Lawsuit investment and the limits of innovation

As you probably know by now, I’m a big fan of innovation in the law. But there’s good innovation and there’s bad innovation, and what’s emerging in the litigation field in the US and the UK looks to me like it belongs in the latter category.

LegalWeek reports that UK hedge funds are lining up to provide funding for lawsuits. This idea in itself isn’t breaking news: several US companies, often backed by massive hedge funds, already provide financing for plaintiffs in personal injury suits — and arguably, contingency fee arrangements in class actions accomplish the same end, providing funding in return for a piece of the expected damages award. Hedge fund investments in plaintiffs’ lawsuits has recently spread to the UK. But this newest British development contains a twist: the investors are looking to finance the defendant.

Here’s how LegalWeek‘s Editor’s Blog explains it:

The investor is likely to be a hedge fund or special situations fund looking to make high-risk investments. The investor gets a fee or premium and effectively offers to fund a substantial chunk of the defendants’ liability. The attraction for defendants is hedging and managing their exposure, despite higher upfront costs. And by introducing an outside investor that will look at a legal opinion to gauge the merits and risks of the claim, a company can effectively put a ‘market price’ on their litigation risk.

The concept of a market in plaintiffs’ lawsuits has its supporters, who contend that the benefits include creating a more level playing field between plaintiffs and defendants and bringing market-driven risk assessments to evaluate lawsuits’ chance of success. Opponents cite concerns about champerty and maintenance, though it seems to me these prohibitions have not been pursued enthusiastically by governing bodies and have lost some of their force over time (lawsuit investors argue that they’re not instigating lawsuits, which is forbidden, but financing suits already underway, which seems a distinction bordering on the specious).

There are access-to-justice arguments in favour of allowing plaintiffs to seek financial backing to bring a claim and sharing the rewards with those who do so, and reasonable people can differ on this. But when defendants start looking for investors as well, I start getting worried. Continue Reading

The view from the client’s side

Going through the stack of materials from my recent week of conferences, I was re-reading the notes I took at the Opening Plenary of the Canadian Corporate Counsel Association’s Spring Conference in Toronto, and thought you might be interested in some highlights from what was really a riveting panel discussion. The panelists, who offered valuable perspective on evolving client concerns and trends on the in-house side of the ledger, were:

  • Roger Fulton, EVP and GC of Canada’s Linamar Corporation,
  • Brad Brubaker Sr., SVP and GC of SAP America,
  • Ralph Ybema, President of the Hong Kong Corporate Counsel Association,
  • Peter Turner, CEO and GC of the Australian Corporate Lawyers Association, and
  • David McFadden, partner, Gowling Lafleur Henderson LLP, Toronto (chair).

Economic trends: North Americans Fulton and Brubaker spoke, as you might expect, about the anticipated impact of the recession, though they also pointed out that an economic downturn is a great time to locate and pounce on opportunities, including more efficient and better supply terms. Ybema and Turner, however, noted that in the Southern Hemisphere, the talk is not on recession but on China’s boiling economy, which has a far greater impact in that region. It’s easy to forget, wrapped up in our little bubble here in N.A., that the weather isn’t the same everywhere.

Litigation: As the recession gathers speed, legal departments can anticipate the usual uptick in litigation, especially on IP issues and with suppliers who are struggling to meet contractual obligations. In Asia, arbitration is strongly preferred for resolving disputes; Ybema noted that starting a lawsuit is an excellent way to end a business relationship there. Brubaker quipped, however, that in the U.S., litigation is often a good way to start one.

Risk management: All the panelists emphasized the importance of good, trusted personnel on the ground as a critical factor in good risk management. SAP manages risk in four steps: identify, quantify, prioritize and manage, but a “bottom-up” assessment process is also important. Brubaker noted that SAP workers in India were having problems getting to work, so the company set up an informal shuttle system; traditional RM tools would never have uncovered this. Fulton cited Toyota’s “go and see” policy to meet people and build relationships to improve risk management. Companies must be able to take risks, not simply avoid them: Legal’s job is to assess risk probability, and to offer unpopular opinions when necessary while still remaining a trusted strategic advisor.

In-house careers: Lawyers are becoming more involved in corporate decision-making, in part because most are fully integrated into the overall business strategy in terms of compliance, management and government relations. That’s terrific, except that successors to the GC position are becoming harder to find. Younger members of the department often leave, sometimes to run other departments with line function responsibility such as pensions or risk management, and sometimes because the high risk and heavy workload of the GC position can make it a less attractive position (the average tenure of GCs has dropped from 20 years to around four). Backgrounds in litigation or government relations have become as important as corporate experience when looking for GC positions.

There were all sorts of other interesting observations, especially about doing business in China — it would certainly be worth any law firm lawyer’s time to hear what these corporate counsel had to say. My impression is that too many firm lawyers attend these sorts of in-house counsel gatherings planning to talk, to create a marketing opportunity for their practices. Not enough, I think, go to these events to listen, gain the client’s perspective, and learn about what’s occupying his or her thoughts these days. Those who do will find themselves a serious step ahead of the competition.

The evolving costs of young lawyers

In conversation the other day with a longtime friend of mine, a mother of three on hiatus from the practice of law, the subject of articling students came up (for those outside Canada, articling year is a required apprenticeship period after graduation but before the call to the bar, and no, it doesn’t work as well as it sounds). She opined that the annual salary for such students in Toronto (circa $70,000 — almost twice what my friend and I made in that city when we articled 14 years ago) was outrageous, especially considering how little new graduates actually know and can actually do.

My response was that (a) people pay what the market requires for a product or service, and that (b) if law firms needed to pay three times that much for articling students, they could (the amount of money swimming around in most law firms is astonishing) and they would (especially if they could price such students out of the range of rival firms). That’s why I think a lot of talk about starting associate salaries, including the latest volley from London, is so much hot air.

The same goes for the dreaded associate attrition trend, about which people continue to fixate. Most associates leave their law firms by the end of five years! Why, yes, they do. If they didn’t, you’d have quite a problem come partnership time, wouldn’t you? A group of lawyers from Stikeman Elliott made this and other good points at a presentation during the NALP meeting last week — firms need associate attrition. Not all your early hires are going to work out — people change, especially during their 20s and early 30s when you first hired them.

The amount of money firms spend on young talent, and their evident disinterest in taking serious action to staunch associate outflow, just confirms to me that talent has been almost a discretionary spend for law firms up until now. Young lawyers would need to cost a lot more than they currently do before partners really started feeling the pinch, and in no way would that cost threaten the overall financial viability of the enterprise. And considering how little rigour is brought to the new lawyer recruiting process generally, it’s no wonder there are so many more misses than hits over the first several years.

Two things are going to happen to change this. The first is that talent will become scarce, and good talent even more so, driving its real costs through the roof and making its departure much harder to bear. This, in turn, is going to force firms to pay much more attention to the new lawyer intake process and give much closer scrutiny to exactly who leaves. As the traditional pyramid structure of heavily leveraged associate starts crumbling, firms will hire fewer new lawyers, but they’ll need to keep them longer.

And firms will realize that the most important thing about associate attrition is not how many young lawyers leave, but whether the wrong ones are going.

What are you afraid of?

I spent several hours, Sunday before last, co-presenting a media training session for a group of in-house counsel. Among the many standard warnings we give to lawyers in these sessions is to proceed with caution around reporters, reminding trainees of the two ineluctable rules of the media:

1. Journalists are not your friends.

2. Nothing is ever off the record.

Now, that does tend to exaggerate the point for effect, and we did talk about the importance and benefits of developing a solid relationship of trust with selected reporters. But overall, we went heavier on the stick than the carrot. It’s better that lawyers be overcautious than undercautious when the microphone is live.

But afterwards, I admit, I found myself wondering if we tend to go too heavy with the warnings about dealing with reporters. Some are untrustworthy and will twist your words to get a juicier story and a better shot at publication, it’s true. But many of them are just doing their jobs, the same as lawyers, and needn’t be approached as the enemy. An abundance of caution can easily creep over the line into fear, defensiveness and aggression, none of which serve your purposes very well.

I was reminded of this when I read a thought-provoking article in Texas Lawyer, written by professional coach and psychotherapist James Dolan, about the role of fear in the legal profession. His thesis is that lawyers live in fear — as his patient puts it at the start of his article:

“Hell, the whole profession is about fear. Fear of not billing hours, fear of not bringing in business, fear of losing business. Fear of not making partner. Fear of being in trouble with my wife for working too much, and, of course, fear of being in trouble with the partnership for not working enough.” He stopped for a moment, letting his own words sink in. “And it started in law school. The whole thing runs on fear. I’m sick of being afraid all the time.”

I think this is an important point, and one that we don’t talk about enough in the law. Much of the normal activity in our professional lives is powered by fear: of the client, of the partners, of the billable hour target, and of failure, to name just the biggest ones. Continue Reading

Towards diversity in law firms

Diversity in the practice of law has been on my mind the last few days. Partly it’s thanks to a confluence of events, such as the second annual Call to Action: General Counsels’ Summit on Diversity, which starts tomorrow in Arizona and gathers 150 top GCs to find ways to increase diversity among their own departments and their outside law firms.

Other triggers include Coca-Cola’s recognition of Kansas City’s Shook, Hardy & Bacon for making significant progress on diversity and Skadden Arps’ innovative $10M program to encourage minority students at City College of New York to pursue legal careers. But I was mostly prompted by my participation in a plenary panel last Friday at the National Association of Law Placement’s Annual Education Conference in Toronto.

Sharing a stage with an advocate like Vernā Myers, and hearing her speak incisively and passionately about diversity in the law, is a moving experience. So is sitting in front of several hundred NALP members, an overwhelmingly female and not uniformly white audience, and thinking about how many of them would, if they wished, be renowned lawyers, practice group leaders and managing partners today were the law firm environments they entered not been so structurally hostile to them.

Vernā made the case that law firms’ business and cultural models are white, male, straight and Western in their orientation; I think she’s right. The fact that there’s a commonly employed compensation system called “eat what you kill” tells you how lawyers like to imagine and narrate the law firm experience. If you had set out to design a compensation and promotion system specifically to reduce the number of women in firms, you could scarcely have done better than the billable hour regime. And male or female, law firm partners are near-universally white, and they continuously hire, mentor, associate with and promote people who look like them.

The results of this culture of exclusion are depressingly clear. Women make up half of law school graduating classes, but only one-third of the practising bar and less than one-fifth of law firm partners. In terms of diversity, 25% of US doctors are from minority groups, along with 21% of auditors and accountants and 18% of professors; for lawyers, the number is 11 percent. I don’t have statistics for Canada or the UK, but I imagine they’re no better and they might well be worse.

It seems to me there are three elements involved in dealing with diversity in the practice of law. The first is to establish that it doesn’t really exist, and I don’t think anyone has a strong argument against that. The second is to establish that its absence is a problem, one that the profession should care enough about to address. And the third is to actually address it and solve it. Continue Reading

NALP: the future of law firms

Back from a lengthy trip, I have a lot of catch-up blogging to do. Just to get the ball rolling, here are my speaking notes from last Friday’s plenary session at the NALP Annual Education Conference in Toronto, in case they’re of interest.

I was honoured to be part of a distinguished panel of speakers, moderated by Ida Abbott and including Ron Friedmann, Rick Matasar, Tim McManus and Vernā Myers, on the future of law firms. I’ll pick up on a few of the points raised during the wide-ranging 90-minute plenary later on, but for now, here’s what I prepared in advance: Continue Reading

Road trip!

Postings will be intermittent at best over the next week or so — I’m on the road for business and family events, but I’ll try to post a couple of entries if I can. If you’re at any of these events, drop me a line or look for me on the parenthesized dates:

–> Canadian Corporate Counsel Association Spring Conference, Toronto (April 14th)

–> National Association of Law Placement 2008 Annual Education Conference, Toronto (April 18th)

–> Second Annual Leg@l IT Conference, Montreal (April 21st)

Late-night marketing

Sometimes, the best innovations are the simplest — just a matter of looking at a familiar situation differently.

A dominant topic of discussion in legal practice has been the late hours many lawyers are forced to put in and the damage it does to personal life, “work-life balance,” etc. So along comes Boston lawyer James Perullo, who looks at this situation and turns it on its head: he only works late. His law practice operates from 6:00 to 10:00 pm Mondays to Fridays, and employs lawyers who, like him, have other jobs during the day (he does contract IT work).

The key to the practice, of course, is that clients have day jobs too, and they don’t like having to duck out of work to attend to a personal legal situation. So “After Hours Law,” as James has branded the firm, is immediately attractive to them.

What’s interesting, though, is that working late or unusual hours is not rare at all for lawyers, as the comments at Carolyn Elefant’s blog post on this topic make clear: Susan and Stephanie both provide examples. But the simple genius of what James has done, as he suggests in his own comment to Carolyn’s post, is to make it the focal point of his firm’s branding and marketing. The fact that the lawyers work late is the hook.

See, the rich irony is that while lawyers complain about being stuck at work past 5:00, clients picture lawyers as only working until 5:00 and being unavailable otherwise. After Hours Law glimpsed this disconnect and is exploiting it (to great effect — articles in Law News Now and Small Firm Business, posts by Carolyn and now me). It’s one of the neatest examples of innovation in legal marketing I’ve seen in a while.

What’s the next evolution of after-hours practice? Well, legal work is already being offshored to India, the Philippines, Finland and Israel, to name just four countries scattered around the global time zone map. Can the first 24-hour law firm be far away?

The seven-year law degree

There are a couple of well-known phenomena about legal careers that, when juxtaposed, might give us better insight into how lawyers enter the profession.

The first is the common assumption that a law degree is far easier postgraduate degree to obtain than, say, a medical degree or Ph.D. Would-be doctors spend four years in medical school, which is extremely hard to get into and not exactly easy to graduate from; thereafter, they spend anywhere from three to eight years in internship and residency. To acquire a Ph.D, you need a Master’s (usually two years) and a Doctorate, which is at least another four, and you need to be extraordinarily bright. Other degrees with various specializations can be equally daunting.

Law, on the other hand, requires just three years of law school, and either the passage of a one-time Bar exam (e.g., the U.S.) or the completion of a one-year apprenticeship period (e.g., Canada). Moreover, the failure rate in law school is far lower than in other postgraduate programs. Once you’re admitted, you’re almost guaranteed to graduate and very likely to be called to the Bar soon thereafter, at which point you have the means to stay employed pretty much as long as you want.

Depending on the region where you work, your employer, what kind of law you practise, how good you are at it, and how attached you are to a well-rounded life outside the work sphere, you’ll then generate an annual income ranging anywhere from $30,000 up to millions of dollars. Even if your debt load leaving school is upwards of $100,000, that’s a pretty fine return on investment and a fairly low-risk and low-demand route into what is still a respected profession.

The second phenomenon is the disconnect and dissatisfaction experienced by many new law graduates during their first few years of practice, especially in large firms. A recent Hildebrandt study seriously questioned the perception that big-firm associates are an altogether miserable lot, but many of these lawyers nonetheless experience angst, unhappiness and disillusionment as they make the adjustment from law school and from the promises of flexible, family-friendly environments these firms increasingly make. Continue Reading

The culture-driven law firm

The era of the free-agent lawyer, and the law firm lateral hiring frenzy that it spawned, is drawing to a close. The rise of the culture-driven law firm is at hand.

It’s going to take me a while to explain how I got here. I’ll try to do this in two parts.

1. Followership in law firms

This all started when I came across a provocative article called “Leaders need followers: tips for team performance“ by Australasian legal consultancy FMRC Legal. The thrust of the article is that successful law firm management hinges on followership — lawyers’ ability and willingness to align their personal values and goals with those of the firm. I first came across “followership” in the law firm context in a 2005 blog post by Gerry Riskin, which was in turn expanded upon by Patrick J. Lamb shortly thereafter.

Here are some excerpts from these three insightful articles that I think sum up what they’re saying. Continue Reading