thought I’d give it a shot as well. To paraphrase Susan, this is by no means an exhaustive list, just a sampling of blogs that are doing great work and that deserve and will repay your time and attention. All these blogs, to my mind, merited the ABA’s notice, but not all made the final list; I’ve provided a link where you can cast your “people’s choice” vote for those that did. In no particular order, here they are:

the [non] billable hour — Matt Homann has a gift of seeing the legal profession from exactly the right perspective to make us think differently about how and why we practise law.

3 Geeks and a Law Blog — For my money, the best new law blog out there. Greg Lambert, Toby Brown and Lisa Salazar are thinking years ahead about lawyers and technology.

Adam Smith, Esq. — Extraordinary insights about global law firm management by Bruce MacEwen, who might be the best pure writer in the blawgosphere. Vote here.

What About Clients? — You don’t throw around a word like “fearless,” but that’s exactly how to describe Dan Hull and Holden Oliver’s blog, which demands unapologetically that lawyers put clients first. Vote here.

Build a Solo Practice LLC — Already mentioned above, but Susan’s blog has joined Carolyn Elefant’s touchstone blog My Shingle as absolute must-reads for solo and small-firm lawyers. Vote here for both.

Empirical Legal Studies — The legal profession has an aversion to metrics. Prof. William Henderson is rectifying that by showing that we can, in fact, measure what we do. Vote here.

Strategic Legal Technology — Legal process outsourcing isn’t about lowering costs so much as it’s about rethinking how legal services are produced. Ron Friedmann is quite simply the LPO thought leader.

KM Space — What I just said about LPO applies equally to knowledge management, the key to the profession’s future. Read Doug Cornelius and you’ll get why KM matters.

Law Is Cool — To my mind, a glaring omission from the Blawg 100’s Student list. I’m politically distant from this student-run blog, but its voice and perspective, especially on social justice issues, is irreplaceable.

In Search of Perfect Client Service — Patrick J. Lamb’s Valorem Law Firm walks the talk on client-oriented legal services, and his blog is an invaluable resource for lawyers who want to follow.

Finally, I’ve been remiss in not yet drawing your attention to three Canadian blogs that made the Blawg 100 cut. You should go vote for them, and you should definitely read them. (Update: please also consider this to be their 2008 Clawbies nominations.)

FP Legal Post — Jim Middlemiss’s team at the Financial Post‘s blog tracks corporate law developments in Canada and worldwide, often irreverently. Maybe the only example anywhere of mainstream media getting the blawgosphere. Vote here.

Precedent: The New Rules of Law and Style — Welcome to the future of legal publishing. Precedent is also a young lawyers’ magazine, the rare one that authentically possesses that demographic’s voice and perspective. The online columns are terrific. Vote here.

Slaw — The talent on this roster, led by Simon Fodden, is unbelievable. The contributors’ list is a who’s who of Canadian (and increasingly, global) law bloggers. It’s not just the best law blog in Canada — it’s one of the best law blogs, period. Vote here.

Law21 makes ABA Journal’s Blawg 100 list

I’m delighted and honoured to report that the editors of the ABA Journal have included Law21 in their 2008 listing of the 100 best law blogs. It totally caught me off guard — I didn’t even know they were handing these things out this month — and I’m not exaggerating when I say it’s an honour to appear on the same list as many of these other blogs that I’ve been following for years. I’m deeply gratified, just as I’m gratified every time you tune in to this blog to see what’s new.

The Blawg 100 includes a Reader’s Choice portion, whereby people can vote for their favourite blog in each of various categories. Here’s the complete list of voting categories and nominees, and here’s a link to the voting page for the Careers blog section, where Law21 resides.


Now, this is emphatically not a suggestion that you cast a vote for Law21; but it is emphatically a suggestion that you vote for one of these great blogs, because it’s important that all this fantastic writing  be recognized. I’m likely to cast my own vote for one of the other blogs, because I so much admire the tremendous quality and insight of what their authors produce.

If you simply must cast a vote for something I recommend, please click here. And thank you, as always, for reading. Your time is the most valuable recognition Law21 receives.

The market doesn’t care

Two of the smartest people writing on the web these days are Seth Godin and Scott Karp. They have an important message that everybody in the legal services marketplace, especially lawyers, needs to hear.

First, this is what Seth had to say in the course of a short but eye-opening interview about the book publishing industry, which is staring at hard times because of technology-driven upheaval:

First, the market and the internet don’t care if you make money. That’s important to say. You have no right to make money from every development in media, and the humility that comes from approaching the market that way matters. It’s not “how can the market make me money” it’s “how can I do things for this market.” …

The market doesn’t care a whit about maintaining your industry. The lesson from Napster and iTunes is that there’s even MORE music than there was before. What got hurt was Tower and the guys in the suits and the unlimited budgets for groupies and drugs. The music will keep coming. Same thing is true with books. So you can decide to hassle your readers (oh, I mean your customers) and you can decide that a book on a Kindle SHOULD cost $15 because it replaces a $15 book, and if you do, we (the readers) will just walk away.

Scott picks up this theme in a post about the newspaper industry, which is already deeply mired in Internet-induced hard times and has no clear way out:

[T]he web and the market don’t care. The web is the most disruptive force in the history of media, by many orders of magnitude, destroying every assumption on which traditional media businesses are based.

But the market should care, you say. What would happen if we didn’t have the newspapers playing their Fourth Estate watchdog role? Here’s the bitter truth — the feared loss of civic value is not the basis for a BUSINESS.

The problem with the newspaper industry, as with the music industry before it, is the sense of ENTITLEMENT. What we do is valuable. Therefore we have the right to make money. Nobody has the right to a business model. Ask not what the market can do for you, but what you can do for the market. …

I’ll repeat Seth: The lesson from Napster and iTunes is that there’s even MORE music than there was before. We’ve got highly entrepreneurial, creative, and driven people … working hard outside of newspaper company walls to invent new models for journalism. Journalism will find a way. Even if the industries that once supported it do not.

You can probably guess where I’m going with this: the legal services marketplace doesn’t care if lawyers make money. The irreversible changes that our industry is going through, the steady advancement of globalization and technology, the growing legions of competing products and producers — the earning expectations of lawyers and the atrophied business models of law firms mean nothing to them. What lawyers want is about as relevant to these forces as the farmer’s crop is to the tornado bearing down on him.

Let me rephrase some of what Seth and Scott have said specifically in the context of lawyers:

First, clients don’t care if you make money. That’s important to say. You have no right to make money from every problem or opportunity clients face, and the humility that comes from approaching clients that way matters. It’s not “how can the client make me money,” it’s “how can I do things for this client.”

The lesson from offshored lawyers and document management companies is that there are even MORE legal service providers than there were before. What will get hurt is law firms and the guys in the suits and the unlimited budgets for entertaining. The legal services will keep coming.

The web is the most disruptive force in the history of law, by many orders of magnitude, destroying every assumption on which traditional legal businesses are based. We’ve got highly entrepreneurial, creative, and driven people … working hard outside of the profession’s walls to invent new models for legal service delivery.

But the client should care, you say. What would happen if we didn’t have lawyers playing their role to uphold standards and protect the rule of law? Here’s the bitter truth — the feared loss of civic value is not the basis for a BUSINESS.

The problem with the legal industry, as with the music and newspaper industries before it, is the sense of ENTITLEMENT.

Decoupling price from cost in legal services

Virtually all the talk these days in client circles is about the cost of legal services. It’s well established that institutional purchasers of these services are under great pressure to reduce costs by, for example, “taking bids, asking for discounts, shopping around for lower-cost options.” Patrick J. Lamb points out that many in-house lawyers don’t care what rates are charged, so long as they can bring back to corporate HQ the trophy of a 10% discount. One of the most popular discussions at Legal OnRamp right now is under the heading “Top Ten Ways for Clients to Save $” — and the list has grown well beyond ten.

What’s interesting is that most conversations about “reducing costs” are one-dimensional. They focus on the client getting the same kinds of services from the same kinds of law firms at a lower price; or, more concisely, the same-old same-old for less. They don’t envision rethinking the source of the services, or more importantly, the ways in which those services are produced. Ron Friedmann points out that when looking at ways to control costs, in-house counsel tend to focus on pricing elements — rate freezes, flat fees, discounts, alternative fees, and so forth — while ignoring the potential savings of reforming the process by which legal services are provided:

Where, for example, are efforts to require matter budgets, application of best practices, automation, risk analysis with decision trees, document assembly, and proper use of KM systems?… Real costs savings mean changing the process, focusing on how lawyers practice. The profession needs to overcome its “I am an artiste” attitude and develop better ways of working.

Both lawyers and clients have succumbed to the long-standing lawyer assumption that the price of legal services is directly connected to its cost. Lawyers produce work today pretty much the same way they produced it 60 years ago: through the individual-focused, time-insensitive application of principles and formulas to fact situations. Some time back, they figured out how much it costs them to do that, built in a percentage for profit, and arrived at a selling price for clients. And every year or so, to reflect both inflation and inflated earning expectations, they raised those prices. It’s an insulated, self-sustaining system in which price = cost + profit margin.

Here’s the really important thing that’s happening right now: the price of legal services is finally becoming uncoupled from the costs lawyers incur to produce it. Continue Reading

A high-calibre crystal ball

When Dennis Kennedy contacted me a few weeks ago, to ask if I’d like to participate in an online roundtable on the impact of the economic crisis on lawyers to be published in the ABA’s Law Practice Today e-zine, I of course said yes on the spot. But when I logged into the site and realized who my co-panellists were, I was floored. Check out this lineup: Tom Collins, Patrick Lamb, Bruce MacEwen, Patrick McKenna, Edward Poll, Allison Shields and Merrilyn Astin Tarlton. This was an all-star roster, and I suddenly felt a little like the lone representative of the Kansas City Royals.

In the event, the panel delivered some extraordinary insights about the incredibly challenging times directly in front of the legal profession. If you’re going to read only one article this week, make it this one: go to the November 2008 issue of Law Practice Today and hear what the roundtable had to say. It’s a tremendous resource, and I was honoured to be a part of it.

Here’s the contibution I was happiest about. One of Dennis’s questions was: “[W]hat changes to the legal profession will we attribute to this crisis when we look back in the near future – two to seven years?” This was my response.

Probably we’ll see a few changes we’ve been expecting and a bunch that we weren’t. I wouldn’t count on the billable hour being a casualty – I’ve come to conclude lawyers will be billing by the hour until shortly before the sun goes supernova. The biggest change will be the competitive environment – financially squeezed companies will use outsourced and offshored lawyers for 60-70% of their outside work, and recession-battered individuals will be encouraged to self-represent or hire “non-lawyers.”

The result will be that within a decade, there’ll be a lot of “legal process companies,” fewer “law firms,” and hardly any such thing as the “unauthorized practice of law.” A new class of law firms will emerge that make no pretensions to excellence — blue-collar lawyers who pointedly sell legal work that’s “good enough” will become remarkably popular.

Clients will gain more power in the relationship, but not outright control – while process work will become commoditized, high-end work will go even higher, because good legal advice will become more valuable when “bet the company” situations arise once a month, and good legal advisors will be able to name their terms. Outside investment in firms will accelerate in the UK and premiere in North America in part because law firms will require monetary injections to satisfy lenders and cash out partners.

Basically, the state of suspended animation in which law firm business models have existed for decades will come to a jarring halt.