The evolution of the legal services market: Stage 2

In yesterday’s entry, we painted a portrait of a closed legal marketplace long dominated by lawyers, and we considered the positive and negative results of that state of affairs. Today, in the second of five stages of legal market evolution, we’ll look at current events and forecast the likeliest path those events will take in the immediate future.

Stage 2: The Breached Market

Features:
  • Macro-economic upheaval shatters previous steady state of legal market.
  • Legal work, formerly indivisible, starts breaking into mission-critical, ordinary and commodity tranches.
  • Multiple new providers enter legal industry, aiming at second and third tranches of legal services; legal work starts to leave law firms and go to these new providers.
  • Growing access to legal knowledge enables more “do-it-yourself” law among consumer law clients.
  • New options and financial pressures spur both insourcing and outsourcing of legal tasks by corporate law clients.
  • Lawyers find they have limited regulatory options against emerging competitors, which become legitimized and start to mature.
  • Prices for lawyers’ services fall; in absence of workflow innovation or infrastructure improvements, lawyers’ costs continue to rise; ergo, lawyer profits stall out or decline.
  • Law firms cut positions to preserve profits; employment rates for new lawyers plummet; pool of unattached legal talent grows.
  • Legal technology becomes more disruptive, displacing lawyers from traditional roles.
  • Law schools start to experience pressure from lower enrollment, tuition resistance, extreme bad publicity.
  • In some jurisdictions, lawyers lose power to regulate the legal market and/or themselves (most notably England & Wales).
  • Lawyer jobs, for the most part, do not disappear; they relocate (to small centers, non-lawyer companies, India). Movement, not elimination, of labour.

Era: 2008-2016

This is more or less where we find ourselves today. The end of the Boom And Bubble Era (roughly 1985-2008) creates a lengthy period of de-leveraging and tepid economic growth that (a) forces clients to cut back on legal spending generally and (b) gives them the opportunity and ammunition to renegotiate terms with their legal service providers. In some respects, clients become lawyers’ main competitors: by keeping work in-house or doing it themselves, they deprive lawyers of a previously steady supply of activity and revenue.

Simultaneously, rapid technological advances (especially online) lower barriers and create numerous entry points into the market for providers previously unable to access legal customers. Lawyers find it difficult to battle these new competitors, in two ways.

First, as market regulators and UPL enforcers, we find ourselves stymied by the unconventional nature of new providers. Some are based outside our physical jurisdiction (LPOs), some are arguably not “practising law” (e-discovery providers), and some meet latent market needs to an extent that we might find politically risky to shut down entirely (LegalZoom). Mostly, though, there are just too many new entities to deal with all at once. It was one thing for a regulator with limited funds to prosecute a single paralegal or self-help publisher at a time; it proves another to take on entire, multi-jurisdictional, investor-powered industries.

Secondly, as practitioners, we suddenly recognize a wide range of vulnerabilities in our businesses. Our internal inefficiencies bloat our costs and therefore (thanks to our cost-plus business model) our pricing; our new rivals use streamlined operations and low overheads to undercut our prices and still turn a profit. Our rigid business models keep us from embracing online service delivery or 24/7 availability; our high-tech competitors make these two features the foundation of their market strategies. After watching us and looking for weaknesses to exploit, the new providers move into our traditional market space; we lack the ability to respond aggressively.

Together, these two forces — a decline in overall legal spend and innovative new options for legal services — combine to reduce demand for the services of lawyers. This is not a monolithic process: some areas of law are hardly affected at all during this time, while others are slowly eviscerated. The change also takes effect at different times in different jurisdictions, making it difficult to discern big-picture trends from isolated events. Many lawyers continue to believe that “this won’t affect me,” “this is just the recession” and “things will soon be back to normal.” But even those lawyers who understand the new market dynamics find it hard to change long-established habits.

Declining demand for lawyers rapidly leads to over-capacity in law firms, which in turn leads to falling lawyer employment rates, especially among unskilled new graduates. Simultaneously, at the other end of the generational spectrum, the economic difficulties of the past several years encourage many older lawyers to delay retirement and keep working for as long as they can. This one-two punch produces a large and growing pool of unemployed and underemployed lawyers, downward pressure on lawyer incomes (especially among inexperienced practitioners), and succession crises at law firms in which senior partners who control client relationships grip the reins of power ever tighter.

This era marks the beginning of the end of the traditional “BigLaw” business model, whose fundamental premises prove incompatible with emerging market realities. Many large firms find themselves trapped by two opposing forces: cash crises brought on by lower effective rates and declining business, and confidence crises brought on by flat or falling PPP numbers and the pressure of actual or anticipated rainmaker defections. Several very large firms fail to make it through this crucible.

The legal education crisis also traces its origins to this period: decades of strategic somnolence by law schools, combined with a popular belief that these institutions have been gouging their students and given them worthless degrees in return, creates serious blowback for schools and helps push down law school application rates. By the close of Stage 2, several law schools find themselves in more dire circumstances than they could have imagined a few short years ago, and as with their BigLaw buyers, some do not survive the crisis.

The most important development of this period, however, is the arrival in 2012 of Alternative Business Structures: non-lawyer ownership and capital in legal enterprises in England & Wales (building upon Australia’s trailblazing efforts a decade earlier). Starting with the consumer market, but eventually spreading to corporate and institutional work as well, new participants find willing buyers for their products and services. This development, while spawning the usual troubles of any startup industry, does not produce the widespread disastrous impact on professionalism and the public interest that some had predicted. The longstanding presumption that only lawyers could be trusted to offer legal services is called into question, and officials in other jurisdictions start considering more closely the possibilities of regulatory reform to open the market.

It’s important to note that final entry in the foregoing bullet-point list of features. The work that many lawyers once performed (especially new lawyers in large firms) is relocating to lower-cost or higher-efficiency providers elsewhere, but it is not yet being eliminated altogether. New people in new places are doing essentially the same work that lawyers here once did. This new state of affairs, however, is also a temporary one.

Again, the start and end dates are approximate; I chose 2016 as the back end of this period largely because it feels, in 2012, like we’re about halfway there. This mix of past and future history seems to me the likeliest model to explain and predict current and future events. For many lawyers, this is not a fun time. Unfortunately for them, as tomorrow’s entry suggests, things are about to get considerably worse in Stage 3.

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

 

The evolution of the legal services market: Stage 1

I recently delivered my 15th and final presentation of 2012 about the changing legal market. Over the past 12 months, I’ve given speeches and keynote addresses to large firm retreats, sole practitioners, bar leaders and regulators, chief justices, law students, CLE providers, law librarians, and other groups and organizations throughout the United States and Canada. If I had one piece of advice to share from all these excursions, it would be that you will never regret bringing backup versions of everything electronic, especially should you accidentally spill a full bottle of water onto your laptop just before a presentation.

I haven’t just been speaking to these groups, however; I’ve also been listening to what these diverse stakeholders in the legal marketplace have to say. And I’ve taken away two sets of impressions.

The first is that a very wide spectrum of knowledge and perspective exists regarding the nature of change in the legal market. I’ve met lawyers and legal professionals who flatly dismiss any suggestion that the market is changing in ways that are revolutionary and permanent. I’ve met others who saw these trends developing years ago and have already re-engineered their businesses to adapt. The vast majority of audience members lie somewhere in between. Most of the people I’ve spoken with, however, have been surprisingly and encouragingly interested in what’s going on in the wider legal world and what it might mean for them.

My second takeaway, and the one I’d like to explore in greater depth over the next five days, is that there’s no real consensus within the legal market about just what’s happening to it. We don’t appear to have a collective sense of what kind of road we’re traveling, where it’s taking us, and at what stage of the trip we currently find ourselves. This is important, because without a shared understanding of both our journey and our destination as marketplace participants, it’s difficult to talk about how to make the trip better, shorter, and more productive.

So I thought I would set out for you my views on the state of the legal market and how change is rippling through it: where we’ve been, where we are, and where we’re likely to go. It seems to me that there will be five stages in the ongoing evolution of the legal market — and by extension, of the legal profession itself. By my reckoning, we’re about halfway through Stage 2. Today’s post will explore Stage 1; each of the next four phases will be examined in separate posts over the course of this week.

Stage One: The Closed Market

Features:

  • Law is a protected industry, with one legitimate, authorized, self-regulating provider (lawyers).
  • Legal knowledge and tools are largely inaccessible without lawyer involvement.
  • Lawyers regulate the market, policing their own conduct but also investigating and eliminating non-lawyer competition.
  • Lawyers “compete” with each other in genteel fashion, rarely undercutting other practitioners on rates or introducing systemic improvements to methodology or workflow.
  • Lawyers, facing no real competition and under no real pressure to innovate, create inefficient enterprises to deliver legal services, measure cost in hours, and price their services on a cost-plus basis.
  • Lawyer jobs increase proportionately, if not out of proportion, to legal service demand — the lawyer population grows year after year, like an expanding balloon.
  • Most legal services are expensive, and most lawyer careers are highly remunerative.
  • Legal technology is almost entirely “sustaining,” offering more convenient ways of carrying out traditional tasks without re-engineering those tasks.
  • Legal education is almost entirely academic and delivered to baccalaureate standards; professional experience is gained through on-the-job training, at clients’ expense.

Era: From most of the 20th century up until no later than 2008.

This is the legal market as most of us found it when we were called to the bar. In Stage 1, we run the show, and we run it to our liking. Not only do lawyers own the only saloon in town, we’re also the local sheriff, keeping the peace by prohibiting anyone from opening up a competing tavern. We enjoy the luxury of running our businesses as we please, safe in the knowledge that our collegial competitors in the profession will not create undue disruptive pressure through pricing or service delivery innovations. We deliver good products and half-decent service to a very limited, deep-pocketed clientele. Most lawyers make a fine living, and in many larger firms, they make an astoundingly fine living. These are good times for lawyers.

But they aren’t perfect times, of course. Our reliance on cost-plus pricing, our desire to increase profit, our aversion to risk, and our unwillingness to innovate all combine to create an over-reliance on individual hourly labour as an engine of growth. This in turn leads to burnout and emotional problems among lawyers and growing dissatisfaction with the lawyer’s life, not to mention frustrated clients who seek greater price certainty and more proactive interest from their providers. It also leaves us vulnerable to the possibility of competitors who might choose to play by different rules; we fail to develop any natural defences beyond regulatory action.

Legal education, meanwhile, underperforms its potential: most faculty have little experience with practice, and almost all faculty view the practicing bar with a certain degree of contempt, leading to generations of law graduates singularly unprepared for a legal career. Self-regulation, while critical to our independence, breeds bad habits of protectionism and self-indulgence. And it perhaps goes without saying that access to justice belongs primarily to those with the money to afford lawyers and the time to see legal matters through the labyrinthine legal process.

You could certainly argue the cut-off point for this era. Some might trace the beginning of the end to 2004, others to 1999; if you practised residential real estate, you can go back considerably further than that. There was no single “light switch” moment at which everything changed and a new paradigm emerged fully formed; evolution isn’t like that. Some of these tendencies weakened throughout the 2000s, while others are still going strong today. But it seems fair to assert that by 2008, when the financial crisis was breaking and the first provisions of the Legal Services Act were being enacted, the longstanding era of the lawyer-centered legal marketplace was drawing to a close.

An observer from outside the market could easily see how this artificially calm state of affairs might be ruptured, and would hardly be surprised to learn that such a breakage was imminent. Tomorrow, we’ll take a look at what happens when this long-closed market is abruptly breached by numerous external forces.

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

And the walls came down

Last week, I had the pleasure of delivering a speech to the Institute for the Advancement of the American Legal System (IAALS), an innovative program headquartered at the University of Denver that addresses reforms to legal education, access to justice, and judicial selection. They had asked me for a presentation that would explain the challenges facing the legal profession today and outline the contours of the legal market of tomorrow.

I thought you might like to read a condensed version of my remarks, which touched upon many issues that I’ve canvassed here at Law21 over the past few years. Considering that this is also my 400th post here, it seemed appropriate to share what amounts to a summary of my views on the legal profession, the legal market, and the legal system.

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We face enormous change in the legal marketplace: primarily, the emergence of new competitive and disruptive forces that are mounting increasingly formidable challenges to our traditional assumptions and understandings about legal work. At the same time, we are grappling with a legal and justice system that is not giving anyone much satisfaction, and is in fact giving many people a great deal of heartache. There are numerous disconnects among how things used to be in the law, what they’re like today, and what we wish they would be.

So what can we do? Perhaps not surprisingly, I say we adapt. We need to see the legal world as it is and as it surely will become, and then we imagine what it might be and do everything we can to make that vision real. Our memories, our narratives, our assumptions and expectations about the law — both individual and collective — these are the walls we’ve built around the legal market and around ourselves, and they are limiting our vision. It’s time to lower the walls and let illumination come in.

Let’s begin by seeing the legal world as it is. What are we up against? What are we dealing with? Here are five points to get us started.

  1. Growth in lawyers’ business has stalled. With a few exceptions, law firms of all sizes have seen business slow down, revenues flatline or decrease, and new business become increasingly difficult to find.
  2. Lawyers’ pricing is under tremendous pressure from clients. I mean “pricing” in both a dollar amount sense — rate discounts are multiplying — and as a methodology — flat fees are proliferating.
  3. Low-cost alternatives to lawyers are picking up business. Large firms have seen the rise of law department insourcing and legal business outsourcing. Smaller firms have seen Legal Zoom, Rocket Lawyer and the like target their markets.
  4. A huge glut of unemployed new lawyers is building up. Employment rates for new lawyers in the United States have fallen sharply in the wake of the financial crisis. At large law firms, they’ve fallen off a cliff — down 40% in the last five years.
  5. And finally, although you may not have felt it, an earthquake struck the legal profession earlier this year. Its epicenter was London: it was the issuance of the first licenses to operate what’s called Alternative Business Structures, law firms owned by non-lawyers.

These, at least, are not predictions or suppositions. This is really happening, right now. And it’s happening because of a series of changes to the legal marketplace, both here in the US and worldwide. Once again, I’ll give you five to consider.

  1. A lengthy period of strong economic growth powered by heavy borrowing, interspersed with occasional hyper-growth bubbles and busts, has come to an end. We are not in a “recession,” in the usual sense of the word. We are in a lengthy period of slow deleveraging and weak, fitful growth. It should last at least another five years, and maybe longer, give or take a fiscal cliff, a Euro collapse, or a hard landing for China’s housing boom.
  2. Clients have acquired a potent combination of knowledge, power and urgency. Basic legal information is more widely available today than ever before. Basic legal tools are easily accessible at low cost or no cost across the internet. And clients cannot and will not spend a dollar more than they absolutely must on anything, and most especially on lawyers.
  3. New providers and new technology are starting to enter the market. I mentioned companies like LegalZoom and legal process outsourcers a moment ago, companies in their infancy that have already generated a surprising amount of business. But there’s also new, disruptive technology that can replicate basic lawyer functions and, in some cases, more complex lawyer functions.
  4. Generational change continues. We tend to forget about this — partly, I think, because everyone was talking about the rise of the millennials and the retirement of the boomers, right up until the financial crisis. And then suddenly, we didn’t hear much about work-life balance anymore. But generational turnover continues, and it affects legal organizations of every kind. And let’s not forget: it also affects clients. The cultural values of both legal buyers and legal sellers are slowly transforming.
  5. Finally, the regulatory environment for legal services is changing. Lawyer self-regulation is gone in Australia and it’s gone in England and Wales. In my home province of Ontario, paralegals are members in full standing of the Law Society of Upper Canada, lawyers’ governing body. The United States will hold out against this trend longer than anyone else — except possibly India — but its arrival here is still only a matter of time. Lawyers will be sharing the market with non-lawyers, and I cannot overstate how important that will prove to be.

So where will this lead us? What does the “future of the legal profession” look like? Here are some of the key features I think we can expect in the legal marketplace of the future.

1. Systems and technology will make substantial inroads into the legal market.

Today, if someone asks me, “Can machines replace lawyers?” I’m inclined to say, “Well, only if the lawyer in question isn’t very good.” Now, that’s a little harsh, and it’s not entirely fair — to either the lawyer or the machine. If you were to ask me instead, “Can a machine replace aspects of what lawyers currently do?” —  well, that’s a different question, and the answer in many cases is yes.

Automated contract creation, data-crunching analysis systems, expert applications that answer regulatory and compliance questions, online dispute systems powered by game theory — all these programs are available right now. They are solidly built, they are attracting investor interest, and they are only going to get better as they grow. They do their jobs in minutes, not in billable hours, and they are more reliable and sophisticated than many lawyers would be prepared to credit.

We’re at least 10 years away, probably more, from machines that can completely replace lawyers. But we’re already in the era when machines can displace lawyers — take on some aspects of their work, some percentage of their tasks, bump them aside, jostle into their seats, force them to go do something else. And that percentage is going to grow. I can’t tell you at what rate, or how quickly. It will be different for different markets and different types of work.

But the fact is that a great deal of what most lawyers do is not that complicated. At least some of it can be done by non-lawyers — and in some firms, it already is, by secretaries, paralegals and clerks; in future, it will be done by machines, processes and systems. But in many law firms today, it’s being done by lawyers. It’s what many of the hours billed in the legal profession today consist of — and that is not sustainable. That’s a hard truth. But we need to hear it said.

2. Non-lawyers will have proliferated throughout the market.

I dislike that term intensely, by the way: “non-lawyers.” We are the only profession I know that divides the world into “us” and “not us.” We use that term all the time, and we rarely appreciate how insulting it is to the people thus described.

But non-lawyers are coming. We are going to share this market with them. The sooner we accept that and start working to accommodate its impact, the better. They’re coming because they are proving their abilities and reliability every day. They’re coming because lawyers have claimed too much territory under the all-powerful description “the practice of law,” too many activities that do not require a lawyer’s rare and valuable skill and judgment.

And they are coming because we have done a lousy job of serving the entire legal market. Clients, both individual and corporate, are spending more and more and waiting longer and longer for outcomes that leave them less and less satisfied. And that’s just the people who can afford lawyers and the legal system in the first place. Many people are not even in the game at all.

And that is on us. These problems developed on our watch, under our administration and stewardship of the legal system. They are our responsibility. We have had ample opportunity to rectify them, and as everyone here knows, we have not moved fast enough or far enough. So governments and citizens are going to start saying, “Time to let someone else try.” Time to start putting the “Unauthorized Practice of Law” in the history books. Look at what’s happening in England and Wales, and recognize that eventually, inevitably, it will happen here.

3. The legal profession will be smaller, but also more specialized and successful, than it is today.

I don’t really see a way around a smaller bar. Gradually, year by year, innovations will continue to disrupt the legal profession. The capabilities of providers outside our profession will expand, from lawyers in India to para-professionals in North America to software packages in the cloud. Lawyers simply will not be necessary to accomplish things that required our services in the past.

It’s possible that we may still need more than 1.1 million lawyers in the United States ten years from now. But I don’t see it as probable. What I see as probable is an endgame for a legal education system that is already producing more law graduates than the market can employ and far more than it will need in future. And I don’t see any likelier outcome than that dozens of law schools will find themselves superfluous to the new legal market.

I do think we will need fewer lawyers. But I also think that the tasks those lawyers end up doing will, on average, be more valuable, more sophisticated, more demanding, and more remunerative than they are today. I think that a market will emerge for more sophisticated legal needs, a robust market that needs lawyers to provide counsel, wisdom, advocacy and preventive law services — the fence at the top of the cliff, as Richard Susskind says, rather than the ambulance at the bottom.

This is where I think the modern law firm has made its greatest mistake. It keeps trying to force more and more low-value, hourly-billed work out of a resource — real, live, human lawyers — that is intrinsically intended to provide high-value work. We’re not meant to spend our days filling out documents and conducting basic transactions and providing “commodity” services. That’s not why we went to law school. We’re supposed to be put to a higher, better use. Call me a cockeyed optimist — not many people do — but I believe that in the future legal market, that’s what will emerge.

It’s not just our clients that would benefit from this, nor just the latent legal market that would finally be tapped by a wider, deeper range of fully accessible legal service providers at affordable prices. We would benefit from this. We are professionals, and if you trace that word back to its Latin roots, you’ll find that it comes from the Latin profiteri, “to serve.”

We are a serving profession. We are fiduciaries to our clients, ambassadors of the rule of law, foundation stones for a civil society. Or at least, we’re meant to be, although I think we’ve lost our way a little over the past few decades. But I believe, in future, that’s what we can become again. And we should be a happier, more fulfilled profession as a result, because we’ll be better aligned with our best use and our best purpose.

In the words of IAALS’s mission statement, we need “continuous improvement” in the legal system — constant development, ongoing innovation, relentless efforts to make tomorrow’s reality better than today’s. We need to challenge assumptions, break down walls, illuminate the landscape.

My advice to you, in this ongoing effort, is to look beyond the walls of the legal profession, beyond the boundaries of what we have always taken for granted, always assumed is the normal state of affairs in legal services. It’s not normal; it never really was. As a profession, we need to be prepared to let go of our defenses and preconceptions, to lower the walls we’ve built around ourselves and our clients.

We need to recognize that we’re not the only ones who can help. There are other people, other solutions out there that want to help improve the legal system too. Yes, they’re a little unsteady on their feet. Yes, they’re still getting the hang of it. But they want to help, and they can help — and whether we like it or not, eventually, they will help. If and when they displace us, then it’s up to us to find a new, better place and a new, better purpose.

The only real question is whether we’ll extend our hand, and how long it will take for us to do that, to build the future legal marketplace and reforge our profession at the same time. If we do, then I’m hopeful and confident that that future will arrive a lot sooner than we think.

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

Law firm profits in the process era

Large and midsize law firms appear to have an “expenses problem.”

  • Few managing partners expect that they’ll be able to corral rising expenses in the foreseeable future, according to the Citi Private Bank Law Firm Group’s most recent report. The bank’s newest survey of law firm leaders showed that only about 10% believed expenses would decrease by as little as 5%; about 21% thought expenses would stay steady, and a whopping 69% believed expenses would rise, with more than 22% forecasting an increase greater than 5%.

We know a few things about this market by now, or at least we should. First and most importantly: demand is soft, and it promises to stay that way for a few years. Macro-economically, we’re all stuck in a low-growth environment, with several landmines still active in Europe and China that could go off anytime. Law firm business is equally slack: every recent survey of in-house counsel confirms that law departments are insourcing more work and are pushing back on fees for the work they do send out. (Bruce MacEwen goes further and insists that “Growth is dead” in a must-read five-part series of Adam Smith Esq. posts, with a sixth to come.)

Aggressive marketing and business development can go some way to offset this decline in demand, but you can only squeeze so much blood from a stone. Severely discounting rates will get you some work, but clients have been playing this game for awhile and they know how it works: the firms keep raising their rates, the clients keep asking for steeper discounts, and the circle of life goes on. Demand is soft, and there’s not really much firms can do about it.

But expenses are up too, and firms can do something about that, even if they haven’t had much success so far. Physical premises might be off-limits if the firm is in the middle of a long-term lease (hopefully not one signed at the height of the boom), but property owners under recessionary pressure might be persuaded to renegotiate terms. Moving into a less ornate yet still respectable location is sometimes an option, though most lawyers are extremely reluctant to risk the perception of shifting downmarket, and it ain’t exactly cheap to move a law firm.

The killer expense for most law firms, however, is people, which is why reducing headcount is still a popular route to an improved bottom line. We all recall that firms threw thousands of employees over the side in the wake of the financial crisis. But most haven’t fully repopulated, instead forcing more work onto the partners, associates and staff who remain. That trend has never really gone away: just yesterday, white-shoe UK firm Slaughter & May fired 28 secretaries, while partner de-equitization remains the new black for every large firm. But you can only fire so many people, and you can’t fire them over and over again. At a certain point, you stop cutting fat and start carving into bone.

The other popular option is to find cheaper alternatives to your current staffing arrangements. But as Bruce points out in part 4 of his “Growth Is Dead” series, labour market arbitage — “a) cheaper people; (b) cheaper locales; (c) cheaper career paths; (d) cheaper offices, or some combination of all of these” — also has built-in limits: “You can only move certain people out of midtown Manhattan once, and you can only introduce the non-partner associate track once; [moreover,] there are virtually no barriers to entry in the labour market arbitrage business. If AmLaw firm A can do it, so can AmLaw firm B, C, D … — not to mention the Pangea3s and Integreons of the world.”

Bruce then goes on to make a critically important point: “We have not fundamentally changed how we do things. We have changed who does them and where.” [My emphasis.] I think that’s the heart of the matter right there.

Law firms have run up against a wall when it comes to reducing expenses, and that wall is their business model. The traditional law firm business model is fundamentally people-intensive. The only way most firms know how to get work done is by using lawyers and support staff. Few technologies more advanced than email management or time and billing software govern their operations. Few systems more sophisticated than hourly docketing support their workflow. People provide the vast majority of law firms’ products and services — but the market price of those products and services is falling below the baseline cost of their in-house providers and will eventually surpass the cost of the outsourced ones. Something has to give.

There’s only one door that leads through that wall — but firms are immensely reluctant to walk through it, because it leads to a radically new business model. The fundamental nature of law firms has to change from “people-intensive” to “process-intensive.” Systems and technology must play a greater role in the creation of products and services — not least because systems and technology are less expensive, more easily scalable, and completely immune to lateral hiring offers. Lawyers must be reassigned from performing systems-level work to either overseeing that work or taking on higher-value tasks. We are well into the process era I identified more than three years ago. It’s past time for firms to acknowledge that and adapt.

But many don’t. Many firms keep trying to force more low-value productivity from a resource — lawyers — that is fundamentally designed to deliver high-value production and that has maxed out in its current usage. The law firm business model has to shift its primary fuel source away from lawyers and towards systems, reserving the challenging tasks for the former and relegating the routine work to the latter. This is no longer a matter of being innovative and cutting-edge; that was three years ago. Now it’s about remaining competitive and profitable.

Don’t underestimate the impact this business model change will have throughout the legal ecosystem. Because the volume of routine legal work is much greater than the volume of challenging work, law firms will require fewer lawyers to create and deliver their inventory — a lot fewer. I’ve already written about the fact that many law firms have too many partners. The next step will be the legal market’s eventual realization that it has many more lawyers than it needs.

We can already see the outlines of this new market emerge. Prof. William Henderson has noted that new lawyer hiring by large US law firms has fallen off a cliff: “In 2011, firms of 500+ attorneys hired 2,856 entry-level lawyers. In 2007, that figure was 4,745. So, after five years, Big Law is paying the same wage but hiring 40% fewer lawyers.” Even if, as Mitt Regan suggests in a comment, that 2011 figure represents the nadir rather than a midpoint, we’re not going to see those hiring levels go back to where they were, because the work simply isn’t there.

The best-case estimate of US new-lawyer full-time legal employment right now is about 55%. According to the US Bureau of Labour Statistics, 44,000 law school grads are expected to compete for 28,000 jobs over the next decade. We should expect to see compensation for entry-level lawyers nosedive over the next few years, as the glut in that particular supply becomes clear.

It’s not simply a matter of law schools producing too many graduates for the market to absorb. It’s a matter of law schools producing graduates for a legal market that will shortly pass from this world. Law firms today are lawyer-intensive, process-light operations; throughout this next decade, they’ll become process-intensive, lawyer-light operations.

Law schools are not the only stakeholder in this industry to be fundamentally misaligned with that future: legal publishers, CLE providers, and bar associations are likely to be the hardest-hit, because they all rely on “volume of lawyers” as the basis for their businesses. Conversely, legal technology suppliers and legal systems analysts should have a field day as they retrofit firms for leaner infrastructure and more mechanized operations. (Read my article on disruptive legal technologies if you’d like to refresh yourself as to what’s coming.)

Law firms wonder where the growth in the legal market has gone. But Toby Brown has answered that: growth is bypassing law firms and going instead to innovative new providers, few of which are law firms and hardly any of which employ lawyers in the usual way. Law firms are going to realize that in order to compete for this market growth, they will need to emulate the approach of these competitors, which invest heavily in systems and reserve lawyers for those tasks that truly require their intellectual heft and skilled judgment. The hard fact for lawyers to absorb is that those tasks are much fewer than our traditional law firm model supposed them to be.

Many law firms believe their “expenses problem” is all about cutting costs to preserve profit in the face of declining revenue. It’s not. It’s a concrete sign of the growing misalignment between law firms’ lawyer-intensive workflow models and the market’s emerging requirement for a better use of resources in the delivery of legal services. The “expenses problem” can’t be solved by making deeper workforce cuts or by playing around with outsourcing and automation. It can only be solved by recognizing that firms must be configured differently in order to deliver legal services profitably.

Business is down for law firms, and it will stay down for a while. But when it comes back (and remember, it always does), it will look different and behave differently than it did before. Your firm must be ready for that. If you have an expenses problem today, prepare to change the way you do business tomorrow.

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

The College of Law Practice Management’s 2012 Futures Conference

The College of Law Practice Management does a lot of great things — honours the pioneers and brightest lights of legal management, sponsors the InnovAction Awards, supports various access to justice initiatives, etc. But next month, you have the opportunity to participate in one of the College’s most high-profile and important projects: The Futures Conference.

From October 26-27, 2012, at Georgetown University Law School in Washington, DC, scores of the legal profession’s thought leaders and decision makers from around the world will gather to hear cutting-edge presentations from some of the most influential players in the legal market. The entire brochure for the Futures Conference can be found here (in PDF format), while Ron Friedmann has an excellent post summarizing the presenters and their presentation.

I’ll content myself merely with listing the speakers, to give you a sense of the star power at this event:

That is a powerhouse lineup you won’t find anywhere else this year. If you haven’t booked your reservation yet, I strongly encourage you to register today for the College of Law Practice Management’s 2012 Futures Conference. As Richard Susskind says, “The best way to predict the future is to create it.” This is your opportunity.

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

Walking away from a losing game

And suddenly, everyone’s talking about Procurement. Not that long ago, warning lawyers about the rise of the corporate purchasing function was a little like a medieval parent telling their children about the goblin who lived under the floorboards: you’d better behave, or he’ll come and eat you up. Now the goblin is loose: Procurement’s importance in the purchase of outside legal services, which has been slowly and quietly growing over the past few years, is exploding into view.

Silvia Hodges writes at Bloomberg Law about Procurement’s growing role in Legal, Ari Kaplan provides procurement examples at Law Technology News, and Toby Brown at 3 Geeks gives us three separate columns on the intersection of procurement and legal spend and the implications thereof. You should take the time to read all of these entries, but I think the authors’ overall point is that

(a) Procurement is here to stay,
(b) Procurement’s traditional approach to purchasing is a questionable fit with best practices for legal spend, and
(c) the ideal outcome would be for procurement representatives, the in-house department and the outside law firm to work together towards arrangements that try to serve everyone’s interests.

I’m not confident that (c) is a likely outcome, given each party’s dramatically divergent self-interests, but it’s certainly worth a shot.

What interests me more about the rise of Procurement, however, is how it illustrates a broader trend throughout the legal community: our tendency to let third parties set the rules by which we operate. Procurement at least has a good argument for being at the table: it’s an important aspect of the corporate client that pays the bills. But I’m talking more generally about lawyers ceding control over our own business and professional destinies — our ongoing acquiescence to more aggressive players who have set the standards by which we judge ourselves. The two highest-profile examples, interestingly, are magazines.

For lawyers in large US firms, of course, it’s The American Lawyer. I don’t need to tell you that AmLaw is an excellent periodical, among the very best in class. But the AmLaw 100 rankings are a remarkable thing. A magazine chooses a single metric (average profits per partner) by which to assess large law firms and invites those firms to submit annual financial information so that the magazine can judge them on that metric. And the law firms do exactly that. Has that ever struck you, at any point, as, well, a little odd?

The AmLaw 100 (and 200) rankings, and their progeny in other publications, have arguably done a great disservice to law firms’ own sense of identity and success. Average profits per partner is a flawed metric in many ways (not least mathematically — even median PPP would be a more accurate gauge of a firm’s financial situation, since outliers don’t skew the result so much). It’s especially flawed because it regards annual profit for individual owners as a direct proxy for the health, success and prestige of a law firm. Recent history nicely illustrates the problem with that — Dewey & LeBoeuf was profitable and prestigious until shortly before it crashed.

We already know that good law firms provide more than just partner profits. They also deliver enterprise-wide productivity, a satisfying vocation for employees, a positive corporate social footprint, and above all, value for clients specifically and the legal system generally. Those features aren’t as easy to measure as PPP (especially when the firms conveniently supply all the figures), but they’re no less important. The pernicious modern belief that “The purpose of a business is to create wealth for its owners” was never all that accurate even for ordinary businesses. Law firms are not ordinary businesses — they’re fiduciary professional businesses that operate in a very favourably regulated environment, and they require both responsible management and responsible measurement.

You can probably guess, at this point, that I’m no big fan of PPP rankings. But as much as this approach to measuring law firm success alarms me, I’m more alarmed by the degree to which law firms have surrendered to it. Large US law firms routinely make important decisions about partner recruitment, associate development, legal service pricing and a host of other issues based upon whether the outcome will affect their PPP.

The spectre of a precipitous dive down the AmLaw rankings, and the legitimate fear of the subsequent loss of key partners to firms higher up the list, drives any number of short-term tactical moves by law firms. Some of these moves are sensible; many others aren’t. But the point is that we’ve allowed someone else to set the criteria that drive these decisions. We judge our success on their terms, rather than setting our own standards and taking our destiny into our own hands.

Similarly, take a look at law schools and the degree to which they’re beholden to magazine-based rankings. The US News & World Report — a publication I once referred to as the RC Cola of weekly news periodicals — is infamous for the influence it wields over American law schools. A publication — this one without any actual connection to the legal profession — adopts a series of criteria that it considers important and uses those criteria to rank the schools.

These rankings and their criteria subsequently become vitally important to the schools, which start making decisions — about applicant admission, student classification, faculty hiring, even the number of books in their libraries — not on what’s best for the school and its community, but on what will help them move up the rankings. In many cases, as Brian Tamanaha notes, these decisions have driven behaviour that was not only unwise, but also flat-out dishonest.

In-house counsel now face, with Procurement, a similar phenomenon. Just as the AmLaw rankings care about a single metric (partner profit), procurement officials tend to care about a single outcome: lower expenditures. If that becomes the sole focus of in-house law departments, then it will drive very different types of internal behaviour by Legal — some of it good, some of it not; but all of it determined by someone other than the lawyers involved.

I want to emphasize here that Procurement is not a villain, and neither is US News nor The American Lawyer. These are corporate entities making business decisions that happen to involve or affect the legal profession, and they have every right to do so. The problem, from my point of view, is that lawyers and legal enterprises haven’t responded strongly enough to advance our own priorities in turn. We’ve allowed ourselves to be drawn into games in which we didn’t write the rules, in which those rules don’t serve our best interests, and in which other players’ moves dictate our own. Is that really the best we can do? Are we so insecure that we’re content to be the raw material for other people’s platforms?

Maybe so. But I would hate to think that we went down that road on anyone’s terms but our own. If we allow other people’s criteria for success to become our own, and then blame those criteria when we engage in highly questionable behaviour, then we have an existential problem. But we’re powerless only if we decide to be. We can decide for ourselves what behaviour is important to our mission and values. We can assert broader and better criteria for success, and transparently self-publish them. We can make it perfectly clear, both internally and externally, what matters to us, and then let the world judge us on those choices, not on someone else’s.

The only way to win a game in which you’re set up to lose is not to play. The only way to gain control over your own destiny is to ignore anyone outside your core constituencies who asserts otherwise. There are exactly two constituencies that law firms have to please: the clients who buy their work and the lawyers who are paid to produce it. There are exactly two constituencies that law schools have to please: the profession that hires their graduates and the students who pay to graduate.

Law firms’ and law schools’ conversations about strategy and destiny need to start with those constituencies, and they should end there, too. Everything else, no matter how popular or pervasive, is ultimately just a sideshow and a distraction.

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

 

Law21 3.0

If you’re reading this post at Law21, then you already know about this. But if you’re subscribing via email or RSS, you might like to come see the new look and feel we’ve created today.  In our first re-design in nearly four years, we’ve given Law21 a cleaner, cooler, and sharper design, with a new colour scheme, improved navigation, and additional features. Here are some of the highlights:

  •  Access to more posts from the front page, thanks to an automatic “Read More” feature
  •  More detailed and updated content about me and the work I do in “About,” “Appearances” and “Consulting
  •  Easier access to all my previous Law21 articles in the new “Archived Posts” section
  •  Links to more than 50 of my best original articles in other periodicals in “Published Works
  •  A great new dashboard at the bottom of each page, including “Subscription” information; and
  •  A new photo, just because.

All the credit for this tremendous new look goes to my web design professionals: Jesse Collins of Moxy Webworks in Mississauga, Ontario, who also brought you Law21 2.0 and keeps this site humming along at top speed, and my longtime collaborator Tony Delitala of Delitala Design in Oakville, Ontario, who also brings you National magazine and the Edge International Review. My sincere appreciation to, and strongest recommendation of, both of these amazing talents.

I hope you like our new look, and I hope you’ll continue to come by and read my ongoing dispatches from a legal profession that is, more than five years after Law21 first launched, still very much on the brink.

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

Back when we used lawyers

My father was born in 1922. When he was 7, and the stock market crash triggered the Great Depression, cars were still an unusual sight in his hometown. Forty years later, he watched a live broadcast of Neil Armstrong walking on the surface of the moon. Less than 40 years after that, he used Skype to speak with his grandchildren halfway across the country for free.

It’s easy to forget just how astonishing the last century of scientific and mechanical progress has been. And the younger you are, the easier it is to forget it, or to not even recognize it in the first place. My own children are now 7 and 5, respectively, and they’ve never known a time when you couldn’t get the answer to any question by typing a few words into a portable device with a touch-activated screen. My stories about doing research with bound encyclopedias might as well be tales from the Stone Age.

This says something about our ability to become accustomed to the previously miraculous. But it also speaks to our sociological amnesia. The nature of things, when we first notice them, is the way we assume they’ve always been and how they always ought to be. We mistake “familiar” for “normal,” “the latest” for “the last,” right up to the very moment of revolutionary change.

But once change happens, it then becomes difficult to remember that we ever did things differently, or why we ever would. You’ve probably seen TV shows like The Worst Jobs in History and thought, “People actually used to do these things?” But at the time, that was just the way things were. It was normal. Imagine what our descendants, decades or centuries from now, will think of us when they look back at what we assume is normal today.

The most recent edition of The Economist‘s Technology Quarterly offers three excellent illustrations of  how easily “the way we’ve always done things” could vanish. Take a few minutes to read about (a) the Gates Foundation’s support of three new types of toilets that require neither clean water nor sewer infrastructure, (b) a plethora of affordable solar-powered portable lights that require neither transmission grids nor flammable fuel, and (c) most amazing of all, the rapid progress towards cars that don’t require drivers.  These are innovations that might be able to prevent one million driving deaths from human error every year, prevent 1.5 million children’s deaths from diarrhea every year, and provide light to 1.4 billion people worldwide without access to grid electricity.

Once you’ve finished these articles, stop and take a moment to think about what constitutes “normal” in the legal marketplace today. Then think about what your law firm will look like in 10 to 15 years, based even on the technology we’ve already developed. Will the future legal marketplace still require lawyers? If so, for what purposes? Within the next few decades, we will very likely have light without fuel, sanitation without water, and growing numbers of cars without drivers. Is it really a stretch, in that context, to imagine law without lawyers? Is it realistic to believe that “the way it used to be” is also “the way it’s always going to be”?

People have always used lawyers for legal services, and everyone has always thought that was normal. But when new options emerge, and as they’re adopted, we see the idea of “normal” change almost overnight. I implore you to open your mind, today, to what will constitute “normal” in the future legal marketplace.

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

Time out: Removing time from pricing and compensation

In honour of Star Trek‘s 46th anniversary, let’s write a little sci-fi story.

Suppose you woke up one day and found that for some reason — maybe a tear in the fabric of the space-time continuum, who knows — it had become impossible to docket time at your firm anymore. No device for tracking time would function, from the latest time and billing software down to wristwatches or sundials. No invoice could be generated based on hours devoted to the client’s tasks. No salary or bonus could be issued that was based on time spent on a project.

 Simply put, you could no longer price using time or compensate using time.

What would happen? Well, once the panic attacks had subsided and the screaming had died down, you’d still be faced with a real and pressing need to issue bills to clients and to pay your lawyers. You’d have to figure out how much you should charge your clients for the work you’re doing, and you’d have to come up with a way to recognize each lawyer’s contribution (or lack thereof) to the firm’s success.

On the first point, you’d quickly find yourself on the phone to your clients, explaining the situation and asking for an urgent meeting. “Look,” you’d tell your client, “we’re doing X number of things for you right now, and we both know that some of them are critical to your success and some of them are not so much. We would normally bill you by counting how many hours we took to do that work and multiplying that number by our hourly rates. But the equation is broken; time is missing, and rates are useless without time. We need a new system to help determine our fees to you, but we need your input.”

Some of your clients, the good ones, would be sympathetic — who among us hasn’t had a run-in with the space-time continuum? They’d try to help pull together at least a short-term fix. Straightforward or routine work that any firm could do just as well would be covered by a monthly lump sum, while more complex, important or valuable work could be priced within a mutually pre-set range, with the final amount determined by the satisfaction of several previously agreed success indicators. I imagine you’d walk away from these meetings relieved and grateful for the lifeline.

Then you’d turn to the second point, internal compensation. You’d be forced to find new ways of reckoning each lawyer’s contribution to the firm. You’ve always considered a range of factors, of course, but let’s be honest: time-based billings were invariably on top, followed closely by income generated (on an hourly basis) by clients whom the lawyer had brought into the firm. Thanks to the space-time rip, both of these engines would now be seriously damaged or broken altogether.

Without access to time-based anything in assessing internal value, you’d soon find yourself thinking about more than just your lawyers’ direct and indirect “billings.” You’d look more closely at those lawyers who referred business to other partners and practice groups. You’d notice those lawyers who had a knack for answering clients’ calls and calming their worries, keeping those relationships strong. You’d identify those lawyers who both brought in business and kept it coming, those who took the best young lawyers under their wing, those who assumed real responsibility for knowledge management or talent retention or technological capacity. And you’d find yourself both eager and suddenly able to reward these lawyers and their behaviours.

Not only that, but over the course of time, you’d also notice that work patterns within your firm were starting to change. Your people could no longer think in terms of “how long this work will take,” so they’d need to come up with a new approach to their work. Naturally, they’d start trying to get the routine flat-fee work done as quickly and efficiently as possible, maybe through some kind of process or automation, because it’s only worth $X per month and so the sooner it’s done, the better.

They’d also start looking at the success factors — case won, damages limited, deal closed, budget respected, and so on — that drive the pricing of the higher-end project work. Each box they could tick off would become another premium added to the final fee. Time could still affect price as a client success factor — e.g., the work must be performed within three weeks — but in ways that further drive brisk, efficient workflow. Over the course of time, the tempo and rhythm of life at your firm would start to change.

Pretty soon, you’d find that without any way to track their time, your lawyers were focusing more on getting the job done efficiently and effectively, so they could increase their fees and move to the next task. You’d find that what used to be called “non-billable” activities were flourishing, because they could now be rewarded. You’d find clients calling to compliment you on your firm’s new attitude, the “breath of fresh air” you’ve brought to the relationship.

 And when the space-time rip was eventually fixed, you’d be hard-pressed to find anyone clamouring for a return to the old system.

This is my long-winded way of making a point: time is a factor in law firm pricing and lawyer compensation only because we choose to make it so. In most law firms, pricing is cost-plus, and cost is heavily time-based: the firm estimates how many hours from how many lawyers will be required to do the job, checks those lawyers’ rates, does the math, and puts a dollar sign in front of the result.

Remove or amend these two drivers — take time out of pricing, take time out of cost — and you have a legitimately new and potentially game-changing way of doing business.

[Note: This post was inspired by a conversation at ILTA last month among Toby Brown, Ron Friedmann, Susan Hackett, Doug Stansfield and me. Toby and I agreed to write about our respective views on the subject in point-counterpoint blog post fashion. Check out Toby’s post “Logic and the Value of Time” at 3 Geeks and a Law Blog, and please feel free join in with your own post on the subject!]

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

The “non-lawyer” gap in law firms: narrowing or widening?

I’ve had the opportunity to speak with several groups of law firm professionals this summer, principally in presentations to the Private Law Libraries Summit at the American Association of Law Libraries and the International Legal Technology Association’s annual conference. In these venues, I’ve spoken to and heard from law librarians, knowledge managers, IT professionals, training and recruitment specialists, HR chiefs, and other “non-lawyers” who keep law firms ticking along while the lawyers are out bringing in revenue.

These people, as you’ll know if you’ve spent much time with them, are smart, highly credentialed (sometimes more so than the lawyers for whom they work) and very good at getting things done. Yet they’re frequently frustrated by their inability to get lawyers to notice them, acknowledge their priorities, and act on them. They keep running into the same familiar responses (sometimes explicit, more often implicit) from lawyers:

  • “I don’t really understand what you do.”
  • “I don’t highly value what you do.”
  • “We can’t afford to do that right now.”
  • “You don’t bring in revenue; you’re just a cost center.”
  • “You’re not a lawyer.”

The first four of these objections can all be met and overcome, so long as the professional staff have enough time, energy and resilience, and if they can find a champion on the partnership committee (or better yet, with a key client) who will campaign for their interests. The “cost center” response is a tough nut to crack, but even that hurdle can be cleared if the professional’s work can be integrated into revenue-generating activities or quantified by calculating its replacement value to the firm. Most lawyers do appreciate the business side of their practice, if dimly, and can be led to a more illuminated perspective on it with time and patience.

That fifth objection, however, is usually the killer. It taps into lawyers’ deeply rooted cultural distinction between lawyers and “non-lawyers,” between those whose opinions merit a default level of respect and attention and those whose opinions do not. Virtually every lawyer falls into this pattern, even the good ones who treat “non-lawyers” thoughtfully and well. It’s a class distinction that’s bred in the bone: law students’ natural affinity for exclusivity and elitism is encouraged in law school and exacerbated by prolonged exposure to the practicing bar. As I’m fond of saying, this isn’t a bug in lawyers’ personalities: it’s a feature.

My view, slightly cynical as it might be, is that the “non-lawyer” distinction is the main reason why professional staff have such difficulties getting their work and their perspectives taken seriously. It explains why the same internal initiative, when championed by a lawyer, makes far more headway among the partners than when even the most highly experienced and credentialed non-lawyer makes the case. It echoes my own experiences: I’ve encountered lawyers who initially greet my opinions with skepticism or hostility suddenly warm to my perspective when they learn that I’m a lawyer. That shouldn’t matter — arguments should be judged on their merits, not on their source — but for many lawyers, it does.

These cultural blinders damage both law firms’ effectiveness and lawyers’ profitability. “Non-lawyer” professionals can do (and have done) amazing things in law firms, if the lawyers only let them. Sadly, another belief to which many lawyers subscribe is that they’re innately better qualified to make decisions about areas outside their expertise than are the professionals they hired to handle this work. I often marvel at the patience and professionalism of law firm staff who are repeatedly second-guessed and overruled by people less qualified than they are. “Non-lawyers” have been second-class citizens in most law firms almost from the day of their founding, and all the C-Suite titles bestowed upon “non-lawyer” professionals can never entirely forgive their original sin of lacking a law degree.

Before meeting with these groups over the summer, I had held out some hope that the situation might be improving, that lawyers who needed to focus on improving their profitability might become more willing to grant more resources and autonomy to their “non-lawyers.” However, after listening to what’s been happening in their workplaces, I’m starting to wonder if the opposite might be true.

I heard a number of non-lawyer professionals at ILTA ask about whether they should invest in a law degree — not to further their careers, but to protect them.  These people have seen growing encroachment on “non-lawyer” territory by unemployed and underemployed lawyers, and they believe that applicants for “non-lawyer” positions with J.D.s hold an enormous advantage over those without. Indeed, I spoke with one law firm partner whose firm plans to convert underutilized lawyers into full-time knowledge managers. It’s obviously a very small data set, but it suggests to me that law firms might finally be preparing to deal with lawyers’ neglect of non-lawyer issues. But not by getting their lawyers to take the non-lawyers more seriously — by placing lawyers into traditional “non-lawyer” positions.

This strategy, if it unfolds, would have several benefits from the firm’s perspective:

  • It would make good use of lawyers who otherwise don’t have enough work to keep them busy, a growing problem in many firms that have seen business go slack and hours fall off.
  • It would help postpone decisions about ending these lawyers’ careers with the firm — it’s much easier to fire a staff person than it is to lay off a lawyer, and you might need the lawyer again when business picks up.
  • It would bring a dose of “lawyer knowledge” to traditional “non-lawyer” roles (don’t underestimate the premium that lawyers place on legal knowledge as an all-purpose contributor of value).
  • It would ensure these positions and their priorities will be treated more seriously and more quickly by the partnership, because lawyers will naturally pay more attention to one of their own than to a “non-lawyer.”

Along with these anticipated benefits, of course, would come some downsides.

  • Lawyers are still more expensive than non-lawyers, so the firm would be paying more for these positions than it currently does (although still less than the lawyer would make if he or she were in practice).
  • Inside the “lawyer bias” can be found another bias, this one held by lawyers who generate revenue against lawyers who don’t (“You’re not a real lawyer,” etc.), which could continue to limit the degree to which partners take these issues seriously.
  • “Non-lawyers” provide unseen and unappreciated (by lawyers) diversity of thinking and perspectives to law firms — very few situations have been improved by increasing the population density of lawyers in the vicinity.
  • This stuff that the “non-lawyers” do? It’s actually not as easy to pick up as you might suppose it is.

I don’t think that sending lawyers in to do “non-lawyer” jobs would be the way to a more effective and profitable firm. I’d be far more inclined to make better use of the “non-lawyers” that firms currently employ: give them more resources, grant them more leeway, get them more training, and upgrade the quality and reach of their contributions to the firm. Most importantly, pay attention to what they have to say, and make it your default position to accept their recommendations if they’re sensible and practical. You hired these people; you might as well use them to the best of their abilities.

I don’t know if law firms are really heading in this direction — I’d welcome your own eyewitness reports from the field. But knowing lawyers and their tendency to believe they’re usually the best solution to most problems, it wouldn’t surprise me either. And it would be a mistake. “Non-lawyers” are poised to become the rule more than the exception in the legal services market; law firms should be finding ways to gather them close, not drive them away.

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